Many are talking about reducing fraud, abuse, and inefficiency to reduce rising health care costs. Sounds good but it is not a solution; and here is why. (Insight provided by Professor Timothy Taylor – see below)

The curve, or line for illustration, on the left shows rising cost with time. Don’t worry about the exact shape as only the general trend is important; a rising or increasing cost over time. The flat part is the removal of ALL Fraud, Abuse, and Inefficiency. This is shown as a one time event, but even if it occurs over a longer time frame, it can not “bend the curve” as the single payer proponents imply.

Does that mean we should ignore fraud? Absolutely not! No one even has a firm number on the amount of fraud in the federal health care programs. However, Medicare and Medicaid fraud is now practiced by some organized crime groups and former drug dealers. Why? It is a lot safer, easier, and just as financially rewarding as trafficking in drugs or running a protection racket. (NPR & NBC)

Note: The above line and explanation is from memory of a lecture I listened to by Professor Timothy Taylor. The lecture series was Contemporary Economic Issues at The Teaching Company – but it is no longer available. However, anything by Professor Taylor will be worth your money and time – his Legacies of Great Economists is excellent. If you are tight on money, wait for it to go on sale or bundled with other lectures you would enjoy. Read the description of the course but a very brief description would be, the history of core economic principles or how we got to where we are today.

Private insurance companies have a great incentive to fight fraud. In fact, they can afford to spend 10 million to combat 10 million in fraud. It is in their “profit” interest to have a reputation of being tough on fraud. The federal government on the other hand spends very little to combat fraud. In fact they don’t even have a good estimate on the total amount as they only track errors. Number estimates run from 60 to 120 billion per year, or more, for Medicare and Medicaid.

(CNN amfix) “We don’t actually know the dollar amount being lost but we know the order of magnitude. It’s hundreds of billions of dollars. We just don’t know how many hundreds of billions of dollars,” said Harvard Professor Malcolm Sparrow, author of License to Steal: How Fraud Bleeds Americas Health Care System.

…The health reform bill approved in the House, “America’s Affordable Health Choices Act of 2009″ – 1018 pages long – devotes only 40 pages to the issue of fraud. This and other bills still under discussion in the Senate would allocate just $100 million dollars a year to combat fraud, waste and abuse. That’s the amount of health care fraud occurring in this country every 12 hours, using the most conservative estimates.

Well its not like congress is spending their own money or even their shareholders money. No wait – we the people are the shareholders. Its time to get a new board of directors for our public corporation! Coalition Against Insurance Fraud:

Private health insurance

1. Every $2 million invested in fighting health-care fraud returns $17.3 million in recoveries, court-ordered judgments, plus bogus claims that weren’t paid and other anti-fraud savings. (National Health Care Anti-Fraud Association, 2008)
2. The average health insurer’s anti-fraud investigative unit has an annual budget of slightly more than $1.9 million and 19 fulltime employees. (ibid)
3. The average health insurer has 363 open cases in 2007, and each insurer investigation unit handled an average of 791 cases total for 2007. (ibid)
4. More than seven of 10 insurer investigative units use fraud-detection software. (ibid)

Medicare Fraud

1. Medicare’s annual anti-fraud budget is an infinitesimal fraction of its current $456 billion budget. (Miami Herald, August 11, 2008)
2. Medicare and Medicaid made an estimated $23.7 billion in improper payments in 2007. These included $10.8 billion for Medicare and $12.9 billion for Medicaid. Medicare’s fee-for-service reduced its error rate from 4.4 percent to 3.9 percent. (U.S. Office of Management and Budget, 2008)
3. Medicare and Medicaid lose an estimated $60 billion or more annually to fraud, including $2.5 billion in South Florida. (Miami Herald, August 11, 2008) [Ed note: they don't know how much fraud occurs; the feds only track errors.]
4. Every $1 spent on Medicare fraud prevention would stop $10 in fraud. (U.S.Department of Health and Human Services) (Miami Herald)
5. Medicare spends less than 0.2 cents of every $1 of its $456 billion annual budget combating fraud, waste and abuse. (Miami Herald, August 11, 2008)
6. Medicare paid dead physicians 478,500 claims totaling up to $92 million from 2000 to 2007. These claims included 16,548 to 18,240 deceased physicians. (U.S. Senate Permanent Committee on Investigations, 2008)
7. Nearly one of three claims (29 percent) Medicare paid for durable medical equipment was erroneous in FY 2006. (Inspector General report, Department of Health and Human Services, August 2008)
8. Medicare and private health insurers pay up to $16 billion a year for needless imaging tests ordered by doctors. (American College of Radiology, 2004)

Other Medicare Stats
Medicare paid more than $1 billion in questionable claims for 18 categories of medical supplies for patients that don’t appear to need. The study covered claims between January 2001 and December 2006. The claims included walkers for patients with purported sinus congestion, paraplegia or shoulder injuries. Hundreds of thousands of claims were made for diabetes-related glucose test strips for patients with purported breathing problems, bubonic plague, leprosy or sexual impotence. (U.S. Senate Permanent Subcommittee on Investigations, 2008)

Medicaid Fraud

1. The 50 state Medicaid fraud control units obtained a collective 1,205 convictions, and claimed total recoveries of more than $1.1 billion in court-ordered restitution, fines, civil settlements, and penalties in FY 2007. (annual report, Office of Inspector General, U.S. Department of Health and Human Services)
2. Of the 3,308 persons and entities excluded from participation in Medicare, Medicaid and other federal health care programs in FY 2007, 805 were based on referrals made by state Medicaid fraud control units. (ibid)
3. The number of successful civil actions totaled 607. (ibid) 2. More than 61 percent of medical providers (4,319 total) banned from state Medicaid programs in 2004 and 2005 didn’t show up in the federal database of state-banned providers. This makes it easier for banned providers to set up shop in other states and continue doing business with federal health-insurance programs. (Office of Inspector General, U.S. Department of Health and Human Services, 2008)

The single payer government proponents point to the overhead and profit of private insurance companies as a cost they would not incur. But it is a fair bet the fraud cost of the current federal systems far exceed the profit and overhead margins of the private insurance companies.

If after all that, you still have doubts, here is the opinion of Mr. Weems, an independent consultant, served 28 years in the federal government and most recently headed Medicare and Medicaid. And Mr. Sasse, former U.S. assistant secretary of health, advises private equity clients and teaches at the University of Texas.

We truly are in the very best of hands…