Outside the Box

Entitlement Bandits

August 2, 2011

This week’s Outside the Box is guaranteed to upset you. It is about Medicare fraud. Warning: it was written by a very conservative analyst and is “pro” the Ryan plan. I want you to read it not because I am trying to get you to support the Ryan plan but to get a handle on the size of Medicare and Medicaid fraud and just how easy it is to perpetrate.

There may well be better ways than the Ryan plan as advocated here, but something must be done. Want to cut spending by $1 trillion in ten years? Eliminate the fraud. If American Express can hold fraud to 0.3%, maybe we should outsource our Medicare fraud detection to them. I say that only slightly tongue in cheek.

This outraged me. I knew it was bad, but I had no idea… The piece is short, but it will strike a nerve, I bet. The link to the original is http://www.nationalreview.com/articles/271006/entitlement-bandits-michael-f-cannon?page=1.

Tomorrow morning I leave for New York and then on to Maine with my youngest son, Trey, for a few days of fishing, wine, and friends; and then I’m back for a night and off the next day to a consulting gig in Calgary. In and out and then home for a few weeks (I hope).

John Mauldin, Editor
Outside the Box

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Entitlement Bandits

Adapted from the July 4, 2011, issue of National Review.

The budget blueprint crafted by Paul Ryan, passed by the House of Representatives, and voted down by the Senate would essentially give Medicare enrollees a voucher to purchase private coverage, and would change the federal government’s contribution to each state’s Medicaid program from an unlimited “matching” grant to a fixed “block” grant. These reforms deserve to come…

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Frank Kassel

Aug. 7, 2011, 8:37 a.m.

John, I know you are a CFA.  That means you have an understanding of economics, which means you have at a minimum a cursory understanding of (1) incentives/disincentives, (2) direct/indirect and value-added and non-value added costs, (3) private sector vs. public sector involvement.

Meaning, this article about Medicare Fraud seems to revolve around the temporal definition of a class of “patients” as defined by Medicare in terms of the current definition of who is/is not covered under Medicare.

Yes there is fraud in the Medicare system among and between all participants as described.  But outside of Medicare and in the private sector Health Insurance Market, there is also fraud, as defined by (1) gatekeeping by anti-trust exempt insurance companies in denying coverage to those with pre-existing condition (IMO - that is fraud), and (2) deferring market/business process cost savings because of health insurance company anti-trust exemptions from lowering premiums to those insured.  The result is not only do we have Medicare Fraud, but we have an Imputed “Private Health Insurance Fraud, and moreover a “Health Care Market Failure”.  Everyone knows this, but you, and the Republican Party and their lobbyists.  Obamacare “rules”, is invited and is the right solution to solve a Republican, lobbyist driven market failure, even if current dogma prevents a CFA from seeing true market impacts.  Think otherwise?  Compare US Health Care cost and access at 19+ pct of GDP to Taiwan’s cost and access at about 9%. 

Why not write an article about what you think of this difference, and whether you think the US Healthcare market is competitively free functioning or is otherwise, locally or internationally, a failure.

Richard De Graff

Aug. 4, 2011, 4:24 p.m.

One of my xwives had the top Blue Cross program. When I went for a normal check up he saw the “blue card” and ran every test whether I needed it or not. Everytime I went to a doc they ran every test they could think of. That included a broken hand. There is fraud across the whole spectrum that ruins the good doctors.
Cheerio !!!

Russell Barr

Aug. 3, 2011, 11:56 p.m.

I am a physician specializing in geriatrics. I treat many Medicare patients every work day.

I agree with some of the criticism above of the article, but the underlying principle is correct: The major problem is that our healthcare system makes it seem like we are spending someone else’s money when we receive care. People are much wiser consumers when they know they are spending their own money.

I was not in practice when Medicare started. I presume at some time in the past, health insurance was outside the doctor/patient relationship. The doctor treated the patient, the patient paid the doctor then the patient sent in a statement to the insurance company to be reimbursed for a portion of the cost of their care. All of the fraudulent “anonymous charges” schemes would crumble as the patient would actually read the bill and challenge any charges that seemed questionable before writing the check or handing over the cash.

Of course, this only works in a world where patients feel their health care is valuable privilege rather than a right they are entitled to. This also assumes people are not living paycheck to paycheck, and actually have a little savings to draw upon in an emergency. Major expenses such as emergency hospitalizations would need to be covered in a different manner. A national catastrophic insurance could be funded with a nominal income or consumption tax, if it only kicked in when a person’s healthcare expenses exceeded say $50,000 in a calendar year. With this kind of coverage, each of us could but insurance to cover the expenses below the catastrophic cutoff. It shouldn’t cost anywhere near what I pay for family coverage, about $13,000 per year. You could pay more for a lower personal deductible, or if you had more savings, pay less for a high deductible policy.

RT Barr MD

Robert Flora

Aug. 3, 2011, 1:53 p.m.

John, obviously you had reservations about using a scripted piece from the far right, whose goal it is to abolish entitlement programs.  You, of course recognize that the most massive waste and fraud in the history of our Nation has resulted from tax money spent for national defense, not health.  Unfortunately, in my lifetime I have seen our national treasure wasted on war prepardness and few among us object, even when waste and fraud is so very obvious,  Ckearly the right is delighted by spending the greatest part of tax revenues for defense.  How much better our Nation would have fared if this loss of our resource were not the case; how much waste and fraud would have been avoided if this were not the case.

Your contributor, Michael Cannon, has a somewhat silly emotional piece with no actual data and lots of ancedotal stories.  Obviously he has no real interest in government waste and fraud, only that which is associated with government sponsored health care programs.  Health care in the US is, of course, ripe for fraud and abuse since we as a Nation throw excessove amounst of money into it, far more than other developed nations, receiving in return, poorer results.  See -
Americans Pay More for Health Care, Get Less: Chart of the Day - Bloomberg [link does not transfer, see David Altaner, 8/1/11]
Fix the problem of excessive spending for health care and fix the problem of excessive spending for defense and waste and fraud in both these areas will greatly decline.

Russ Abbott

Aug. 3, 2011, 4:29 a.m.

Since Medicare provides more health care per dollar than private insurance, and it is this riddled with fraud and corruption, what does that say about private insurance? Either it is far worse with respect to fraud and corruption, or it is enormously wasteful, or it is outrageously profitable.

michael finn

Aug. 3, 2011, 4:02 a.m.

Medicare is currently paying US heart surgeons $1200-$1600 for a 3 vessel bypass surgery,a 4-5 hour operative procedure followed by months of followup. .This is for an incredibly complicated procedure which takes years of training to perform- and you wonder why physicians are bailing out of medicare and medicaid- just wait until the next rounds of healthcare provider cuts; we’ll all be going overseas to get out heart surgery becuase there won’t be any heart surgeons in this country. There are many reasons that health care has gotten so expensive in the USA including the corruption mentioned in the article .The main reason,however, is that medicare has so expanded it its reimbursements for procedures and interventions of questionable efficacy, that it is running out of funds for providers who deliver gudeline based quality care.

Michael Bell

Aug. 3, 2011, 3:19 a.m.


You should stick to forwarding articles that you yourself are able to evaluate.

Medicare is such an intellectual mess no one can evaluate it. One of our government’s great ploys is to publish bogus numbers and then make it look as though they are being defrauded or in some other way taken advantage of - “the poor, abused government”. The so called “correct” utilization numbers published by Medicare are a complete fabrication with no basis in fact.

No physician in America can abide by the quagmire of Medicare rules and regulations. The ploy is to inundate physicians with thousands of pages of senseless rules and then persecute mercilessly for not following them.

As a physician, I have no doubt that fraud exists in our Medicare system. But I believe the numbers are greatly exaggerated using anecdotal evidence, and perpetuated by government myrmidons, i.e. government appointed lawyers and for-profit fraud squads, seeking to fulfill their own greed-ridden and politically expedient agendas. The problem is not fraud (except perhaps the government defrauding it’s own people into thinking their health is being cared for); the problem is a system perceived as “free” by those using it, and therefore abusing it, encouraged by immoral politicians for political gain.

Edward Lack

Aug. 3, 2011, 2:33 a.m.

Last comment for medical billing excess
Edward Lack MD

Edward Lack

Aug. 3, 2011, 2:32 a.m.

The problem is even more egregious. Politicians want fraud to continue so they don’t upset voters.
For instance, the rate of skin cancer is at an all time high in the United States but the rate of surgery for “possible premalignant growths” is markedly higher. Histographic surgery of the skin for cancer is much more costly than traditional surgery. It is designed for potentially disabling or fatal cancers. Yet it has become the treatment of choice for skin cancer. Only 10-20% of dysplastic nevi become malignant melanoma yet it comprises a huge volume of surgery in the US. Exaggerated diagnoses are rampant in billing yet are condoned by medical societies as necessary for the possibility of actual disease.

R Conlan

Aug. 3, 2011, 12:40 a.m.

I am surprised by the lack of quality of argument in this essay versus your normal level of rigor. $87 billion a year? All this text over that? And it isn’t like we can realistically expect fraud to push 0 - the private insurance industry has plenty - so we’re really talking about an ultimate delta of a much smaller number. And tricks that American Express can use - like shutting off a card that may be being misused and trusting the consumer to sort it out if it was a mistake - are life threatening when applied to the medical industry.

I’m not saying the causes of fraud presented aren’t shocking. But similarly to how people paid too much attention to Wall Street bonuses that didn’t really matter in the grand scheme (http://xkcd.com/558/), this is losing sight of the forest for the trees.

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