Healthcare Fraud

The Economist provides some sobering statistics on healthcare fraud:

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.

Distressing as that may be I think that it understates the problem if anything. IMO Medicare and Medicaid fraud are widespread, endemic, and structural. Medicare does not cover chronic care. In the interest of their patients (and to get paid for their efforts) some physicians bill chronic care as acute care because there’s no other way they can get paid for what they think of as doing their duty.

The stories of all of the patients in a care facility being fitted with hearing aids regardless of need are widespread. And how do you characterize bundling overhead costs into the charges for small things to the point of absurdity, e.g. the $25 aspirin or the $100 diapers?

Additionally, patients, particularly elderly patients, are strongly inclined to believe that when their doctors tell them that this or that test or this or that procedure is necessary that it is. Especially when they’re not paying for it.

Note that I’m not trying to make a case for the abolition of Medicare or Medicaid on grounds of widespread fraud. I’m just observing that the structure of our system lends itself to fraud.

15 comments… add one
  • I’m just observing that the structure of our system lends itself to fraud.

    By “structure of the system” I presume you mean fee for service? But the only alternative to that of which I’m aware is a British-style national health systems where doctors are civil servants paid a flat salary, yes? In other words, the worst of the “single payer” models in terms of customer satisfaction.

  • I think we should expect customer satisfaction to be higher when the customers aren’t paying for the care they receive. Additionally, I think that the “customer satisfaction” issues of BNH are different than you’re suggesting. There is no popular movement for the abolition of BNH and even UKIP promises to preserve it. In the UK BNH is a “valence issue”. Motherhood and apple pie.

    That’s not the only structural issue at stake. Not only is there FFS but workers are insured by private insurance companies, the elderly by the federal government through Medicare, the poor by the states through Medicaid, veterans through the VA, and native Americans through the IHS. Too many moving parts.

    There are other compensation strategies. For example, there’s the Italian system under which primary care providers are paid a capitation based on a variety of factors.

  • PD Shaw

    When the patient asks the provider to modify a diagnosis to maximize payment from the insurer (whether public or private), there has to be an underlying assumption from the patient that this is a proper request, i.e. that the provider and patient are naturally in collusion against the insurer. I don’t know that this is a public versus private thing, but defrauding public insurance leads to jail.

  • jan

    When the umbrella of government expands so significantly it eventually becomes nothing more than a hodgepodge of rules, regulations, bureaucrats looking out for their job, with little genuine, rigorous oversight representing the well being of the citizen.

    After all, government is no more than a consumer of revenue, not a creator of it, allowing other people’s money to flow easily through the protocols of political whims — politically edited and then validated by the idealism of the moment, not for long term value. Consequently, as programs begin to decay — i.e. medicare, medicaid, SS, Obamacare, public education, the VA — there are few worthwhile efforts made to restructure worn out, obsolete, non-functioning portions of anything government-generated, via healthy reform, reduction, and/or updating. Rather, defensive moves are in place to keep the government machine and it’s duplicitous layers, rippled with fraud, waste and abuse, indefinitely in place. Every once in a while, though, an occasional lubing, of groaning, squeaky parts, is prescribed with fanfare, as the pooling oil spots beneath the bureaucratic monstrosity are quietly soaked up and then swept away.

  • michael reynolds

    Every system creates opportunities for fraud. Government, private, doesn’t matter. There’s always a hole somewhere for a rat to crawl through. I used to work for a restaurant chain so riddled with fraud that we had to organize it like the Mafia families dividing up territories.

    We see health care fraud because it’s politicized. We ignore fraud in the auto industry (design flaws covered up, phony mileage stats) until it ends in a few fiery crashes. We ignore massive fraud in banking until it crashes the economy – and then we still mostly ignore it. Science, journalism, education, what isn’t riddled with fraud? And of course religion, from high church to yoga mat is nothing but fraud. And politics?

    It’s a corrupt world.

    Then again, I’m just getting back from a convention so maybe I’m just feeling overly cynical.

  • Total dealership sales of the automobile industry in the U. S., all companies is about $600 billion. The total size of the healthcare system in the U. S. is about $2.7 trillion (four times the size of the auto industry) between two-thirds and 70% funded by government spending.

  • jan

    The difference between government versus private sector fraud/abuse is that government is vaccinated from being found out or tried for such corruption. It’s only in the extreme cases, such as the VA, which has been simmering for years now, does someone get fired and words fly about getting something done.

    In the private sector, though, poor, unproductive managers, corrupt CEOs, even a politically incorrect mouth at the top, has the door hitting them in their fannie as they unceremoniously leave their job. Also, suing the private sector for a fault and damages done, is far more likely than suing the government. Heck, it’s even hard to register a complaint with the government.

  • michael reynolds



    The massive banking fraud that nearly crashed the global financial system. Show me who got fired – without a golden parachute worth millions or tens of millions. Show me who went to jail.

    The GM fraud-amounting-to-murder, who was fired? Who was punished? Toyota ditto.

    No one pays but little people. The big crooks – government or private – walk free, usually richer. Your party and mine make sure of that.

  • jan


    Remember, GM was ‘government motors’ for a while. As for the banking fraud, executives from Goldman Sachs almost have an open door policy to become Sec. of the Treasury. Wall Street has been Obama’s BFF, as it was GWB’s — no difference.

    Little people are always on the hook. They are the ones paying the taxes, trying to open and keep small businesses afloat, often to no avail over the “big boys” in government and the all powerful corporate world. Democrats, though, like to link the latter with republicans, in their rants on relating money interests only with republicans, to create a financially pyorrheal image between the two. However, in reality, big corporations side with the winners — and for the last 6 years that’s been the democrats –Google, Facebook, Amazon, GM, GE, Berkshire-Hathaway, Thomas Steyer being only a few examples of high-profile Wall Street democratic moguls involved with democratic politics.

    Don’t even bother to screech about the Kock Bros, as those rich horses have been flogged enough by Harry Reid, to nauseum.

  • steve

    1) The bundling thing is largely gone in the public sector. You get a fee for a procedure. Give the pt all of the $100 aspirin you want, you still get the same fee. I think a few commercial insurers may pay on that basis. Not sure.

    2) Publishing total physician reimbursements from Medicare this year was a good start. Go look at those making the most money.

    3) Fund searches for fraud. Remember that Congress cut funding for the Social Security folks looking for disability fraud with their across the board cuts. Spending a bit more in this area should save more money.

    4) The private sector claims to have much less fraud. That is actually difficult to tell since there is no access to their records. However, there is a cost to that. Administrative costs due to those efforts cost each US doctor about an extra $60,000/year compared with Canadian physicians. Granted, not all of that is an effort to stop fraud and abuse. A lot of it is spent trying to comply with the billing requirements of each individual insurance company. Of paying for lawyers, which I just had to do again recently, when they fail to pay you when they screwed up. Anyway, it is entirely possible that if we emulate the private sector we may have less fraud but have overall costs rise.

    5) Having everyone in the same system seems to work best if you want to reduce fraud and abuse. There certainly appear to be much lower rates of abuse, and lower admin costs in Taiwan, Japan and most OECD countries.


  • Publishing total physician reimbursements from Medicare this year was a good start

    I couldn’t agree more and I’m outraged there hasn’t been more analysis of the data from the professional media.

    I’ve been trying to organize a crowd-sourced analysis of the data since the data were released with no takers.

  • michael reynolds

    The private sector also claims to have less fraud because they don’t define as fraudulent the fraudulent things they do. Every time an airline overbooks they’re committing fraud. We’ve seen many cases of private companies defrauding their employees – not paying for hours worked, for example. But we don’t drag this out into the sunlight. We pretend it’s small potatoes because it’s not as big as. . . fill in the blank.

    It’s a Big Lie that the market doesn’t commit fraud, or that it somehow self-regulates. It commits fraud constantly, everywhere, as much as they can get away with, and it goes almost completely unpunished. One of the legitimate purposes of government is to control that fraud but because we make politics into money and money into politics that never quite happens.

    We obsess over government misdeeds while shrugging off equally great or greater depredations by the free market because that’s our secular faith. We are religiously committed to the superiority of private over public. We blind ourselves to reality.

  • Ben Johannson


    I wasn’t aware you were looking for help with the numbers. Do you have specific goals for analysis or just eyes looking for patterns?

  • I can put the data into a more searchable form, do searches, and do tabulations. What I was hoping to get going was a crowd-sourced analysis project in which the participants contributed whatever they could using their own distinctive views and skills whether that be ideas for approaches, analyses of subsets, what have you.

    I put out feelers to a half dozen or so likely blogs whose proprietors I thought might have some interest. So far no nibbles.

  • michael reynolds


    You have to put it to Reddit. That’s where the true nerds and geeks live. Seriously.

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