A Bold Prediction for 2015: Congress Won’t Do Anything about the Billions in Medicare and Medicaid Fraud

At the the start of a new year, it’s traditional to hope for changes that would improve on last year. And yet, some very dysfunctional aspects of our lives are bound to stay the same, even deteriorate — and the same happens to be true of government.

Take Medicare and Medicaid, which make huge, outsized amounts of improper payments every year. The media repeatedly published stories about doctors and other health-care providers pocketing millions in taxpayers’ money in exchange for services rendered to fake patients in fake facilities — the Wall Street Journal had such a story a week ago about Medicare: 

John and David Mkhitarian found a soft spot in Medicare’s defenses against fraud: Inspectors aren’t required to visit medical providers deemed to present a lower risk of fraud and abuse.

So the cousins used exchange students to create some 70 bogus laboratories, clinics and physician practices, then enrolled the companies in the program with the stolen identities of doctors, prosecutors assert. Medicare paid out $3.3 million over about two years.

That’s just $1.5 million in fraud out of the $47 billion in Medicare’s improper payments in FY 2011. Improper payments for Medicaid total roughly $20 billion. And yet almost nothing is done. Why?

It’s not all fraud, for one: Much of the waste comes from doctors’ billing Medicare for potentially unnecessary but lucrative procedures. Very little is done about that, as I’ve reported, and not just out of laziness. In many cases, members of Congress are actively blocking anti-fraud measures because health-care providers oppose them.

There are several ways the improper-payment problem can be addressed. First, Congress could actually do their job by changing the rules about how Medicare pays providers. Without a change in the fundamental structure of the program, its problems will never go away entirely. The WSJ notes:

“Unless you change the rules of the game in terms of how Medicare pays, you’ll never fix it,” said Gail Wilensky, who ran Medicare in the early 1990s. Congress is “not going to voluntarily make major changes in a program that is as popular as Medicare,” she said.

But even if Congress agreed to change the rules, that would only go so far. You still need government oversight, and government oversight has been a joke for almost as long as government oversight has existed.

Very few members of Congress are actually willing to put an end to government spending that benefits a powerful interest group, no matter how wasteful the program at hand. Even when some of them do express some interest in curbing waste, many of them are unwilling to follow through. Congress has been been holding hearings on fraud and abuse in government for years, but the abundant evidence uncovered has rarely gotten legislators, especially appropriators, to do something about the problems.

Typically, the best we can expect is politicians’ paying lip service by “reforming” a program in a way that’s supposed to reduce fraud. That’s exactly what’s happening right now with the Ex-Im Bank — after seeing evidence that Ex-Im employees have engaged in fraudulent activities and are manipulating data to boost their claims about helping small businesses, congressional leadership is proposing cosmetic reforms to the program (after the bank has failed to implement mandated reforms in the past!).

More important, even if Congress really did want to do all the oversight it could, the size of government is such that this task would be practically impossible. The best way to limit government waste and abuse: Shrink the size and scope of government.  

Writing for NRO a few years ago, Cato’s Michael Cannon suggested that one way to do that: Give Medicare enrollees vouchers for private coverage and block-grant all of Medicaid to states (allowing them to spend health dollars on the poor how they wish). His whole article on Medicare and Medicaid fraud is a must-read, but I’ll highlight a few of his points:

To see how the Ryan plan would reduce Medicare fraud, imagine that the proposal really were what its critics claim it is: a full-blown voucher program, with each enrollee receiving a chunk of cash to spend on medical care, apply toward health-insurance premiums, or save for the future. Instead of processing 1.2 billion claims, Medicare would hand out just 50 million vouchers, with sick and low-income enrollees receiving larger ones. The number of transactions Medicare would have to monitor each year would fall by more than 1 billion.

Social Security offers reason to believe that a program engaging in fewer (and more uniform) transactions could dramatically reduce fraud and other improper payments. As a Medicare-voucher program would, Social Security adjusts the checks it sends to enrollees according to such variables as lifetime earnings and disability status. The Social Security Administration estimates that overpayments account for just 0.37 percent of Social Security spending. Overpayments are higher in the Supplemental Security Income (SSI) program (8.4 percent), a much smaller, means-tested program also administered by the Social Security Administration. But total overpayments across both programs still come to less than 1 percent of outlays.

The switch wouldn’t get rid of all the fraud and abuse – only abolishing the program would – but it would likely reduce the waste substantially and make oversight much more practical. The same is true of Medicaid reform:

Ryan would replace Medicaid’s federal matching grants with a system of block grants. Under a block-grant system, states would keep 100 percent of the money they saved by eliminating fraud. In many states, the incentive to prevent fraud would quadruple or more. Block grants performed beautifully when Congress used them to reform welfare in 1996. They can do so again.

As Cannon concludes:

The Ryan plan would not reduce Medicare and Medicaid fraud to tolerable levels, but neither would any plan that retains a role for government in providing medical care to the elderly and disabled. What the Ryan plan would do is reduce how much the fraudsters — many of whom sport congressional lapel pins — fleece the American taxpayer. And that is no small thing.

No, that’s no small thing.