Medicaid Fraud Was Exposed Last Week,
But Is Anyone Doing Anything About It?

By Henry J. Stern
July 29, 2005

The first four days of last week (July 18-21) the media provided extensive coverage of the
persistent and costly problem of Medicaid fraud and waste.  For several days lengthy articles in the New York Times and vigorous editorials in the Times, the News, Newsday and the Post denounced abuses in the 40-year-old federal program, intended to provide medical assistance to poor people.  Billions of dollars were said to have been squandered in paying unjustified claims.    Rule 29-T applies here: ("The trouble is, the charges are true.)
 
We believe that Medicaid is, in terms of dollars stolen and wasted, one of the world's largest scandals, topping even the Oil for Food program that was mismanaged by the United Nations from 1996 to 2003.  In Oil for Food, billions of dollars in oil revenues which should have gone for food and medical supplies for the people of Iraq were diverted into armaments for Saddam Hussein, luxury goods for privileged Iraqis, baksheesh for officials at the United Nations and its member states, and other bribes and payoffs.   Sadly, the son of the Secretary General himself was employed as an agent of one company to get oil contracts on their behalf, but he said he never told his father he was still working there.  The war in Iraq led to the termination of the well-motivated but widely-abused program.
 
Assuming that the ten per cent estimate for fraud and waste in Medicaid is confirmed (and some call it modest), the mis-spent funds would exceed $4.4 billion a year.  We write here about New York State, which is not the only locus of corruption, this is a national problem, but we do worse than other states in dealing with it.  The sums involved are enormous, they all come from taxpayers, and they go to service providers who file fictitious, fraudulent, deceptive and unjustified claims, for unnecessary services which may or may not have been performed.
 
Medicaid is a $44.5 billion annual expense in the New York State budget.  It is far more expensive than any other government program. Roughly half of that huge sum is paid by the Federal government, one quarter by New York State, and one quarter by the cities and counties in the State.  In other states, the Feds pay up to 78% of the cost of Medicaid, while the lowest payment to any state is 50%.

The reason for the discrepancy in Federal aid is that, 40 years ago, New York was considered a wealthy state, which could afford more than the poorer Southern states.  Also, the liberal legislators of the Northeast liked Medicaid more than conservative Southerners did, and the sliding scale of Federal payments gained the bill political support it needed to pass.   Unique among the states, New York divides its 50% share equally between state government and city and county governments.  Medicaid costs the City of New York alone about $5 billion a year, about ten per cent of the entire municipal budget.  
 
Responsibility for policing this enormous program lies with the State Department of Health, and the Attorney General's Medicaid Fraud Control Unit.  In recent years, as the Medicaid program has grown in cost, the staff assigned to preventing and prosecuting abuse has declined substantially.  New York, which has by far the costliest Medicaid program in the United States, is among the least effective in fraud prevention, with minimal recoveries of stolen or wasted funds, sometimes not even covering the cost of prevention efforts.
 
In response to the press exposes, statements were issued by the four state officials responsible for Medicaid.  First the Governor promised to set up an Office of Medicaid Inspector General.  His designee is Paul Shechtman, a first-rate lawyer.  However, Shechtman will continue his private practice, so the oversight he will provide will necessarily be part-time. 
 
The second responsible public official is the State Attorney General, who runs the Medicaid Fraud Control Unit. In his six and one-half years in office, the AG has won national renown for his pursuit of improper practices in corporate America.  His office also shares responsibility for governmental misconduct, an area in which jurisdiction has primarily been exercised by Federal prosecutors and county district attorneys. 

In response to the July 18 articles, he wrote the legislative leaders asking for greater authority, and released a letter he had written June 10 to the Secretary of Health and Human Services, asking for the release of currently restricted data so that he could pursue offenders.  The Attorney General is somewhat limited by the fact that the Department of Health generally initiates complaints.  Most of the complaints the AG receives deal with misconduct by nursing home personnel rather than overcharges.  That is because it is the state that pays the bills, but it is the patients who may be neglected or abused by their alleged caregivers.
 
Of the four, one official who took action this year is the Senate Majority Leader.  On May 2, the Senate passed a comprehensive bill to tighten Medicaid enforcement introduced by Sen. Dean Skelos, but the bill was not endorsed by the governor, and was not even introduced in the Assembly.  A Republican source said that the Attorney General did not want the bill to be considered by the Assembly, which is possible if the bill would increase the power of the Health Department and not help the AG's own enforcement efforts.
  
The fourth reaction to the news stories came from the Assembly Speaker, who praised the Attorney General.  He said more money and better computers would help enforcement.  He did not comment on Medicaid reform.  Traditionally Assembly Democrats are allied with hospitals, health care providers and labor unions.  That is not the constituency for changing the system.
 
Eleven days after the storm broke, the sea and the sky are quiet.  Rudyard Kipling described the silence:
 
"The tumult and the shouting dies,
The Captains and the Kings depart...
 
The newspaper-generated commotion has subsided, at least for a while, but the problem remains.  As we reported, Medicaid fraud and waste cost the taxpayers $12.2 million per day in the State of New York.   But how does one reform the state's longest gravy train?  The recipients of the fortune the state dispenses daily hospitals, nursing homes, adult homes, health care providers, physicians, manufacturers of hospital equipment and other medical apparatus, big pharma, little pharma, pharmacists, all of the above share in the bonanza that is Medicaid today.  Most of this money is wisely spent to provide care for the poor, but too much of it is not.

We do not see many civic organizations or traditional reformers involved in fighting Medicaid fraud and waste. First, the issue is too substantive; some goo-goos prefer to dwell on the procedural aspects of government.  Second, it is politically incorrect to suggest that any government program supposedly intended to help the poor is in fact wasting money.  Third, even if the money is spent unnecessarily, it is still not so bad because so much of it goes to nonprofits, or small entrepreneurs, but in any event is not used to pay for the government's war machine.  Fourth, some believe that a close look at any part of the Great Society represents an attempt by the hard-hearted to repeal or subvert what little progress America has made in the last half century in achieving social justice.
 
Our conclusion: Medicaid is a basically good program, certainly needed in the absence of universal health care.  Like all programs involving the expenditure of public funds, people take advantage of it to enrich themselves unjustly.  The fact that so many people in so many occupations get money improperly makes it difficult to get a handle on the program.
 
Fortunately, the newspapers have given a great deal of attention to this deplorable situation.  Whether this will result in substantive government action we will learn in the months, maybe years, ahead.  The perceptive Rule 14-F, ("Follow the money.") suggests that achieving real Medicaid reform will be an uphill struggle, because the money is all on the other side. 

We intend to write progress reports on Medicaid fraud control as time passes.  We invite the relevant agencies and legislators to let us know what they are doing, by sending any material they produce on Medicaid, which we will pass along to you.  We write late on Friday, July 29. Since the Times series began, about $12,200,000 may have been stolen or wasted, unless the thieves have slowed down for their summer vacations.  

Enjoy the weekend.  Stay healthy.