How Can Health Care Reform Reduce Fraud?

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Health care fraud is the elephant in the room. Knowing it's there isn't enough to get rid of it. Photo: John Lund/Getty Images

Health care fraud is a huge drain on the economy. The health care industry loses between $60-$200 billion each year to fraud. That's 3-10 percent of the total $2 trillion health care industry.

Health care fraud is an economic drain for three reasons:

  1. It raises costs for insurance companies, which increases the premiums for everyone.
  2. It increases health care costs. Most people don't look at their itemized bills since the insurance company pays for it. Since there isn't price competition, medical providers can charge high prices for tests and other procedures. Often, doctors don't even know how much a procedure they are prescribing costs.
  1. When the costs of fraud are passed onto Medicare and Medicaid, it then creates an additional budget deficit. Fraud alone could add $14-30 billion to the deficit.

A small group of doctors and patients create most of the fraud.  They bill you for a service you didn't receive. They over charge you for a service you did receive. They also rename a procedure so that insurance covers it.  Others give you a test you don't need, just to receive more from the insurance.

Patients perpetrate health insurance fraud as well. Patients can file false claims for services or medications they didn't receive. They can alter bills or even outright forge them. Finally, it is fraud if they file a false claim to someone else's insurance.

A large cause of fraud is the high costs of health care itself. Patients who can't afford a life-saving procedure may be desperate enough to use a friend's insurance. Doctors who receive a small reimbursement from the health insurance company may tack on an additional procedure to cover their costs.

Unfortunately, it's a vicious cycle. High healthcare costs lead to fraud which leads to even higher costs for everyone.

Why is the cost of health care so expensive in the United States? There are six main reasons, according to Patient Empowerment Expert Trish Torrey.

  1. Hospitals are compelled to treat patients in emergency rooms, even if they receive no payment. These costs are extremely high and are passed on as higher expenses to everyone.
  1. Other countries with government-owned health care negotiate the prices down. That's because they have a stronger bargaining position. In the United States, state governments and insurers can do this. 
  2. The United States does not allow its citizens to legally buy drugs from other countries, such as Canada and Mexico. That gives U.S. pharmaceutical companies more monopoly power. They use that to raise prices.
  3. Drug companies pay doctors to prescribe their medications. Busy doctors don't always have time to research the appropriate drugs. They rely on their highly-paid pharmaceutical sales rep for information about the drug's proper use.
  4. U.S. pharmaceutical companies spend a lot of money on advertising. These costs are just passed through to consumers. The ads also drive people to the doctor more often.

Reform reduces fraud by lowering health care costs. Health care reform provides insurance to more people. That reduces the number of patients treated for free by emergency rooms. With insurance, many people will be able to afford to go to low-cost clinics, instead of using the emergency room as their clinic. Reform covers more prescription costs, reducing the burden on the high-usage insured.

Health care reform also extends coverage to healthier people, who would otherwise forgo insurance. They pay into the system, but not require as many services, thus lowering the costs for everyone.

The goal of the Patient Protection and Affordable Care Act is to reduce health care costs. It sets up health insurance exchanges that allow families and businesses to easily comparison shop for insurance plans, increasing competition and lowering costs. It also allows children as old as 26 to be covered under their parents' plans. Even as long ago as May 2011, it appeared this was working. Health insurance companies reported record profits as 600,000 new young people signed up for coverage.