Medicare Fraud and Abuse Losses

Medicare’s problems with billions of dollars in fraudulent claims payments have been in the news lately. This issue is particularly galling as Congress struggles for ways to pay for health reform without breaking the national bank. President Barack Obama has said that there is enough waste and fraud in the health care system to pay for health reform.

A CBS News’ 60 Minutes segment on October 25 focused on the Medicare fraud issue which is estimated to cost taxpayers $60 billion a year. In that CBS report, one fraud perpetrator said he stole $20 million from Medicare and it was “real easy—you’d file a claim and in 15 to 30 days you’d have a deposit in your bank account.” As Steve Kroft, the 60 Minutes reporter, noted in the segment, the “only victims are the American taxpayers and they don’t even know they’re being ripped off.”

What the 60 Minutes segment, or other media sources, fail to report is that Medicare itself does not administer or pay medical claims. The Medicare agency, the Centers for Medicare and Medicaid Services (CMS), contracts with private health insurers such as a Blue Cross Blue Shield plan, or claims administrators to pay Medicare claims. Currently, seven fiscal intermediaries and eight carriers pay hospital and outpatient medical claims, respectively. As the Medicare site explains, these contractors are responsible for claims processing, payment safeguards, and financial management.

So, some of us reasoned, shouldn’t the Medicare claims contractors catch these blatantly fraudulent claims, such as those for two prosthetic arms for a beneficiary who has never had any surgery to remove those limbs, and not pay for them? Once the claims are paid, the government often cannot recover the fraudulent payments because the fraudsters have closed up shop and disappeared without a trace.

What gives? For one thing, the Medicare law requires that claims for medical services be paid within 15 to 30 days, so, as a Medicare spokesperson told me, if the paperwork looks “clean” (whatever that means), the Medicare contractor pays the claim. Any claim review for appropriateness is done after the claim is paid, by which time….

Since Congress wrote the legislation requiring the prompt claims payment, why can’t CMS ask Congress to fix the claims payment requirement to allow for investigation prior to payment? Because, the CMS spokesperson explained, medical providers would cry “foul” if their claims payments were delayed; after all, they can count on Medicare to pay claims a lot sooner than other, private, payers.

Another obstacle to fraud prevention in Medicare is the multiple number of contractors and uncoordinated claims payment systems for hospital claims and for other medical claims. CMS is working to establish an “Enterprise Data Center” that will house claims processing software systems for Medicare claims to consolidate the current large number of data centers.

Other reforms intended to reduce improper and fraudulent claims include implementing a Healthcare Integrated Genera Ledger and Account System, hiring a “Program Integrity Contractor” for each geographic zone to handle fraud and abuse; and implement a limited number of shared systems (dubbed Shared Systems Maintainers) for all contractors to use for claims and related processing. Furthermore, by 2011 CMS will have transitioned to new regional Medicare Administrative Contractors (MACs) that will process together claims for Medicare Part A (hospital) and B (medical) claims), which currently are processed by different contractors..

Maybe these reforms will help reduce the dollars lost to Medicare fraud, but I suspect that until stricter requirements and regulation for medical provider participation and claims submission documentation are adopted, the problem will continue unabated.