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Medicaid’s chronic fraud problem gets worse - Pacific Research Institute

Medicaid’s chronic fraud problem gets worse

The Obama administration just announced that fighting Medicaid fraud is going to be a “key priority” for the final year of the president’s term.

That’s a tall order. Last year, the program lost more than $17 billion to fraud. That’s on top of more than $14 billion in improper payments in 2013.

Medicaid’s structure actively encourages fraud. Eliminating it will require replacing the status quo, whereby the feds match whatever states spend, with individual block grants that empower states to take control of their own Medicaid programs.

A recent Government Accountability Office report reveals just how corrupt Medicaid has become. In 2014, almost 7 percent of Medicaid payments were “improper.” That’s a polite way of saying that they were the result of either fraud or mismanagement.

The GAO discovered that Medicaid wasn’t even stopping the most obvious cases of fraud and abuse.
In 2011, for example, the program paid out $9.6 million in benefits to 200 dead people and $4.2 million to people who were, at the time, sitting in jail. The GAO also found “hundreds of thousands” of claims paid to people living at fake addresses or using fake Social Security numbers.

According to the report, Medicaid made payments to 190 health-care providers who were dead, had their licenses suspended or revoked, or had been banned from participating in the program.

This is hardly the first time government auditors have raised warnings about Medicaid. The program has been on the GAO’s list of “high-risk” programs — those that are especially susceptible to fraud and abuse — since 2003.

Federal law requires federal and state officials to protect Medicaid from such abuses, and the Obama administration has promised that it would improve oversight.

But those efforts aren’t working. The rate of improper payments actually increased from 2013 to 2014.
Medicaid’s chronic fraud problem stems from its structure.

For every dollar a state spends on Medicaid, the federal government kicks in at least one more. That gives states a massive incentive to expand their programs.

The program’s matching-grant structure also discourages states from rooting out waste, fraud, and abuse. After all, for each dollar of fraudulent spending they discover, they lose at least one more federal dollar.

It’s no surprise, then, that Medicaid now represents the single biggest source of federal funds to states. Between 1990 and 2013, state spending on the program climbed from 10 percent of all general fund spending to almost 19 percent.

Nevertheless, 30 states and the District of Columbia have expanded Medicaid under the Affordable Care Act.

But Medicaid’s high spending isn’t providing high-quality health care to the poor.

Its payment rates are so low that many health-care providers refuse to see Medicaid patients. One Office of Inspector General study found that more than half would not offer appointments to Medicaid beneficiaries. Of those that did, one-quarter had wait times in excess of one month; 10 percent had wait lists of more than two months.

Another landmark study, led by Dr. Katherine Baicker and published in the New England Journal of Medicine, revealed no difference in health outcomes between folks covered by Medicaid and similarly situated uninsured individuals.

The program turned 50 years old this summer. If lawmakers want it to survive for another 50 years, a new approach is warranted.

Instead of providing open-ended matching grants, the federal government should send fixed block grants to states. And rather than imposing one-size-fits-all rules, the feds should deputize the states to spend their grants as they see fit in order to meet the unique needs of their populations.
Almost immediately, states would look for ways to improve their own programs’ efficiency and wring out waste and fraud. After all, they’d get to keep the savings.

Further, block grants would make state and local officials more accountable. At present, they can too easily blame Washington for Medicaid’s failures.

Implementing this sort of reform should be the Obama administration’s “key priority” if it hopes to root out Medicaid fraud in its last year in power.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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