Medicare and Medicaid’s model for paying out claims is an “open invitation” to fraud that could amount to nearly $200 billion a year.

But the programs could drastically cut down on fraud by adopting common-sense procedures already used by the private sector.

“When President Obama pushed through his healthcare bill, he cut more than $500 billion (over 10 years) in future Medicare spending in order to claim the bill was ‘paid for,’” Forbes magazine observed.

“A better option would have been to aggressively target Medicare and Medicaid fraud, which could have provided the same amount of savings, and possibly more.”

The major problem is the two programs’ “pay and chase” model. The private sector uses pre-claims adjudication, searching for possible fraud or discrepancies before claims are paid, but Medicare and Medicaid routinely pay out claims and only pursue wrongdoers if information regarding fraud is later discovered.

As a result, fraud is rampant:

• Federal officials in May announced that they had arrested 107 healthcare providers in several cities and charged them with defrauding Medicare out of $452 million.
• The Medicare Fraud Strike Force, established in 2007, visited nearly 1,600 businesses in Miami that had billed Medicare $237 million for durable medical equipment, and found that nearly one-third of them didn’t even exist.
• A former official in New York City said 40 percent of the city’s Medicaid payments could be “questionable,” and The New York Times reported that a Brooklyn dentist had filed 991 claims in one day.

“Scamming Medicare and Medicaid is so lucrative that the Russian and Nigerian mobs have gotten involved,” Forbes disclosed. One New York crime family has found that “defrauding Medicare is both more lucrative and less dangerous than some of the traditional organized crime activities.”

The most common form of Medicare and Medicaid fraud is “phantom billing”: The medical provider bills Medicare for procedures or tests that are unnecessary or never performed, or for unnecessary equipment or equipment that is billed as new but is in fact used.

The Government Accountability Office released a report in 2010 claiming to have identified $48 billion in “improper payments” — nearly 10 percent of the $500 billion in outlays that year.

But U.S. Attorney General Eric Holder and others suggest there is an estimated $60 to $90 billion in fraud in Medicare and a similar amount in Medicaid.

The Department of Health and Human Services (HHS) is “beginning to embrace” the pre-claims adjudication model long used by the private sector, which limits fraud to just 1 to 1.5 percent compared to 10 to 15 percent for Medicare and Medicaid. “That is certainly a step in the right direction, but it doesn’t go far enough, nor fast enough,” Forbes opines.

“HHS’s pay and chase model has been an open invitation to fraud — and criminals gladly accepted it.

“Catching the scammers after the fact is too late; most of the money is already gone. The government needs to process claims in a way that identifies questionable and improper claims before they are paid. If the Obama administration really wants to lower health care spending, Medicare and Medicaid fraud is a good place to start.”

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