Medicare fraud, what very low administrative costs and government processes get you


Critics of private health insurance and proponents of a single payer health system like to point to the apparent low administrative costs for Medicare as one of the advantages of such a system. In fact, because of the nature of claims, the demographics and what is included in the calculations, there is no valid comparison between Medicare and private insurance.

But there is even more to it than that. Think about the fact it took passing the Affordable Care Act to focus on and better control fraud and waste in Medicare. Medicare has been around for nearly fifty years and now we are attacking fraud and waste? At least going back to the 1990s government auditors criticized the Medicare claim process and low administrative costs as being too lenient and leading to fraud.

The Medicare claims process is mismanaged, it’s just that simple. And partly so because the way the law is written.

It turns out that medical supply companies can and do solicit Medicare beneficiaries and then tell doctors what the patient requested with the result approval is given for no valid reason.

According to an article on

Medical equipment suppliers are explicitly prohibited from cold-calling anyone enrolled in Medicare unless the beneficiary gave written permission or the supplier provided equipment to the beneficiary in the past.

“Unless?” Why under any circumstances should a supplier of medical equipment solicit a Medicare beneficiary? As I write this I am watching a TV commercial telling seniors to call a toll free number for their knee or back brace “at little or no cost to you” meaning of course that Medicare will foot the bill. Shouldn’t the demand be created by a medical need initiated between the patient and physician? The very fact this occurs under Medicare tells you something about the loose controls in the system.

From 2009 to 2012, Medicare paid $43 billion for durable medical equipment such as back braces, sleep apnea monitors and power scooters. More than 60 percent of those payments – $27 billion – may have been improper, according to research by staffers of a Senate subcommittee on financial oversight, which McCaskill leads. The federal government has been able to recover only about 3 percent of overpayments.

At a recent hearing on Capitol Hill, (Senator) McCaskill said she was concerned that loopholes in the law and poor oversight allowed some unscrupulous companies to exploit Medicare. Taxpayers end up footing the bill, the senator said.

Loopholes in the law, in a law passed in 1965?… but hey, Medicare has low administrative costs?

There is hope though, the fast moving bureaucracy now has a pilot program to cut the abuse.

To fight fraud and waste, the federal Centers for Medicare & Medicaid Services have introduced competitive bidding and a pilot program that requires approval before Medicare will pay for power wheelchairs and scooters for beneficiaries in seven states with high rates of fraud and errors: California, Illinois, Michigan, New York, North Carolina, Florida and Texas, CMS spokesman Tony Salters said in an email. For now, pre-approvals aren’t required in most states for most equipment.

Here is the bottom line on why Medicare has such problems: From fox11online

For decades, Medicare has operated under a pay-and-chase system, paying providers first and investigating suspicious claims later. The system worked when the agency was paying hospitals and institutions that couldn’t close up shop and flee the country if they’d been overpaid. Federal authorities are using new technology designed to flag suspicious claims before they are paid, but the system is still in its infancy.

As well intentioned as the employees may be, here is a perfect example of a slow moving, cumbersome bureaucracy in action (or inaction as the case may be).

And here is another example of the consequences of minimal oversight of claims. This is reported by Politico.

DROOPY EYELIDS: A MEDICARE COST DRIVER? – Eyelid lifts paid by Medicare tripled from 2001 to 2011, the Center for Public Integrity reports. Although the program intends to pay for the procedure when it impacts a senior’s vision, the spike is leading some experts to question whether the program for has been paying for purely cosmetic surgery, perhaps to the tune of millions of dollars. In 2001, the cost of eyelid lifts ran to $20 million, and in 2011 the cost surged to $80 million, according to CPI. “With this kind of management malpractice, it’s little wonder that the [Medicare] program is in such dire shape,” Sen. Tom Coburn (R-Okla.), told CPI.

Here is the irony. In the private sector there is a great deal of pre-certification, pre-approval and pre-authorization required and for good reason. Physicians and patients complain, but you don’t hear of unsolicited calls on those not enrolled in Medicare, you don’t see ads on TV touting a scooter “at little or no cost to you.” Nobody is trying to sell you a back brace.

So what’s the difference? Well, the private sector cares what something costs, the failure to control fraud over extended periods would have serious consequences for managers and in the private sector resources (administrative costs) are devoted to the effort. And, patients in the private sector have a real stake in out of pocket costs. Their deductibles are higher and they actually pay coinsurance and co-pays unlike most seniors who have supplemental insurance to cover their deductibles and 20% coinsurance.


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