Kusserow’s Corner: What is the True Figure for Medicare Fraud?

The Wall Street Journal in a recent article reported that there was $58 billion in Medicare fraud annually. The only point of this blog article is to caution against the blind acceptance of the numbers thrown around about how much fraud there is in the Medicare program. For more than 20 years, going back to my days as the Inspector General, Medicare fraud has been estimated for as much as 10 percent of Medicare’s yearly spending. Well, that is how the Journal came up with the number for 2013: Medicare benefit payments totaled $583 billion, and using the 10 percent calculation, fraud accounts for about $58 billion. Even the Affordable Care Act (ACA) bases part of its financial equation on huge recoveries of many billions of dollars for increased enforcement of Medicare fraud. The Congressional Research Service in a 2011 report on the ACA provide similar figures, citing the National Health Care Anti-Fraud Association (NHCAA) and the FBI.

Far be it from me to challenge such august authorities; however, I continue to have reservations about these figures. As Inspector General, I attended numerous hearings where Congressional Committees tried to exact an estimate out of me and I steadfastly refused to make such an estimate. I did not believe at that time—or any time since—that anyone has the empirical data and evidence to support even a gross estimate of the true amount of Medicare fraud. I believe part of the problem with the estimates on the subject is, in part, a definitional issue resulting from confusion and mixing of the terms fraud, abuse, and waste. Fraud is an intentional deception or misrepresentation of services that an individual knows to be false and could result in an unauthorized reimbursement to a practice, whereas abuse describes incidents or practices inconsistent with accepted and sound medical, business, or fiscal practices. They are quite different. There is also waste, which is the incorrect reimbursements resulting from inefficient claims processing and administration, redundant procedures, preventable readmissions, unnecessary ER visits, and other medical errors and wasteful behaviors. Mixing these definitions and calling the result “fraud” is not an accurate portrayal of reality. Note the fact that CMS did provide an estimate that the federal government distributed about $65 billion in improper payments (payments that shouldn’t have been made or were for an incorrect amount) through Medicare and Medicaid combined in fiscal year 2011. The way this is phrased cuts much broader than the definition of fraud and in fact could be interpreted as inclusive of fraud, abuse, and waste.

Another problem in using the 10 percent fraud figure as if it is an established fact is that it often gets generally applied across the entire spectrum of health services as if the fraud rate were consistent throughout all the programs, among all types of services. Medicare provides an extremely broad set of services on behalf of 54 million people ages 65 and over, as well as people with permanent disabilities that are Medicare eligible. In 2013, spending on Medicare accounted for 14 percent of the federal budget. Medicare also plays a major role in the health care system, accounting for 20 percent of total national health. When you apply the calculus to the various major areas of spending, it can create false impressions about what is going on. For example, half of the Medicare expenditures are for spending on hospital care and physician services. If the 10 percent fraud calculus was applied to hospitals and physician payments, you would come up with $29 billion in fraud. I have never seen anyone using that 10 percent number on such a drill down, as its credibility would fade away if done so. As readers of this blog know, I track federal and state prosecutions of health care fraud. The cases prosecuted for criminal and civil fraud don’t suggest that there is an equal distribution of fraud across all programs. It is for all these reasons that I continue to be cautious about the figures used to describe Medicare fraud.

Richard P. Kusserow served as DHHS Inspector General for 11 years. He currently is CEO of Strategic Management Services, LLC (SM), a firm that has assisted more than 3,000 organizations and entities with compliance related matters. The SM sister company, CRC, provides a wide range of compliance tools including sanction-screening.

Connect with Richard Kusserow on Google+ or LinkedIn.

Subscribe to the Kusserow’s Corner Newsletter

Copyright © 2014 Strategic Management Services, LLC. Published with permission.