This article was published by The McAlvany Intelligence Advisor on Monday, July 25, 2016:  

English: Photograph of President signing the M...

President Lyndon B. Johnson signing the Medicare Bill

Robbins Geller Rudman & Dowd LLP uses as its URL where it advertises its legal services: Government Procurement Fraud, Pharmaceutical Fraud, Medicare and Medicaid Fraud, Contractor Fraud, Fraud, Banking and Mortgage Fraud, Securities Fraud, and Tax Fraud.

Business is booming, especially with Medicare and Medicaid fraud growing, it seems, almost by the day. The firm explains why:

One of the primary reasons for the rise in health care costs has been the large degree of fraud committed against government healthcare programs, Medicare in particular.  The Medicare program is a target for fraud because it is based on the “ system” of billing, where the government would reimburse a for services without first verifying the validity of those services.

It was originally set up to assist honest doctors who helped the needy with medical services.  The substantial level of healthcare fraud is one of the main reasons why the U.S. Government Accountability Office has labeled both the Medicare and Medicaid programs “high-risk programs.”

But the programs are so massive, and the fraud so extensive, that the government is simply being overwhelmed by it:

Due to the sheer volume of health care claims submitted on behalf of the millions of Americans insured under these programs, the government alone cannot effectively combat healthcare fraud.

Just how extensive is the fraud?

The total amount of Medicare fraud is difficult to track, because not all fraud is detected and not all suspicious claims turn out to be fraudulent. According to the Office of Management and Budget, Medicare “improper payments” in 2010 alone were $47.9 billion.

And here's their sales pitch:

While the Affordable Care Act of 2010 provided an additional $350 million to pursue physicians who are involved in Medicare fraud, whistleblowers remain the government's best and most efficient weapon in detecting and ferreting out healthcare fraud.

As is so typical, when a government agency sees a problem that it, itself, has created, its solution is to create another agency to solve it. Enter the Medicare Fraud Strike Force (MFSF), established in March, 2007, to ferret out fraud and bring the fraudsters to justice. At first blush, its record looks pretty good: Since that time, nearly 3,000 defendants, including doctors, nurses, PAs, hospital administrators, pharmacists and other health care providers have been charged with bilking Medicare for more than $10 billion.

In 2010 the MFSF charged 94 people nationwide for submitting fraudulent charges totaling $251 million, including doctors, medical assistants and health care facility owners and operators. In 2011 the fraud task force charged 91 people for engaging in defrauding Medicare of $295 million. In 2013 it charged another 89 people for defrauding the program of $223 million while in June 2015 it charged 243 people (including 46 doctors, nurses, and other medical professionals) in a scheme that netted them approximately $712 million. That was the largest bust until the one announced last week.

That one exceeded $1 billion for the first time since Medicare's creation and involved a mastermind named Philip Esformes, the owner of more than 30 Miami-based nursing and assisted-living facilities. He, along with hospital administrator Odette Barcha and physician's assistant Arnald Carmouze, have for the last fourteen years developed a massive network of physicians, PAs, healthcare facilities' owners, and others that referred thousands of patients to their facilities, even though many of them didn't qualify under Medicare rules. Medicare was billed for services that either weren't rendered, or were rendered but not needed. When certain limits were reached, the patients were then moved to another facility where the scam would begin once more.

The kickbacks were disguised, said the MFSF, as charitable donations, or just paid under the table in cash.

Esformes settled a similar case with the Justice Department in 2006 for $15 million, but apparently he just considered that a cost of doing business as he continued to defraud the programs. Leslie Caldwell, head of the Justice Department's criminal division, described his operation: “This was a whole network of people scratching each other's backs, paying kickbacks, and giving each other referrals. It shows what people can do when they're determined to put their hand into the Medicare pot.”

It also shows what happens when billing depends upon the “honor system.”

According to Robbins Geller et al, “Healthcare fraud can occur in an infinite number of ways, but the most common can be grouped in the following categories”:

Billing for services not provided (“phantom” billing”);


Bribes and kickbacks (a person will, for a fee, “loan” the doctor her patient Medicare number and allow the doctor to submit “bogus” claims using that number); and


Upcoding and Unbundling (upcoding is billing under a code with a higher reimbursement rate; unbundling is billing separately each of the procedures included in a “bundled” code).

It appears that the MSFS is doing a good job. After all, a billion dollars is still a lot of money, even after inflation. But when compared to the gigantic size of the two programs, Medicare and Medicaid, it pales. Those two programs manage the healthcare of 100 million people, at a cost approaching one trillion dollars a year. Fraud (above ground) is around $50 billion. Underground, undiscovered, uninvestigated fraud is vastly larger.

And it is likely not only to continue, but to increase.

Isn't this one more good reason why healthcare should be left to the private market? Would this be such a massive problem if health care wasn't run by the government? Just asking.

Sources: Medicare and Medicaid Fraud

Chicago Sun Times: Chicago-area man 1 of 3 charged in biggest-ever Medicare fraud

Wall Street Journal: Justice Department Charges Three in $1 Billion Medicare Fraud Scheme in Florida

History of Medicare fraud

Miami Herald: Feds break up $1 billion Medicare scam in Miami — biggest in U.S. history

New York Times: U.S. Says Florida Network Defrauded Medicare and Medicaid of Over $1 Billion Doctors and nurses busted for $712 million Medicare fraud in 2015

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