A Report in the National Review claims Medicare and Medicaid together account for about $1 trillion in federal spending annually, and estimates suggest that $1 out of ever $10 of that spending is fraud. Some estimates go much higher.
According to Malcolm Sparrow, a Harvard professor of public management who studies medical fraud, the government’s approach long has been backward: “Basically, the audits they’re using on a random sample are nothing like fraud audits,” he told The Nation. “The difference between a fraud audit and a medical review audit – a medical review audit, you’re taking all the information as if it’s true and testing whether the medical judgment seems appropriate. You can use these techniques to see where judgments are unorthodox or payment rules have not been followed, but almost nothing in these methods tests whether the information you have is true.”
Which is to say, investigators are asking whether a certain treatment was in fact appropriate for what ails Mrs. Jones, not whether Mrs. Jones exists. Entitlement fraud is what security experts describe as an “adaptive threat,” meaning that it is a problem without a solution, because the problem mutates in response to every solution developed.
Fraud tends to cluster in certain areas and in certain treatment categories. The reason for that is that this fraud is not random, not just the result of some general practitioner padding his bills. It’s the work of organized crime. As Sparrow points out, when there is a criminal case filed against one of these fraud artists, then billing in a particular category – some years ago, it was HIV fusion treatments – falls off steeply, by as much as 90 percent. The implication here is that fraudulent billing may make up the majority of Medicaid and Medicare spending in some categories.
This is a major criminal enterprise, one involving transnational crime syndicates looking for a better return than that provided by drug smuggling and the other familiar rackets. According to The Economist: 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 investigators in Florida regularly find stockpiles of weapons when making arrests. The gangs are often bound by ethnic ties to international venues.
On a dollar-per-dollar basis, the Department of Health and Human Services fraud-recovery units by most accounts do relatively effective work – but do not do very much of it, having recovered less than $2 billion in fraud losses in fiscal 2016. And there were only 1,160 convictions in fraud cases in 2016, or barely one fraud conviction a year for every two staffers in the anti-fraud division.
It should be understood that data mining isn’t a substitute for intelligent analysis – it isn’t a black box that can be switched on and start spitting out the home addresses of fraudsters. It is a tool, but one that can be used effectively only by an intelligent and creative team of human analysts.
But even problems that cannot be solved can be managed. The private sector may provide illustrative examples.
Peter Thiel is a Silicon Valley entrepreneur who cofounded PayPal. As a payment system, PayPal was a natural target for fraud artists, and it developed sophisticated anti-fraud protocols, some of which were incorporated into a subsequent Thiel business called Palantir, a powerful data-mining platform that is used by everybody from U.S. intelligence agents to police detectives, for tasks ranging from mapping out where IEDs are likely to be planted to – more relevant to our immediate concern here – identifying fraud.
The point here is that workers’ compensation administrators need to adapt quickly to new tools and technologies – more quickly than perpetrators adapt to new methods of perpetrating medical fraud.