Tag: medicare fraud

Paul Krugman, Won’t You Help Me Be a Better Person?

I find myself on the wrong side of the facts. Again. So says Paul Krugman:

Still, wouldn’t private insurers reduce costs through the magic of the marketplace? No. All, and I mean all, the evidence says that public systems like Medicare and Medicaid, which have less bureaucracy than private insurers (if you can’t believe this, you’ve never had to deal with an insurance company) and greater bargaining power, are better than the private sector at controlling costs.

I know this flies in the face of free-market dogma, but it’s just a fact.

And Krugman should know. As the following clip shows, this is a guy who always has the facts on his side:

Yes, that was me at the beginning of the clip. Krugman was selflessly trying to instill in me his respect for evidence and his command of the facts. For some reason, I have yet to absorb either.

The proof is in this paper I wrote (and still stand by, for some reason):

Is Government More Efficient?

Supporters of a new government program note that private insurers spend resources on a wide range of administrative costs that government programs do not. These include marketing, underwriting, reviewing claims for legitimacy, and profits. The fact that government avoids these expenditures, however, does not necessarily make it more efficient. Many of the administrative activities that private insurers undertake serve to increase the insurers’ efficiency. Avoiding those activities would therefore make a health plan less efficient. Existing government health programs also incur administrative costs that are purely wasteful. In the final analysis, private insurance is more efficient than government insurance.

Administrative Costs

Time magazine’s Joe Klein argues that “the profits made by insurance companies are a good part of what makes health care so expensive in the U.S. and that a public option is needed to keep the insurers honest.” All else being equal, the fact that a government program would not need to turn a profit suggests that it might enjoy a price advantage over for-profit insurers. If so, that price advantage would be slight. According to the Congressional Budget Office, profits account for less than 3 percent of private health insurance premiums. Furthermore, government’s lack of a profit motive may not be an advantage at all. Profits are an important market signal that increase efficiency by encouraging producers to find lower-cost ways of meeting consumers’ needs. The lack of a profit motive could lead a government program to be less efficient than private insurance, not more.

Moreover, all else is not equal. Government programs typically keep administrative expenditures low by avoiding activities like utilization or claims review. Yet avoiding those activities increases overall costs. The CBO writes, “The traditional fee-for-service Medicare program does relatively little to manage benefits, which tends to reduce its administrative costs but may raise its overall spending relative to a more tightly managed approach.” Similarly, the Medicare Payment Advisory Commission writes:

[The Centers for Medicare & Medicaid Services] estimates that about $9.8 billion in erroneous payments were made in the fee-for-service program in 2007, a figure more than double what CMS spent for claims processing and review activities. In Medicare Advantage, CMS estimates that erroneous payments equaled $6.8 billion in 2006, or approximately 10.6 percent of payments… . The significant size of Medicare’s erroneous payments suggests that the program’s low administrative costs may come at a price.

CMS further estimates that it made $10.4 billion in improper payments in the fee-for-service Medicare program in 2008.

Medicare keeps its measured administrative-cost ratio relatively low by avoiding important administrative activities (which shrinks the numerator) and tolerating vast amounts of wasteful and fraudulent claims (which inflates the denominator). That is a vice, yet advocates of a new government program praise it as a virtue.

Medicare also keeps its administrative expenditures down by conducting almost no quality-improvement activities. Journalist Shannon Brownlee and Obama adviser Ezekiel Emanuel write:

[S]ome administrative costs are not only necessary but beneficial. Following heart-attack or cancer patients to see which interventions work best is an administrative cost, but it’s also invaluable if you want to improve care. Tracking the rate of heart attacks from drugs such as Avandia is key to ensuring safe pharmaceuticals.

According to the CBO, private insurers spend nearly 1 percent of premiums on “medical management.” The fact that Medicare keeps administrative expenditures low by avoiding such quality-improvement activities may likewise result in higher overall costs—in this case by suppressing the quality of care.

Supporters who praise Medicare’s apparently low administrative costs often fail to note that some of those costs are hidden costs that are borne by other federal agencies, and thus fail to appear in the standard 3-percent estimate. These include “parts of salaries for legislators, staff and others working on Medicare, building costs, marketing costs, collection of premiums and taxes, accounting including auditing and fraud issues, etc.”

Also, Medicare’s administrative costs should be understood to include the deadweight loss from the taxes that fund the program. Economists estimate that it can easily cost society $1.30 to raise just $1 in tax revenue, and it may sometimes cost as much as $2.36 That “excess burden” of taxation is a very real cost of administering (i.e., collecting the taxes for) compulsory health insurance programs like Medicare, even though it appears in no government budgets.

Comparing administrative expenditures in the traditional “fee-for-service” Medicare program to private Medicare Advantage plans can somewhat control for these factors. Hacker cites a CBO estimate that administrative costs are 2 percent of expenditures in traditional Medicare versus 11 percent for Medicare Advantage plans. He writes further: “A recent General Accounting Office report found that in 2006, Medicare Advantage plans spent 83.3 percent of their revenue on medical expenses, with 10.1 percent going to nonmedical expenses and 6.6 percent to profits—a 16.7 percent administrative share.”

Yet such comparisons still do not establish that government programs are more efficient than private insurers. The CBO writes of its own estimate: “The higher administrative costs of private plans do not imply that those plans are less efficient than the traditional FFS program. Some of the plans’ administrative expenses are for functions such as utilization management and quality improvement that are designed to increase the efficiency of care delivery.” Moreover, a portion of the Medicare Advantage plans’ administrative costs could reflect factors inherent to government programs rather than private insurance. For example, Congress uses price controls to determine how much to pay Medicare Advantage plans. If Congress sets those prices at supracompetitive levels, as many experts believe is the case, then that may boost Medicare Advantage plans’ profitability beyond what they would earn in a competitive market. Those supracompetitive profits would be a product of the forces that would guide a new government program—that is, Congress, the political system, and price controls—rather than any inherent feature of private insurance.

Economists who have tallied the full administrative burden of government health insurance programs conclude that administrative costs are far higher in government programs than in private insurance. In 1992, University of Pennsylvania economist Patricia Danzon estimated that total administrative costs were more than 45 percent of claims in Canada’s Medicare system, compared to less than 8 percent of claims for private insurance in the United States. Pacific Research Institute economist Ben Zycher writes that a “realistic assumption” about the size of the deadweight burden puts “the true cost of delivering Medicare benefits [at] about 52 percent of Medicare outlays, or between four and five times the net cost of private health insurance.”

Administrative costs can appear quite low if you only count some of them. Medicare hides its higher administrative costs from enrollees and taxpayers, and public-plan supporters rely on the hidden nature of those costs when they argue in favor of a new government program.

Cost Containment vs. Spending Containment  

Advocates of a new government health care program also claim that government contains overall costs better than private insurance. Jacob Hacker writes, “public insurance has a better track record than private insurance when it comes to reining in costs while preserving access. By way of illustration, between 1997 and 2006, health spending per enrollee (for comparable benefits) grew at 4.6 percent a year under Medicare, compared with 7.3 percent a year under private health insurance.” In fact, looking at a broader period, from 1970 to 2006, shows that per-enrollee spending by private insurance grew just 1 percentage point faster per year than Medicare spending, rather than 2.7 percentage points. That still omits the 1966–1969 period, which saw rapid growth in Medicare spending.

More importantly, Hacker’s comparison commits the fallacy of conflating spending and costs. Even if government contains health care spending better than private insurance (which is not at all clear), it could still impose greater overall costs on enrollees and society than private insurance. For example, if a government program refused to pay for lifesaving medical procedures, it would incur considerable nonmonetary costs (i.e., needless suffering and death). Yet it would look better in Hacker’s comparison than a private health plan that saved lives by spending money on those services. Medicare’s inflexibility also imposes costs on enrollees. Medicare took 30 years longer than private insurance to incorporate prescription drug coverage into its basic benefits package. The taxes that finance Medicare impose costs on society in the range of 30 percent of Medicare spending. In contrast, there is no deadweight loss associated with the voluntary purchase of private health insurance.

Hacker nods in the direction of non-spending costs when he writes, “Medicare has maintained high levels of … patient access to care.” Yet there are many dimensions of quality other than access to care. It is in those areas that government programs impose their greatest hidden costs, on both publicly and privately insured patients.

Mr. Krugman, won’t you please help me care about the facts as much as you do? It just seems like such bliss.

Fidel Castro, Medicare Beneficiary?

There’s no proof yet, but it looks an awful lot like Medicare might be subsidizing the Castro brothers.

I, for one,  was not surprised to read that Medicare payments for non-existent medical services are ending up in Cuban (read: government-controlled) banks. Nor that “accused scammers are escaping in droves to Cuba and other Latin American countries to avoid prosecution — with more than 150 fugitives now wanted for stealing hundreds of millions of dollars from the U.S. healthcare program, according to the FBI and court records.”

In fact, I have been wondering for some time when we would see evidence that foreign governments have been stealing from Medicare. The official (read: conservative) estimates are that Medicare and Medicaid lose $70 billion each year to fraud and improper payments, a result of having almost zero meaningful controls in place. That’s practically an open invitation to steal from American taxpayers. Kleptocratic governments—and other organized-crime rings—would be insane not to wet their beaks.

In this National Review article, I explain how easily it could happen:

Last year, the feds indicted 44 members of an Armenian crime syndicate for operating a sprawling Medicare-fraud scheme. The syndicate had set up 118 phony clinics and billed Medicare for $35 million. They transferred at least some of their booty overseas. Who knows what LBJ’s Great Society is funding?

I also explain how these vast amounts of fraud aren’t going to stop without fundamental Medicare and Medicaid reform. Give the National Review article a read, and tell me if you share my suspicion that Medicare is bankrolling other governments.

J.P. Morgan and Yahoo: Market Successes

Investment giant J.P. Morgan made a bad trade that cost its owners $2 billion. The responsible parties are losing their jobs. Yahoo’s CEO evidently misled people about his qualifications. As a result, he lost his job.

If you want to know why these are market successes, consider: Medicare and Medicaid lose at least 35 times as much per year to fraud and other improper payments, and Medicare wastes even more on medical care that does nothing to make patients healthier or happier. This happens year after year after year.

Now ask yourself: when was the last time someone got fired over those losses? And yet the politicians’ first reaction to the J.P. Morgan trade was greater oversight by the political system, which tolerates much greater losses than the market system that is currently disciplining J.P. Morgan.

Here’s hoping the Yahoo incident inspires some politician to crack down on people who embellish their resumes.

Medicare Fraud Posse Cackles as If They Laid an Asteroid

What the media blare:

Levinson Snags $515 Million in Health Care Fraud

More than 100 Charged in Massive Medicare Fraud Busts in 7 Cities in Scams Totaling $452 Mil

What I hear:

Drip … … … . drip … … … … .

Why? As the latter article notes, “authorities have targeted fraud that’s believed to cost the government between $60 billion and $90 billion each year.” So add up those two figures, which include frauds that occurred in multiple years, and you get somewhere between 1.1 percent and 1.6 percent of the amount that Medicare and Medicaid enable criminals to steal from taxpayers in a single year.

Neither article makes it clear how paltry these anti-fraud efforts are. But at least the former article asks:

So what is it about the government’s health care programs that make them such inviting targets for white collar criminals?

I answer that question here, and in this video:

As Predicted, Obama Administration Backs Off Medicare Anti-Fraud Efforts

Medicare and Medicaid are rife with fraud. We’re talking 10 percent or more of total spending, which is two orders of magnitude more than what credit card companies tolerate.

In a recent article, I explained a couple of ways such fraud occurs:

For providers, Medicare is like an ATM: So long as they punch in the right numbers, out comes the cash. To get an idea of the potential for fraud, imagine 1.2 million providers punching 1,000 codes each into their own personal ATMs. Now imagine trying to monitor all those ATMs.

For example, if a medical-equipment supplier punches in a code for a power wheelchair, how can the government be sure the company didn’t actually provide a manual wheelchair and pocket the difference? About $400 million of the…fines paid by Columbia/HCA hospitals were for a similar practice, known as “upcoding.”…

Yet federal and state anti-fraud efforts remain uniformly lame. Medicare does almost nothing to detect or fight fraud until the fraudulent payments are already out the door, a strategy experts deride as “pay and chase.” Even then, Medicare reviews fewer than 5 percent of all claims filed.

I also explained why fraud is so rampant:

Efforts to prevent fraud typically fail because they impose costs on legitimate beneficiaries and providers, who, as voters and campaign donors respectively, have immense sway over politicians. At a recent congressional hearing, the Department of Health and Human Services’ deputy inspector general, Gerald T. Roy, recommended that Congress beef up efforts to prevent illegitimate providers and suppliers from enrolling in Medicare. But even if Congress took Roy’s advice, it would rescind the new requirements in a heartbeat when legitimate doctors — who are already threatening to leave Medicare over its low payment rates — threatened to bolt because of the additional administrative costs (paperwork, site visits, etc.)…

How could it be any other way? Anti-fraud efforts will always be inadequate when politicians spend other people’s money…[People] care less about health-care fraud, and have a lower tolerance for anti-fraud measures, than they would if they paid the fraud-laden premiums themselves.

In a word, government is stupid.

As if to prove the point, the Obama administration—despite its rhetoric about getting tough on fraud—is behaving pretty much as I predicted. In mid-November, the administration announced two anti-fraud efforts, one to prevent fraudulent claims for power wheelchairs and scooters, and another to eliminate “pay and chase” for some Medicare claims in some states. Not two months later, under “heavy provider opposition,” Medicare has delayed these demonstrations “until further notice.”

If you’re interested to see how this all turns out, follow @CMS.gov on Twitter and keep an eye out for #pmd_demonstration (the wheelchairs and scooters demonstration project; there’s no hashtag for the project to curb “pay and chase”).  HT: Peter Suderman.

‘Health-Care Executive’s Medicare Fraud Scheme Included Lobbying Washington’

In a recent article, I explained:

Politicians routinely subvert anti-fraud measures to protect their constituents. When the federal government began poking around a Buffalo school district that billed Medicaid for speech therapy for 4,434 kids, the New York Times reported, “the Justice Department suspended its civil inquiry after complaints from Senator Charles E. Schumer, Democrat of New York, and other politicians”…

It’s not just the politicians. The Legal Aid Society is pushing back against a federal lawsuit charging that New York City overbilled Medicaid. Even conservatives fight anti-fraud measures, albeit in the name of preventing frivolous litigation, when they oppose expanding whistle-blower lawsuits, where private citizens who help the government win a case get to keep some of the penalty.

An indispensable part of this fraud-protection scam are the lobbyists who work to enable fraud or block credible anti-fraud efforts.  The Washington Post reports:

Miami health-care executive Larry Duran orchestrated one of the largest Medicare frauds in U.S. history, submitting more than $205 million in phony claims and landing a record-breaking 50-year prison sentence for his crimes.

But another piece of Duran’s scheme also caught the eye of prosecutors. They say he extended his fraud through his lobbying efforts, all aimed at getting official Washington to make it easier for mental health centers such as his to make money.

An advocacy group he helped set up, the National Association for Behavioral Health (NABH), has spent more than $750,000 on lobbying efforts over the past five years, including staging “fly-ins” on Capitol Hill and providing advice to group members on how to get around Medicare denials, according to the Justice Department. The group also held fundraisers for lawmakers…

“Duran did not stop with just committing a massive fraud on the Medicare program through his own companies. Duran franchised his fraud to others,” trial lawyer Jennifer Saulino wrote in a sentencing memo. The advocacy group he helped found, she said, “provided Duran a legitimate-looking vehicle to lobby Congress to allocate more money, through Medicare, to Duran and his co-conspirators for their fraudulent schemes”…

Duran said he pleaded guilty in the case to atone for his actions…

The basic scheme, records show, worked like this: Duran and Valera paid up to $400,000 a month in kickbacks to assisted living centers, halfway homes and others to procure a steady stream of patients for their clinics, which claimed to be providing group mental health treatment. Doctors frequently faked records or signed off on charts without seeing any patients.

Patients often suffered from Alzheimer’s disease, dementia or other conditions unsuited for therapy and were frequently left to urinate or defecate on themselves as they waited for treatment that never came, testimony showed…

Part of Duran’s strategy, prosecutors alleged, was to use his connections to push for policy changes to benefit his fraudulent business. Justice Department officials said in court testimony that Duran was an NABH founder, a board member and a leading financial contributor…“He had a very integral part of the lobbying role,” FBI agent Patrick Koeth testified during sentencing. “Basically, his involvement was to keep pushing for those lobbying efforts”…

The group boasts of its success in fighting for higher Medicare rates for partial hospitalization programs — the type of service Duran offered — and solicited money for a “policy defense fund” to fight proposed cuts.

Here’s the sound-and-pictures version of my article:

The basic theorem is this: market actors have greater incentives to prevent fraud, because it’s their own money on the line.  Politicians are spending other people’s money, so their incentive to prevent fraud is far less.  Therefore, fraud will always be higher in government programs than in similar market endeavors.