July 27, 2023

Every day it seems, another story surfaces about fraud in healthcare, followed by glowing reports of how much the Biden administration has recovered. There is never any discussion about how to eliminate medical fraud. 

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Healthcare fraud  “occurs when an individual, a group of people, or a company knowingly mis-represents or mis-states something about the type, the scope, or the nature of the medical treatment or service provided, in a manner that could result in unauthorized payments being made.”

The metric of healthcare fraud is financial, not medical. 

Healthcare fraud occurs through billing and coding. After medical care is provided, a billing department assigns numerical billing codes to all care activities. These codes are sent to third-party payers, especially Medicaid and Medicare, who in turn pay a pre-determined amount for each code based on what government has decreed is an “allowable reimbursement,” usually a fraction of the actual bill. 

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Fraud usually involves upcoding (using a code that pays more than the proper code), phantom coding (sending codes for procedures not performed) double coding (sending two different codes for the same service) or submitting correct codes for care provided when that care was unnecessary or inappropriate. 

According to Detective John Savino in his book False Allegations, “most believe fraud originates from individuals [single practitioners] abusing state assistance.” Data indicates the bulk of healthcare fraud is systematic embezzlement by medical organizations, doctor groups, health plans, distributors, pharmacies, and/or manufacturers on large groups of patients. According to Savino, “health care fraud schemes tend to be not only lucrative and complex, but long term,” well beyond the capabilities of an individual practitioner. 

Revenue recouped from prosecution of fraud was $2 billion in 2022. The cost to collect the $2 billion is undoubtedly large. 

In addition to the numerous federal agencies involved, such as HHS (Health and Human Services), FDA, FBI (56 field offices), Centers for Medicare and Medicaid Services (CMS), Homeland Security, DEA, and others, every state has its own MFCU (Medicaid Fraud Control Unit). The cost of the accountants, agents, bureaucrats, investigators, lawyers, reviewers, etc., is undoubtedly huge.  Assuming at least 50,000 individuals are involved nationwide, their salaries alone – $3.5 billion – far exceed the dollars recovered – $2 billion – from settlements and judgements for healthcare fraud. 

Those are 3.5 billion healthcare dollars taken away from health (patient) care. 

Compared to the cost of healthcare’s massive BARRCOE (bureaucracy, administration, rules, regulations, compliance, oversight, enforcement), fraud is a rounding error. Even if actual fraud is ten times greater than the documented $2 billion, i.e., $20 billion, that sum represents 0.4 percent of the $4.3 trillion we spent on healthcare last year. Contrast the cost of fraud to the  31 percent to 50 percent of U.S. spending that went to healthcare BARRCOE: $1.33 trillion to $2.15 trillion taken away from patient care, not $20 billion.