CBO Analyzes Anti-Fraud Efforts

The Congressional Budget Office (CBO) has released a report entitled: “How Initiatives to Reduce Fraud in Federal Health Care Programs Affect the Budget.” The report describes how the CBO estimates the budget impact of legislative proposals to reduce fraud in Medicare and Medicaid, and how those estimates are used in the Congressional budget process.

The report defines fraud as: “any deliberate attempt to use deception to receive a service or payment from Medicare, Medicaid … when the individual or entity in question has no right to that service or payment under the program's statutes and rules.”

This definition of fraud is further refined as falling within the broader category of improper payments and program integrity efforts. These are payments in an incorrect amount (whether an overpayment or an underpayment) or to the wrong person. It is critical to keep in mind, however, that not all improper payments are fraudulent, and that some improper payments are the result of human error, mistakes in documentation, waste, or abuse. This is an important distinction to keep in mind as providers often feel that improper payments arising from honest errors or lack of clarity in billing regulations/guidelines are unfairly characterized as fraud in media reporting.

How much fraud is there in the Medicare and Medicaid programs? The report acknowledges that this is a difficult number to estimate accurately. One reason this is challenging is that fraud can be determined with certainty only after the fact. Fraud also requires intent to deceive, and determining intent can be challenging. Moreover, although fraud that has been successfully prosecuted can be quantified, there is no reliable method to estimate the amount of fraud that goes undetected.

Combatting fraud has become a high profile effort on the both the state and federal levels. At the federal level, the U.S. Department of Health and Human Services (HHS) and the Department of Justice (DOJ) have formed the Health Care Fraud Prevention and Enforcement Action Team (HEAT), which raises fraud prevention to a cabinet-level priority. According to the report, HEAT has drawn from multiple federal agencies to focus on reducing fraud in cities where it has been prevalent, including Chicago, Dallas, and Miami. HHS estimates that, since 2009, the HEAT Medicare task force has filed criminal and civil charges against more than 1,700 defendants who falsely billed the Medicare program for more than $5.5 billion.

Under current legislation, federal agencies like the Centers for Medicare and Medicaid Services (CMS), HHS and DOJ have considerable flexibility in designing and implementing anti-fraud measures. However, the report notes that funding for these measures is limited, with spending on dedicated anti-fraud activities through the Health Care Fraud and Abuse Control (HCFAC) program at $1.4 billion, or about 0.2 percent of the federal government's spending for the programs' benefits.

The CBO believes that enhanced anti-fraud activities would be cost-effective in terms of reducing federal spending on programs. Most proposals for enhancing anti-fraud activities fall under one of four categories:

Appropriating additional funds for anti-fraud activities;
Making statutory changes that give federal agencies additional anti-fraud authority or that redefine or clarify permissible practices, services, or behaviors in Medicare and Medicaid;
Requiring agencies to undertake activities aimed at reducing fraud, some of which may already be authorized under current law, with or without additional funding; and
Increasing penalties for violations of applicable law.

Legislation designed to reduce fraud can have spillover effects and also reduce waste and abuse. As noted, anti-fraud proposals are often referred to as “program integrity” legislation because they may not only reduce fraud, but waste and abuse as well. In a time of tight federal and state budgets, there is concern that such activities constitute de facto cost cutting measures and surrogate rate reductions. This is reflected in general program integrity recoupment targets that help achieve savings used to balance government budget proposals.

CBO concludes that appropriating additional funds to anti-fraud activities is cost effective with an estimated return on investment of 1.5 to 1. In other words, a dollar invested in anti-fraud activity yields on average a $1.50 in recoveries.

Under Congressional budget scoring, however, this estimated return cannot be used to offset spending for purposes of overall budgeting. Therefore, the estimated savings cannot be used to score a cost savings to fund additional enforcement based on the premise that potential savings cannot be used to offset real up-front spending. Regardless, realized savings ultimately reduce spending and federal budget deficits. Whenever possible, CBO provides analysis of potential savings to lawmakers for any anti-fraud legislation under consideration.

For a copy of the complete report, please click here.

Contact: Patrick Cucinelli, pcucinelli@leadingageny.org, 518-867-8827