Rep. Darrell Issa claims government could save $125 billion by not paying improper Medicare claims

Rep. Darrell Issa, R-Calif., promises to be a politician we're going to hear a lot from this year.

Issa is the incoming chairman of the House Oversight and Government Reform Committee. He has pledged an aggressive agenda of hearings to ferret out government fraud and waste. And he called President Obama's White House "one of the most corrupt administrations." So he's going to be busy.

On CBS's Face the Nation on Jan. 2, 2011, Issa put a dollar figure on his goal, vowing to identify and eliminate about $200 billion in waste.

Medicare alone, he said, accounts for $125 billion in waste and fraud annually.

Said Issa: "We can save $125 billion in simply not giving out money to Medicare recipients that don't exist for procedures that didn't happen. These are real dollars. Ten percent of the deficit goes out in wasted money, money that doesn't get one person health care in Medicare."

We called the Oversight committee's press office to find out where Issa got the $125 billion figure and were told it came from an Office of Management and Budget report that concluded there was about $125 billion worth of "improper payments" in 2010. Improper payments include money paid to the wrong person (sometimes people who are dead or in jail), or in the wrong amount or for the wrong purpose, or payments for which there wasn't proper documentation. It also includes fraudulent claims by contractors and organizations.

But the OMB's total was government-wide, not just for Medicare. The $125 billion also included improper payments for programs including Medicaid, food stamps, unemployment insurance, Social Security and the school lunch program. Medicare is the government agency with the largest chunk of improper payments, but it's still less than half the total. In fact, improper payments in Medicare came to $47.9 billion ($34.3 billion in Medicare fee-for-service and $13.6 billion in Medicare Advantage). That's a significant amount of money but far less than the $125 billion Issa assigned entirely to Medicare.

It's also inaccurate to suggest that all of the money identified as improper payments could be returned as savings to taxpayers.

As Issa said, improper payments can include money paid to the wrong person or for procedures that didn't happen. But there's more to it than that. About a third of Medicare's improper payments are the result of a claim not having enough, or proper, documentation. Upon further investigation, many of those claims are ultimately deemed proper. One example is a payment based on a claim by a doctor who submits forms that are illegible.

Also, not all improper claims can be completely recouped. For example, say a surgeon was paid $10,000 for an inpatient procedure when Medicare only reimburses for an outpatient procedure that costs $5,000. The government wouldn't recoup the full $10,000, just the $5,000.

In other words, the government wouldn't end up with $125 billion even if all improper payments were eliminated for all those services, including Medicare.   

The Obama administration has taken a number of steps aimed at reducing improper payments.

With regard to Medicare specifically, Obama announced on June 8, 2010, the administration's intent to cut the improper payment rate in the Medicare fee-for-service program in half by 2012, eliminating more than $20 billion in payment errors. The Office of Management and Budget report cited by Issa's office notes that improper payments in the Medicare fee-for-service program actually went down in 2010 as a percentage, from 12.4 percent to 10.5 percent.

There's no question improper payments in Medicare are a very significant problem. But Issa has overstated the potential savings in the Medicare program. For starters, the report on which Issa based the $125 billion figure shows that the Medicare portion of that total is $47.9 billion. That alone makes Issa's figure simply wrong. But in addition, Issa wrongly suggests that all of the money from "improper payments" can be "saved" by simply not making those payments. In fact, a good portion of that money lacked proper documentation, but upon further investigation, may very well be verified as proper. In other words, even the $47.9 billion in improper payments in Medicare could not be fully recaptured for taxpayers. We rate Issa's statement False.

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