The 60 Minutes show on Medicare fraud provides an example of how monitoring costs are so high that Medicare cannot help but be the target of enormous fraud. One can open a fraudulent office and become a Medicare-recognized vendor of medical services almost anywhere at low cost, but the cost of detecting this fraud is far in excess of creating it.
That’s just the beginning. Arresting people and trying them is costly. Jailing them is even more costly. Local officials have little incentive to do this. The federal government will attempt to seize any funds obtained by fraud. I’m saying that beyond monitoring costs are enforcement costs and these too are far from trivial.
I’ll remind the reader that I’m focusing only on Medicare fraud. This doesn’t get into the inefficiencies throughout the entire health care sector, consisting of many industries, that Medicare causes. There are always many associated costs. If resources are diverted to monitoring and enforcing Medicare, that means fewer resources going to activities that could use them profitably, even those that government supposedly is there to do.
Here’s the story of the vacant offices billing Medicare.
“FBI Special Agent Brian Waterman, who 60 Minutes rode with for several days, told us the only visible evidence of the crimes are the thousands of tiny clinics and pharmacies that dot the low-rent strip malls.
“You don’t even know they’re there because there’s never anyone inside. No doctors, no nurses and no patients.
“‘This office number should be manned and answered 24 hours a day,’ Waterman explained, standing outside one of those small, unstaffed businesses.
The tiny medical supply company billed Medicare almost $2 million in July and a half million dollars while 60 Minutes was there in August, but we never found anybody inside, and our phone calls were never returned.
Sometimes, they don’t even have offices: we went looking for a pharmacy at 7511 NW. 73rd Street that billed Medicare $300,000 in charges. It turned out to be in the middle of a public warehouse storage area.
“‘They’ve already told us that there’s no offices here,’ Waterman told Kroft. ‘There are no businesses here. In fact they are not even allowed to have a business here.’
“Waterman is the senior agent in the Miami office in charge of Medicare fraud. And Kirk Ogrosky, a top Justice Department prosecutor, oversees half a dozen Medicare fraud strike forces that have been set up across the country.
“The office Kroft visited operates out of a warehouse at a secret location in South Florida and includes investigators from the FBI, Health and Human Services, and the IRS.
“‘There’s a healthcare fraud industry where people do nothing but recruit patients, get patient lists, find doctors, look on the Internet, find different scams. There are entire groups and entire organizations of people that are dedicated to nothing but committing fraud, finding a better way to steal from Medicare,’ Waterman explained.
“‘Is the Medicare fraud business bigger than the drug business in Miami now?’ Kroft asked.
“‘I think it’s way bigger,’ Ogrosky said.
Asked what changed, Ogrosky told Kroft, ‘The criminals changed.’
“‘Sophistication,’ Waterman added.
“‘They’ve figured out that rather than stealing $100,000 or $200,000, they can steal $100 million. We have seen cases in the last six, eight months that involve a couple of guys that if they weren’t stealing from Medicare might be stealing your car,’ Ogrosky explained.
“‘You know, we were the king of the drugs in the ’80s. We’re king of healthcare fraud in the ’90s and the 2000′s’ Waterman added, speaking about South Florida.”
