While the fraud scandal in Minnesota has set in motion renewed scrutiny of Medicaid and other low-income support programs, the potential for losses in another large entitlement, namely Medicare, should not be overlooked amidst the fallout. Unlike welfare benefits, which mostly rely on state administration, Medicare is entirely the federal government’s responsibility and has been on the Government Accountability Office’s (GAO) “high risk” list since 1990. Program integrity in Medicare has improved over the past three decades, but the stakes are too high to become complacent.

As GAO notes, Medicare is almost by definition high-risk because of its size and complexity (annual spending exceeds $1 trillion). While it mostly avoids the kind of enrollment fraud found often in Medicaid and the Affordable Care Act (ACA) premium credit programs (with applicants or their brokers dishonestly representing their incomes), it presents numerous other targets for unscrupulous actors to exploit.

The agency responsible for Medicare administration, the Centers for Medicare and Medicaid Services (CMS), works with contractors to process over 1.1 billion claims each year submitted by 1.5 million doctors and other clinicians along with nearly 400,000 institutional providers. Twenty separate methodologies determine what is paid for submitted claims, based on rules spanning thousands of pages in the Code of Federal Regulations.

Congress has directed CMS to administer Medicare’s traditional fee-for-service (FFS) option as an open network, with patients given maximum freedom to choose their providers. This design allows nearly all appropriately credentialed providers of medical services and related products to get paid by Medicare when providing covered services. About half of all Medicare enrollees are in FFS.

The processes built to handle the high volume of FFS claims unavoidably entail some degree of payment risk. The trick is to put up guardrails that minimize the losses without compromising ready access to care for the beneficiaries.

GAO’s widely cited estimate of Medicare’s “improper payments” — $54 billion per year, at last count — is susceptible to being misinterpreted because of what it includes and excludes.

On the one hand, it overstates the problem because, according to the Department of Health and Human Services’ annual report on its anti-waste efforts, about 70 percent of what is labeled “improper” in Medicare FFS is due either to insufficient documentation or miscoding. When those deficiencies are corrected, CMS views many of the clams as appropriate for payment.

On the other hand, GAO’s estimate omits the potential waste associated with loose administration of Medicare Advantage (MA), which is the program’s private insurance arm. Instead of paying claims for individual services, Medicare sends MA plans a monthly per-enrollee sum, which the plans then use to pay providers for services.

In MA, the plans, and not CMS, are responsible for policing providers to prevent waste (which might be a more effective model), but Congress also has directed CMS to compensate the plans for serving higher-than-average risk patients. Current CMS rules rely on data provided by the plans to calculate these adjustments, which introduces bias into the formula. The Medicare Payment Advisory Commission (MedPAC) estimates the resulting overpayments at more than $80 billion per year.

Fixing this problem requires changing the payment method. CMS has some leeway in this regard, but Congress also needs to mandate a change that removes bias from the calculations.

Fighting waste in Medicare is not a new concern. Starting in 1977 and continuing up through the Affordable Care Act in 2010, Congress has given CMS and the Department of Justice stronger tools and additional resources to combat wasteful spending, including through a steady stream of mandatory additions to discretionary appropriations. The result has been scores of criminal convictions and notable improvements in estimated losses.

Still, there is plenty of room for improvement. For instance:

• Congress should give CMS more authority to conduct “prepayment” reviews to prevent waste from occurring in the first place. Currently, the emphasis on rapid adjudication of claims creates a “pay and chase” dynamic, with CMS devoting substantial resources to recovering funds after the dollars have already left the Treasury. Identification of high-risk services (like rehabilitation and hospice) should trigger more scrutiny of credentialed providers in advance of payments.
• Provider enrollment systems should be used more aggressively to screen out bad actors. Maximum patient discretion should not force CMS to admit every fly-by-night entity into Medicare’s payment systems.
• CMS should use competitive bidding for more non-clinician services, such as laboratory tests.
• Most importantly, Congress should take responsibility for fixing the MA payment system. The most effective approach would be to set payments based on bids submitted by the plans rather than administratively-set benchmarks which invite political manipulation and abuse.

If all else fails, there is some hope that artificial intelligence (AI) will become an effective anti-waste tool. CMS should be open to that possibility but not count on it.