Can a “Neighborhood Watch” Approach Combat Medicare Fraud?

Published February 13, 2017

The history of fraud is as old as the history of barter. No doubt some hapless early man traded a basket of berries for a wheel that promptly fell apart when he got it home. The evolution of money, banking, mass transport and the internet have only multiplied opportunities for fraud, waste and abuse.

The United States federal government has been frustrated by the problem for as long as it has been taxing and spending. Imagine how President Lincoln felt after imposing a federal income tax in 1861, then spending it on the Army of the Potomac, whose leader, General McClellan, dithered rather than engaging Confederate General Robert E. Lee. Lincoln fired McClellan in 1862.

Presidents of the 20th century, too, have attempted to deal with fraud, waste and abuse. From President Truman to President Obama, successive administrations have tried to cut down on wasted and misspent federal dollars, with varying degrees of success.

The Scope of the Problem

According to the Congressional Research Service, in 2014 the federal government allocated nearly $2.1 trillion for mandatory expenditures, primarily benefits programs such as Medicare and Medicaid. Of that amount, it is estimated that approximately $137 billion was lost to waste, fraud and abuse.

Health care dollars have proven particularly prone to loss via improper means. An estimated 30% of all health care spending does not improve health outcomes, according to the National Academies of Sciences, Engineering, and Medicine.

Where is the Money Being Lost?

Because of the many layers of providers, intermediaries and administrators involved, the Medicare program is uniquely susceptible to losses through fraud, waste and abuse. There are several structural leaks in the dam, so to speak.

Sometimes Medicare programs require payments to be made to providers prior to verifying eligibility for benefits. This is a problem in program design that can lead to improper payments going to fraudsters before they can be identified.

In other cases, there is a failure to authenticate eligibility of Medicare beneficiaries. Providers bent on committing fraud can submit claims for individuals who are either dead or in prison, for example. And there is the “fat thumb syndrome”: data that are entered incorrectly into a billing system by simply pressing the wrong key, or placing the decimal point in the wrong location.

Fixing Medicare Fraud, Waste and Abuse

The new administration will inherit several strategies already deployed to combat Medicare fraud. One strategy is to make the perpetration of fraud simply too expensive for the prospective fraudster. A program of pre-claim review for home care providers was piloted in Illinois in the summer of 2016. The idea was to raise the barriers to payment so high that only legitimate providers would be willing to scale them. The problem with this approach is that delivery of Medicare services becomes too expensive for the legitimate actors as well. The Illinois program immediately ran into opposition, particularly from seniors, who worried that delayed claims would slow delivery of needed services. As a result, the four other states that had planned their own pilot programs postponed implementation.

Another, more focused approach would be to utilize big data to analyze claims and locate statistical outliers to pursue. The Department of Health and Human Services Office of the Inspector General is in the process of implementing such an approach. The idea is to streamline the process of submitting and paying Medicare claims while focusing on elimination of the bad actors.

White Hat, Black Hat

The Federal government spends a lot of money hiring smart analysts whose job it is to outsmart fraudsters and create mechanisms to identify fraud. Occasionally, in some high-profile cases, the feds find the bad guys. This might be called “white hat” fraud detection. Corporate America goes one step further by hiring “black hat” hackers, those whose cyber activities may not be strictly legal. The idea is that to catch a hacker you need to think like a hacker. The same approach might be considered to stay ahead of Medicare fraudsters.

Safety in Numbers

One advantage that seniors have over those who would commit fraud on their behalf is that the seniors far outnumber the fraudsters. Seniors enjoy the advantage of having time to devote to the effort of stopping Medicare fraud. Over the years, seniors have proven to be essential contributors to Neighborhood Watch, helping to preserve the safety of their own neighborhoods.

The model of community vigilance may be applied to the prosecution of Medicare fraud as well. One key addition to the model is total transparency: allowing seniors and their physicians to “see” all the players involved in the process of delivering a Medicare service. This includes keeping the price transparent for all to see as well. At any stage of the transaction, if one of the parties attempts to deliver an unneeded service, or fails to deliver a service as promised, the other parties will know it right away. It is advantageous to have many pairs of eyes on the lookout for a few dishonest partners, even if those eyes are wearing bifocals.