Several credible estimates indicate that around 30% of health care is unnecessary…[and] 37% of medical cost is waste, abuse, and fraud. Various estimates indicate that between $67 billion and $234 billion are lost each year to waste, abuse, or fraud. That is somewhere between $184 million and $630 million dollar loss per day; broken down that amounts to $63 billion in physician and clinical spending, $12 billion in dental, $100 billion in facility, and $30 billion in pharmacy claims. Waste–directly or indirectly–results in unnecessary costs to the Medicare and other systems. It comes from duplicates, unbundling, and overuse of services such as unnecessary treatments. Examples include: bundling, unbundling, components billed separately, excessive unit thresholds, billing within global surgery periods, incorrect billing based on medical necessity, keystroke errors, and excessive time increments in psychiatric services billing. Waste is generally not considered to be caused by criminally negligent actions but rather the misuse of resources.
Despite penny pinching which lowers physician reimbursement to the point that many physicians refuse to treat the elderly, Medicare is far from frugal. A non-Medicare recipient with chronic respiratory illness, for example, usually purchases the equipment at retail prices and pays about $100 a month for oxygen tanks with deliveries for three years–about $3,600. However, Medicare rents the equipment and oxygen for 3 years at a cost of around $8,280—a cost borne largely by American tax-payers. The cumulative cost for such equipment was $1.8 billion in 2006. During the same year the system put out $21 billion on pumps for disabled and elderly men to obtain erections. Medicare paid $450 for the equipment which is easily available online for $100. A walking cane can be purchased online for about $11, but Medicare pays $20. $20 million each year in waste comes from the federal Vaccines for Children program by failure to refrigerate the vaccines properly–hundreds of thousands of doses.
Abuse is more serious and involves upcoding and bill splitting. Abusive patterns develop from the fraction of providers who believe that because they provide superior service, have sicker patients, or are unjustly compensated, they are entitled to additional reimbursement. This entitlement–though it may not occur as regularly as patterns found in waste–has the potential for far greater risk of high-dollar losses. Abusive practices include: cosmetic surgeries billed as necessary nonelective repairs, routine overuse of modifiers that exempt claims from editing, and submission of claims for in-network providers using an out-of-network provider ID to increase reimbursement.
Outright criminal fraud–intentional deception or misrepresentation–involves schemes such as: durable medical equipment claims for services and supplies not provided; using stolen patient IDs to submit claims for services never provided; submitting claims with reimbursement checks to be sent to P.O. boxes, commercial mail holding businesses, prisons, etc.; referral rings that send patients to providers who bill for unnecessary services or prescribe unnecessary drug treatments, false claims, and identity theft. The NHCAA [National Healthcare Anti-fraud Association] cites an average of 3% to 10% of the annual $2.5 trillion of healthcare spending is lost due to fraud alone—upwards of $200 billion. A more in depth look at the problem of healthcare fraud will be presented in Blogpost 3 of this series.