One aspect of the health care debate that has not been sufficiently addressed is how the Department of Health and Human Services will handle all its new responsibilities given the massive fraud and abuse that already plagues its existing programs.

It seems that every week there’s a new report of government health care being bilked. Since what’s reported is typically only what is caught, one can only imagine how much isn’t being caught. Harvard’s Malcolm Sparrow, a top specialist in health care fraud, estimates that up to 20 percent of federal health program budgets are consumed by improper payments, which would be a staggering $150 billion a year for Medicare and Medicaid.

New York Times columnist David Leonhardt did raise the question this week of whether the HHS bureaucracy is up to the task. He notes that the president is yet to choose a nominee to head the HHS’s Centers for Medicare and Medicaid Services (CMS), and he suggests that “the lack of a Medicare nomination suggests that the White House is not giving enough attention to what will happen once Mr. Obama signs a bill.” Well that’s because most politicians are primarily concerned with getting accolades for passing bills, but don’t worry too much about how programs actually work.

As I mentioned in an earlier post on this subject, CMS is the reincarnation of a previous HHS bureaucracy with a poor reputation. David Hyman recounts in his book, Medicare Meets Mephistopheles, that in 2001 HHS’s Health Care Financing Administration became CMS in an attempt to rebrand the universally disliked HCFA. CMS Administrator Tom Scully told Congress in 2003:

The fact is, the health care market…is extremely muted and extremely screwed up and it’s largely because of my agency. For those of you who don’t follow CMS, which used to be called HCFA, we changed the name because it was so well loved. I always say it’s kind of like when Enron comes out of bankruptcy, they’ll probably change their name. So, HCFA—Secretary Thompson and I decided to confuse everybody. We changed the name to CMS for a couple of years so people wouldn’t realize we’re actually HCFA. So far, it’s worked reasonably well.

Oh sure, the president is promising that this time it will be different. But Leonhardt relates a story from former CMS administrator Mark McClellan that shows why the president’s promise will be impossible to keep:

[Mark McClellan] likes to tell the story of a Medicare demonstration project that Congress approved in 2003. Once the bill passed, officials had to devise the project’s details, decide how to measure the results and choose the locations. All of that took until 2009. The first round of projects — coordinating care across medical specialties, in Indiana and North Carolina — has only recently started. Years more will pass before the results are in.

Sadly, McClellan’s solution is “adding in a few billion dollars to give Medicare the resources to act more quickly.” In other words, more bureaucracy.

Leonhardt concludes by comparing the HHS bureaucracy to “old-line” private companies:

The agencies that will be managing health reform are often the same ones that have helped build the current system. Many talented people work in these agencies, and unlike the Medicare administrator, they are already in place. But there are all sorts of reasons to be skeptical of how easily a sprawling, existing organization can innovate.

People at old-line organizations tend to rationalize the usual ways of doing business and to worry about the downsides of change. I.B.M. didn’t invent Windows or the Mac. Newspapers didn’t invent Craigslist. Medicare and Medicaid will, to a significant degree, have to reinvent government-provided medical care and, in the process, help create a template for private insurers.

Although I’m sympathetic to this comparison, I’m not completely buying it. Market forces demand that private companies innovate to satisfy customers; otherwise they’re apt to disappear, assuming they don’t get government bailouts. Government bureaucracies face no such forces. As I mentioned, HHS’s previous bungling Medicare/Medicaid bureaucracy simply changed its name and kept right on losing taxpayer money.

Also, in a new CNN.com article, the chief of the FBI’s Health Care Fraud Unit, Rob Montemorra, explains why big government administered healthcare programs are more susceptible to fraud than their private sector counterparts:

One key reason having Medicare information is a virtual "gold mine" for fraudsters, according to Montemorra, is the system's "pay and chase" system – under the law, Medicare must send out payments within a very short time period.

He said private insurers are better at preventing fraud – although not immune from it – because they're so much smaller.

Montemorra said the process heightens the potential for fraud and other forms of abuse because the government is more often reacting to cases of abuse instead of preventing them before they happen.

For more on fraud and abuse in government programs, see this Cato essay.