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Farah Stockman

Funding the fight against Medicare fraud

I WISH HAD a dollar for every time a politician pledged to cut “waste, fraud, and abuse.” I’d be rich. In this era of political polarization, the badness of fraud is one thing we all agree on.

But when it comes to action, the record is mixed. Last year, the sequester cut $41 million from efforts to prevent fraud and abuse in Medicare and Medicaid, two giant programs that are set to expand. That was foolish. Fraud investigators recover nearly $8 for every $1 they spend. Not to mention that some of of the expansions in the Affordable Care Act are to be funded by reductions in fraud and abuse.

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Now that we have a new budget, we must make sure that funding to fight fraud is restored. Given the sheer size of federal health subsidies, even a small reduction in bad behavior adds up to big money.

About 20 percent of the federal budget — $732 billion in 2012 — goes to Medicare, Medicaid, or the Children’s Health Insurance Program, an amount set to rise under the Affordable Care Act.

How much is paid out for medical procedures that never happened? The reality is: We don’t know.

Estimates of money squandered on fraud and abuse range from 3 percent ($22 billion) annually to 14 percent ($102 billion). Malcolm Sparrow, a professor at Harvard’s Kennedy School, who authored the book “Licensed to Steal,” told Congress in 2009 that it is likely that two or three hundred billion are lost to fraud and abuse each year.

“Whatever that first digit is,” he said, “It has eleven zeroes after it.”

Medicare fraud is a serious enough threat, he says, that it could be one of the unspoken reasons for the steady rise in health care costs.

Since 1965, Medicare and Medicaid have provided life-saving care to the elderly, the disabled, and the poor. But those programs, built on optimism about human behavior, had few controls. The first “Medicare fraud unit” wasn’t created until 12 years later, after New York state discovered that nursing home operators were holding patients hostage to collect money.

But that pales in comparison to the schemes of today.

After the computerization of claims, it became easier than ever for unscrupulous operators to steal, using false or outdated codes. In 2006, an Office of Inspector General report found that $27 million had gone out for patients who were already dead. In 2008, a Senate subcommittee uncovered more than $60 million in payment for procedures done by dead doctors.

In recent years, the Obama administration has stepped up efforts to stem the tide of fraud. Turning computerization into an advantage, new detection systems use analytics to find patterns that raise red flags, like credit card companies do, according to Dylan Roby, a researcher at the UCLA Center for Health Policy Research.

Last year, federal prosecutors pursued 377 new federal cases, 8 percent more than they did five years ago, according to a recent report by Associated Press.

One of those cases centered on a Detroit-based cabal of physicians and pharmacists who recruited low-income people to buy perscription drugs they didn’t need, including Oxycontin, which were then sold on the black market. Another involved an organized crime ring from Russia that stole the identities of doctors and patients to pilfer more than $100 million from Medicare.

But the anti-fraud teams that specialize in such cases only work in nine cities. That’s the tip of the iceberg.

The problem is that there are too many claims to verify them all before payment. Audits are usually paperwork checks. They don’t inquire if patients actually received care.

And there are few incentives in the system to catch fraud. Patients — especially those who aren’t required to make co-payments — often don’t notice when the government is billed for therapies they didn’t receive. The third-party companies that process bills for the government are paid a fee for these transactions. Their self interest is to process as many as possible, not to uncover phony claims.

Even in Washington, folks are incentivized to sweep fraud under the rug. Hospitals routinely lobby against legislation that makes their jobs more onerous. Good-hearted politicians who don’t want to endanger public support for these government programs shy away from highlighting fraud. But how can we claim to care about Medicare and Medicaid if we don’t protect them from being robbed?

Farah Stockman can be reached at fstockman@globe.com. Follow her on Twitter @fstockman.
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