The Medicare Money Pit of Waste, Fraud, and Abuse

Since I primarily work on fiscal policy, I normally look at the budgetary impact of entitlement programs. And the numbers are very grim.

But I’m also an economist, so I periodically comment on how government intervention undermines the efficient functioning of markets in the healthcare field.

Last but not least, I’m also a taxpayer, so I can’t resist occasionally expressing my frustration at how the government is a giant pinata of waste fraud and abuse. And government-run healthcare seems especially vulnerable.

Huge amounts of money bilked from taxpayers for supposed counseling sessions financed by Medicare and Medicaid.

Medicare getting scammed to pay for plastic surgery.

Russian diplomats scheming to get their healthcare costs covered by Medicaid.

We now have another example to add to the list.

The Washington Post has an excellent expose on how government incompetence has made Medicare a prime target for fraudsters and other crooks.

…in a Los Angeles courtroom, Bonilla described the workings of a peculiar fraud scheme that — starting in the mid-1990s — became one of the great success stories in American crime. The sucker in this scheme was the U.S. government. …The tool of the crime was the motorized wheelchair. The wheelchair scam was designed to exploit blind spots in Medicare, which often pays insurance claims without checking them first. Criminals disguised themselves as medical-supply companies. They ginned up bogus bills, saying they’d provided expensive wheelchairs to Medicare patients — who, in reality, didn’t need wheelchairs at all. Then the scammers asked Medicare to pay them back, so they could pocket the huge markup that the government paid on each chair. …The government paid. Since 1999, Medicare has spent $8.2 billion to procure power wheelchairs and “scooters” for 2.7 million people. Today, the government cannot even guess at how much of that money was paid out to scammers.

Wow. Billions of dollars of fraud and the government to this day still can’t figure out the level of theft.

And wheelchair fraud is just a small slice of the problem.

…while it lasted, the scam illuminated a critical failure point in the federal bureaucracy: Medicare’s weak defenses against fraud. The government knew how the wheelchair scheme worked in 1998. But it wasn’t until 15 years later that officials finally did enough to significantly curb the practice. …Fraud in Medicare has been a top concern in Washington for decades, in part because the program’s mistakes are so expensive. In fiscal 2013, for instance, Medicare paid out almost $50 billion in “improper payments.”

You won’t be surprised to learn that fraud is so lucrative because the government routinely over-pays for items.

…The original equipment scam had sprung up in the 1970s, at a time when Medicare was young and criminals were still learning how to steal its money. Doctors, for example, could bill Medicare for exams they didn’t do. Hospitals could bill for tests that patients didn’t need. The equipment scam was the poor man’s way in, an entry-level fraud that didn’t require a medical degree or a hospital. …“Let me put it to you this way: An $840 power wheelchair, Medicare pays close to $5,000 for. So there’s a huge profit margin there. Huge,” said one California man who participated in a recent fraud scheme involving wheelchairs.

So this isn’t just a story about government incompetence and taxpayer ripoffs, it’s also a story which shows why third-party payer is a recipe for excessive healthcare spending.

The good news is that the wheelchair scam is slowly fading away.

The bad news is that the overall problem of a poorly designed entitlement system ensures that scammers and other crooks will simply come up with other ways to pillage taxpayers.

Today, even while the wheelchair scam is in decline, that same “pay and chase” system is allowing other variants of the Medicare equipment scam to thrive. They aren’t perfect. But they work.  In Brooklyn, for instance, the next big thing is shoe inserts. Scammers bill Medicare for a $500 custom-made orthotic, according to investigators. They give the patient a $30 Dr. Scholl’s.

Geesh.

When examining entitlements, I’ve  argued that Medicaid reform is the biggest priority.

But perhaps the rampant fraud means Medicare should be addressed first.

Though the right answer is to reform both programs, which is why I’m so pleased that the House of Representatives has approved the Ryan budget for four consecutive years, even if each new proposal allows more spending than the previous one. What matters most if that Ryan’s plan block grants Medicaid and creates a premium support system for Medicare.

Those reforms won’t eliminate waste, fraud, and abuse, but the structural reforms will make it harder for crooks to take advantage of the programs.

P.S. If you want more background information on Medicare, here’s a post that explains why the program is so costly even though seniors don’t enjoy first-class benefits.

P.P.S. And here’s my video explaining why Medicare desperately needs reform.

But keep in mind we also need reform of Medicaid and Social Security.