The New Face of Medicare
Drug dealers and organized-crime groups have invaded the Medicare system and are taking the government and citizens for a billion-dollar ride
The sheer size of the Medicare system is a huge impediment to fighting fraud. Each year, 800 million claims are filed. Payments are processed and checks issued by electronic systems managed by about 70 different contractors, many of them statewide Blue Cross/Blue Shield plans. The government then reimburses the contractors. Humans see only a fraction of the claims in the highly automated process.
Malcolm Sparrow of Harvard's Kennedy School of Government, author of License to Steal, a book on health care fraud, says he posed a not unlikely scenario to the executives of Medicare contractors: A fraudulent operator submits one claim for a medical procedure that requires a $1,500 Medicare payment. His bill is correctly coded, and the claim is paid. So the same operator submits 10,000 claims for the same procedure on 10,000 other patients--a total of $15 million in bills on one day. "In every field site I went to, bar one, a $15 million check would have been issued without a hiccup," Sparrow says. Since it's only a one-time payment, Sparrow says, the contractors' computers might not even flag the payment as unusual, since a billing pattern hasn't developed. Or as one executive told him: "We would probably never notice. It's not our money."
The Health Care Financing Administration, the 4,000-person federal agency that runs Medicare, does require contractors to check for fraud. But its financial incentives send the opposite message. HCFA regularly evaluates contractors on how efficient they are in getting payments out the door, and it penalizes contractors if they don't process claims within 30 days.
Deactivating controls. Not surprisingly, in this climate Medicare contractors have tended to view spending a lot of time on fraud detection as bad for business. While Medicare claims have nearly doubled in the past eight years, the number of those reviewed for irregularities has dropped from 17 percent to 9 percent. Often, employees say, all that a contractor does when it detects a fraudulent billing is to not pay the claim--and let the matter quietly drop. Some contractors don't stop with benign neglect, however: Blue Shield of California pleaded guilty and paid a $1.5 million fine in 1996 to three felony counts that it altered mistake-prone claims and destroyed others to improve its "performance" rating with HCFA. Michigan Blue Cross/Blue Shield paid the government $27 million and lost its Medicare contract altogether after admitting to falsifying data that HCFA uses to rate performance. In fact, there are 215 active cases filed by whistle-blowers against Medicare contractors. A case involving Florida Blue Cross & Blue Shield is a good example. Theresa Burr, a former claims supervisor, says she was fired after objecting to the company's decision to turn off its "audit and edit" software--the controls that catch billing duplication and anomalies--when claims backed up on a new computer system. If the delays had been reported, the company would have faced costly penalties. But turning off the software meant that thousands of duplicate and possibly fraudulent claims were paid. The Justice Department took over Burr's suit and settled with the company for $10 million--while allowing it to retain its Medicare contract. "This group of people didn't pay attention to fraud at all," says an angry Burr. "They were just processing claims and worrying about their jobs." In a statement, Florida Blue Cross & Blue Shield noted that the government "specifically provided that the settlement was not an admission of wrongdoing" by the company and that the maker of the new computer system, GTE, in turn reimbursed Blue Cross & Blue Shield for the $10 million.
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