Crooks love American health care for two reasons. First, as Willie Sutton said of banks, it’s where the money is – no other country spends nearly as much on pills and procedures. Second, unlike a bank, it is barely guarded.
Health care is a tempting target for thieves. Medicaid doles out $415 billion a year; Medicare nearly $600 billion. Total health spending in America is a massive $2.7 trillion, or 17% of GDP. In America the scale of medical embezzlement is extraordinary. According to Donald Berwick, the ex-boss of Medicare and Medicaid, America lost between $82 billion and $272 billion in 2011 to medical fraud and abuse. The higher figure is 10% of medical spending and a whopping 1.7% of GDP – as if robbers had made off with the entire output of Tennessee or nearly twice the budget of Britain’s National Health Service (NHS).
Federal prosecutors had over 2,000 health-fraud probes open at the end of 2013. A Medicare “strike force”, which was formed in 2007, boasts of seven nationwide “takedowns”. In the latest, on May 13th, 90 people, including 16 doctors, were rounded up in six cities – more than half of them in Miami, the capital city of medical fraud.
Punishments have grown tougher: last year the owner of a mental-health clinic got 30 years for false billing. Efforts to claw back stolen cash are highly cost-effective: in 2011-13 the government’s main fraud-control program, run jointly by the Department of Health and Human Services (HHS) and the Department of Justice, recovered $8 for every $1 it spent.
As fraud-fighting has intensified, dodgy billing has tumbled in areas that were most prone to abuse, such as durable medical and home visits. Home-health fraud – such as charging for non-existent visits to give insulin injections – got so bad that the CMS, which runs the programs, called a moratorium on enrolling new providers in several large cities last year. Since tighter screening was introduced under Obamacare, the CMS has stripped 17,000 providers of their license to bill Medicare. Thousands of suppliers also quit after being required to seek accreditation and to post surety bonds of $50,000.
Fraud migrates. Take one popular scam: overbilling for HIV infusion, an outdated therapy that Medicare still covers despite the existence of cheaper, better alternatives. This scam waned in Florida after a crackdown, only to pop up in Detroit, run by relatives of the original perpetrators. Fraud mutates, too. As old hustles are rumbled, fraudsters invent new ones. “We’ve taken out much of the low-hanging fruit,” says Gary Cantrell, an investigator at HHS – an example being the thousands of bogus equipment suppliers registered to empty shopfronts. Scams now need to be more sophisticated to succeed, he argues. Doctors, pharmacies, and patients act in league. Scammers over-bill for real services rather than charging for non-existent ones. That makes them harder to spot.
Some criminals are switching from cocaine trafficking to prescription-drug fraud because the risk-adjusted rewards are higher: the money is still good, the work safer and the penalties lighter. Medicare gumshoes in Florida regularly find stockpiles of weapons when making arrests. The gangs are often bound by ethnic ties: Russians in New York, Cubans in Miami, Nigerians in Houston and so on.
In one fast-growing area of fraud, involving pharmacies and prescription drugs, federal investigators have seen caseloads quadruple over the past five years. Elderly patients may receive kickbacks to sell their details to a pharmacist. He will then provide them with drugs they need while billing Medicare for costlier ones. Another scam is to turn a doctor’s clinic into a prescription-writing factory for painkillers and resell them on the street. A clinic in New York was recently charged with fraudulently producing prescriptions for more than 5m oxycodone tablets, which were sold locally for $30-$90 each. The alleged conspirators included doctors and traffickers who ran crews of “patients” so large that long queues sometimes formed outside the clinic. The doctors charged $300 per large prescription. One raked in $12m. To cover their backs they would ask for scans or urine samples purporting to show injuries. The fake patients typically obtained these from the traffickers at the clinic door.
False billing by pharmacies is rife. New York’s Medicaid sleuths have stepped up spot checks to see if the drugs in the back room square with invoices. But this is a lot of work, so most outlets are never checked.