A central theme of FatCratz is how different a whole range of incentives are for public vs. private sector employees. These differing incentives are illustrated brilliantly in the field of health care by Kerry Weems and Benjamin Sasse in a piece in today's WSJ. They compare a number of different aspects, but the most salient for FatCratz is the handling of fraud:
Private insurers must combat fraud -- or go out of business. Indeed,
these payers have every incentive to invest in antifraud personnel and
strategies down to the point where return and investment are equal. ... In fact, the total amount of Medicare fraud is unknown. The
government does not measure or estimate fraud in its programs; instead,
it measures payments made "in error." According to Medicare's own most
recent data, payments made in error amount to over $10 billion
annually. (Medicaid's payment errors in 2007 equaled a whopping $32.7
billion, according to a report by the Department of Health and Human
Services.) Others have claimed Medicare's payments made in error are
much higher. Even with the inclusion of the budget of the inspector
general for the Department of Health and Human Services, Medicare
spends less than one-fifth of 1% on antifraud measures -- a small
fraction of what private plans invest in their efforts to build a
network of honest providers.
As detailed in a companion post, this illustrates the wildly differing incentives regarding fraud in the public and private sectors. Whereas the private sector has direct, profit-driven incentives for rooting out actual fraud, the public sector has no profit motive, and in fact has only incentives to reduce KNOWN fraud. This, of course, can be done two ways: reducing fraud, or reducing the investigation of fraud. Which is more common?
Congress has turned back Medicare's pleas for $579 million of
additional antifraud funding, on the grounds that these dollars
subtract from the budget funds for curing cancer and anti-obesity
campaigns. Based on experience, Congress will always underinvest in
fraud. Yet according to a House of Representatives Budget Committee
hearing in July 2007, return on investment for certain Medicare
antifraud measures were estimated to be in excess of 13-1.
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