License to Steal: Why Fraud Plagues America's Health Care System

by Malcolm K. Sparrow

Criminal fraud must be factored into the current debates about health care reform, budget deficits, and proposed Medicare/Medicaid cutbacks. As a polity, how can we make good public policy if we don't know how much of the nation's one trillion dollar health care budget is being lost to fraud? The amounts are staggering, measured in hundreds of billions of dollars, but nobody knows for sure exactly how much is being lost.Malcolm Sparrow, an expert on fraud control, reviews how the health care industry approaches the problem and concludes that fraud is rampant, largely uncontrolled, and mostly invisible to policymakers. The problem will only get worse, he says, unless the industry at all levels changes its priorities, its strategies for uncovering and preventing fraud, and its technological approach.Many believe that electronic claims processing will save billions of dollars and that managed care will eliminate the major categories of fraud. By contrast, Sparrow shows how electronic claims processing could lead to unprecedented fraud losses, and how managed care makes fraud much more dangerous to human health.The final section—prescriptions for progress—is a must for policymakers at every level, and for anyone with an interest in the science of fraud control more broadly, in any context.

Genres: Nonfiction

256 pages, Paperback

First published August 8, 1996

Reviews

[George Crowder · Rating 5 out of 5]

An incredibly relevant topic, in light of our debate regarding healthcare insurance and the push towards single payer. Though this is a very, very complex and technical field, Sparrow clearly and engagingly explains the issues, as well as including analogies to fraud detection in other fields, such as credit cards and tax returns (fascinating).

Would love to see an updated or follow-up version of this that includes recent developments and issues raised by the Affordable Care Act.

Would also love to see studies of how similar issues are dealt with in other countries. Are they plagued with thieves as we are?

[Bill · Rating 5 out of 5]

This book is by a former British Constable who is now a professor at the Kennedy School of Government. If that isn’t intriguing enough to get you to read this book, let me say that it is the best non-fiction detective story that I’ve read since “The Untouchables” by Elliot Ness (who brought down Al Capone!).

I’m being a little misleading here. “License to Steal” is not really a “story” so much as a social science analysis of Medicare Fraud in the US. On the other hand, Sparrow does an excellent job of getting across the “story” in this analytical work. He makes a chilling case that fraud is costing the US billions and billions of dollars in the Medicare system. He reveals how ridiculous it is to believe that new technology and information systems are going to be able to make a dent in this fraud. In fact, he argues that the more automatic the payments systems are, the easier it is for criminals to test and game the system. It is like a huge computer game – send false claims to see which ones get rejected and which ones get accepted, then cash in on the successful strategies.

To show how important it is to use “intelligence” (in the human sense of that word!), he tells the story of a small insurance company that has a team of workers reviewing claims. One scam was uncovered because someone noticed that a large number of prescription claims were being submitted and that none of them were folded (9 times out of 10, men will fold a prescription form and put it in their breast pocket before filling it). A computer could never have discovered that because – well – because keypunch data doesn’t get folded.

Another chilling point is that the ‘return’ to insurance companies and the government for investigating fraud is always positive and large. So where are the hardnosed CEOs that want to maximize the return on investments? How much of the US’s excessive healthcare spending is due to mafia-like bleeding of the Medicare system? We’ll never know until someone in public policy heeds Sparrow’s call for a study that systematically samples and verifies Medicare claims. Imagine what we might find.

[Leslie · Rating 5 out of 5]

The small number of people who have read this book on goodreads probably indicates the poor visibility of, and interest in, the problems of healthcare fraud in the U.S. The book is more than a decade old and there is no telling what changes have occurred. Nonetheless, it provides a chilling look at the myriad ways that the healthcare system is vulnerable to abuses. It emphasizes the importance of the undetected burden of fraud--the total costs of healthcare fraud have amounted to as much as $500 billion dollars a year in 2000, of which only a small fraction was detected and an even smaller fraction was recovered. It also demonstrates the ways that patients can be materially harmed--less frequently by the overutilization promoted by fee-for-service structures, and more frequently by the underutilization potentiated by managed care. Finally, it analyzes the systematic underfunding of fraud control efforts, important gaps in the ways they currently operate that leave them exposed to the most lucrative forms of fraud, and potential ways to identify needs. Human abilities to detect unusual patterns in data are important and should be supported by the increasingly powerful disciplines and technologies available for analyzing data.

Considering the vast landscape of abuse portrayed, and the numbers and networks of powerful people involved, some of the inflammatory reactions to healthcare reform efforts may be effective lobbying to maintain easy access to giant streams of money to be dishonestly acquired.

[Timothy Champney · Rating 5 out of 5]

My view of health care fraud. 14 years old but it hasn't changed much.