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article by MALCOLM SPARROW
Los Angeles Times
August 28,2011
Last week, a Los Angeles jury convicted a local pastor and his wife of fraudulently claiming $14.2 million from Medicare.
The culprits recruited parishioners to help run fake durable medical equipment companies, and spent the proceeds on expensive cars and other luxuries.
Assistant U.S. Attorney General Lanny A. Breuer said "they treated the Medicare program like a personal till."
Around the country, a never-ending stream of Medicare and Medicaid rip-off stories suggest many people now use these programs as personal tills. In July 2010, authorities exposed and shut down a more organized scheme, charging 94 conspirators from five cities who had stolen $251 million from Medicare.
Three months later, 52 members of an Armenian American organized-crime ring were arrested and charged with $163 million in fraudulent billing.
Scores of reports over the last decade catalog completely implausible Medicare and Medicaid claims paid, apparently without a hiccup, for patients who were dead, imprisoned or deported. A significant number of claims involved prescribing physicians who were long-since dead.
What makes these health care programs so vulnerable to fake billings? It's not the program design. The vulnerability stems from the payment mechanism the government has chosen.
Most Medicare and Medicaid funds are paid out electronically and automatically, in response to electronic claims received from a vast spectrum of providers. Most claims are adjudicated by computers using rule-based systems, with no human intervention at all.
Fraud perpetrators have only to learn the rules; then they can submit thousands of claims electronically and with relative impunity. If they get things wrong, they'll receive helpful computer-generated messages explaining their mistake.
Scammers find it easy to get paid for fabricated claims because the government's systems check for billing correctness but not for truthfulness. The simple rule for getting rich quick through health care fraud is "bill your lies correctly."
In 1995, as electronic claims processing was becoming more widespread, one seasoned Medicaid fraud investigator warned: "Thieves get to steal megabucks at the speed of light, and we get to chase after them in a horse and buggy. No rational businessman would ever invent a system like this."
Nevertheless, the government continues to find such systems attractive, mostly because the processing efficiencies are obvious and tangible.
This problem is not restricted to health care. Federal and state agencies increasingly disburse funds through such "electronic signal in, electronic payment out" (ESI-EPO for short) systems.
The economic stimulus package, for example, included 56 tax provisions worth $288 billion. Ten have already been designated high-risk because of electronic processing.
Submit a qualifying tax return electronically, and if it has been completed correctly, out will come an electronic payment with little or no validation of the supporting evidence.
Payments for the stimulus fund's first-time homebuyer credit were found to have included $9 million to 1,300 prisoners, many serving life sentences when they purportedly bought homes.
More than 10,000 taxpayers received credits for homes also claimed by other taxpayers. One home was claimed 67 times.
The recipe for disaster is now clear. Whatever the nature of the payments -- welfare supports, reimbursements, health claims, tax credits, incentive payments or subsidies -- pay them electronically.
Set up the system with honest claimants in mind. Allow claims to be submitted electronically. Set the administrative budget low enough that the bulk of the claims have to be paid without verification.
To make things really dangerous, add a degree of urgency to the public purpose (as with the stimulus package).
Urgency tends to trump caution and raises policymakers' perception of the "business-acceptable risk." And if it's a really "valuable" program, supporters and officials will be loath to hear any criticism of it, and to discount reports of fraud.
It is no longer sensible to disburse public funds, on trust, through electronic systems. The commensurate risks are enormous and seriously underestimated. Organized-crime groups, prisoners and a host of other criminal entrepreneurs troll government websites looking for programs with these vulnerabilities.
Such systems must now either be fortified with substantial resources for routine validation or, preferably, be phased out altogether through structural reforms.
Fixing these vulnerabilities offers substantial promise for long-term deficit reduction, in a form that both political parties could support. But one important political obstacle remains: finding the courage to admit how serious and pervasive this problem has become.
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Prof. Malcolm K. Sparrow of Harvard's Kennedy School of Government is the author of "License to Steal: How Fraud Bleeds America's Health Care System." He wrote this article for the Los Angeles Times.
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