In a recent report, Jon Huntsman, former Ambassador to China, did a study concluding that the loss of intellectual property due to theft by China costs the U.S. more than $300 billion annually and translated into 2.1 million fewer jobs in this country.

China’s theft of American IP is headline news, but the Chinese pale in comparison to how much Americans are stealing from America. That’s right, recent reports by 60 Minutesand the Economistestimate fraud losses near $500 billion annually in Medicare, Medicaid and disability fraud.  And why not? After all, that’s where the money is.

Equaling 1.7 percent of America’s GDP or the entire annual economic output of Tennessee, the Economistreport noted that Medicare and Medicaid “hand over $272 billion to criminals each year” and that unlike robbing a bank or private firm, healthcare dollars are barely guarded. As a result, identity thieves value Medicare and Medicaid cards, which include Social Security numbers, far more than credit cards.

While a stolen credit card will be turned off once theft is recognized, the U.S. healthcare system continues to pay, apparently forever. And despite fraud experts advising that Social Security numbers not be used and be removed, both Medicare and Medicaid refuse to change.

While the medical insurance system is highly complex, the schemes to steal from it are pretty simple, if not obvious and overlooked. Medicare and Medicaid have more than 140,000 billing codes. With more than four and a half million claims processed daily, inertia within the giant system bears significant blame.

Among the fraud, charging for non-existent services leads the way, such as visiting nursing homes and convincing patients to sign over their pharmaceutical supplier for a few dollars in cash. Insurance is billed for brand-name pills, the patients get something less costly.

It’s so lucrative that America’s healthcare system has gained the interest of organized crime. Gangs, realizing they are unlikely to be caught or shot, have moved from illegal drugs to prescription drugs. Getting bogus prescriptions written for painkillers, getting reimbursed and then selling them on the street is a major area of insurance loss (or criminal gain). One New York clinic wrote scripts for more than five million pills.

The Federal Disability Insurance Program is a second hot bed for fraud and theft. Its $135 billion budget is only half what is stolen from Medicare and Medicaid, but still three times the budget of DHS and deserving of attention. As 60 Minutesreported, the program started in the 1950s was a small program to assist the ill or injured. Today, more than 12 million U.S. citizens collect disability benefits, and every new recipient will cost the U.S. $300,000 in lifetime benefits. The system is clearly broken and the lawyers abusing it are draining its funds. In 2012, the U.S. Social Security Administration paid more than $1 billion to lawyers representing disability appeals.

The advertising is clear: “If you’ve been denied a disability claim, contact our law firm, and we will win for you or you don’t pay...” And the law firms do win.

As Marilyn Zahn, Vice President of the Association of Administrative Judges notes, “It is easier to get a disability case approved than to deny one.” An approval is about four pages. A denial is about 20 pages. Called “Paying Down the Backlog,” judges overwhelmed with case backlogs (facing appeals with legal representation) approve cases they would otherwise deny just to keep up with the flow of work. In 1971, less than 20 percent of appeals had legal representation. Today more than 80 percent do.

Expected to decide 500 to 700 disability cases a year, Social Security judges have filed a lawsuit against the agency’s Commissioner. The judges claim that more than two cases per day is an illegal quota. Clearly, the high percentage of approvals, especially upon appeal with legal counsel, would support the judges’ position. 

The office of U.S. Senator Tom Coburn of Oklahoma found that 25 percent of approved disability claims should have never been approved and another 20 percent are highly questionable. “The system is being gamed pretty big right now,” he told 60 Minutes. Referencing the statute that if there is any job in the economy you can perform, then you are not eligible, he finds it hard to believe 12 million people meet this requirement.

“If the American public knew what was going on in our disability system, half would be outraged and the other half would apply for benefits,” said Marilyn Zahn.

With nearly $500 billion a year going missing, America needs a CSO.  

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