Just How Wrong Is Conventional Wisdom About Government Fraud?

No one knows for sure how much Medicaid and Medicare fraud there is. According to the FBI, the cost for Medicare fraud is anywhere from 3 to 10 percent, while Attorney General Eric Holder estimates $60 to $90 billion in fraud in Medicare and almost the same amount in Medicaid fraud -- approaching 20 percent. While nowhere near as large as Medicare and Medicaid, the Supplemental Security Income (SSI) and Social Security Disability Insurance (SSDI) programs are each estimated to be paying about 10 percent of their expenditures in fraudulent claims.

To round out the picture, you can toss in defense contractor fraud -- perhaps as much as another $100 billion per year, roughly in the same range as Medicare and Medicaid combined. All told, fraud in federal programs may come to $300 billion a year or about 10 percent of the budget (as with financial services). Simply cutting that in half, to the average fraud levels in the private sector -- which, as we’ve seen, the federal government has done in recent years with error rates in SNAP – would achieve as much in savings as the entire sequester. Fraud doesn’t consume government, and eliminating it -- as I previously discussed with waste -- won’t solve the deficit problem.

But it would help. A number of techniques have been developed for identifying fraud and its perpetrators:

  • Tap the profit motive. Florida uses private-sector audits conducted in return for a portion of the money recovered from fraudsters.
  • Cross-reference benefit-recipient lists. Cross-referencing databases of social benefit recipients can cut down on fraud, such as recipients who did not disclose income from one programs that would make them ineligible for another; prisoners collecting benefits to which they are no longer entitled, like unemployment; or those who are simply dead.
  • Use new technologies. Artificial-intelligence detection systems are programmed to learn normal billing patterns and identify aberrant billing activities. The systems can also identify collusion between provider networks.
  • Do it the old-fashioned way -- just more. Research has shown that the typical anti-Medicaid-fraud worker recovers, on average, $200,000 per year. As unpopular as it is to say, sometimes hiring more government workers saves taxpayer money.
  • Enlist beneficiaries in fighting fraud. This may sound heretical to government-haters, but the fact is that any program’s intended beneficiaries aren’t the problem -- they’re the stakeholders. Road Home beneficiaries reported fraudulent claimants. Medicare and Medicaid patients have been enlisted to spot billing fraud.

And that takes us back to the main point:  For the most part, fraud isn’t the product of scheming low-income beneficiaries -- Mitt Romney’s 47 percent -- living high on the hog on your dime, but rather someone other than the beneficiary standing to make a buck off it. Medicare and Medicaid fraud is largely committed not by patients -- very few people are trying to rip off taxpayers to obtain unneeded spinal taps or root canals -- but by providers: unscrupulous (or sometimes just incompetent) doctors and hospitals billing for procedures the patient didn’t need or didn’t receive

A landmark 2012 study in the Journal of the American Medical Association not only found that fraud rates are consistent across both government programs and wholly private health care; it also concluded that a “less harmful strategy” than the “common” approach “to contain costs us[ing] cuts, such as reductions in payment levels, benefit structures, and eligibility” would be to “reduce waste” -- mostly on the provider side. “The savings potentially achievable from systematic, comprehensive, and cooperative pursuit of even a fractional reduction in waste are far higher than from more direct and blunter cuts in care and coverage.”

Combatting fraud requires efforts and investments that target the real perpetrators, not cheap shots at beneficiaries and reflexive cuts in their programs. There are, after all, equal levels of fraud and theft in other fields, most notably finance -- but we don’t try to reduce it by shutting down the entire industry and blaming the customers.

Presented by

Eric Schnurer is president of Public Works LLC, a public-policy and management-consulting firm that works with state and local governments across the country. He has served as a gubernatorial chief-of-staff and speechwriter or policy adviser to governors, senators, and presidential candidates.

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