The Public Policy

The Fraud in Our Entitlement System

It's just begging to be exposed, as an important first step in cutting our unsustainable national debt.

By 2.2.12

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Though some might still deny it, there is growing bipartisan belief that our nation's level of indebtedness is unsustainable. How we reduce the debt burden is another matter; this is where political knives are sharpened.

Yet there is one uncontroversial issue that could result in dramatic savings and, interestingly is almost never mentioned: fraud, fraud in Social Security, Medicare, and Medicaid.

The Social Security Administration (SSA) manages cash benefits for people with disabilities accounting for approximately $150 billion. There are two programs in this category, Disability Insurance (DI) and Supplemental Security Income (SSI), the former for workers with disabilities including family members and the latter for individuals with disabilities who have limited income and resources.

Remarkably the GAO analysis of SSA and federal salary data found that 1,500 federal civilian employees are receiving funds improperly to the tune of $1.7million monthly or $20.4 million annually. This is approximately two percent of SSA fraud cases which demonstrates the magnitude of the problem. In fact, there are literally hundreds of SSI recipients who receive their checks in Mexico City, to cite one example, who haven't resided in the United States in years and who never contributed a dime to the Social Security agency.

The most flagrant example of fraud in the Social Security system is identity theft. Invariably SS numbers are stolen and used to open credit cards. In a plurality of cases the numbers are stolen from minors with no credit history. A similar method is used with stolen telephone and utility bills.

In general, there are three ways to commit fraud in the Social Security system including identity theft: Issuing false statements; concealing the truth; mishandling payments. When you apply for disability, an application must be filled out based on a claim. If you claim you are disabled and unable to work, but still maintain a job, that is fraud.

No one at the GAO can give me an accurate estimate of fraud and the SSA admits it cannot monitor the fraud cases. Hence any estimate is likely to err on the conservative side. On SSI and DI alone, fraud probably accounts for at least 2 to 3 billion dollars. And this represents only two of the many Social Security programs, albeit the ones most likely to engender fraud cases.

Medicare fraud is rampant and as is the case with Social Security hardly ever prosecuted and generally undisclosed, despite estimates about abuse that appear in the Congressional Record. The fraud occurs when people or companies bill Medicare for services that were never provided or received or were unnecessary. Providers generally commit fraud when services are not given. A common practice is "gang visits" in which a provider visits a nursing home and bills for services to all or nearly all the residents. In this case services may not be performed or, more likely, the provider performs a service whether or not the resident needs it.

When my mother lived in a Florida retirement community, a well upholstered van would stop and the driver would call for her three times a week. I asked my mom why she went to the doctor's office so frequently, assuming there was a health issue that had to be addressed. She said, "A nurse takes my blood pressure and asks me how I'm feeling. I don't have much to do so this helps pass the time. After all, it's free." It may be free for her, but it is not free for tax payers. Moreover, whatever the expense for my mom has to be multiplied by 20 to account for the others in the van.

Another fraudulent act, which occurs routinely, is "upcoding a service," i.e. bill for surgery when only a band-aid was placed over a cut. Similarly, unbundling services is a way to pad bills by suggesting three or four tests intended to be one service are billed as independent services.

Suppliers commit fraud when they bill for a qualitatively superior product, but offer the marginal variety or bill for equipment that has been returned.

Recruiters are a growing problem on the Medicare front. These people often go door to door offering money and gifts as incentives for "free" medical exams. Needless to say, Medicare is charged for this solicitation.

Because of the availability of government "soft" money, scams proliferate. There are advertisements for medical plans that have not been approved; there are misleading plans that have not been approved; there is misleading information that encourages fraudulent acts, e.g. when a company offers Part D prescription plans at no cost to beneficiaries, even though Part D plans require beneficiaries to pay premiums.

According to FBI records, there are about 2,500 pending fraud cases a year since 2003, most falling into the "upcoding" category in which a routine doctor's office visit is billed as individual therapy. However, these cases represent the tip of the proverbial iceberg since upcoding is a common practice among health care providers. So too are kickbacks in which money is exchanged for the referral of patient services that will be paid by Medicare.

Medicaid has many of the same fraud issues as Medicare, with provider bills that were unnecessary or never performed. Under Medicaid, a healthcare provider is paid by the government for each service it performs. Billing the government for fictitious services can be highly lucrative, which explains in large part why each year another "nursing home scandal" appears on the front page of local newspapers.

The 50 state Medicaid fraud control units obtained a collective 1205 convictions two years ago claiming recovery of more than $1.1 billion in court-ordered restitution, fines, civil settlements and penalties. But this number is deceptive. Cases are obviously brought when a suspected felon is identified. However, the mechanism for apprehension is weak and ineffective, leading offenders to the obvious conclusion that the chance of being prosecuted for fraud is so slim the risk-reward ration merits crime. For example, more than 61 percent of medical providers (4,319 total) banned from state Medicaid programs in 2004 and 2005 did not show up on the federal database of state banned providers. This makes it easy for banned providers to relocate and continue doing business with federal health insurance programs. It is estimated that nearly 10 percent of Medicaid's $400 billion a year program is fraudulent. The GAP points out that claims were paid to 1,705 dead people and beneficiaries were improperly obtaining addictive drugs at a cost of $65 million.

Although not technically a crime, but surely an abuse, are the Medicaid recipients who use the Emergency Room of municipal hospitals as their personnel clinics with an average fee of $250 a visit. This astounding aggregate number is not considered Medicaid fraud.

Medicare and Medicaid combined account for more than 60 percent of the accumulated national debt. In 2010 an estimated $27 billion in "improper payments" were made in these programs, with $12 billion in Medicare and $15 billion in Medicaid, and this occurred despite a decrease in the error rate from 4.4 percent to 3.9 percent. Medicare and Medicaid lose an estimated $65 billion a year to fraud -- based on known and suspected cases, which is a fraction of the fraud for which there isn't any accounting. According to the Department of Health and Human Services, every $1 the U.S. government spends in combating fraud in these two areas saved $1.55; however, Medicare spends less than two-tenths of a cent of every dollar of its close to $500 billion annual budget combating fraud, waste and abuse. According to the U.S. Senate Permanent Committee on Investigations, Medicare paid dead physicians 478,500 claims totaling $92 million from 2000 to 2007. The Inspector General at the Department of Health and Human Services noted that 29 percent of the claims Medicare paid for durable medical equipment was erroneous. The College of Radiology reports that Medicare and private health insurances pay up to $16 billion a year for needless imaging that is ordered by doctors.

In an effort to contain fraud the federal government has committed more than a billion dollars to introduce a new access card system utilizing smart card technology. Although it started phasing in 2008, it still not reached the majority of healthcare beneficiaries and libertarian detractors contend the card is a violation of one's privacy and they oppose implementation.

 

Senator Orrin Hatch is the first senator to provide a badly needed upgrade to the statutory language enabling federal prosecutors to go after identity thieves. In many cases illegal aliens, using document mills, obtain an identity card for employment purposes. With Hatch's proposal the IRS will notify every employer within 60 days that a SSA number was used by a prospective employee. This simple procedure enables victims to be aware of fraud, especially children who are often unaware of the fraud until they reach the age of majority. Clearly a step in the right direction, but since youngsters are unaware of theft, curtailment is not likely.

Senator Tom Coburn has argued that SSDI is being used as an extension of unemployment benefits, rather than as a program to assist the truly disabled. According to reports he submitted to the Senate, at least 100 of the 1,500 judges at Social Security are approving 90 percent or more of the cases they receive. "These numbers defy conventional logic and demand further scrutiny." The approval of a single disability claim results in a lifetime obligation of approximately $300,000 that must be borne by taxpayers. While merely a report, these revelations could be the catalyst for further action.

At present there are about 55 million Social Security beneficiaries with about $650 billion expended for the program. SSI alone has almost 8 million recipients with an expenditure of $45 billion. Assuming fraud at a modest 10 percent rate in each of three programs mentioned, there is $100 billion that is waiting to be cut in the federal budget. This is certainly not enough to balance the books, but even by Washington standards it would be an impressive start.

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About the Author

Herbert London is president of the London Center for Policy Research and coauthor (with Jed Babbin) of The BDS War Against Israel.