Slick Barry and the $100-Billion Medicaid/Medicare Fraud Claim

14 March 2010

By Dave Lindorff

President Barack Obama is out and abroad stumping like mad for his embattled health insurance “reform” plan, claiming now that his administration will “crack down” on $100 billion in annual “waste and fraud” in the Medicare and Medicaid systems.

This new tough anti-government rhetoric is meant to win over some of the conservative opposition that sees all government programs as inherently wasteful, inefficient and corrupt.

But the claim itself is bogus.

The figure comes from a study done annually by the Centers for Medicare and Medicaid Services (CMS), and that study makes it clear that it is not looking at fraud, but at errors. And there are two things that can be said about those errors, most of which appear to involve problems like illegible signatures on doctors’ orders, or lost paperwork needed to document that a treatment being billed for actually happened.

The first point to make here is that such errors are equally prevalent in the private sector, only the chances are that in the private sector, the errors more often lead to shortchanging or denying care to the patient, while in the public sector, they as often lead to somebody or some institution getting paid more than they deserve for treating a patient.

Second, the errors in the Medicare program (there has been no systematic study, according to a spokesman at CMS, of error and fraud in the Medicaid program, much of which is funded and managed by the various states), cut both ways, with some errors leading to an overpayment or a payment for a service that wasn’t actually provided, and some errors leading to an underpayment for a service that was provided. Also not reported at all are errors that led to a person’s being improperly denied care altogether. (The same is true for the Veteran’s Administration, by the way, which is notorious among veterans for improperly denying claims of service-connected disabilities.)

According to the latest CMS report, the error rate for Medicare parts A and B--the hospital and physician part of the program--was 7.9 percent or approximately $24 billion. Of this, $23 billion was said to involve overpayments, and $1.1 billion was said to involve underpayments. The underpayment figure looks suspicious, because in prior years, when the overpayment figure was roughly $9-$10 billion annually, the underpayments came in at about $1 billion also. It seems unlikely that overpayment errors in 2009 would more than double, while underpayment errors would stay the same.

Nearly all the underpayment errors--$800 million worth in 2009--were for inpatient care. This compared to $6 billion in overpayment errors. In otherwords roughly two out of every 15 errors involved the patient or the patient’s physician or hospital being shorted by Medicare.

CMS claims that the estimated error rate for Medicaid in 2009 was 8.7% for the federal government and 10.5% for the states and counties that administer the program locally. That would be $39 billion of the $98 billion in errors and fraud found in both programs combined for the year by CMS, and cited by President Obama in his “$100 billion in waste and fraud” claim.

But bear in mind that unlike Medicare, Medicaid is a welfare program, which means that the bias is towards denying benefits to applicants, as anyone who has had experience with Medicaid can tell you. Furthermore it is a program administered by both state and federal bureaucrats.

Back in 1977, when I was county government bureau chief for the Los Angeles Daily News, I got an urgent call from my editor, telling me to hop on a story based upon a release by the L.A. County Department of Social Services claiming to have discovered that 5.83 percent of welfare recipients were being overpaid because off errors and fraud, and that a campaign was being implemented to attack the problem, which was costing the county millions of dollars a year. Naturally, the editor saw this as a page-one piece, perhaps a banner headline, for the next day's edition. I called the head of the Department of Social Services and asked a simple question: What is the error rate in the other direction? What percent of welfare applicants and recipients were being undercompensated because of errors? After a little investigation, she returned and informed me that the underpayment error rate was exactly the same: 5.83%! When I reported this back to the City Desk, there was an audible groan on the phone. The story had lost all importance to the editor. And yet, I thought, wasn’t an underpayment of welfare benefits to a poor family of far greater consequence than an overpayment is to the taxpayers? Getting shorted $100, or even $20, for a family living on, or below, the edge, would be catastrophic.

My guess is that a good study of underpayments and overpayments in the Medicaid program of the federal government and the states would more than likely give the same kind of result: an error rate in terms of underprovision of benefits that is equal to in percent and dollar amount the overpayment of benefits. And in fact, with welfare type programs like Medicarid, there is also an unmeasured or unmeasurable problem, which is people who are wrongly denied benefits at all. They aren’t underpaid because they are simply turned away from public assistance for health care when they are actually eligible.

The point here is that if there is an error rate of about 9.5% in Medicaid (I’m averaging the federal and state error rate estimates for 2009), then either half of that $39 billion is probably underpayment errors, or, if they are only counting overpayment errors, there is almost certainly another $39 billion that should have been paid out for care of poor families that was not paid out.

Either way, the president’s incendiary claim that there is $100 billion in waste and fraud in the Medicare and Medicaid program is way off the mark.

If the president were serious about the problem, he would call for an honest investigation to make certain that everyone potentially eligible for medical coverage and assistance in both programs gets the full benefits to which they are entitled, to minimize inadvertent overpayments to providers, and to prosecute to the full extent of the law those who defraud either program.

That would be fine and appropriate. But at the same time, the president is also disingenuous in the extreme when he just attacks fraud and waste in Medicare and Medicaid, as though there is not massive fraud and waste in the private insurance industry and the rest of the medical industry (not to mention the defense industry, where the waste and fraud in one weapons program can dwarf all fraud and waste in the health care budget combined). Indeed, much of the fraud in the Medicare program is in that part of it that is contracted out to the private insurance firms that offer the so-called MediGap insurance policies. Nearly all the rest of the actual fraud is perpetrated by private physicians, private hospitals and by other medical industry firms and pharmaceutical companies, which submit false invoices and charge for services and goods not delivered. And as CBS’s “60-Minutes” program and other news organizations have reported, there has been little or no effort devoted to prosecution of such fraud, though it totals in the tens of billions of dollars per year.

That’s not a problem with “government-run health care”--a bogeyman that the president regularly pulls out to pillory--but with private healthcare.

The president knows this, but since his whole “reform” proposal is built around the private insurance sector, he’s not going to say that.

Then again, what political strategist guru in the White House came up with the idea that attacking alleged “waste and fraud” in “government health care” would be a good way to win support for Obamacare?

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