Health Care Fraud Still Pervasive Despite Government Crackdown, Claims Harvard Researcher

Contact: Adrianne Kaufmann
Phone: 617-495-8290
Date: May 30, 2000

CAMBRIDGE MA – Clinton Administration claims to have cut health care fraud by half are seriously exaggerated, according to a new book by Malcolm Sparrow, a professor at Harvard University’s John F. Kennedy School of Government.
While crediting the Administration for recognizing the seriousness of the problem and investing more than any previous administration in attempts to control it, Sparrow makes a convincing case that efforts to date barely scratch the surface. Fraud and abuse continue to bleed in excess of 100 billion dollars each year out of the U.S. health system, he writes. This massive theft of funds helps to explain why Americans pay so much and get so little for their health care dollars when compared with their counterparts in other developed nations.
In his new book, License to Steal: How Fraud Bleeds America’s Health Care System, Sparrow reveals that the problem is larger than almost anyone knows, mostly invisible, and still far from controlled. In the fraud control business, Sparrow argues, "it’s what you don’t see that counts." And the invisible nature of the problem explains why policymakers consistently underestimate the challenge.
And who is stealing all this taxpayer money? Perpetrators range from low-life hoods who sign on as Medicare or Medicaid providers equipped with nothing more than beepers and mailboxes, to drug trafficking organizations, organized crime syndicates and even major hospital chains. For example the nation’s largest health care provider, Columbia/HCA Healthcare Corporation, recently agreed in principle to pay $745 million in civil penalties to resolve allegations that it cheated federal health programs for years. Columbia/HCA operates 200 hospitals and 80 outpatient surgery centers in 24 states.
Sparrow shows how the government’s defenses, which focus mostly on finding and correcting billing errors, are no match for well orchestrated attacks. "Bill your lies correctly" is imperative for those who would steal. They don't even have to see patients, according to Sparrow. As long as they bill correctly, fraud perpetrators with any degree of sophistication can steal millions of dollars with impunity, testing payment systems carefully, and then spreading fraudulent billings widely enough across patient and provider accounts to escape detection.
The kinds of highly automated, quality controlled, claims processing systems that pervade the industry present fraud perpetrators with their favorite kind of target: rich, fast paying, transparent, utterly predictable check printing systems, with little threat of human intervention—and with the U.S. Treasury on the end of the electronic line. As one of Sparrow’s interviewees (a Medicaid investigator) complained, "……with [electronic claims processing] thieves get to steal megabucks at the speed of light, and we get to chase after them in a horse and buggy."
Sparrow’s research suggests that the growth of capitated managed care systems does not solve the problem, as many in the industry had assumed, but merely changes its form. The managed care environment produces scams involving underutilization, that is, the withholding of necessary medical care. These schemes are harder to uncover and investigate, and much more dangerous to human health.
Sparrow picks apart the industry’s response to government’s efforts to control the problem. The provider associations—well heeled and politically influential—have vociferously opposed almost every recent enforcement initiative, creating the unfortunate public impression that the entire health care industry is against effective fraud control. A significant segment of the industry, it seems, regards fraud and abuse not as a problem, but as a lucrative enterprise worth defending.
Meanwhile, it remains a perfectly commonplace experience for patients or their relatives to examine a medical bill and discover that half of it never happened. It is equally commonplace to complain about the billing, and discover that no-one seems to care, or that they lack the resources or commitment to do anything about it.
Having worked extensively with federal and state officials since the appearance of his first book on this subject, Sparrow is in a unique position to evaluate recent law enforcement initiatives. He concludes the "war on fraud," is at least now engaged, but far from won.
Sparrow teaches regulatory and enforcement strategy, and analytic methods, at Harvard’s John F. Kennedy School of Government. Formerly a Detective Chief Inspector with the British police service, he now specializes in issues of enforcement strategy, regulatory compliance, and risk control—and is the acknowledged national expert on the subject of Health Care fraud. He has also authored The Regulatory Craft: Controlling Risks, Solving Problems and Managing Compliance (2000); License to Steal: Why Fraud Plagues America’s Health Care System (1996); Imposing Duties: Government’s Changing Approach to Compliance (1994); and is co-author of Beyond 911: A New Era for Policing (1990) and Ethics in Government: The Moral Challenge of Public Leadership (1990).


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