Medicare Fraud: A $70 Billion Taxpayer Ripoff

By Merril Goozner, The Fiscal Times, March 10, 2011

Medicare could wrench as much as $70 billion a year in savings by cracking down on fraud, experts told Congress this week. But the key is preventing scam artists and fake firms from doing business with the senior citizen health care program in the first place — not chasing them down after the fact.

At a series of congressional hearings, officials from the Centers for Medicare and Medicaid Services insisted that they are beginning to scrutinize new providers coming into the program, rather than waiting to chase down fraud until after it’s paid the bills. "We are going to keep out the bad guys without making things worse for honest providers, and cut off payments for things that should not be paid," Peter Budetti, director of program integrity at CMS, told a Senate Homeland Security subcommittee hearing on Wednesday. "We want to move from the pay and chase mode to preventing fraud."

Budetti cautioned, though, that most of the funding for a new electronic screening software that could help identify fraudulent providers was contained in the 2010 health care reform law, which most Republicans on the Hill are seeking to repeal.

Republicans responded that the limited measures in the reform bill don’t go far enough. The Congressional Budget Office estimated the latest government fraud prevention effort would eliminate just $5.8 billion in improper payments over the next decade, or less than 1 percent of expected fraud, Rep. Charles Boustany, R-La., said last week at a hearing of the House Ways and Means subcommittee on government oversight. The legislation “left a lot of suggestions by Congress and other government agencies on the cutting room floor,” he said.

The Obama administration has clearly stepped up the government effort to combat Medicare fraud that began under the Bush administration. Its fear: If left unchecked, the growth of Medicare fraud could undermine the major source of funding for the new health care reform law. The administration hopes to raise about a half-trillion dollars over the next decade through greater efficiencies in Medicare to help fund coverage for the uninsured.

To combat fraud, it has sought more money for the special interagency task force that investigates providers who abuse the system. For instance, last month Attorney General Eric Holder announced the arrest of 111 company executives, doctors and other health care providers in nine cities in what government officials called the largest ever federal crackdown on health care fraud. The charges ranged from submitting claims for medically unnecessary treatments to receiving kickbacks for referrals to billing for toenail removals that were never done.

New Approach to Root Out the Problem

Last year, the federal task force arrested 931 people and won 726 convictions in illegal billing schemes worth more than $2.3 billion, a 23 percent increase over the previous year, officials said. In 2010 it also recovered $4 billion through non-criminal penalties levied on Medicare and Medicaid providers who made improper claims to federal and state agencies.

But that approach — going after fraud and abuse after it occurs — will never root out the problem, experts testified. "If we had a better prepayment detection system that was coupled with a post-payment ‘pay and chase’ approach when necessary, you could significantly cut back the fraud and abuse problems," said Craig H. Smith, a partner at Hogan Lovells U.S. in Tallahassee, Fla. He previously headed the Florida Agency for Health Care Administration, which ran the Medicaid program in a state often considered "ground zero" for health care fraud.

Providers selling Medicare durable medical equipment like motorized wheelchairs and fraudulent billing by home health agencies are major abusers of the system, especially in areas with huge senior populations like south Florida, southern California and the New York-New Jersey metroplex. Foreign criminal syndicates, often based in Russian, Eastern European and Latin American immigrant communities, are sometimes involved in the schemes.

Smith testified that Florida’s Medicaid program compiled a solid record in eliminating fraudulent providers from that program, even as the scam artists flourished in the Medicare program. "We were very strict about who we let into the program," he said in an interview with The Fiscal Times. "They sometimes filed a court challenge or an administrative challenge, but that has pretty much been unsuccessful."

The story was completely different in Medicare, he said, where as long as you have the requisite qualifications, Medicare rubber-stamps applications to become a certified provider. "Unless someone has a clear black mark against them, a health care fraud conviction, you’re largely enrolled," Smith said. "If they try to kick you out of the program, you have administrative appeal rights."

A recent HHS inspector general’s report identified 400 durable medical equipment suppliers without storefronts. When Medicare sought to expel them from the program, most filed successful appeals. A number were later swept up in the task force’s fraud investigation, Smith said.

Fraud isn’t limited to public programs. Louis Saccoccio, executive director of the National Health Care Anti-Fraud Association, which is backed by the insurance industry, estimated insurance companies’ fraud investigation units earn a six-to-one return for every dollar spent on rooting out fraudulent billings. But they have an easier challenge since they are usually dealing with a limited set of providers in a single state or region, whereas Medicare is dealing with $500 billion a year paid out to tens of thousands of providers across the country.

Technology Offers New Hope

Software developers are competing to sell CMS technology that can identify patterns of fraud, similar to the software now in use by credit card companies that can identify when a card’s pattern of use differs markedly from past experience. There appears to be bi-partisan support for that approach.

"The credit card industry handles $2 trillion a year in transactions, almost as much as the health care industry," said Sen. Scott Brown, R-Mass., at Wednesday’s Homeland Security hearing. "Yet credit card fraud is a fraction of one percent. I’m shocked that the government can’t do it better."

Other experts like Sara Rosenbaum, chair of the health policy department at George Washington University and a former HHS official, encouraged Congress to also look into insurance industry fraud, even though it only accounts for about 10 percent of the increased costs attributed to health care fraud.

She cited false marketing by Medicare Advantage plans and the false underreporting of “usual and customary fees” paid by insurers to out-of-network physicians. This leads to higher out-of-pocket payments for individuals in those plans.

In January 2009, then New York attorney general Andrew Cuomo reached a $50 million out-of-court settlement with UnitedHealth Group after receiving hundreds of complaints that the company used its own Ingenix subsidiary instead of independent research to determine actual out-of-network fees.

Related Links:
Bills Push Medicare Data Access (WSJ)
Swindling Medicare ‘Easy,” Fraudster Tells House Panel (The Hill)

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