Cato Journal

Cato Journal

Spring/Summer 2002


HIPAA and Health Care Fraud: An Empirical Perspective
By David A. Hyman



The Health Insurance Portability and Accountability Act passed Congress nearly unanimously in 1996. When HIPAA was considered, the focus of attention was portability. Little or no attention was paid to the statutory provisions relating to "accountability"—fraud control, for those unfamiliar with inside-the-beltway euphemisms. Ironically enough, the extent to which these ends were accomplished turned out be the inverse of the attention that was paid to them. The portability provisions have had relatively little impact on the portability of health care benefits, while the drive for accountability has resulted in an unprecedented number of civil and criminal enforcement actions; the transfer of billions of dollars from providers and insurers to the federal government and whistleblowers; the expenditure of tens of millions of dollars on lawyers, accountants, consultants, and compliance programs; and vehement protests by providers.

Contemporaneous statements by program administrators and law enforcement personnel certainly suggested that there was a desperate need for more accountability in health care. Bruce Vladeck, the then-administrator of the Health Care Financing Administration, wrote in the Journal of the American Medical Association that there was "an enormous increase in health care fraud and program abuse . . . [and] considerable temptations are cropping up for those unable to resist the quick buck" (Vladeck 1995: 776). The Department of Health and Human Services (2000) unveiled "Operation Restore Trust," a sweeping fraud control program for Medicare and Medicaid, and it enlisted the assistance of members of the American Association of Retired Persons to act as "fraud-busters." FBI Director Louis Freeh testified before the Senate Committee on Aging that cocaine traffickers in Florida and California were switching from drug dealing to health care fraud, because it was safer, more lucrative, and less likely to be detected (Shogren 1995). Governmental reports similarly suggested that organized crime viewed health care fraud as a growth opportunity (General Accounting Office 2000a, 2000b). The popular press breathlessly reported stories of egregious fraud and abuse (see, e.g., Bell 1997, Hedges 1998, and Rundle 1989).

Public perceptions were influenced accordingly. A 1998 survey by AARP revealed that 83 percent of consumers believed health care fraud was extremely widespread or somewhat widespread, and 72 percent of consumers believed Medicare would be in no danger of going broke if fraud and abuse were eliminated. Fully 53 percent believed health care fraud was increasing (Sparrow 2000: xvi-xvii).

As with many areas of health policy, colorful anecdotes and political statistics have played a major role in framing perceptions of the frequency and severity of health care fraud and abuse. This article presents a more systematic appraisal of the problem of health care fraud and abuse and the strategies employed to address it, including those embodied in HIPAA. In particular, the article focuses on what we know, don't know, and know that isn't so about health care fraud, abuse, and fraud control.

Full Text (PDF, 28 pages, 148 KB)