Foreword.

AuthorBiden, Joseph R.
PositionCombatting health care fraud - Tenth Survey of White Collar Crime

In past years, Congress has focused its attention on the problems of fraud in defense procurement and in the financial industry, among others. While those areas continue to be of concern, attention has recently focused on the problem of fraud in the health care industry.(1) Health care expenditures now consume an enormous portion of the federal budget and of the United States' total economy.(2) Fraud in this industry, as in others, is often hidden and difficult to quantify. But the sheer size of the problem requires policymakers and law enforcement to take a closer look at it. I have supported legislation to address the problem in past years and I have urged greater attention to it by federal law enforcement agencies.

Most experts estimate that fraud accounts for about ten percent of health care expenditures.(3 Accordingly, approximately $100 billion of 1994's estimated $1 trillion in health care costs is attributable to fraud. This means that a family of four is paying $1,400 per year to cover the cost of this fraud.

The majority of health care fraud is due to looting of the system. For example, a laboratory might bill for a test that was never performed, or an ambulance company might bill for a ride where none was provided. These billings might be to a government program, such as Medicare, or to a private insurer. Either way, the American citizen is the victim, because the citizen either pays higher taxes or higher premiums to cover the cost of the fraud.

Other schemes are more sophisticated. The health care industry has become more business oriented, causing medical suppliers to compete fiercely to get doctors to use their products. That competition sometimes results in payoffs to providers, in the form of kickbacks or bribes, in return for business. Some of these payoff schemes are complex, with hidden payments and intricate financial transactions.

These kickbacks and payoffs are harmful for several reasons. First, they cost citizens money. The cost of the payoff is likely to be added into the price of the good or services, making health care more expensive. In addition, these types of kickbacks reduce straight, honest competition based on price. Standard economic theory tells us that less competition will result in higher prices. Second, the payments are damaging because they invade the bond of trust between a patient and a doctor, leading patients to question whose interest the doctor has in mind.

Both the simple and complex schemes...

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