Was 31.5% of Medicare payments in 2006 the result of fraud?

Question

To much fanfare, in 2006 Medicare announced that only 7 percent of its payments were a result of fraud. Two years later, The New York Times reported that it was actually 31.5 percent -- and that Medicare had aggressively hidden the fraud from outside auditors. Source

This seems to be the NY Times article this is based on.. (Thank you Fabian)

Was the original NYT article's claim that there was a 31.5% fraud rate concerning medicare in 2006 accurate? And is the interpretation that the fraud was intentionally hidden from auditors backed up by any evidence?

Please note: I realize that the person quoted above has a political agenda and has chosen inflammatory wording to make her point. I am not looking to parse her political agenda but rather to determine if there is a basis in reality for her interpretation that the fraud was knowingly concealed.

Answer 1

Was the original NYT article's claim that there was a 31.5% fraud rate concerning medicare in 2006 accurate?

tl;dr: No. The NYT article is about claims for "Durable Medical Equipment" that accounted for only 1.7% of all Medicare expenditures in 2006. (i.e., 31.5% of 1.7% is much smaller than 31.5% of 100.0%).

Or, yes, if "concerning medicare" applies only to "Medicare claims submitted by sellers of durable medical equipment." (see also note on "fraud rate" below)

As a result, Medicare did not detect that more than one-third of spending for wheelchairs, oxygen supplies and other medical equipment in its 2006 fiscal year was improper, according to the report. Based on data in other Medicare reports, that would be about $2.8 billion in improper spending. - NYT

The 2006 Medicare expenditure for "Durable Medical Equipment" (DME) was $6.9 billion (1.7% of the $403.7 billion in total Medicare expenditures for 2006) - National Health Expenditures, Table 4. In other words, if the 31.5% in "improper spending" applied to Medicare as a whole then the "fraud" would be around $124.4 billion more than the $2.8 billion stated.

Brief note on what "improper-payment rate" means

The National Health Care Anti-Fraud Association, an organization of about 100 private insurers and public agencies, estimates that some $60 billion (about 3% of total annual health care spending) is lost to fraud every year, but that figure is considered conservative. In 2008, government-wide "improper payments" cost the U.S. Treasury $72 billion, or about 4% of total outlays for the related programs. Of that amount, 50% took the form of reimbursements to providers, medical suppliers, and other Medicare and Medicaid vendors. Medicaid had an estimated improper-payment rate of 10.5%, or $18.6 billion, for the federal share of Medicaid expenditures — the highest rate of any federal program. - source

Note that 50% of the 10.5% "improper-payment rate" was under-payment.

And is the interpretation that the fraud was intentionally hidden from auditors backed up by any evidence?

tl;dr: Not that I could find.

The NYT article does not support Coulter's claim that "Medicare had aggressively hidden the fraud from outside auditors." Statements attributed to lawmakers or their staff are worthless without corroborating facts. (Protections provided by the Speech or Debate Clause allow lawmakers and "congressional staff" to say pretty much anything - factual or otherwise. Coulter's protections flow from U.S. Const. amend. I).

The company that was doing the auditing at the time, AdvanceMed, is still at it and I could not find any evidence they had been investigated (or even given a stern talking to).

Nor could I find any evidence that the episode resulted in even a "shake up" at the Centers for Medicare and Medicaid Services.

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Note on "fraud rate"

As mentioned in the other answers and comments, the terms "improper payment rate" or "error rate" and "fraud" are not interchangeable.

From Articuno's answer,

It is important to note that the improper payment rate is not a "fraud rate," but is a measurement of payments that did not meet Medicare requirements. The CERT program cannot label a claim fraudulent. - source

From Black's Law Dictionary, 9th ed.,

fraud, n. (14c) 1. A knowing misrepresentation of the truth or concealment of a material fact to induce another to act to his or her detriment. ● Fraud is usu. a tort, but in some cases (esp. when the conduct is willful) it may be a crime. — Also termed intentional fraud. 2. A misrepresentation made recklessly without belief in its truth to induce another person to act. 3. A tort arising from a knowing misrepresentation, concealment of material fact, or reckless misrepresentation made to induce another to act to his or her detriment. 4. Unconscionable dealing; esp., in contract law, the unfair use of the power arising out of the parties' relative positions and resulting in an unconscionable bargain. — fraudulent,adj.

Answer 2

Ann Coulter's claim about what the New York Times reported

She makes two claims about what the New York Times reported:

1. "that it was actually 31.5 percent" -- and that
2. "Medicare had aggressively hidden the fraud from outside auditors".

Here is the New York Times article she refers to: The New York Times: Report Rejects Medicare Boast of Paring Fraud

The first claim is partly true. The New York Times reported that the "error rate" (not the fraud rate) was "closer to 31.5 percent".

The second claim is false. The New York Times did not report that Medicare had aggressively hidden or even intentionally hidden "the fraud".

According to the inspector general’s report, officials at Medicare instructed AdvanceMed to disregard [the CERT] policies. Instead, AdvanceMed was told to examine only the documents submitted by the companies selling the medical equipment, rather than verify those documents against physicians’ records.

So, the New York Times reported that instructions were given that resulted in the auditors missing a large portion of the fraud, but whether those instructions were given with the intent to hide ("aggressively hidden") is a judgement of motivation that we can't do here.

The New York Times's report

The New York Times was correct in its reporting.

Here is the Office of Inspector General's report that the New York Times refers to (https://oig.hhs.gov/oas/reports/region1/10700508.pdf). It says:

The OIG estimated that the additional errors would have increased the FY 2006 DME error rate by 24 percentage points, from 7.5 percent to 31.5 percent.

The OIG also said:

However, CMS orally instructed the CERT contractor to deviate from written policies by making determinations based primarily on the limited medical records available from suppliers (generally the physicians’ orders and certificates of medical necessity), not the full medical records available from physicians, and by applying clinical inference when reviewing supplier medical records to reasonably infer that the DME provided was medically necessary.

This does not establish an intentional attempt to hide fraud, given that:

1. CERT error rates are not fraud rates, and
2. CMS believed the change in instructions was consistent with policy and claims that it was done with the purpose of "reducing the documentation requirement on physicians". Evaluating whether or not the instructions were given to "intentionally hide" or "aggressively hide" fraud rather than "reduce the documentation requirement on physicians" is a question of motive and not on-topic for this site.

In their response to the OIG report (found at the end of this document) the reasoning behind the change in procedure, the Centres for Medicare and Medicaid Services (CMS) said:

From 2003-2006, CERT did not request additional information from ordering physicians. Instead, CERT requested a certificate of medical necessity (CMN) from suppliers who submitted DME claims. The CMN was designed to reduce documentation requirements on physicians. By 2007, CMS's requirements for CMNs had been eliminated in favor of ensuring that ordering physicians maintained documentation needed to support coverage and payment for DME. Beginning with the 2007 improper payment report period, CERT has been asking physicians, as well as the supplier, for supporting information on DME claims.

The CMS believed that their instructions were consistent with policy and that policy was just different in the years 2003-2006 than in 2008. CMS changed their instructions to AdvanceMed to require physician documentation before the OIG report recommended that change to them.

CERT error rates are not fraud rates

From here, "the improper payment rate is not a “fraud rate,” but is a measurement of payments that did not meet Medicare requirements. The CERT program cannot label a claim fraudulent."