Why It's Easy to Steal From Medicare

REVIEW & OUTLOOK JULY 3, 2009

Arrests in Detroit and Miami are another argument against importing to the rest of the health economy the model that enabled these scams.

The White House made a big show last week about "turning the heat up" on Medicare fraud, as Jane Friday -- er, HHS Secretary Kathleen Sebelius put it. The dragnet resulted in 53 indictments in Detroit for a $50 million scheme to submit bills for HIV drugs and physical therapy that were never provided, as well as busting up a Miami ring that used fake storefronts to steal some $100 million. As welcome as this is, the larger issue is what such plots say about President Obama's plans for a new government-run insurance program.

One of the purported benefits of nationalized health care is that it will be more efficient than private insurers since it would lack the profit motive and have lower administrative expenses, like Medicare. But one reason entitlement programs are so easy to defraud is precisely because they don't have those overhead costs -- they automatically pay whatever bills roll in with valid claims numbers.

By contrast, private insurers try to manage care, and that takes money. Not only does administrative spending go toward screening for waste and fraud -- logical, given the return-on-investment incentives -- they also go toward building networks of (honest) doctors and other providers. Medicare doesn't pay for this legwork, so it simply counts fraud losses as more spending. Generally private insurers also attempt to pay for other things that consumers find valuable, such as high quality, while Medicare and Medicaid are forbidden by law from excluding substandard providers, unless they're criminals.

Dead doctors, fake patients, high-school dropouts, fly-by-night businesses and the rest will continue to swindle our sclerotic entitlement system, no matter how far the government turns up the after-the-fact heat. The arrests in Detroit and Miami are another argument against importing to the rest of the health economy the model that enabled these scams.

Printed in The Wall Street Journal, page A10

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