These days you just have to wonder about the greed and corruption that is going on all around. Senator Dick Blumenthal is one of many who’ve been pointing out the naked corruption in the Trump family–Qatari jets, memecoins, Trump’s son being on the board of so many defence and prediction market companies you can’t keep it straight. Issac Saul has tried to detail it all, but reading just the cryptocurrency part of his piece has me spinning. And we’re nowhere near assessing the naked corruption of so many others in the administration. Kristi Noem, despite being fired, is still living in her government house, and has not had to answer for routing some of a totally unnecessary $220m ad campaign to a company that her friends own. The company was incidentally established a whole 8 days before it got the contract.
So it’s a little absurd to be worrying about fraud and corruption in health care. But apparently HHS is. At least Oz and RFK Jr are going on about Somalis defrauding Medicaid and Armenians running fake hospices in California. (Let’s not even consider the optics of a Turkish citizen with close ties to the Erdogan regime criticizing Armenians–I mean the genocide was over a century ago!)
But of course, fraud and corruption in health care has been going on forever. Back in 2011 a Florida man was convicted of Medicare fraud to the tune of tens of millions and got a 50 year sentence. Don’t be surprised that Trump commuted his sentence. And that’s just one of thousands and thousands of cases, mostly by providers inventing fake patients to defraud Medicare or Medicaid.
But the ones who get convicted and go to jail are the amateurs.
If you’re a big company in health care, you fight with lawyers and you settle. For example, every big pharma company has settled for things like off-label promotion of their drugs. GSK paid $3bn, Pfizer over $2bn, J&J over $2bn. In fact back in the 2000s THCB had a regular correspondent called The Industry Veteran who basically suggested that whistleblowing in qui tam suits inside big pharma was the way to wealth and fame. And of course HCA in its days when Rick Scott – now (somehow not a) convicted felon as well as Florida senator – settled for $1.7bn. This was all back in the 1990s and early 2000s, but it’s all still going on.
The venue though may have moved. Risk adjustment in Medicare Advantage has become one of the biggest venues for fraud. The key here is that the DOJ and HHS found that while Medicare Advantage plans were upcoding their patients, and therefore getting paid more for them, they weren’t actually delivering more services.
Stock analyst Michael Ha, appearing on Big Short guy Steve Eisman’s podcast showed that after United HealthGroup in 2017 acquired HealthPartners – the Los Angeles medical group – somehow its risk adjustment factor (RAF), which is what determines payment and upcoding, went from 1.0 to 1.5 within a few years. Did those patients really get 50% sicker? Well at roughly the same time a WSJ investigation found that many patients who were upcoded by multiple plans (to the tune of $50bn) didn’t actually get any more treatment. CMS’ attempt to audit overpayments and then impose across the board fines were stymied by a court decision in 2025 that meant that they could only impose fines about the very small number of patient cases they had actually audited.
It’s amazing what a great return spending on lawyers and lobbyists gets you. That’s why it’s one rule for the giants and another for the little guy.
Stanley Warren has been on a tear on Linkedin looking just at CVS/Aetna. A couple of months back they settled an upcoding case for $117m. But Stanley’s calculation is that over the course of the upcoding they’d probably generated some $24 billion in additional payments.
Sometimes the fines do exceed the profits. EMR vendor Practice Fusion made a quick $1m enticing doctors to push Oxycontin for Purdue Pharma but they ended up getting fined $154m (although to be fair that wasn’t just for the oxy). I suspect Aetna thinks it got a better deal by paying $117m when it received $24 billion!
If (and it’s a big if) we ever get back to the rule of law in this country, we need a deep investigation into all these criminal corruption activities in health care and real consequences including prison sentences for the executives involved. But if we are being honest that’s very unlikely. We’ve gone through decades of allowing this kind of bad behavior and writing it off as the cost of doing business.
For that matter we’ve done nothing much about much bigger scandals. OK, a few people went to jail over Watergate, but not Nixon. Iran Contra was basically a launchpad for Ollie North’s punditry career. Apart from a brief stint in jail for Cheney’s chief of staff, no one was held to account for the lies getting us into the Iraq war, the CIA torture sites or the corruption in the run up to the 2008 crash. And while the Koreans and Brazilians put their Presidents in jail for attempting coup d’etats, we let Trump get re-elected.
America does have a glorious history of trying to prevent this corruption. Then Senator Harry Truman ran a very successful committee that saved billions by highlighting waste in military spending in WW2. In the 1970s and 1980s Democratic senator Wiliam Proxmire gave out the Golden Fleece awards for the $435 hammer and $600 toilet seat. But in general we seem to have lost interest. Trust in government is so low, and partisanship so tribal that it’s unlikely we can come together on a real anti corruption program.
But what can we structurally do in health care to make this kind of thing less likely?
I’d argue that the best way to do this is to restrict the amount of payments that get made for individual transactions. Obviously if you have a largely fee-for-transaction system, there will be temptation to either inflate the fee, inflate the transaction or fake the transaction. If instead we attribute a payment to a contractor for an individual’s care, such as an annual payment to a primary care physician for a fixed set of services, that contractor will be incented to make sure any subcontractors they use are not being fraudulent. We actually had an example of this when recently several ACOs identified ultra high cost wound care that was attributed to them.
There will still be examples where organizations benefitting from fraud don’t bother stamping it out. One instance was when Centene, a for-profit Medicaid plan, got paid for the same recipient in two states. There have been other cases when brokers switched people between plans without their knowledge. We need to remove the profit incentive from these arrangements.
But more widely at some point we are going to have to acknowledge two things.
First we need to move the health care system to a government-financed flat fee system where most organizations should not be making profits. If the vast majority of people working in health care make a salary and most organizations are on a fixed budget, no one in that situation will be happy to see a fraudster get money that should belong to them.
Second, we need a massive culture shift in health care. The underlying ethics should be to take care of patients and not be concerned about the money that they are making or costing either the individual or the organization.Luckily most people in health care would prefer this and most clinical professionals have sworn an oath to uphold it. What we have to do is put a structure in place where doing the right thing is the easiest thing, and where committing fraud is hard.
I’m not holding my breath for any of this to happen tomorrow, but those of us in health care should be speaking out against the fraud and corruption we see, and against the overall system processes that encourage it.
Matthew Holt is the publisher of THCB