To Save on Health Care, First Crack Down on Fraud

But before charging consumers more and eliminating valuable services, we should be much more aggressive in recovering money stolen from these taxpayer-supported programs. According to some estimates, health care fraud is a $250 billion-a-year industry, and about$100 billion of that is stolen from Medicare, the health care program for the elderly, and Medicaid, the insurance program for the poor and disabled.

There are many ways to defraud taxpayers. For example, a hospital chain can buy drugs at a steep discount and then bill Medicare for high sticker prices. Doctors can bill for procedures that never happened, or for drugs that were supplied to them by pharmaceutical companies free of charge, or pharmaceutical companies can promote a drug for risky, unapproved uses.

Recovering billions of dollars from these ruses won't solve the problem of rising health care costs, but it'll go a long way in helping to reduce waste and protect services.

Many states already aggressively pursue health care fraud. In 2005, a whistle-blower accused Quest Diagnostics, the chain of medical laboratories worth over $7 billion, of deliberately overcharging California's insurance program for poor and disabled people, Medi-Cal, for more than 15 years. He alleged that Quest had paid kickbacks in the form of free tests and discounts to doctors and hospitals that referred patients to its labs. Recently, while denying wrongdoing, the company settledfor $241 million. According to California's attorney general, Kamala D. Harris, it was the largest fraud settlement in the history of the state's False Claims Act.

Quest isn't accused of defrauding only California, however. Andrew Baker, a health care executive who ran a company acquired by Quest, has accused it of overbilling our national Medicare plan by as much as a billion dollars. The case was dismissed for technical reasons that had nothing to do with its merits, and Mr. Baker is appealing the dismissal. Oddly, the Department of Justice has not joined him.

Why not?

It could be that the Justice Department prefers to let the state attorneys general do the heavy lifting. Once a state wins a case, the feds can piggyback onto it. This may be happening in the Quest case since the department said it reserved the right to join the case later. But why wait? According to a public statement made by Mr. Baker (who, thanks to the False Claims Act, which encourages individuals to expose wrongdoing by giving them a cut of the recovery, could earn about $1 million from the case), the inaction could be explained in another way. "Quest is too big to go after," he said. The department instead seems to focus on individual physicians, like the Miami-area doctor recently convicted ofbilling Medicare $23 million for phony injections.

Compare this to Pennsylvania, which just obtained $49 million from four companies accused of selling drugs to state agencies at inflated prices. South Carolina, Idaho and other states are settling similar suits, and still the Justice Department idles.

At the beginning of this year, the Justice Department had more than 1,300 whistle-blower cases under investigation, the bulk of them related to pharmaceuticals, hospital chains and health care companies. That's up from the 900 or so cases that were stalled during the end of the Bush administration. To be fair, the department has long been understaffed when it comes to health care investigations. But in 2009, the Justice Department and the Department of Health and Human Services were given an additional $198 million to combat health care fraud. Neither the money nor a new task force seem to have helped much.

Last year, the Justice Department recovered $3 billion in false claims, $2.5 billion of that from health care cases. But that's just a drop in the bucket. It's gotten so that even if a case is settled, many pharmaceutical companies simply write it off as the cost of doing business. After all, if you're selling tens of billions of dollars' worth of drugs in one year, a $2 billion settlement is a slap on the wrist.

The only way to tell if taxpayers are getting their money's worth of fraud-fighting is for the Department of Justice to routinely publish, among other statistics on corporate fraud, a breakdown of the number of cases it opens and the number originating from whistle-blowers.

This should be a priority. Health care costs are rising toward unsustainable levels. But before we start cutting important programs, let's go after the fraudsters.