Simple Methods of Deception

Members of the Church of Universal Coverage claim that government health insurance is more efficient than private insurance because, gosh, Medicare’s administrative costs are a mere 3 percent of claims.  I’ve noted before how that’s neither true nor something to brag about: skimping on administration leads to gobs of waste and fraud.

Well, God bless the folks at the Government Accountability Office, because they came up with a wonderful illustration of just how stupid and harmful Medicare’s administrative-costs strategy really is.  The following is from a recent GAO report.  I recommend reading the entire excerpt, especially if you’ve always nurtured the hope of someday defrauding Medicare of millions of dollars:

Why GAO Did This Study

According to the Department of Health and Human Services (HHS), schemes to defraud the Medicare program have grown more elaborate in recent years. In particular, HHS has acknowledged Centers for Medicare & Medicaid Service’s (CMS) oversight of suppliers of durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS) is inadequate to prevent fraud and abuse. Specifically, weaknesses in the DMEPOS enrollment and inspection process have allowed sham companies to fraudulently bill Medicare for unnecessary or nonexistent supplies. From April 2006 through March 2007, CMS estimated that Medicare improperly paid $1 billion for DMEPOS supplies—in part due to fraud by suppliers.

Due to the committee’s concern about vulnerabilities in the enrollment process, GAO used publicly available guidance to attempt to create DMEPOS suppliers, obtain Medicare billing numbers, and complete electronic test billing. GAO also reported on closed cases provided by the HHS Inspector General (IG) to illustrate the techniques used by criminals to fraudulently bill Medicare…

What GAO Found

Investigators easily set up two fictitious DMEPOS companies using undercover names and bank accounts. GAO’s fictitious companies were approved for Medicare billing privileges despite having no clients and no inventory. CMS initially denied GAO’s applications in part because of this lack of inventory, but undercover GAO investigators fabricated contracts with nonexistent wholesale suppliers to convince CMS and its contractor, the National Supplier Clearinghouse (NSC), that the companies had access to DMEPOS items. The contact number GAO gave for these phony contracts rang on an unmanned undercover telephone in the GAO building. When NSC left a message looking for further information related to the contracts, a GAO investigator left a vague message in return pretending to be the wholesale supplier. As a result of such simple methods of deception, both fictitious DMEPOS companies obtained Medicare billing numbers…

After requesting an electronic billing enrollment package and obtaining passwords from CMS, GAO investigators were then able to successfully complete Medicare’s test billing process for the Virginia office. GAO could not complete test billing for the Maryland office because CMS has not sent the necessary passwords. However, if real fraudsters had been in charge of the fictitious companies, they would have been clear to bill Medicare from the Virginia office for potentially millions of dollars worth of nonexistent supplies.

Once criminals have similarly created fictitious DMEPOS companies, they typically steal or illegally buy Medicare beneficiary numbers and physician identification numbers and use them to repeatedly submit claims. In one case from HHS IG, a company received $2.2 million in payments from Medicare for supplies and services that were never delivered. The owner submitted these fraudulent claims from March 2006 through July 2006 using real beneficiary numbers and physician identification numbers that he had purchased illegally. The only employee not involved in the scheme was a secretary, who told HHS IG that there was no business activity in the office and that the owner was rarely there. Another case related to an individual who stole beneficiary numbers and physician identification numbers and submitted $5.5 million in claims for three fraudulent offices from October 2006 through March 2007. He operated one of these offices out of a utility closet containing buckets of sand mix, road tar, and a large wrench, but no medical files, office equipment, or telephone.

Simple methods of deception.  That’s all you need to fool Medicare.  Or for the Church of Universal Coverage to fool themselves. 

And they’re hoping that’s all they’ll need to fool you, too.

Freedom in China

As the world media get ready to focus on China for two weeks, there’s lots of discussion of human rights. Will Beijing censor the media and the athletes? Should President Bush attend? Should he meet with Chinese dissidents? Should he raise human rights issues with Chinese leaders?

In all this discussion, we may forget how much progress China has made in the past generation. From 1949 to the death of Mao Tse-tung or the rise of Deng Xiao-ping, there was no discussion of “human rights in China.” China was a totalitarian state, Red China, or Communist China to the less polemical. Its citizens had no rights. And the Western media had very little access to the country, so they couldn’t report any stories about human rights abuses. Were 65 million people killed by Mao’s regime, or something more or less? Questions of “human rights” pale in such a system.

On the eve of the Olympics, it’s refreshing to read a very thorough article in the New York Times titled “Despite Flaws, Rights in China Have Expanded.” Howard W. French reports:

Political change, however gradual and inconsistent, has made China a significantly more open place for average people than it was a generation ago.

Much remains unfree here. The rights of public expression and assembly are sharply limited; minorities, especially in Tibet and Xinjiang Province, are repressed; and the party exercises a nearly complete monopoly on political decision making.

But Chinese people also increasingly live where they want to live. They travel abroad in ever larger numbers. Property rights have found broader support in the courts. Within well-defined limits, people also enjoy the fruits of the technological revolution, from cellphones to the Internet, and can communicate or find information with an ease that has few parallels in authoritarian countries of the past.

It’s still difficult to challenge the party-state directly. Organizing even a study group, much less a tiny political party, can land you in jail.

On the other hand, the definition of what constitutes a political challenge has changed. Individuals are far less likely to run afoul of a system that no longer demands conformity in political views or personal lifestyles.

I’ve made the point in recent writings that wealth gives people a kind of freedom–more options for how to live their lives. French sees that dynamic at work in China:

The speeches of China’s leaders, with their gray imagery and paternalistic phrasings, have changed relatively little, emphasizing unity, harmony and economic growth under party rule. The reality on the ground, though, has been transformed, partly because a more dynamic economy necessitates a more dynamic society, partly because money gives people options they did not have when they were poor.

Way back in 1979, David Ramsay Steele of the Libertarian Alliance in Great Britain wrote about the changes beginning in China. He quoted authors in the official Beijing Review who were explaining that China would adopt the good aspects of the West–technology, innovation, entrepreneurship–without adopting its liberal values. “We should do better than the Japanese,” the authors wrote. “They have learnt from the United States not only computer science but also strip-tease. For us it is a matter of acquiring the best of the developed capitalist countries while rejecting their philosophy.” But, Steele replied, countries like China have a choice. “You play the game of catallaxy, or you do not play it. If you do not play it, you remain wretched. But if you play it, you must play it. You want computer science? Then you have to put up with striptease.”

I don’t know if China has striptease yet. But it has definitely discovered that Western habits accompany Western technology. After protests of a mysterious death in a rural county, the authorities tried to suppress news of the controversy. “But people wielding video cameras uploaded material to YouTube, and some Chinese journalists disputed official accounts that the riots had been put down peacefully.”

Traditionally, authoritarian regimes have been happy to distribute televisions widely, so that the state can disseminate its propaganda to every household. But with the loosening of controls in China and the increasing wealth, many citizens are buying satellite TVs, and that creates an entirely different dynamic:

For others, the impact of information about other countries has been just as great. He Weifang, a professor of law at Peking University, said that before the economic reform era began in 1979, the country was much like North Korea, where people were indoctrinated to believe that Chinese were the better off than people anywhere else.

“Today, even the farmers in remote areas have satellite TVs,” Mr. He said. “So whenever they see an election, such as the one held in Pakistan recently, they may wonder why, even though we have approximately the same economic conditions, they can elect their top leaders, and we can’t even vote for the leader of a small county. I think a consciousness of political rights has increased more than anything.”

And finally, French notes, even the legal system is groping toward the rule of law, including the enforcement of property and contract:

Even China’s party-run legal system is a fulcrum for experimentation, though in an ambiguous way that highlights the uncertainties in the country’s transition.

Judges do not have the power to rule independently in China. Yet the country now has 165,000 registered lawyers, a five-fold increase since 1990, and average people have hired them to press for enforcement of rights inscribed in the Chinese Constitution. The courts today sometimes defend property rights and business contracts even when powerful state interests are on the other side.

The changes in China over the past generation are the greatest story in the world–more than a billion people brought from totalitarianism to a largely capitalist economic system that is eroding the continuing authoritarianism of the political system.

When I read a much less insightful view of China’s development in the Washington Post Sports section–“The largest nation on earth has unexpectedly evolved to the point where it is capitalist in every practical sense, including an entrenched elite every bit as ruthless as America’s robber barons.”–I deeply regret that Howard W. French has just left the New York Times to take up a position teaching journalism. But you can still find his writings on his website, such as this recognition that, as libertarians often say, “capitalism is what happens when you let people alone”: “China’s example shows what kinds of remarkable results can follow when governments stop committing colossal blunders and grossly shackling or preying upon their own people… . This government has stopped making the massive, brutal blunders it committed in the 20th century, which killed or stunted the lives of huge numbers of its citizens. What it needs most now is to get out of the way of ideas and enterprise, and to learn, bit by bit, the virtues of trust.”

For another thoughtful view of China’s evolution, see this week’s Economist.

McCain, Obama, and Clean Coal

After you’ve watched federal policymaking for a number of years, you realize that the actual effectiveness of federal programs has absolutely no bearing on their survival or level of funding. That’s because the purpose of federal programs is not to solve problems, but to provide a menu of levers that politicians can pull to appeal to certain types of voters.  

We see this at play in the 2008 election with “clean coal,” which has attracted the attention of both candidates. Obama wants to “significantly increase the resources devoted to the commercialization and deployment of low-carbon coal technologies.” Meanwhile, McCain has pledged to spend $2 billion a year on clean coal technology if elected.

Since these pledges make for good bullet points in speeches, the campaigns don’t really care about the actual track record of federal subsidies to clean coal. But after the election, the next president should hesitate to increase such corporate welfare. Here is what I noted in Downsizing the Federal Government:

The federal clean coal program funds projects that burn coal in an environmentally friendly way, but the program is not very taxpayer-friendly. The Government Accountability Office found that many clean coal projects have “experienced delays, cost overruns, bankruptcies, and performance problems.” [GAO-01-854T] The agency examined 13 projects and found that “8 had serious delays or financial problems, 6 were behind their original schedules by 2 to 7 years, and 2 projects were bankrupt.”

One clean coal project in Alaska gobbled up $117 million of federal taxpayer money during the 1990s.[Washington Post, April 24, 2005] But the project never worked as planned, it cost too much to operate, and it was finally closed down as a failure. But project failure is not a problem in Washington because costs are benefits to politicians. Thus in 2005 Republican legislators inserted $125 million of taxpayer money into an energy bill to revive the failed Alaska project.

When Did Hillary Clinton Become President of China?

The Wall Street Journal reports on the Chinese government’s energetic effort to improve the quality of its citizens:

Beijing officials have distributed 4.3 million copies of an etiquette book outlining rules on good manners and foreign customs, including rules about what not to wear. The guide is part of an effort by various departments within China’s government to clean the city up in preparation for the at least 400,000 foreign visitors who are expected to descend on its capital for the Olympic Games, which start Aug. 8.

Among the no-no’s: more than three color shades in an outfit, white socks with black shoes, and pajamas and slippers in public.

“No matter what, never wear too many colors…especially during formal occasions,” the book said. “When you wear [formal shoes], be sure to wear socks in good condition…socks should be a dark color – never match black leather shoes with white socks.”

“Older women should choose shoes with heels that aren’t too high,” it said.

The book, published by the Beijing Municipal Government’s Capital Ethics Development Office, is part of the department’s effort to make Beijing more “civilized,” officials said.

Along the same lines, Beijing authorities announced earlier this year that they would step up efforts to fine people who spit in public as much as 50 yuan ($7.33).

Other guidelines range from the obvious to overly specific. Public displays of affection aren’t acceptable, for example. In a section about escalators and elevators, the book said people should place their hands on escalator railings to avoid falling. It then addresses a pet peeve of many in Beijing: “When entering an elevator…let people walk out before you enter,” it said. It goes on to say riders should look only straight ahead and never stare at other passengers.

It also warns readers of the “Eight Things Not to Ask” foreigners, including their age, marital status, income or religious and political beliefs.

It sounds like the woman who wants to create government programs to help people “quit smoking, to get more exercise, to eat right, to take their vitamins” has found her niche.

Of course, you might suspect that the idea to require taxi drivers to wear uniforms came from John McCain.

Sound Advice from Bill Clinton’s Trade Rep

At a Senate Finance Committee hearing last week, a top trade official from the Clinton administration voiced her dissent from the trade-skeptic orthodoxy that now seems to dominate the Democratic Party.

Charlene Barshefsky was one of several former U.S. Trade Representatives who testified at the July 29 hearing. She served as Bill Clinton’s USTR from 1997 to 2001. In contrast to presidential hopeful Barack Obama and the Democratic leadership in Congress, she told the panel that Congress should pass pending free trade agreements with Colombia, South Korea, and Panama.

According to BNA’s weekly International Trade Reporter newsletter [sorry, subscription required], she told the panel that blocking the U.S.-Colombia agreement would do nothing to improve labor rights in Colombia. In fact, refusing to enact the agreement would be the “dream” of Colombia’s anti-American neighbor Hugo Chavez, the heavy-handed president of Venezuela. Those are among the main points my Cato colleague Juan Carlo Hidalgo and I made in our Free Trade Bulletin on the agreement earlier this year.

Former USTR Barshefsky pronounced the U.S. tariff code as outdated in our era of globalization. We continue to apply high tariffs to such light-manufacturing products as clothing, shoes and household linens at the expense of low-income families. “They protect few if any jobs, but do noticeable damage to hopes of poverty reduction in the United States,” Barshefsky reminded the senators.

Her fellow Democrat Earl Blumenauer, the congressman from Oregon, made the same point a few days earlier at a Cato policy forum on why Congress should unilaterally lower tariffs on shoe imports. You can watch a video of the forum here.