Massaging Medicaid

A week-and-a-half ago, the D.C. Circuit upheld the criminal conviction of the owner of a clinic that bilked Medicaid out of millions of dollars:

[Jacqueline] Wheeler owned and managed the [clinic]. Between January 2006 and April 2008, Wheeler, who was wholly responsible for all of the [clinic’s] medical billing, submitted bills to Medicaid for more than $8 million in treatment allegedly provided. Medicaid paid the [clinic] roughly $3.5 million on those bills, $3.1 million of which was for massage treatments.

Acting on a tip that the [clinic] was cheating Medicaid, the Inspector General of the U.S. Department of Health and Human Services began an investigation in 2008. The FBI and Medicaid’s Fraud Control Unit soon joined the effort. Investigators easily concluded that many of the [clinic’s] bills to Medicaid were false. For example, several bills claimed that the [clinic] had given more than twenty-four hours of massage therapy to a single patient on a single day. Others reported hundreds of hours of massage therapy for days when only one therapist was on staff. Some sought payment for the treatment of patients hospitalized elsewhere.

What’s demoralizing is the familiarity of this story. Back in 1997, the D.C. Circuit issued another opinion involving a Washington, D.C. physician who claimed he worked more than 24 hours in a day. Any halfway-sophisticated computer system should have uncovered fraud this blatant. Well over a decade later, however, Wheeler was able to do exactly the same thing. Even then, it took an informant’s “tip” to clue officials into the fraud.

Wheeler’s claims for never-ending massages should never have been paid. Yet Medicaid, as with Medicare, generally pays first and asks questions later. The government calls this “pay and chase,” and the predictable result is that a lot of pretty obvious fraud slips through. Stephen Parente and his co-authors have estimated that improving the technology for processing claims would save Medicare about $21 billion per year—and that’s without any close scrutiny of medical records. (Austin discussed the Parente study here.)

Keep that figure in perspective: even $21 billion is a small fraction of the $500 billion per year Medicare program. And there’s no good data on whether Medicare and Medicaid fraud is more prevalent than fraud against private insurers. Even so, why not take more assertive steps to prevent fraud before it happens? The practice of giving cursory scrutiny to Medicare and Medicaid claims threatens to erode confidence in programs that serve urgent public needs.

We’re doing more chasing nowadays, to be sure. Last year, for example, the federal government recovered $4.3 billion in fraudulent Medicare and Medicaid payments. The Justice Department and HHS crowed that, “for every dollar spent on health care-related fraud and abuse investigations … the government recovered $8.10. This is the highest three-year average return on investment in the 17-year history of the [fraud-prevention program].”

But what does that rate of return imply? It’s possible that we’re ferreting out more fraud. It’s also possible, however, that Medicare and Medicaid are paying out more dubious claims than ever—and that $4.3 billion is just the tip of the iceberg. When the Armenian mafia decides that Medicare fraud is a growth area, you’ve got a major problem on your hands.

Criminal convictions and big fraud settlements are important, but they’re not enough. Medicare and Medicaid have to do more to prevent fraud from occurring in the first place—and, indeed, CMS is already taking tentative steps in that direction. No question, there are tradeoffs here. It will be costly to improve computer systems, to monitor compliance with program rules, and to scrutinize claims. Hassled providers will howl. But the Jacqueline Wheelers of the world will continue to submit abusive claims unless Medicare and Medicaid develop the systems to reject them.


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