Healthcare Fraud: Auditing and Detection Guide, 2nd Edition

Chapter 1

Introduction to Healthcare Fraud

Truth is often eclipsed but never extinguished.

–Livy, Historian (59 B.C.–A.D. 17)

When Willie Sutton, an infamous twentieth-century bank robber, was asked why he robbed banks, he replied, “Because that’s where the money is.” The healthcare industry, too, has lots of money. Long considered a recession-proof industry, healthcare continues to grow. Statistics from the Centers for Medicare and Medicaid Services (CMS), formally known as the Health Care Financing Administration, show that in 1965, U.S. healthcare consumers spent close to $42 billion. In 1991, that number grew in excess of $738 billion, an increase of 1,657 percent. In 1994, U.S. healthcare consumers spent $1 trillion. That number climbed to $1.6 trillion in 2004, which amounted to $6,280 per healthcare consumer. The figure hit $2.5 trillion in 2009, which translates to $8,086 per person or 17.7 percent of the nation’s Gross Domestic Product (GDP).1

How many of these annual healthcare dollars are spent wastefully? Based on current operational statistics, we will need to budget $550 billion for waste. A trillion-dollar market has about $329.2 billion of fat, or about 25 percent of the annual spending figure. The following statistics are staggering in their implications:

• $108 billion (16 percent) of the above is paid improperly due to billing errors. (Centers for Medicare and Medicaid Services, www.cms.gov)
• $33 billion Medicare dollars (7 percent) are illegitimate claims billed ...