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8. Medical Fraud Costs The Nation $100 Billion Annually—or More

SOURCE: MOTHER JONES, March/April 1995, “Medscam”; Author L.J. Davis

SYNOPSIS: The United States’ $1 trillion annual health bill is 14 percent of the gross domestic product, making the medical industry the largest business in the land.

Of this sum, a staggering amount is stolen. According to the National Health Care Anti-Fraud Association, the yearly swag totals between $31-$53 billion; according to the authoritative General Accounting Office, the annual take is $100 billion; according to other investigators the amount is as high as $250 billion. In fact, an extensive Mother Jones investigation discovered no one really knows how much money is stolen from the medical system every year—and, possibly even worse, no one has any way of finding out.

Although Medicare and Medicaid were created in 1965, no specialized police force was established until 1978, giving the bad guys, according to Bill Whatley Jr., president of the National Association of Medicaid Fraud Control Units, “a 13-year head start, and we never caught up. The people who put this program together didn’t believe that the [health care providers] in the program would commit fraud, because medicine was such a high calling.”

Unfortunately, such optimism was misplaced; it did not take health care providers long before they developed a series of medscam techniques including the following:

o Upcoding: a doctor performs one medical procedure and charges the insurer for another (more profitable) one;
o Unbundling: the whole is sometimes worth less than the sum of its parts. A wheelchair broken down into its components—a wheel here, a seat there—with a separate bill for each, can mean bigger profits;
o Pharmacy Fraud: a corrupt pharmacist, often abetted by a physician and a patient, dispenses a generic drug rather than a brand-name drug and pockets the difference;
o Psychiatric Schemes: in the 1980s, the nation experienced an “epidemic” of clinical depression, as hospital chains filled their beds with teenagers, the overweight, and substance abusers;
o Home Health Care: this includes overbilling, billing for services not rendered, kickbacks, the use of untrained (i.e. inexpensive) personnel, and the delivery of unnecessary equipment;
o Ghost Patients: there are doctors who continue to treat patients after they’re dead and doctors who work more than 24 hours a day.
o Social Security is another area rife with fraud, costing billions of dollars. The Social Security Administration (SSA) runs a $1.4 billion program that pays drunks and junkies to remain drunks and junkies. As long as the substance abusers continue to abuse substances, they receive a federal payday every month; if they go straight, the checks stop. In a number of documented instances, the SSA provided the wherewithal that enabled abusers to drink or overdose themselves to death.

The irony of all this is that prosecuting medical insurance fraud is one of the government’s few profit centers, returning about $72 for every taxpayer dollar spent; even allowing for the usual bureaucratic exaggeration, the monies recovered are substantial-to say nothing of the money that is saved when a fraudulent practitioner is removed from circulation.

COMMENTS: Investigative author L.J. Davis felt the story was “reported, if at all, anecdotally and poorly, but not systematically. It made the news, for example, when National Medical Enterprises (NME), a centi-million-dollar hospital chain, was raided by the FBI in one of the largest operations in recent history, but no attempt was made to discover if NME was symptomatic of a larger phenomenon—which it was. This is typical, I have found.”

The general public would benefit from wider exposure of the medical fraud story since it would “discover how grossly its tax and insurance money is ripped off,” Davis said. “And, it might occur to the public that if medical fraud were halted, the nation could afford just about any kind of health system it could think of.”

Davis charged that corrupt healthcare providers and medical equipment companies benefit most obviously from the limited coverage given medical fraud. “Of these, easily the greatest beneficiaries are the private, for profit hospital chains, a form of company unknown in this country until the creation of Medicare—and whose obsession with the bottom line has allowed, and often actively encouraged, massive fraud.”

Davis concluded, “After 30 years in the business, the editorial mind remains something of a mystery to me. For example, I brought the story of AIDS fraud and quackery to another magazine, which shall remain nameless. Because of editorial agendas, quackery—a great tragedy—vanished entirely. The story concentrated on home health-care fraud, an important story, but not the whole story. At another magazine, I proposed a story on how the hospital chains are migrating into managed care—and the rich opportunity for a whole new fraud. ‘How do I know you’re right?’, said the editor. In a related event, Joe Sharkey produced a splendid book, Bedlam, on psychiatric fraud. It sank without a trace.”