August 13, 2005
Investigating charges of Medi-Cal fraud
There are some obvious steps we could take to make sure that state and federal contributions for medical assistance are spent as effectively as possible.
The California Medical Assistance Program (Medi-Cal) provides health care services to eligible low-income persons and families, paid for with a combination of state and federal funds. Medi-Cal spending rose from $28.0 billion in the 2003-04 budget to an estimated $34.2 billion for 2004-05 (source: Governor's 2005-06 Budget), a 22% increase in one year. To put this number in perspective, $34.2 billion would amount to 35% of all California state expenditures (excluding federal funds) for Fiscal Year 2003-04 (source: California Statistical Abstract, Table M11) and exceeds the total combined expenditures across all categories for the California General Fund for any year before 1988 (source: Governor's Budget Summary, 2005-06, Schedule 6).
Given these facts, it would seem more people should be paying attention to this story from Dailynews.com:
In a bustling black market trade, unscrupulous medical providers are buying Medi-Cal and Medicare patient identity numbers and using them to get reimbursed for millions of dollars in tests and other services that are never provided, authorities say.
Of $34 billion annually spent by the Medi-Cal program for health care for some 7 million poor Californians, state officials estimate that as much as 40 percent or nearly $14 billion is stolen in fraud.
The identity theft scam involves conspirators using stolen patient information purchased for as little as $100. They submit bills for up to $30,000 to cover tests, prescription medicine, wheelchairs and incontinence supplies which are either never delivered or are received and resold on the black market....
Criminals also forge signatures for diagnoses and drugs, without providing supporting patient complaint histories....A recent case in Burbank highlights the issue. Sofik Nazarian, 47, and Vrej Oganesian, 40, co-owners of The Best Pharmacy and Medical Supply on Glenoaks Boulevard, were arrested July 26 on suspicion of billing Medi-Cal for $375,000 in prescription drugs that were not delivered to patients.
I have always been skeptical of claims that a huge component of state or federal spending could be attributed to pure fraud and eliminated with some easy fix. But in this case, CaliCapia suggests some simple and obvious steps that could make a tremendous difference for eliminating this kind of fraud to the extent that it is prevalent:
There's some pretty straightforward approaches available, like random audits of incoming bills, database searches to locate businesses that are billing Medi-Cal extensively, but never seem to bill the state employee's system, drive-bys and drop-ins to verify the business actually exists. In a case we're familiar with, simply reading the letter from a physician warning them his number was being used fraudulently would have saved a small fortune. Every provider should know that for every charge submitted there is a small, but real, chance that somebody's going to check with the patient and see if it's legit, and that check is going to happen next week, not three years from now. This is a problem that's solvable.
I don't know how big a contribution such steps could make to the huge fiscal challenges we're facing at both the state and federal level. But can anyone tell me why measures like these wouldn't be worth trying?
Posted by James Hamilton at August 13, 2005 04:00 PMdigg this | reddit
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Tracked on August 14, 2005 01:00 PM
But can anyone tell me why measures like these wouldn't be worth trying? ...
Can you explain to me how that is different than what they already do? (http://www.dhs.ca.gov/ane/? Also note from the original article: "The state Department of Health Services says it has been working harder to screen prospective Medi-Cal providers *and does regular on-site inspections*, but officials acknowledge it's an uphill battle." I presume CaliCapia is simply arguing for more funds for the audit teams?
Lastly, is there a quick reconciliation between the allegation that $14b out of $34b is wasted versus the recent payment error study: http://www.dhs.ca.gov/ane/PDF/MPES%20and%20PAM%2001052005.pdf"? I quote from it:
"The primary objectives of the MPES are to: (1) compute the amount of potential loss to Medi-Cal due to billing or payment errors, including potential loss due to fraud or abuse; and (2) to identify where Medi-Cal is at greatest risk for billing or payment errors, and thus establish how best to deploy Medi-Cal anti-fraud resources. ...
DHS found that 96.43 percent of the dollars in the study sample of 800 claims were billed and paid appropriately, were medically necessary and delivered by an eligible Medi-Cal provider. California?s MPES results compare favorably to the GAO?s fraud, waste, and abuse estimate of 10 percent of total national health care spending as well as to Medicare?s annual error rate findings and results of other state Medicaid program payment error studies. Medicare?s most recent payment error report found payment errors of 9.3 percent; the MPES results are more than 60 percent less. The Illinois Medicaid study from 1998 reported a payment error of 4.72 percent; the MPES results are 24 percent less. The results of Medi-Cal?s PAM study also are favorable when compared to the PAM results of other States."
Lastly on the topic of Medicare, when Krugman and others cite the efficiency of Medicare, do they include the possible 10% of expenditures that are made in error?
Posted by: Victor at August 13, 2005 05:02 PM
"... when Krugman and others cite the efficiency of Medicare, do they include the possible 10% of expenditures that are made in error?"
Possible 10%?? 'Tis nothing. And California seems an efficient garden of purity.
There was just a study of Medicaid here New York State reported in the NY Times...
James Mehmet, who retired in 2001 as chief state investigator of Medicaid fraud and abuse in New York City, said he and his colleagues believed that at least 10 percent of state Medicaid dollars were spent on fraudulent claims, while 20 or 30 percent more were siphoned off by what they termed abuse, meaning unnecessary spending that might not be criminal.
"So we're talking about 40 percent of all claims are questionable," Mr. Mehmet said - an amount that would approach $18 billion a year.
[I'd give the link but these comments don't take links and the Times permalink is way too long.]
That's graft, plus what Tammany used to call "legal graft", and then inefficiency and errors on top it it ... 30% to 40%.
The Times did its own examination of state Medicaid records under the Freedom of Information Act, backing these numbers up. It had to do its own because the politicians, of course, are not interested in this.
That's the problem. What's the *incentive* for politicians to run a rigourous cost-efficient innovative health program? (The same incentives as my old buds in pre-'89 Eastern Europe had to run rigorously efficient, innovative, productive businesses).
Meanwhile, in Medicare there are studies coming out showing that it not merely is inefficient but has a *negative* correlation between expenditures an quality of care. Eg:
"We find that states with higher Medicare spending have lower-quality care. This negative relationship may be driven by the use of intensive, costly care that crowds out the use of more effective care..."
"we find that ... nearly 20 percent of total Medicare expenditures -- appears to provide no benefit in terms of survival, nor is it likely that this extra spending improves the quality of life."
Again, what are the incentives for politicians to run an efficient program?
Just look at the structure of Medicare on the very biggest level.
A rational, sane such program pays for (socializes) calamatous costs that individuals can't cover and markets are inefficient dealing with, while having routine predictable costs covered out of pocket to maintain markets and efficiency. (Car insurance pays for crashes and injuries, not for gas, oil, tires and initial car purchases).
But Medicare is *designed* to do just the opposite. It pays for routine costs and short-term treatment -- but if a stroke puts you in a nursing home for life too bad, not covered, you can lose your home and everything else. (Car insurance that pays for gas and oil and initial car purchases but *not* crashes and injuries.)
To do this intentionally is just nuts from an efficient health care point of view -- but entirely rational from the politicians' point of view. All voters know they are going to pay routine costs, so politicians buy votes by promising to pay them. Nobody thinks they are going to wind up a nursing home invalid, so the politicians don't bother, they save that money to pay for the routine expenses.
Medicare and Medicaid are provided not by government but by *politicians*. Those incentives for politicians aren't about to change, so don't get your hopes up for these programs.
When Krugman says these programs are "efficient", he means for politicians.
(His favored Democratic politicians in particular, of course, but certainly not only them.)
Posted by: Jim Glass at August 13, 2005 07:06 PM
Correction: I slovenly misread the number for fraud for California in the initial post -- it seems far from an efficient garden of purity.
The up to 40% fraud for CA actually matches quite well with the up to 40% fraud in NYS -- which indicates this is a systemic national problem from coast-to-coast, not some local problem here or there, which makes things look even worse.
The only way that CA seems efficient in comparison to NY is that it spends so much less in gross dollars even though it covers ao many more people. Our $18 billion in fraud beats your $14 billion in fraud even with our population hadicap!
Posted by: Jim Glass at August 13, 2005 07:18 PM
Thanks for the helpful links, Victor. I didn't notice the mention on that site of random audits or systematic database searches. Do you know what fraction of Medi-Cal claims are currently subject to random audit?
I looked a little at the MPES study and found its methodology a little confusing. It sounds from pages 26, 30, and 31 as if they phoned 481 randomly selected recipients, and gave up if they could not reach them on the second phone call. Of these they had 98 respond, 12 of whom denied being the beneficiary. The study says "review of the medical records showed these negative responses may not have been reliable," for which reason, the 12 negative responses were not counted as errors. Also, this study was in 2003, before the 22% increase in the last year.
Perhaps you or others have more detailed information about this, but my quick impression is that even this study was not committed to the principle of really finding out the truth for 800 randomly selected cases out of 7 million. I believe that what CalCapia was suggesting is that this should be the philosophy not just of a study but of an enforcement mechanism on a significantly larger subset.
Posted by: JDH at August 13, 2005 07:50 PM
Hmm, bounty hunters maybe? Looks like what is needed is a efficient privatized detection and enforcement mechanism. Independent auditors and investigators are awarded a percentage of the recovery from cases that they detect and collect sufficient evidence for prosecution. There must be some good models with built-in good checks and balances from the private bill collection, bail bondsman property repossession world. At that level of fraud it should be a lucrative market.
Posted by: FishEpid at August 14, 2005 09:36 AM
A rather modest amount of criminal penalty enforcement could go a long way to reducing fraud.
If one compares health care costs in the US with those in other countries, it's a money per person comparison, so yes, any possible fraud is factored in.
Also, any claims of there being 'questionable' spending should compare with how much 'questionable' spending there is in private practice, which the above links don't do.
Posted by: Anonymous at August 15, 2005 02:25 PM
Jim, are you a Krugman stalker?
Posted by: DILBERT DOGBERT at August 16, 2005 07:00 PM