How Bad Is Health Care Fraud?
23 Corporate Crime Reporter 35(9), September 14, 2009

The federal government says health care fraud hovers around three percent of all health care expenditures.

Do the math.

Health care expenditures per year: $2 trillion.

Three percent of $2 trillion: $60 billion.

Not chump change.

But Malcolm Sparrow says the number is probably much higher.

Sparrow is a professor of public management at Harvard’s John F. Kennedy School.

He believes the number could be as high as 20 percent.

Or even 30 percent.

That would be more like $400 billion.

Or $600 billion.

“How much is being lost? We don’t know,” Sparrow told Corporate Crime Reporter. “We should know. The government knows how to measure it, but is avoiding doing it. The news would be too bad.”

“The method behind any measurement is this – you pick a random sample of claims. You review them seriously to find out if you should have paid them,” Sparrow said.

“At the moment, the figures we are getting out of the government are based on the CERT program – that stands for Comprehensive Error Rate Testing. It’s done annually by CMS.”

“There was a report in May of this year issued by DHHS OIG. And they asked – are you really doing the CERT program correctly? And they picked a subsample of the claims from CMS’ survey. And they found eight times as many errors as CMS was reporting.”

“So, if you really want to know how much is being lost, and you have to rely on evidence that the government producing at the moment, take CMS’ three percent estimate, perhaps multiply it by seven or eight, because of the highly favorable interpretations of the documents that they do look at, and then add another eleven percent for the fraud that is extremely well documented. And you are up in the twenty or thirty percent range without any trouble at all.”

“This to me is a much more reasonable level. It’s not my preferred methodology. I wouldn’t recommend it. I’d rather that they just did it right.”

While the government isn’t controlling health care fraud aimed at public expenditures, the private health insurance industry isn’t doing a better job of it, Sparrow says.

Across the board, both public and private programs are spending only about one tenth of one percent on fraud control programs.

To bring the problem under control, Sparrow suggests an expenditure of about one percent.

“But that’s ten times the current level of investment,” Sparrow says. “So, we should actually increase the level of attention, dedication and resources by a factor of ten or more. Politically, that is simply not going to happen. Certainly not while there is uncertainty about whether this is a significant problem or not.”

“Which is why I get back to rule number one – measure the problem, put the facts on the table, so that everybody can see how much we are losing.”

What are the politics of health care fraud in Washington now?

“It is actually quite strange at the moment,” Sparrow says.

“Typically, the Republicans would be all pro-industry and free market,” Sparrow says. “And the Democrats would be the ones who favored social control and more regulation.”

“On this issue right now, there is a wrinkle on both political sides. The Republican Party seems eager to destroy Obama’s health care reform proposals. And therefore, they are making the case that you can’t trust the government to run anything. You can’t even trust the government to run these existing programs. So, why on earth would you allow government to run any new pieces that might be added or expanded through health care reform?”

“It is in the Republican agenda to emphasize fraud losses out of control. This is bizarre. And what is odd, they manage not to say that it is the industry that is submitting these false claims. They are putting the emphasis on the fact that the government doesn’t seem able to control the problem.”

“The Obama administration is talking about this issue somewhat. But I’ve been quite disappointed at the speed with which they are moving on this issue. And I’ve been trying to figure out why this might be. A new administration has a special opportunity to expose how bad things are and deal with it. They can only deal with it in the first year of an administration. When the first year is done – they become responsible for the way things are. And all of the normal political imperatives to – not make us look too bad – come into full force.”

“So, I was very much hoping that we would get a measurement and exposure done early by the Obama administration. But instead we see the Assistant Secretary for Policy and Evaluation at HHS, on its web site, asking for potential contractors to develop advice for CMS as to how they might measure Medicare and Medicaid fraud – and to take eight months to do it.”

“This is unbelievably slow. And by the way – we know already how to do this. It’s just that they won’t do it. So, I don’t know exactly what kind of advice they are looking for.”

[For a complete transcript of the Interview with Malcolm Sparrow, see 23 Corporate Crime Reporter 35(9), September 14, 2009, print edition only.]



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