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Medical Malpractice
Citing Expense, Medicare Officials Pass on Investigating Fraud

Medicare lost 6.7 billion dollars to fraud and error in 2010, according to a new inspector’s general report. Something close to that number is likely lost every year, and NPR explains how this happens: of the claims examined overall, more than half “were billed at the wrong rate or lacked documentation to justify the service.” Moreover, the investigation found that while some doctors bill for procedures cheaper than the ones they actually provided, many more billed for procedures that were more expensive than what they provided.

In light of the report’s findings, the inspector general’s office suggested that CMS should investigate those doctors who charge for more expensive procedures than they actually deliver. And how did the CMS respond to this shocking report?

But in its reply to the findings, the Centers for Medicare and Medicaid Services, which runs Medicare, said it doesn’t plan to review the billings of doctors who almost always charge for the most expensive visits because it isn’t cost-effective to do so.

To put it simply: Medicare knows some doctors are ripping off taxpayers but lacks the ability or will to find out how bad the problem is, much less put a stop to it. If this is the glorious health care system we are building, God help us all.

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  • ShadrachSmith

    Every enterprise develops perverse incentives, government most of all.

    • Angel Martin

      one benefit of the private sector, a lot of the big companies of 50 years ago are gone, or are a lot less important than they were – just look at the S&P 100 of 1964 vs today

      gov’t doesn’t disappear or get less important…

  • Corlyss

    Basically this is the federal government saying that 6.7Bn annually is chump change. I don’t disagree, in comparison to the size of the government budget, but the fact that they don’t even try is as unsettling as it is routine. The problem with programs like Medicare, Medicaid, AFDC, SSI, and really any program where the purpose of the program is to give away money or benefits and we all pretend that there are qualification standards that must be met first before the entitlement accrues, is that the drafters of the beneficent legislation don’t give a fig about verification. They essentially set up the programs on an honor system. For almost a century, the government as an institution knows verification is given the least emphasis, that people cheat, and the effort to stop cheating requires more eyes and ears than the effort to give money away. They hire people to give away the money, but don’t think ensuring that the money is properly and legally spent is as important when it comes to qualifications. The government simply refuses to hire enough people with the right training and education to do the follow-up work. It was the same problem with the financial meltdown to the extent that the government never is willing to pay people smart enough to catch wrong-doing while at the same time it doesn’t require as much brains or experience to just give the money away. I used to see this problem a lot in contract administration, always the red-headed stepchild of the procurement process: the pay and the grades went to the people who awarded contracts, while those who had to grapple with and oversee the contractors were lower graded and lower paid. It never made much sense to me because the hanky-panky rarely occurred in the bidding process; it usually happened during the contract period.

    • Andrew Allison

      Basically, this is TAI’s antipathy to government-provided health insurance resulting in, as noted above, a thoroughly mendacious post.

      • Corlyss

        There’s too much fact in it to be mendacious. The fact that it’s about government run health care doesn’t make untrue. Neither does the fact that you like government run health care. It’s just a bootless cry to heaven. No matter how many of these stories, whether about health care, government procurement, AFDC, IRS, etc., is ever going to get results as long as fraud isn’t 50%+1 of the outlays. It’s a big yawn.

        • Andrew Allison

          The facts are that, as I wrote, a study of just 657 claims was blown up out of all proportion and the facts of the CMS response deliberately distorted. That’s mendacity in my book. This has nothing to do with my views on government run health care, which you presume to think you know, but on having a fact-based discussion. I am, in fact, not a fan of government run health care. This story, however, has nothing to do with health care, it’s about government-run health insurance. With all its faults, Medicare manages to insure 16% of the population with overhead one-third-or-less of that of private insurance. It’s my opinion that, as the abomination known as Obamacare is demonstrating on a daily basis, we simply can’t afford private health insurance for the masses. To be absolutely clear, I’m in favor of single-payer INSURANCE, not single-provider health care.

          • Corlyss

            Look at the Economist article from which I posted excerpts above. In fact, the ViaMeadia post didn’t go far enough by relying solely on the IG’s report. Saying the post is not about health care but about health insurance is sophistry, plain and simple, considering the fact that health care has to be paid for by someone or it doesn’t happen. When an indifferent, deep-pockets provider pays willy-nilly without common sense safe-guards, it affects health care in that the money runs out before legitimate needs are met, leaving the unlucky with health insurance but no health care.

          • Andrew Allison

            As your quotes from The Economist and the report referenced in the original post make clear, CMS is, in fact, making efforts to combat fraud. No argument that there’s more that needs to be done, but, “”Citing Expense, Medicare Officials Pass on Investigating Fraud” and “To put it simply: Medicare knows some doctors are ripping off taxpayers but lacks the ability or will to find out how bad the problem is, much less put a stop to it.” are blatant misrepresentations.

  • Gary Hemminger

    Couldn’t they at least do a random sampling, like polling, and then extrapolate to see if it would be cost effective to put a more thorough system? How can these organizations get away with this. Are the inmates now completely running the asylum? What is wrong with us as a society that this blatant incompetence is allowed to occur. I am a democrat but it sure seems to me that our mainstream media has lost is perspective and mainly covers wrong doing by the right.

    • Corlyss

      “How can these organizations get away with this.”

      Without defending the state of affairs, let me ask you: which would you as a voter and taxpayer rather have, a vast army of jack-booted auditors who unfortunately will have to be paid something, or 6.7 Bn in fraud? I suggest that the government has made the shirtcuff calculations and decided that until fraud consumes more of the budget (and really how confident are they in the 6.7 Bn.?), the cost of fighting it would be more indefensible. It’s a lesser of two evils situation, not a choice between good and evil.

  • Robert Bennett

    This is another example of the perverse incentives in the Medicare payment system. As the payment schedule is reduced More physicians are incentivized to up-code their services, since payments for the true level are no longer adequate to cover costs of practice and following the rules. The honest physician finds himself falling further behind, and thus considers joining those who cheat.
    It would make sense to review the entire payment schedule. There will always be those who game the system, but increases in payment levels may at least make it possible for the honest MD to continue seeing Medicare patients without losing money on each one they see.

    • Corlyss

      Have you ever seen The Hospital with George C. Scott and Diana Rigg?

      • f1b0nacc1

        One of my favorite films!

    • JohnThackr

      Yes, that’s the common complaint from doctors. The reimbursement rates (especially on Medicaid vs. Medicare) are set so low that doctors either have the choice of not seeing Medi* patients at all, or gaming the system enough to charge what they need to in order to make it worth it.

  • Angel Martin

    i was told at a data mining course by someone who worked as a consultant on medicare fraud that Congress had mandated CMS spending $150 million (iirc) on fraud detection software and systems. supposedly CMS bought 2 functionally identical systems from 2 different vendors to get to the 150 total; both sitting idle as of dec 2013 since they don’t have the trained personnel to use them…

    gov’t at its finest, even when they try to save money they still waste it

    maybe it is cheaper to just let the 6.7 bil go

    • Corlyss

      I have a friend who was very briefly the CIO for CMS. He got out after a few months. The guy is very sharp and his assessments of personnel are usually painfully spot on. His judgment was that bunch couldn’t find their butts with both hands. They were truly the classic bureaucracy: their only concern and it consumed them 24/7, was their own jobs and how to get more people reporting to them in order to justify higher grades.

      • ShadrachSmith

        A good place to drop the famous Jeff Neely in the bathtub picture 🙂

  • Andrew Allison

    This post is utterly mendacious. The report is based on evaluation of a mere 657 claims, and CMS’s response was, “While CMS agreed with the need for education, it disagreed with the recommendation to review the physicians’ billings. It said one of its contractors recently reviewed 5,200 medical claims of high-coding physicians and the process cost more money than it caught in overpayments. CMS said a second phase of the review—of 13,500 claims—was nearing completion. “Based on the results of this effort, CMS will reassess the effectiveness of reviewing claims for high-coding physicians” versus other efforts, such as sending these doctors reports that compare their billings to their peers.”

    • Angel Martin

      a sample of 657 is easily large enough to estimate an accurate fraud percentage.

      especially when the fraud rate is over 50 percent, amazing !

      from the report “Overall, more than half of the claims were billed at the wrong rate or lacked documentation to justify the service. ”

      a ten percent fraud rate for govt programs is the usual assumption, this looks like 50%+

      • Andrew Allison

        First, given the tens of million claims submitted annually, 657 isn’t even close to being a statistically significant sample. Second, how were the 657 claims selected? If, for example, they were from the high end of the payments made data recently released bu CMS, 50% is an astonishingly low number.
        To return to the subject of this sub-thread, the original post grossly misrepresented the facts of the matter at hand: CMS is, in fact, investigating fraud and the result of an investigation into several thousand claims was that the investigation cost more than the amount recovered.

        • Angel Martin

          here is the actual report. not some media rewrite:

          they used a random sample, they stratified the sample by “high coding physicians” and “other physicians”, they extrapolated from the sample to the population, and they estimated the total

          OIG recommended they target high coders, CMS says a contractor looked at them and cost more than recovered.

          what CMS really needs to do is to build predictive models so they can up the hit rate of their reviews – hey, they already have the hardware and software sitting there

          what they likely will do is nothing

  • Robert Bennett

    Reply to Corlyss. Yes I have seen The Hospital. As a matter of fact, I trained at the hospital where it was filmed, a unionized government (municipal) hospital

    • Corlyss

      Great! Remember the scene in the locker room where Dr. Welbeck, Dysart’s character, explains why he stopped opposing Medicare? When rules are written that loosey-goosey that he could claim all of those patients for reimbursement, something is seriously wrong with the regs. The ACA rules are probably rife with similar opportunities to transfer money without services having been rendered. Take, for example, the fact that the administration decided that foregoing verification of subsidy qualification on the grounds that it wasn’t worth delaying the roll-out till those verification protocols were in place. Nope. Let’s just give the money away and secure the subsidy recipients for the Democratic party in saecula saeculorum. Who’s going to tell the administration that that waiver was illegal? Nobody who matters. So the practice of waiving eligibility verification settles into de facto practice that recipients can later rely on to sue CMS in the event the government ever tries to re-establish the eligibility requirements.

  • gabrielsyme

    Medicare is roughly $550 Billion annually; a loss rate of one or two per cent is not that bad. That said, $6.7b is still an enormous sum, and I find it hard to believe it wouldn’t be cost-effective to have a significant fraud investigation division. Remember, deterrance is just as important as the actual amount recouped.

  • lhfry

    No. The Obama administration would rather add to Medicare fraud by spending taxpayer funds on “sex reassignment” – read cosmetic – surgery for those in their seventh decade who decide they don’t like the biology they were born with.

    • Peter M Todebush

      Medicare prides itself in the low cost of its overhead. Fraud is treated as a ‘cost of doing business’ and not an ‘expense’. The private sector has to treat fraud as an expense directly impacting its P&L and adding to its overhead. That is why the private sector aggressively pursues fraud. Very revealing between the attitude of the private and public (bureaucracy).

  • Gmama

    Part of the deterrent for crime is the fear you could be punished. Providers know they won’t be punished, so fraud will just get worse. It would not be that expensive to audit a small percentage of providers and notify all providers that it is happening. It would cut fraud quickly.

  • Corlyss

    Below in a post I alluded to the fact that the $6.7 Bn was unlikely to be reliable. This is so for several reasons: 1) IGs are still part of the agency, and aren’t likely to want to plumb the real depths of something as potentially explosive as massive systemic fraud (look how hard it is for the VA IG to come clean); and 2) agencies almost never muckrake their own bailiwicks even under a kick-butt reformer head, never mind a communist twit like Obama. Well, come to find out the $6.7 isn’t even the tip of the tip of the iceberg.

    Economist has a scathing report on Medi* fraud in the US this week. I wish I could post all of it here. But here are some hilites:

    In America the scale of medical embezzlement is extraordinary. According to Donald Berwick, the ex-boss of Medicare and Medicaid (the public health schemes for the old and poor), America lost between $82 billion and $272 billion in 2011 to medical fraud and abuse (see article). The higher figure is 10% of medical spending and a whopping 1.7% of GDP—as if robbers had made off with the entire output of Tennessee or nearly twice the budget of Britain’s National Health Service (NHS).

    That’s where the money is

    Crooks love American health care for two reasons. First, as Willie Sutton said of banks, it’s where the money is—no other country spends nearly as much on pills and procedures. Second, unlike a bank, it is barely guarded.

    Some scams are simple. Patients claim benefits to which they are not entitled; suppliers charge Medicaid for non-existent services. One doctor was recently accused of fraudulently billing for 1,000 powered wheelchairs, for example. Fancier schemes involve syndicates of health workers and patients. Scammers scour nursing homes for old people willing, for a few hundred dollars, to let pharmacists supply their pills but bill Medicare for much costlier ones. Criminal gangs are switching from cocaine to prescription drugs—the rewards are as juicy, but with less risk of being shot or arrested. One clinic in New York allegedly wrote bogus prescriptions for more than 5m painkillers, which were then sold on the street for $30-90 each. Identity thieves have realised that medical records are more valuable than credit-card numbers. Steal a credit card and the victim quickly notices; photocopy a Medicare card and you can bill Uncle Sam for ages, undetected.

    It is hard to make such a vast system secure: Medicare’s contractors process 4.5m claims a day. But pointless complexity makes it even harder. Does Medicare really need 140,000 billing codes, as it will have next year, including ten for injuries that take place in mobile homes and nine for attacks by turtles? A toxic mix of incompetence and political gridlock has made matters worse. Medicare does not check new suppliers for links to firms that have previously been caught embezzling (though a new bill aims to fix this). Fraud experts have long begged the government to remove Social Security numbers from Medicare cards to deter identity thieves—to no avail.


    INVESTIGATORS in New York were looking for health-care fraud hot-spots. Agents suggested Oceana, a cluster of luxury condos in Brighton Beach. The 865-unit complex had a garage full of Porsches and Aston Martins—and 500 residents claiming Medicaid, which is meant for the poor and disabled. Though many claims had been filed legitimately, some looked iffy. Last August six residents were charged. Within weeks another 150 had stopped claiming assistance, says Robert Byrnes, one of the investigators.

    Health care is a tempting target for thieves. Medicaid doles out $415 billion a year; Medicare (a federal scheme for the elderly), nearly $600 billion. Total health spending in America is a massive $2.7 trillion, or 17% of GDP. No one knows for sure how much of that is embezzled, but in 2012 Donald Berwick, a former head of the Centres for Medicare and Medicaid Services (CMS), and Andrew Hackbarth of the RAND Corporation, estimated that fraud (and the extra rules and inspections required to fight it) added as much as $98 billion, or roughly 10%, to annual Medicare and Medicaid spending—and up to $272 billion across the entire health system.

    Federal prosecutors had over 2,000 health-fraud probes open at the end of 2013. A Medicare “strike force”, which was formed in 2007, boasts of seven nationwide “takedowns”. In the latest, on May 13th, 90 people, including 16 doctors, were rounded up in six cities—more than half of them in Miami, the capital city of medical fraud. One doctor is alleged to have fraudulently charged for $24m of kit, including 1,000 power wheelchairs.

    Punishments have grown tougher: last year the owner of a mental-health clinic got 30 years for false billing. Efforts to claw back stolen cash are highly cost-effective: in 2011-13 the government’s main fraud-control programme, run jointly by the Department of Health and Human Services (HHS) and the Department of Justice, recovered $8 for every $1 it spent.

    As fraud-fighting has intensified, dodgy billing has tumbled in areas that were most prone to abuse, such as durable medical kit and home visits (see chart). Home-health fraud—such as charging for non-existent visits to give insulin injections—got so bad that the CMS, which runs the programmes, called a moratorium on enrolling new providers in several large cities last year. Since tighter screening was introduced under Obamacare, the CMS has stripped 17,000 providers of their licence to bill Medicare. Thousands of suppliers also quit after being required to seek accreditation and to post surety bonds of $50,000.


    Stealing patients’ identities is lucrative. Medical records are worth more to crooks than credit-card numbers. They contain more information, and can be used to obtain prescriptions for controlled drugs. Usually, it takes victims longer to notice that their details have been pinched. The Government Accountability Office has recommended that the CMS remove Social Security numbers from Medicare cards to prevent fraud. It has yet to do so.


    False billing by pharmacies is rife. New York’s Medicaid sleuths have stepped up spot checks to see if the drugs in the back room square with invoices. But this is a lot of work, so most outlets are never checked.

    Dozens of operators of ambulances and ambulettes (vans designed to take wheelchairs) have been caught offering kickbacks to patients to pretend they can’t walk. This lets them qualify for “emergency” pick-ups, for which the company can charge $400 per patient. New York has clamped down with roadside checks


    Medicare’s computers were pumping out thousands of payments a year for patients who had been struck off the programme before receiving their treatment, until human hands began to intervene this year. The electronification of patient records can allow “cloning”, in which treatments automatically trigger excessive billing codes by defaulting to set templates.

    This is the medical world’s “dirty secret”, says John Holcomb of the Texas Medical Association. Everyone talks about it in the doctor’s lounge, but few complain. (What doctors do complain about is the complexity of the bill-coding system: see article.) Moreover, there are gaps in the data picture—some of which could grow. Federal investigators complain that there is no proper national repository for Medicaid information, which is held state-by-state.

    This squeeze makes it all the more important to enlist help. More than 5,000 old folk have joined “Medicare patrols”, which hold local meetings to raise awareness of common scams. A crucial part of the anti-fraud effort is the new, simpler Explanation of Benefits (summary statement) that lets recipients see who has billed the programme with their identification numbers. This is “a landmark change”, a CMS executive told Congress last year, adding: “Our best weapon in fighting fraud is our 50m Medicare beneficiaries.”

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