Medicare Fraud: A Wealth of Concepts and Issues

There was an interesting story on Medicare fraud on NPR's Morning Edition this morning. It focused on several issues deriving from the particularly high rate of fraud in south Florida.

Two aspects really caught my attention. The first was that a significant number of former drug traffickers have given up that trade in exchange for setting up phony medical equipment businesses. They "sell" the equipment, ranging from canes to wheelchairs (and beyond, I expect), bill Medicare, and then don't deliver. Similar scams exist in providing intravenous drugs for elderly and AIDS patients, with the scammers either failing to deliver, or delivering saline solution in place of the more expensive drugs.

On this first issue, the economics that caught my eye was that many former drug dealers were doing some interesting marginal analysis: weight costs and benefits, risks and rewards. As this story points out, there's clearly less likelihood of getting shot in a drive-by. And if caught, they're treated as a white-collar criminal instead of a drug dealer (think minimum vs. maximum security prison here). Interesting thinking and it's rational from an economic standpoint, at least on the surface. It would appear that they are responding to an incentive structure that would encourage the behavior - at least as far as criminal behavior goes.

The second attention-grabber was how little the government puts into fraud detection, apprehension and prosecution as a percent of the total budget. According to the story, almost 10% of Medicare's expenditures are going to fraudulent billings. Something close to 1% of that is in South Florida; although that's based on reported cases. (Estimates are up to 10 times higher.) Yet Medicare spends 3/100ths of 1% in total on insuring the integrity of the program. (Apparently, money has been given to the F.B.I. to beef up a task force investigating the problem.)

My point for your (and your student's) consideration is related to my post of February 21, 2007. I mentioned that there's a connection between how one spends money, whose money it is, and for whose benefit it is spent. The fact that while there seems to be concern, relatively little resources are spend protecting the program speaks to what was my fourth point in the post, "You spend someone else's money on yet another person. You don't care about value or price."

Check out the NPR story and let me know how you view it.