How Initiatives to Reduce Fraud in Federal Health Care Programs Affect the Budget

NoteUnless otherwise indicated, all years referred to in this report are federal fiscal years (which run from October 1 to September 30).SummaryObservers often cite fraud as an important contributor to high health care spending, particularly in federal programs. This report describes how the Congressional Budget Office (CBO) estimates the budgetary effects of legislative proposals to reduce fraud in Medicare, Medicaid, and the Children's Health Insurance Program (CHIP), and how those estimates are used in the Congressional budget process.1What Is Fraud?For the purposes of this report, fraud is considered to be any deliberate attempt to use deception to receive a service or payment from Medicare, Medicaid, or the Children's Health Insurance Program when the individual or entity in question has no right to that service or payment under the program's statutes and rules. Importantly, whether fraud has been committed is a legal determination and cannot be definitively known unless has been some sort of adjudication (for example, a trial verdict or a settlement agreement).Fraud falls within the broader category of improper payments, which are any payments in an incorrect amount (whether an overpayment or an underpayment) or to the wrong person. Not all improper payments are fraudulent, however; some improper payments are the result of human error, mistakes in documentation, waste, or abuse.How Much Fraud Occurs in Federal Health Care Programs?Measuring fraud is not simple, in part because fraud can be determined with certainty only after the fact. Fraud also requires that someone act with intent to commit a crime, and determining intent can be challenging. Moreover, although fraud that has been successfully prosecuted can be quantified, is no reliable method to estimate the amount of fraud that goes undetected, especially because at first glance successful fraud can look very much like appropriate payment for health care services.The Government Accountability Office (GAO) has concluded that there currently is no reliable baseline estimate of the amount of health care fraud in the United States, and CBO has not estimated the amount of fraud-either detected or undetected-in Medicare, Medicaid, and CHIP.2 The Centers for Medicare & Medicaid Services (CMS), which has primary responsibility for federal oversight of all three programs, is developing an estimate of the incidence of fraud for some Medicare services; that estimate is expected to be available soon.How Extensive Are Current Efforts to Combat Fraud in Health Care Programs?The federal government-primarily the Department of Health and Human Services (HHS), CMS (an agency within HHS), and the Department of Justice (DOJ)- has considerable flexibility in setting priorities and taking action to reduce fraud, but funding for antifraud activities is limited. In fiscal year 2014, spending on dedicated antifraud activities through the Health Care Fraud and Abuse Control (HCFAC) program was about $1.4 billion, equal to about 0.2 percent of the federal government's spending for the programs' benefits.In addition, HHS and DOJ have formed the Health Care Fraud Prevention and Enforcement Action Team (HEAT) to make preventing fraud a cabinet-level priority. Task forces drawn from multiple federal agencies have focused on reducing fraud in cities where it has been prevalent, including Chicago, Dallas, and Miami. According to HHS, since 2009 the HEAT Medicare task force has filed criminal and civil charges against more than 1,700 defendants who falsely billed the Medicare program for more than $5.5 billion.3What Factors Affect CBO's Estimates of the Budgetary Effects of Antifraud Legislation?In general, CBO estimates that federal spending for the programs' benefits would be reduced by legislation that would provide either additional funding or new authority to reduce fraud. Most proposals fall into one of four broad categories (see Table 1):* Appropriating additional funds for antifraud activities;* Making statutory changes that give federal agencies additional antifraud authorities or that redefine or clarify permissible practices, services, or behaviors in Medicare, Medicaid, and CHIP;* Requiring agencies to undertake activities aimed at reducing fraud, some of which may already be authorized under current law, with or without additional funding; and* Increasing penalties for violations of applicable law. …