Government Health Care Awash in Waste

November 30, 2009

Official estimates put the amount of improper payments in federal subsidy programs at about $100 billion a year, with Medicare and Medicaid accounting for more than half. The actual loss to taxpayers is probably much higher.

The Government Accountability Office has issued a new report illustrating why improper payments are so high. It focuses on poor contract management at the Centers for Medicare and Medicaid Services (CMS), which administers Medicare and Medicaid:

Pervasive deficiencies in CMS contract management internal control increase the risk of improper payments or waste. Specifically, based on our statistical random sample of 2008 CMS contract actions, GAO estimates that at least 84.3 percent of fiscal year 2008 contract actions contained at least one instance where a key control was not adequately implemented. GAO also estimates that at least 37.2 percent of fiscal year 2008 contract actions had three or more instances in which a key control was not adequately implemented.
The GAO underscores the chronic nature of the waste at CMS in noting that the agency has taken “insufficient” or “no” action on prior recommendations. The GAO is blunt: “The continuing weaknesses in contracting activities and limited progress in addressing known deficiencies will continue to put billions of taxpayer dollars at risk of improper payments or waste.”
Unfortunately, this is business as usual at the Department of Health and Human Services, which houses CMS. David Hyman recounts in his book, Medicare Meets Mephistopheles, that in 2001 HHS’s Health Care Financing Administration became CMS in an attempt to rebrand the universally disliked HCFA. CMS Administrator Tom Scully told Congress in 2003: 
The fact is, the health care market…is extremely muted and extremely screwed up and it’s largely because of my agency. For those of you who don’t follow CMS, which used to be called HCFA, we changed the name because it was so well loved. I always say it’s kind of like when Enron comes out of bankruptcy, they’ll probably change their name. So, HCFA—Secretary Thompson and I decided to confuse everybody. We changed the name to CMS for a couple of years so people wouldn’t realize we’re actually HCFA. So far, it’s worked reasonably well. 
Regardless of what the government’s health care bureaucracy is called, massively complex regulations combined with subsidies flowing like a river will always result in vast amounts of taxpayer dollars being washed down the drain.
Alas, the Obama administration plans to open another major tributary with its new health care plan. But the administration insists that taxpayers and the economy won’t get swept away by the rising torrent as its plan with actually save money. If this claim sounds ridiculous, it’s because it is ridiculous.   


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