How Much Fraud Is There?

In both programs, provider fraud is real and not new. Unscrupulous firms do bill the government for services they never provide. But the story is far more complicated than the Administration claims.

The Government Accountability Office estimates that in 2023, Medicare and Medicaid made about $100 billion in what it called “improper payments.” That’s a lot of money but a small fraction of the nearly $1 trillion the two programs spent. And it is important to note that many of those incorrect payments were likely not fraud but rather the result of billing disputes between the government and providers.

Yet, instead of targeting the crooks, the Trump Administration launched an aggressive and broad-brush attack on what it insists is massive fraud without providing evidence of widespread corruption.

In a May 13 press release, Centers for Medicare and Medicaid Services Administrator Mehmet Oz said, “Today we’re shutting the door on fraud—preventing new bad actors from entering Medicare while we aggressively identify, investigate, and remove those already exploiting them. This is about protecting patients, restoring integrity, and safeguarding taxpayer dollars.”

Stopping Fraud By Limiting Competition

But wait. Medicare has no effective system for assessing new entrants. Besides, how can CMS stop existing fraud by blocking honest and capable firms from getting into the care business? Fraud can be committed only by current providers. Those who are not billing Medicare for their services self-evidently can’t be committing fraud against the program.

With its ban on new providers, CMS is not only preventing “new bad actors from entering Medicare.” It is barring all new providers, including honest ones.

Indeed, if current firms are committing fraud, it seems that allowing new competitors into their markets would be part of the solution. Allowing bad actors to continue to do business while limiting their competition forces consumers, as well as Medicare, to continue to use the very low-quality firms Oz claims to be battling. This is especially true in rural and other underserved communities where a current provider may have no competition at all.

Is This Stopping Fraud?

A sensible policy would be to crack down on the real crooks, not grant them ongoing protection against competition though a blanket ban on new entrants. Yet, Trump has been letting convicted fraudsters off the hook. For example, the president has pardoned or granted clemency to at least three nursing home operators convicted of tax or Medicare fraud.

CMS, which oversees home health and hospice, has argued that one reason it wants to block new participants is that owners of corrupt firms that are closed down by regulators simply reopen under new names.

Maybe. And that could be prevented by requiring more ownership transparency and writing new rules that stop bad owners from avoiding sanctions by opening new businesses. Yet, earlier this year, the Trump Administration suspended some Biden-era ownership disclosure requirements for nursing home operators.

Already, many high-quality home care and home health agencies are private pay only and refuse to accept government payments. CMS ought to be encouraging them to participate, not blocking them. Further discouraging them and other potential new entrants will only worsen the problem Oz says he wants to fix.

The answer here is for CMS to better enforce its rules against current corrupt providers and, if the existing regulations prove insufficient, write tougher ones.

The Hospice Problem

For hospice, the real problem is an inefficient payment system. It is complicated but, in general, Medicare pays hospice a fixed daily rate for as long as a patient is enrolled. But that doesn’t properly take into account how care needs change over time.

For example, hospice often provides an intense level of care when a patient first enrolls and while they are actively dying. For the rest of the time, care is modest while the payment is generally the same.

This system creates two problems. On one hand, it creates an incentive for unscrupulous providers to enroll patients before they really need care so they can make that flat rate while their costs are low. But on the other, that fixed payment may discourage hospices from providing necessary, but costly, comfort care.

Besides, the bigger hospice problem is that patients enroll too late, not too soon.

Even though it is challenging, Medicare could be working to fix the payment system. But instead, it has chosen to take an axe to the entire program and block all new providers.

Barring new entrants will be good for existing firms that are happy to avoid the competition. But it hard to see how it will prevent fraud or benefit patients and their families.