Why the Push for Health Care Reform

Lack of trust in government killed Obama’s health care reform

David Gibson picture

“Change You Can Believe In Needs a Government You Can Trust.”

Jennifer Shaw Gibson, MD

A year ago, it appeared that America was heading into a new era of progressivism. The party of government, the Democrats, had just experience two successive election cycles where their party had attained overwhelming control of both the Senate and the House of Representatives. They had also successfully elected a President whose activist credentials were impeccable.

What we have learned over the past 12-months is that 2009 is vastly different than the 1930’s or the 1960’s. In those earlier eras, government did not need to defend massive, ineffectively managed social programs.

The case for creating social programs could be made when trust in government was relatively high and skepticism of authority was lower. Within this context progressive political initiatives produced Social Security, Medicare and Medicaid.

Today, these social programs have grown to the point where they consume more than 60% of all federal spending. As a result, the federal government spends nearly $2 for every dollar it is taking in; and in just four years from now, as the result of growing entitlements and rising interest costs on the national debt, some two-thirds of Washington's dollars will be so-called mandatory spending.

Jonathan Rauch described this environment in his book “Government’s End: Why Washington Stopped Working,” first published amid the collapse of Clintoncare, and then reissued after the failure of the Gingrich Revolution

“Under Franklin Roosevelt and Lyndon Johnson, liberals created a federal leviathan that taxes, regulates and redistributes across every walk of American life. In the process, though, they bound the hands of future generations of reformers. Programs became entrenched. Bureaucracies proliferated. Subsidies became ‘entitlements,’ tax breaks became part of the informal social contract. And our government was transformed, slowly but irreversibly, into a ‘large, incoherent, often incomprehensible mass that is solicitous of its clients but impervious to any broad, coherent program of reform’.”

In January of 2009, the Democrats were forced to pivot from the insurgent to the governing party. They pushed an aggressive reformist agenda ranging from health care to climate change. During the past 12-months, little has been accomplished. This paper explores why.

Perhaps the current most compelling case for reform involves the health care financing system. The system is neither acceptable nor sustainable. Maintaining the status quo means that each year 5,000,000 people will lose their medical insurance, over 900,000 will go bankrupt for medically-related reasons, and 45,000 people will die because of lack of adequate access to health services.

However, according to Scott Lilley, a senior fellow at the Centre for American Progress, the think-tank that is closest to the White House, “It now looks extremely difficult, if not impossible, to get anything resembling a broad healthcare bill out of Congress.”

Why are we collectively unable to address this conundrum that is literally destabilizing our economy at a policy level? David Brooks wrote an insightful article, Politics in the Age of Distrust, in the January 21, 2010 issue of the New York Times. He begins by making the following points as to why important issues of public policy cannot be addressed or resolved in the current political environment.

“In November 2008, William A. Galston and Elaine C. Kamarck wrote a report called ‘Change You Can Believe In Needs a Government You Can Trust.’ Galston and Kamarck, who served in senior positions in the Clinton administration, threw up some warning flags for the incoming Obama administration.

Despite the Democratic triumph that month, they noted, public distrust of government remains intensely high. Historically, it has been nearly impossible to pass major domestic reforms in the face of that kind of distrust. Therefore, they counseled, the new administration should move cautiously to rebuild trust before beginning a transformational agenda.”

At the core of the public’s distrust of government is the utter incompetence of government at both the federal and state levels in managing the health care entitlement programs the taxpayers have entrusted them to manage. Daniel R. Levinson, the inspector general of the Department of Health and Human Services, has warned repeatedly that the Medicare program is "highly vulnerable" to fraud.

The Government Accountability Office lists health care entitlement programs as a "high-risk" in urgent need of reform. These programs are excessively vulnerable to fraud and have been since their inception over 40-years ago. Today, fewer than 5% of Medicare claims are audited. The audit rate for Medicaid is even lower.

By passively allowing billions of dollars to be diverted to fraud while creating vast ineffective bureaucracies to confront the problem, the government has become an incomprehensible Rube Goldberg monstrosity in the eyes of the electorate. In short, it has become the government you cannot trust

President Obama on September 9, 2009 claimed that his administration could eliminate $500 billion in fraud fund diversion over the next ten years without taking a single treatment away from a single Medicare patient. So, why hasn’t the federal government produced this savings before?

The loss to fraud within government health care entitlement programs is far greater than the estimated losses to Medicare cited by the administration. No one knows the actual percentage of funding that is lost to fraud within either the Medicare or the Medicaid program. However, current estimates for funding diversion within Medicaid are well above the current 10% loss estimate for Medicare.

In 2010 these two programs are projected to generate over $817.7-billion in spending ($499-billion for Medicare and $319.7-billion for Medicaid). If one takes the most conservative estimates for fraud diversion within these programs (10%), the current annual loss will be over $81-billion with the actual loss more likely to be twice that amount.

Over the next decade, if one assumes a growth in cost at 5-percent which is roughly the rate of inflation within health care and further assume that the Medicaid program will not be expanded as is currently called for within the reform initiative before Congress, the cost for these programs will be over $13-trillion. That will translate to over $1.3 trillion in losses to fraud. Using current recovery statistics, less than 0.55-percent, the government will retrieve less than $71.5-billion.

The electorate has reasonably concluded that before they entrust the government with expanded responsibilities for health care, the government needs to demonstrate it capability and objective credibility in efficiently managing the current programs for which it is responsible. The place to start that effort is within the massive social welfare programs now in place.

According to the 2008 report by the board of trustees for Medicare and Social Security, Medicare will spend more than it brings in from taxes this year (2008). The Medicare hospital insurance trust fund will become insolvent by 2019.

The Congressional Budget Office projects that "total federal Medicare and Medicaid outlays will rise from 4 percent of GDP in 2007 to 12 percent in 2050 and 19 percent in 2082 (this is roughly equivalent to the total spending by the federal government today). The bulk of that projected increase in health care spending reflects higher costs per beneficiary rather than an increase in the number of beneficiaries associated with an aging population.

Furthermore, the present value of unfunded obligations under all parts of Medicare during FY 2007 over a 75-year forecast horizon is approximately $34.0 trillion. Projecting to an infinite time horizon, the federal government will have an $85.6 trillion liability. This represents more than six times the annual output of the entire U.S. economy[1].

Perhaps the best place to start in ones educational process concerning fraud within health care entitlement programs is with the excellent CBS “60-minuts” special that was recently aired (http://www.cbsnews.com/video/watch/?id=5419844n). Investigative reporter Steve Kroft examined the rampant fraud infesting the Medicare program in the South Florida market.

Fraud within Medicare and Medicaid is perpetrated within at least two entirely different arenas. One arena involves sophisticated corporate nefarious activities and generally involves national or international manufacturers of goods such as pharmaceuticals or durable goods. The bureaucracies now in place at both the federal and state level are designed to investigate, confront and prosecute this type of corporate crime.

There is an entirely different second arena wherein fraud is perpetrated. The funding loss is far greater within this arena. This criminal activity requires the theft of identity and is perpetrated by nothing more than local street criminals. These criminals are fast moving (as documented in the “60-Minutes” expose. They require little in the way of support as demonstrated in an egregious example which involved Rita Campos Ramirez. This woman single handedly bilked the federal government out of $105 million using only a laptop computer. They open and close businesses with no inventory every 60 to 90-days.

The fraudulent companies, billing for goods and services never delivered, all bill using stolen patient and in some instances physician identities. Once a claim has been paid, recovery is virtually impossible. Funds are moved off-shore at the close of business each day and are re-routed to a maze of corporations.

Identities are stolen using “cappers”. These cappers acquire large volumes of beneficiary identification numbers, names and current addresses using a variety of methods. In some instances, the beneficiary will actively supply their information for direct payment – generally $25 to $30. This methodology generally concentrates in Medicaid within impoverished ethnic neighborhoods in large metropolitan areas.

Cappers who collect these individual beneficiaries transport them to a “medical clinic” and they voluntarily surrender their program information. The capper is then paid by the clinic for this service, generally in the $50 to $100 range. The clinic then bills the entitlement program for thousands of dollars for services that are not provided.

A slight variation of the above scheme is often found to defraud the Medicare program. Advertisements in local newspapers and flyers are distributed to senior citizens that entice this group to receive free health screens or medical checkups. The enticement may include free transportation to the medical clinic. Seniors are “pre-screened” to determine that they are eligible for program benefits by producing the required identification. They are usually given a very limited “checkup. “ The “medical clinic” then bills the program for hundreds or thousands of dollars for tests and services not provided. The beneficiary is often unaware that a fraud has been perpetrated since there is little or late follow-up by state or federal officials to verify that services were actually provided.

Beyond cappers, there are many other schemes are used to obtain identifying data required to bill and defraud the various programs and some mimic schemes that are used to obtain credit card information.

Medical billing schemes also involve unscrupulous employees of transportation services, medical, dental and pharmacies that obtain and sell patient information to a third party. This individual bundles up this data and sells the information to various “medical clinics” that use this data to fraudulently bill the program for goods and services that were never provided. Since there is little or no follow-up by the various programs to determine if these goods or services were actually provided, payments in the millions of dollars are spent on fraudulent billings.

Large centralized bureaucracies and sub-contracting national corporate vendors have no ability to confront this street level criminal activity. Current claims data, new forms of non-claims related information (e.g. daily updates on death certificates by county) and the proactive gathering of street level intelligence information are required.

The only way to protect the fiscal integrity of health care entitlement programs is to interdict the generation of a payment check.

The Current Infrastructure for Confronting Fraud within the Medicare and Medicaid Programs

A critical aspect of the problem is that both Medicare and Medicaid automatically pay the vast majority of the bills it receives from companies that possess supplier numbers. Computer and audit systems now in place to detect problems generally focus on overbilling and unorthodox medical treatment rather than fraud.

The above vendors provide services that are unwieldy in their design and cannot respond quickly to changing realities at the street level as described above. The result, claims get paid and restitution is virtually non-existant. In fact, using this in place infrastructure, the recovery rate of fraudulently diverted funding is approximately 0.55-percent.

The antifraud program now in place for both Medicare and Medicaid is known as MIP (Medicare Integrity Program and Medicaid Integrity Program). The MIP program which started within Medicare and in 2006 was recently extended into Medicaid and is under the oversight of the Program Integrity Group (PIG) within Centers for Medicare and Medicaid Services (CMS). The following administrative chart illustrates the reporting relationships for this program.

Most of the vendors within the MIP program are corporations that can trace their involvement with either Medicare or Medicaid for decades. TrustSolutions, LLC (http://www.trustsolutionsllc.com/ABoutTS.asp) serves as an example of a PSC CMS contractor. It commenced PSC activities on October 1, 2002. TrustSolutions’ current responsibilities include DME benefit integrity functions and data analysis for Jurisdiction C, which includes Alabama, Arkansas, Colorado, Florida, Georgia, Louisiana, Mississippi, New Mexico, North Carolina, Oklahoma, Puerto Rico, South Carolina, Tennessee, Texas, the U.S. Virgin Islands, Virginia, and West Virginia. It should be noted that TrustSolutions pedigree “a leading provider of comprehensive fraud and abuse solutions to federal healthcare system customers since 1993” according to the company’s website.

Thus, the same corporate vendors that provided services to CMS’s predecessor, the Health Care Financing Administration (HCFA), are still winning requests for proposals (RFPs) designed by friendly parties.

Therefore, during the existing supervisory and sub-contracting vendor structure, we have seen the evolution of an ineffective, incomprehensible co-dependent structure that has allowed criminal activity to flourish within the various programs MIP is responsible for protecting. Furthermore, the rate of preventing or recovering funding for the program is essentially non-existent.

How to Eliminate Most of the Criminal Activity within Medical Entitlement Programs

There is good news here. If one has studied identity theft based fraud and then designs a program to confront the problem, the problem can be eliminated. That is not wishful thinking. By using bullet proof technology that has been long ago deployed within the credit card industry, a program can be instituted that audits every claim before it is adjudicated and paid.

Furthermore, once a series of demonstrations projects for both Medicaid and Medicare have been completed, the resulting installed program will pay for itself. It will require no new bureaucracies. No additional personnel will be hired. Best of all, in this recessionary economy, it will require no additional funding.

1. It uses data mining technology that has proven successful in the private sector.

4. The software program then targets individual claims for further auditing and holds any payment until that process is complete.

5. The targeting information is referred to the local county district attorney for investigation.

6. Any fund recovery from prior fraudulent claims transactions is used to pay for investigator costs. Furthermore, the county shares in excess recovery of funds.

a. In essence, this duplicates the existing impoundment of assets (real estate, automobiles, cash, etc.) now in place for drug enforcement or even moving violations for speeding.

b. In essence, the proposed program places a bounty on the local fraudsters and turn local law enforcement into bounty hunters.

There are only two options available for addressing the inescapable problems facing health care entitlement programs. We can either address the policy issues in a deliberate proactive environment or we can wait until a reactive environment dictates draconian measures.

All of what has been proposed in this article fits comfortably into existing concepts for improving fraud prevention within entitlement programs. For example, Sen John Cornyn delivered a Senate floor speech on October 28, 2009 wherein he detailed the Potential for Fraud and Abuse in Medicare and Medicaid. He then provided a clear call for measures to address the problem (http://www.youtube.com/watch?v=DJqoNDxzFNM). Senator Cornyn’s solutions describe the program described here.

Given the inability to deal substantively at a policy level in today’s politically polarized environment, the opportunity to rebuild confidence in government can be found in effectively confronting the issue of fraud.

This is an opportunity that, if proposed and implemented as a demonstration project, has the potential to heal the destructive partisan divide that poisons our ability to confront growing problems. Perhaps, by building upon success, we can then move forward to generate public policy that works for the public.

David Gibson is the president of Reflective Medical, a health care software development company. Jennifer Gibson is an economist specializing in evolving health care markets as well as a futures commodity trader specializing energy.