1. News & Issues
You can opt-out at any time. Please refer to our privacy policy for contact information.

How Can Health Care Reform Reduce Health Care Fraud?


How Can Health Care Reform Reduce Health Care Fraud?
Photo: Jason Greenspan/Getty Images
Question: How Can Health Care Reform Reduce Health Care Fraud?
Answer: Health care fraud is a huge drain on the economy. Estimates are that anywhere between $60-$200 billion of health care costs each year are lost to fraud. That's 3-10% of the total $2 trillion health care industry. Fraud occurs on the part of medical providers and patients. Medical providers can bill you for a service you didn't receive, over charge you for a service you did receive, or rename a procedure so that it is covered by insurance. Providers can also give you a test you don't really need, just to receive more from the insurance.

Health care fraud is an economic drain for three reasons:

  1. It raises costs for insurance companies, which increases the premiums for everyone.
  2. They increases health care costs overall. Most people don't look at their itemized bills, since the insurance company pays for it anyway. 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.
  3. When the costs of fraud is passed onto Medicare and Medicaid, it then creates an additional budget deficit. Fraud alone could add $14-30 billion to the deficit.

Patients perpetrate health care 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 use file a false claim to someone else's insurance.

A small group of doctors and patients create most of the fraud. However, 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 low reimbursement from the health insurance company may tack on an additional procedure to cover their costs. Unfortunately, it's a vicious cycle -- high health care costs lead to fraud which leads to even higher costs for everyone.

Why is the cost of health care so high in the U.S.? There are six main reasons, according to Trish Torrey, the About.com Guide to Patient Empowerment.

  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 costs to everyone.
  2. Other countries with government-owned health care negotiate the prices down, since they have a more powerful bargaining position. In the U.S., this happens with state governments and insurers. However, there is a gap in coverage, which means the insured must pay full price for drugs if they spend more than the amount that is covered that year.
  3. The U.S. does not allow its citizens to legally buy drugs from other countries, such as Canada and Mexico. This allows U.S. drug companies more of a monopoly, and the ability to raise prices.
  4. Drug companies pay doctors to prescribe their medications. Doctors are so busy, they often do not have time to research the appropriate drugs. They rely on their highly-paid pharmaceutical sales rep for information about the drug's proper use.
  5. U.S. drug 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.
  6. High-cost technology such as MRI machines are used to make diagnoses when a simple X-ray would do. That's because doctors, who are trying to run a profitable business after all, are compensated more highly by the insurance company for the MRI test than an X-ray.
Health care reform reduces healthcare fraud by lowering health care costs. Healthcare reform provides insurance to more people, thus lowering the number of people 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 would also cover more prescription costs, reducing the burden on the high-usage insured.

Health care reform also extends coverage to healthier people, who currently forgo insurance. They would 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 state-run 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. By May 2011, it appeared this was working. Health insurance companies reported record profits as 600,000 new young people signed up for coverage.

  1. About.com
  2. News & Issues
  3. US Economy
  4. Fiscal Policy
  5. Health Care Reform
  6. How Health Care Reform Reduces Health Care Fraud

©2014 About.com. All rights reserved.