The Long History of Corporate Fraud and Abuse in Medicare

[The following is reprinted from The Retiree Advocate, monthly newsletter of Puget Sound Advocates for Retirement Action (PSARA).  Guest Writer is Ana M. Malinow, MD, a member of PSARA. She is a retired pediatrician, a past president of Physicians for a National Health Program, and a lead organizer for National Single Payer www.nationalsinglepayer.com]

The passage of Medicare in 1965 was historic for covering the medical needs of seniors. But it also created conditions highly attractive for the providers of health care, who the government desperately wanted to accommodate. This arrangement resulted in the federal government surrendering the terms of the program and its costs to private health insurance companies, hospitals, and doctors, who would shape Medicare to maximize their profits at the expense of taxpayers from 1965 until today. A program originally designed to protect seniors from financial ruin due to medical costs, financed by the government and delivered through private doctors and hospitals, Medicare became a trough for corporations free to gorge themselves through sanctioned fraud and abuse. 

In the five decades since the passage of Medicare, the federal government has continued to accommodate health insurance companies, hospitals, and doctors. From the get-go, Medicare agreed to pay hospitals according to their costs instead of a negotiated rate. Doctors were paid according to “usual, customary, and reasonable” charges, which contributed to unchecked costs. Unrestrained accommodation to hospitals and doctors skyrocketed costs and resulted in many of the financial “reforms” that started a decade after the passage of Medicare, and which have persisted to this day.

The following three decades saw a series of attempts to control costs of Medicare. The 70s saw the rise of Health Maintenance Organizations, responsible for introducing for-profit corporations into the US health care system, which until then, had been dominated by the “non-profit” Blues. The 80s gave us diagnosis-related group hospital reimbursement, which incentivized hospitals to shorten hospital stays to increase profits. The 90s introduced Medicare Plus Choice, which resulted in the creation of mostly for-profit middlemen to manage the care of beneficiaries on Medicare. 

In 2003, with the passage of the Medicare Modernization Act, the floodgates to private insurance plans, now called Medicare Advantage (MA), were flung open. Enrollment in these plans grew steadily and aggressively, from about 5 million beneficiaries in 2003, to 28 million beneficiaries today, or half of all beneficiaries. Reasons for its popularity are obvious: no or low premium for Part B (outpatient costs) and Part D (prescription drug plans) and extra benefits prohibited in Traditional Medicare (TM) – the non-MA part of Medicare – such as some vision, hearing, dental, fitness, telehealth, over-the-counter items, meals, gym memberships, and transportation benefits. 

But the real reason why these plans are so popular has less to do with enrollee benefits and more to do with industry benefits – all fraudulent, all legal. Medicare sets rates for MA enrollees above those for TM – meaning Medicare pays MA plans more for enrollees than for enrollees in TM. There are bogus quality bonuses and rebates, again all fraudulent, all legal. MA plans game risk scores (making healthy patients look sicker, increasing the payment rate, but not increasing the amount of health care provided), engage in favorable selection (selecting for the healthiest patients and dropping the sickest ones), create narrow networks that often exclude cancer centers of excellence, and impose prior authorization delays and outright denials of care for millions of beneficiaries despite meeting Medicare coverage rules. A recent New York Times article revealed that 8 out of 10 of the largest MA plans submitted inflated bills to Medicare. Overpayments to MA plans from 2010 to 2019 totaled $106 billion – fraud the government has little appetite to recoup. 

This waste and fraud threaten to deplete the Medicare Hospital Insurance Trust Fund by 2028. In the same New York Times article, journalists Abelson and Sanger-Katz write, "additional [upcoding] diagnoses led to $12 billion in overpayments in 2020 – enough to cover hearing and vision care for every American over 65." For the industry, it’s a sweet deal, made sweeter by incessant and often misleading ads during the annual Open Enrollment period, many featuring former NFL or aging Hollywood stars. 

The industry, not content with just half of the Medicare pie, has already gobbled up more. The Centers for Medicare & Medicaid Services (CMS), tasked with the responsible stewardship of Medicare, has been secretly privatizing TM through schemes such as the Medicare Shared Savings Program, Accountable Care Organizations, and most recently, through ACO REACH. Some ACO REACH participants have a history of Medicare fraud, but Medicare continues to sign contracts with them.

These schemes are developed by the Innovation Center, whose mandate is to develop payment models that lower costs while not worsening care. Models, including ACO REACH, are given “safe harbor” from certain fraud and abuse laws, including the Federal Anti-Kickback Statute, which makes it unlawful for a person to refer government-paid patients for medical services in exchange for payment. It seems like Innovation models cannot lower costs or improve patient care without fraud and abuse.

The aim of the Innovation Center is to have 100 percent of TM beneficiaries in a “care relationship with accountability for quality and total cost of care by 2030.”

“Accountability for quality and cost of care” is how Medicare gets privatized – by inserting private equity, venture capitalists, and for-profit insurance plans into a public program. In 1965, Medicare was threatened by the financial interests of insurance companies, hospitals, and doctors. Today, we are faced with the final iteration of this threat, where corporations take over Medicare completely for their own profit, sanctioned by the government. And all by 2030.