Health care fraud in America

Guess what's the leakage in American health care paid for by the tax payer? $272 billion of  1.7% of GDP! That's nearly as large as the total subsidy budget in India. The Economist reports that a lot of ingenuity goes into perpetrating the fraud:

Patients claim benefits to which they are not entitled; suppliers charge Medicaid for non-existent services. One doctor was recently accused of fraudulently billing for 1,000 powered wheelchairs, for example. Fancier schemes involve syndicates of health workers and patients. Scammers scour nursing homes for old people willing, for a few hundred dollars, to let pharmacists supply their pills but bill Medicare for much costlier ones. Criminal gangs are switching from cocaine to prescription drugs—the rewards are as juicy, but with less risk of being shot or arrested. One clinic in New York allegedly wrote bogus prescriptions for more than 5m painkillers, which were then sold on the street for $30-90 each. Identity thieves have realised that medical records are more valuable than credit-card numbers. Steal a credit card and the victim quickly notices; photocopy a Medicare card and you can bill Uncle Sam for ages, undetected.

The Economist says that the way to tackle healthcare fraud is to simplify it and to cut out unnecessary treatment. It says the NHS in UK does a better job. Perhaps the journal has got it wrong. The problem could well be that healthcare is private sector dominated. It may be easier to control leakages if the state has a larger role in direct provision of healthcare.

What lessons might the US experience hold for our welfare programs? One obvious lesson is that we can't close down our welfare programs because of leakages- America is not shutting down healthcare because of the scale of the fraud. Another is that getting the private sector to provide a service and reimbursing the costs could prove most wasteful than the state providing the same services. Switching to private healthcare and trying to provide insurance for the same is quite the wrong way for us to go. It's difficult, it's challenging but we need to do more to make state institutions efficient.