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Fighting Fraud Requires Innovation

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The President's sequestration plan is full of furloughs of staff and cuts to critical defense projects. What you won't see much of is a plan to cut wasteful spending within federal programs. Notably, the President has refused to agree on any reforms to the real drivers of our debt--entitlement programs.

The sequestration cuts are but a very small part of overall government spending, approximately 2.4 percent. However, even with these reductions in defense and domestic programs, the federal government is still likely to spend more this year than last year. Programs with automatic spending increases such as Medicare and Medicaid will increase and more than make up for any decreases in spending in other areas.

If we want to fix our budget problem, we have to start with government health programs. There is a lot of disagreement about how we can make these programs reliable for future generations. There's not nearly as much disagreement about reducing waste in these programs.

The sequestration cuts total $85 billion in our $3.7 trillion budget for this year. However, government watchdogs estimate that Medicare and Medicaid make $65 billion in improper payments every year. Incredibly, their estimates may understate the problem. Outside groups that have looked at the programs think that they could be losing nearly $100 billion every year to waste, fraud and abuse.

Some improper payments are merely mistakes, such as accidental double billing by a provider or overpayments on the part of the government. Other improper payments are outright fraud.

Some doctors have been known to file millions of dollars in claims for non-existent patients. Sometimes the fraudsters are criminal gangs who have been known to steal a legitimate provider's identification number and file claims without their knowledge.

The Centers for Medicare and Medicaid Services, the government agency that runs these programs, rarely captures fraud before money goes out the door. In most cases, it is months or years before the fraud is detected and even longer before perpetrators are prosecuted. Most of the time, money stolen from the program has already been spent. The criminals might get sent to jail, but the American taxpayer doesn't get their money back.

While there have been efforts in recent years to cut back on fraud, they fall well short of saving significant amounts of money. Meanwhile, private health insurers are using innovative methods to track claims and spot fraud before checks are cut.

This week, I chaired a hearing of the Energy and Commerce Health Subcommittee to compare government efforts to what has been going on in the private sector. Since 1995, Blue Cross and Blue Shield of Louisiana has used a fraud management system from IBM. The system uses over 3,000 computer algorithms to identify fraud and abuse. They've led the nation in prevention of fraud.

Medicare and Medicaid have yet to institute such efforts systemwide. There are pilot programs, but it may be years before the methods they are testing become common practice.

The private sector has driven innovation on fighting fraud, but that innovation has been put at risk by Obamacare rules and regulations. The President's new health law may actually discourage health insurers from preventing fraud.

The medical loss ratio rules require that "administrative expenses" only account for 20 percent of total spending. These rules classify spending to prevent fraud as administrative. Worse still, when companies cut fraudulent payments it counts against their spending on health related items. This perversely discourages companies from spending money to prevent fraud or even to discover it after payments have been made.

In other words, while the government could stand to learn from the private sector, Obamacare is making the private sector behave more like government. This is a huge step backward. If insurers are going to enroll millions more Americans, they need the tools to make sure fraud doesn't get out of hand.

The government is not going to innovate in this sector. Bureaucrats are never as careful with public money as companies are with investor funds. Fraudsters are always going to be finding new ways to rob health plans, government or private sector. What we need is constant innovation, something we may lose as government takes over health care.


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