E-Defrauding The Federal Government

The LA Times runs a surprisingly insightful article today on a good way to start cutting government waste:

What makes these healthcare programs so vulnerable to fake billings and at such a scale? It’s not so much the healthcare policy itself, nor the program design; the vulnerability stems from the payment mechanism the government has chosen to use. Most Medicare and Medicaid funds are paid out electronically and automatically, in response to electronic claims received from a vast spectrum of providers. Most claims are adjudicated by computers using rule-based systems, with no human intervention at all.

Fraud perpetrators have only to learn the rules; then they can submit thousands of claims electronically and with relative impunity. If they get things wrong, they’ll receive helpful computer-generated messages explaining their mistake. Those committing fraud find it easy to get paid for fabricated claims because the government’s systems check for billing correctness but not for truthfulness. The simple rule for getting rich quick through healthcare fraud is “bill your lies correctly.”

In 1995, as electronic claims processing was becoming more widespread, one seasoned Medicaid fraud investigator warned: “Thieves get to steal megabucks at the speed of light, and we get to chase after them in a horse and buggy. No rational businessman would ever invent a system like this.” Nevertheless, the government continues to find the use of such systems attractive, mostly because the processing efficiencies are obvious and tangible.

This problem is not restricted to healthcare. Federal and state agencies increasingly disburse funds through such “electronic signal in, electronic payment out” (ESI-EPO for short) systems. The economic stimulus package, for example, included 56 tax provisions projected to cost $288 billion. Ten of these have already been designated high risk because of the likelihood of fraud made easier with electronic processing. Submit a qualifying tax return electronically, and if it has been completed correctly, out will come an electronic payment with no human intervention and little or no validation of the supporting evidence.

Payments for the stimulus fund’s first-time home-buyer credit were found to have included $9 million to 1,300 prisoners, 241 of whom were serving life sentences when they purportedly bought homes. More than 10,000 taxpayers received credits for homes also claimed by other taxpayers, and one home was claimed by 67 claimants. The home-buyer program paid out more than $23 billion in total, and claims sampled after the fact showed dead people and young children showing up as “home buyers,” in patterns eerily reminiscent of healthcare fraud.

There’s no doubt that electronic processing systems are more efficient than having a human look at every single form, and therefore the actual operating costs are less. The problem is, it’s also a lot more efficient for crooks, and so, can end up costing a lot more in fraud in the long run.

The author, alas, doesn’t see much hope for changing things:

It is no longer sensible to disburse public funds, on trust, through electronic systems. The commensurate risks are enormous and seriously underestimated. Organized-crime groups, prisoners and a host of other criminal entrepreneurs troll government websites looking for programs with these vulnerabilities. Such systems must now either be fortified with substantial resources for routine validation or, preferably, be phased out altogether through structural reforms.

Fixing these vulnerabilities offers substantial promise for long-term deficit reduction, in a form that both political parties could support. But one important political obstacle remains: finding the courage to admit how serious and pervasive this problem has become.

Maybe if there was a groundswell of public opinion, things would change… but what are the odds of that, when so many Americans are content to sit on their bottoms and wait for the next gubment payment?


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About Conservative Wanderer

Conservative Wanderer is currently Editor-in-Chief of That's Freedom You Hear! That means anything that goes wrong can be blamed on him. Previously he was a contributor to the PJ Tatler.
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