If Peter Budetti gets his way, the criminals who gorge on the U.S. healthcare system, bilking the government out of billions of dollars a year, will soon be on a much leaner diet.
As Washington's point man on healthcare fraud, the 66-year-old Budetti knows there are no quick fixes to a mind-boggling mess that ranks as one of America's top crime problems. But he has been working to develop new technological tools and a comprehensive, long-term strategy to rein in fraud since his appointment as director of Program Integrity at the Centers for Medicare and Medicaid Services (CMS) last year.
Although fraudsters have had the run of the place for some two decades, life is about to get "an awful lot tougher" for them, Budetti told Reuters in a recent interview. He promised new measures to curb waste and fraud in Medicare and Medicaid, the massive federal programs that provide healthcare for America's elderly and poor, will soon pay big dividends.
If he's right, American taxpayers and even budget hawks will have reason to smile.
There are no official estimates for how much fraud costs but the National Healthcare Anti-Fraud Association (NHCAA), a watchdog group, cites information from the FBI that anywhere between $70 billion and $234 billion is lost annually. That ranges between 3 percent and 10 percent of the $2.34 trillion Americans spent on healthcare in 2008.
Just this week, the third-largest U.S. hospital operator, Tenet Healthcare Corp, sued the No. 2 operator, Community Health Systems Inc, which is trying to buy it, for Medicare abuse. Tenet accuses its unwanted suitor of admitting patients for needless stays and bilking the U.S. government and private insurers.
The Obama administration has committed significant resources to fighting healthcare fraud as it grapples with the untold damage it is doing to the economy along with concerns about deficits and runaway healthcare spending.
But some fear the administration's focus on the issue may come as too little, too late after years of inaction, political missteps and bureaucratic incompetence.
Budetti, who is focusing as much on prevention as he is on detection, appears confident about clamping down on scammers. New computer programs and sophisticated "data detective" work are beefing up the arsenal of weapons to fight fraud, he said.
'A cancer that's now quite aggressive'
Thomson Reuters, an industry leader in healthcare data, estimates the cost of fraud at about $150 billion per year. The stakes are huge for taxpayers and the government, which spent $895.9 billion on Medicare, Medicaid and the Children's Health Insurance Program in fiscal 2009, the last year for which official figures are available.
"It's a cancer that's now quite aggressive," Malcolm Sparrow of the Kennedy School of Government at Harvard University said of fraud.
No state comes close to matching Florida as a haven for crooked healthcare businesses. Long known for its unsavory links with drug cartels, money launderers and swampland real estate deals, Florida is an obvious magnet for Medicare scammers since so many elderly Americans have retired to end their days in its famous sunshine.
As it happens, Florida is also leading a legal challenge by 26 states to overturn President Barack Obama's healthcare reform. And Republican Governor Rick Scott, a fierce opponent of the law, has a controversial past as chief executive of a healthcare corporation that paid a record $1.7 billion in fines for defrauding Medicare and other federal programs. Scott has emphasized that he was never charged with any crimes as chief executive of the giant Columbia/HCA hospital chain.
A senior federal agent highlighted Florida's role as "ground zero" for the crime in congressional testimony last month, saying it was now "accepted as a safe and easy way to get rich quick" in the state.
It has drawn in people from all walks of life, including high school dropouts now making millions of dollars a year, said Omar Perez, an agent with the U.S. Department of Health and Human Services' Office of Inspector General.
"In South Florida, Medicare fraud is not only perpetrated by independent, scattered groups, but also by competitive, organized businesses complete with hierarchies and opportunities for advancement," Perez said.
"The money involved is staggering. We see business owners, healthcare providers and suppliers, doctors, and Medicare beneficiaries participating in the fraud. We also see drug dealers and organized criminal enterprises defrauding the system."
It has never been difficult to become a provider under government healthcare programs, and the money has been notoriously easy too.
The Medicare system, which processes millions of claims daily and is one of the biggest drains on the federal budget, was set up on the assumption that providers, including doctors, medical equipment suppliers and home healthcare agencies, were all essentially trustworthy.
Once fraudsters learn how to electronically submit payment claims, using a government-issued National Provider Identifier number and the appropriate Medicare or Medicaid beneficiary numbers and billing codes, government computers tend to cough up payments automatically.
"Our program has had vulnerabilities that we need to overcome at this point in time," said Budetti, a pediatrician and lawyer. "It has been relatively easy for providers and suppliers to get into the program, because most of them are law-abiding legitimate people," he added.
Sparrow describes the system as "a giant money machine."
"The crooks know now that these computerized payment systems are their best friend," he said. "They will study carefully the art of billing correctly, they will produce electronic transactions that are perfect on their face, but it's just a pack of lies."
New anti-fraud tools
Several little-noticed provisions of Obama's healthcare reform law, including some that took effect last month, will step up enforcement action against fraudsters.
They include risk-based screening of the people behind roughly 19,000 new requests to become healthcare providers under the Medicare system every month. Applicants who fall into a "high risk" category will be subject to fingerprinting and criminal background checks through the FBI, Budetti said.
Another new provision will allow U.S. Health and Human Services Secretary Kathleen Sebelius to clamp a temporary moratorium on new enrollments of providers and suppliers to government-run healthcare programs, whenever such a move is deemed necessary to fight fraud.
More importantly, Budetti said, the Medicare and Medicaid computer payment systems are being made far less vulnerable to fraud, thanks to new and smarter software programs and algorithms. And payments to the hundreds of thousands of providers and suppliers already in the system can now be suspended in cases involving credible allegations of fraud.
"We are in the process of taking advantage of modern technology and sophisticated analytic systems," he said. "We're going to be intervening in the claims payment process in a very new set of ways that hasn't happened before."
Critics of data mining say it has offered no "silver bullet" for fighting healthcare fraud in the past.
But David Nelson, director of strategy and market planning for a division of Thomson Reuters that specializes in the field, said "clinical intelligence building" was expanding rapidly, making data and Web analytics key to fraud prevention, detection, investigation and recovery.
"We find that our customers who are really seriously engaged in data analytics to detect fraud get back $3 to $12 for every dollar they invest," Nelson said.
Skeptics like Harvard's Sparrow are wary of claims about information technology, especially after all the promises made about a decade ago about so-called "neural networks."
"Neural networks were introduced with a lot of marketing hype. The companies that promoted neural network algorithms said they work like a brain, that you won't have to think about fraud anymore," he said. "That didn't solve it," he added. "In fact most neural network algorithms didn't do any better than standard rule-based approaches."
Budetti, who has served in numerous healthcare positions in the government and private sector and worked recently on anti-fraud initiatives with the National Association of Insurance Commissioners in Washington, seems certain that "smart" computers can be used outsmart criminal gangs. "We will be able to run every (billing) claim through advanced technology screening by the middle of next year. Every claim will be subjected to a wide range of analytics all of the time and it will be a system that learns on top of itself," he said.
'It's set up to be ripped off'
Any effective use of technology would be more than welcome by officials like Timothy Donovan, a senior FBI agent who works closely with the interagency fraud prevention and enforcement team, known as the HEAT task force, in the Miami area.
The first HEAT team was established in Miami in 2007 but fraud strike forces have since been deployed in other cities as well. "It's just set up to be ripped off," Donovan said of the CMS payment system. "A law enforcement response to this is not the answer. It's not going to cure it," he said.
Fraud cases detected in Florida have typically involved multimillion-dollar schemes featuring bogus suppliers of wheelchairs, or other so-called durable medical equipment devices, and sham infusion therapies for the treatment of HIV and AIDS patients. Elaborate scams involving kickbacks and stolen identities have often been the norm. But less sophisticated ways of bilking Medicare and Medicaid, sometimes even involving medical services and equipment prescribed by dead doctors, have also been documented.
One recent trend, according to FBI agents who work the healthcare fraud beat, involved fictitious billings for prosthetic limbs. At first all the bills, and there were hundreds of them, involved prosthetic left arms. Then suddenly, the bills submitted were all for right-arm prostheses.
More recently the scammers have focused on home healthcare agencies and mental health services, along with rehab sessions and physical therapy.
"If it pays, they just latch into a code and keep billing it. If it's paying they just put the gas pedal to the floor," said Randall Culp, a senior agent in the FBI's Miami division.
Law enforcement officials note that less than 5 percent of all payment claims submitted to CMS have traditionally been subjected to rigorous audits involving any actual human intervention, and say prison sentences are too light.
As a deterrent, the Obama administration recently stepped up federal sentencing for healthcare fraud by up to 50 percent for crimes that involve more than $1 million in losses.
Sparrow, who once served as a policeman in Britain where he rose to the rank of Detective Chief Inspector, says a focus on law enforcement is also crucial.
He said CMS and other government agencies had consistently taken a "quality control mindset" approach to healthcare fraud, failing to recognize it as a crime control problem above all else. "In a nutshell, that's the biggest thing they get wrong, and they get it wrong constantly," Sparrow said.
Patrick Burns of Taxpayers Against Fraud, a non-profit public interest watchdog group, is a big supporter of Budetti, who formerly chaired the organization's board of directors.
But Burns wonders whether Budetti can win the fight against a problem that he says has mushroomed totally out of control since 1993, when former Attorney General Janet Reno identified it as the No. 2 crime problem in America after violent crime.
The problem, as Burns sees it, is a weak U.S. regulatory environment and lack of financial commitment in Congress.
"I'm not sure it's a winnable war without putting more money into investigators," Burns said. "You have to have people on the street," Burns said. "The truth is that CMS doesn't have the resources and investigators to go out and rodeo all the fraud. It just doesn't."
The FBI does not disclose the number of agents working on healthcare fraud cases. But Congressman Henry Waxman, a California Democrat who has worked closely with Budetti on healthcare, said the Affordable Care Act had given CMS hundreds of millions of dollars and unprecedented powers.
"An astounding amount of money is lost through fraud and when we've got more cops on the beat and more personnel enforcing these laws and trying to prevent fraud, I think we will eliminate a lot of that absolute waste," Waxman said.
Senate Finance Committee Chairman Max Baucus said last month tougher enforcement was already starting to pay off with $4 billion recovered last year.
U.S. healthcare expenditures totaled $2.34 trillion, or 16.2 percent of GDP in 2008, the last year for which official figures are available. They are outpacing economic growth and projected to total $3.02 trillion, or $9,505 per person and 17.3 percent of GDP, by 2013.
There are no reliable estimates of the extent to which fraud contributes to those costs.
Every now and then, a big bust will make news, such as one last October involving a Miami-based chain of community health centers called American Therapeutic that was charged with billing for about $200 million in services that were either unnecessary or never provided to patients. But such successes are relatively few and far between.
Given the potential scope of the crime, and the low detection rates normally associated with white-collar crime, Sparrow said authorities may need to dismantle a $100 million billing scam on average every day to put "a serious dent" in the problem.
"We're seeing one once about every two months," he said.