How Fraudsters Are Bilking the Government Out of Billions of Dollars

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Bloomberg audio studios podcasts radio news Hello and welcome to another episode of the odd lots podcast I'm Joe Wiesenthal and I'm Tracy all the way Tracy what do you think about a doge

the coin or the new department of government efficiency? The latter. Here's what I will say. Part of me hates that government efficiency is being politicized in this way because if you think that government services are a desirable thing to have, then you should definitely be against waste

and inefficiency and fraud in that market because at a minimum, if you're wasting money, you could be using that money to do even more. And then obviously, if you think that government is just bad in general, then I imagine that you will also think that the government wasting money is also bad. So there's no good constituency. There probably shouldn't be an ideological constituency or political constituency for waste, right?

Yeah, exactly. I feel like we should all agree on this, but also I hate the way it's kind of unrolling. Let's put it that way. I would say I broadly agree. Waste is bad. Whether the existing makeup of this sort of quasi-blue ribbon commission to get rid of waste, whatever that means, is actually going to do it.

Look, I'll be open-minded, but I like the premise of cracking down on waste. I will just say that. You know what the other thing is? So I, first of all, part of the issue here is that waste is probably difficult to define fraud. In some cases is probably difficult to define. There will probably be political fights over certain types of spending that it's like, you call this waste, I call this a good allocation of whatever. I imagine many of the political fights

around this will sort of revolve around some of these questions. There's a lot there, but I'm glad we generally agree that fraud is bad. Fraud is bad, waste is bad, but I think you're absolutely right that the definitions are going to be crucial, right? And this is where I worry about the politicization because you can just come in and say like, oh, well, I don't like this. So I'm going to call this a waste and go on from there.

But I think we should talk about it because, you know, this has come up in a number of episodes specifically on the PPP post pandemic. And so it's clearly something that is on people's minds.

Totally. Right now, we are recording this Thursday, November 14th. We are in a moment where resources in the economy are constrained, right? The unemployment rate is low, inflation continues to be by some measures above the Fed's goal. It is not crazy from like a macro standpoint to think we need to make things more efficient and better to have a better use of our real resources right now.

This is your other middle-aged man thing. You've decided to become a real resource constraint guy, right? Yeah, I'm like, oh, we got to crack down. You have to make tough decisions. We're taking the candy away from the kids. I'm going to be one of those guys. Here's a tough decision. If you're going to talk to someone about government waste, would you talk to Elon or Vivek? There's two.

Well, Elon would get more downloads if we had a podcast. So I would talk to Elon. But we actually have a better guest. I think we have the perfect guest to talk about government waste, fraud, where we might be able to move the dial in a substantive way on this kind of stuff. We're going to be speaking with Jetson Leader Luis. He is an assistant professor at the Questram School of Business at Boston University. He's also a faculty research fellow at the MBER. And this is what he studies, particularly

areas around fraud and how companies defraud the government, wasting millions, probably billions of dollars. So, Jetson, thank you so much for coming on Outlots. Thanks so much for having me. What do you describe your research? I kind of described it, but what do you describe what you do in your background?

Yeah, that's great. So I'm an assistant professor. I study economics, and in particular, I'm interested in questions about fraud in government spending. I received my PhD from MIT Economics in 2020, and I've written a number of papers trying to explore the mechanisms the government can and does use to cut out fraud in public expenditure. Was there a particular moment or reason that drew you to this particular field?

I think fraud in government spending has historically been under analyzed, and in particular in the healthcare system where I've done a lot of work. There are really big and impactful policies that are being used to try to eliminate fraud, but historically we didn't really understand what worked and what didn't work and why it worked.

And so I think there was a big opportunity in the research there. And I've always been interested in questions of bad behavior. I have a paper that I started early in my career on fraud in the World Bank that we just got accepted at the journal World Development. And so overall, I'm really interested in this question about where is the money going and how can we fix that to make sure that the federal funds are being used for people who need them?

I definitely want to talk a little bit about fixing the problem and identifying the problem and so forth. But actually, I really want to start on how to defraud the government. No, for real, because I sometimes will see headlines like so-and-so arrested for insurance fraud of some sort. And that's bad. But I also have this weird thing that happens in my head where I'm like, I wouldn't even know how to defraud.

Tell us what's the most accessible way to defraud the government. So like, give us an example or when we talk about, okay, fraud in the medical system. What are people doing? What is a classical form of defrauding the government in the world of healthcare?

So in the world of health care, there are some really obvious frauds that have persisted for years and that I think we're finally maybe starting to wrap our hands around. And one that comes to mind immediately is the ambulance market. Okay, say more. So this was actually described to me when I first heard it by a colleague friend who works for the federal government as the perfect health care fraud.

And so ambulance services are paid for by Medicare. Medicare is the old age health insurance program for Americans. We spend more than $800 billion a year on this program. We spend another $700 billion a year on Medicaid. So we're talking about $1.5 trillion of outlays to these programs. It's very hard for the government to ensure that every dollar that's going out is legitimate, right? It's just, it's a volume problem. Yeah.

Ambulance services are highly reimbursed and low overhead. If you want to start an ambulance company, you need to buy an ambulance. That's like 30 grand used online. You can actually go and Google it yourself. You can go buy an ambulance. And then you need a couple of employees. It's actually a super low overhead business, which means it's easy for people to start. Starting around, we think 2003, the market for ambulance services and in particular repetitive non-emergency ambulance services started getting saturated by intentional fraudulent actors.

Wait, what's a non-emergency ambulance? A non-emergency ambulance is a patient who needs to go to a service because they are sick enough that they can't ride in a taxi or take the train, and the only safe way for them to get to a service is in an ambulance. And in particular, this really blew up in the dialysis industry. Dialysis patients, there are about a half a million of them. We actually spend, I think you know this, 1% of the federal budget on the dialysis program. That's not 1% of Medicare. 1% of the federal budget is the dialysis program.

We do not, in general, pay for ambulance rides or taxi rides for these people to go to and from the visits. They are responsible for getting themselves to the clinic every day, three times a week generally for a few hours, and that's in perpetuity. It's very challenging to get a kidney and therefore to get off of dialysis.

We had this system, and this is sort of the canonical Medicare fraud. We build in a little thing for the few people who need it, and that turns into a loophole through which bad actors drive a truck. So we built in this provision, which is if the only safe way that you can get to the dialysis clinic is in an ambulance, Medicare will pay for an ambulance. And they pay for it at a competitive rate for the ambulance companies at, say, $250 for a one-way ride.

Now, that's not that much money for a real ambulance, but it's a heck of a lot of money for a taxi. And what happened is thousands of firms around the country opened with the express intention not of giving people serious medical care, but of becoming an expensive ambulance taxi.

and build the government. We have 100% data from the dialysis system. We can see all of these payments more than $7 billion for non-emergency ambulance transportation over the following 10 years, $7.7 billion. And a lot of it was fraud. And the government cracked down. The government really tried to crack down.

And in particular, they used a number of tools. The first one is they started throwing people in prison. This is what you say you see in the headlines. But it's so easy to start an ambulance company that we'd see these stories where, you know, someone gets busted and their family member goes and opens a company next door the next day. And this persisted for years with thousands of companies and billions of dollars of spending just down the drain.

I imagine some of the difficulty is also deciding who genuinely needs an ambulance ride and who doesn't, right? So this is something that I never quite understand about US healthcare in general. The first 10 years of my adulthood were in the UK and there's a national health service there. And if the doctor told you you needed something, you know, you got that something, maybe it would take a while, but eventually you would get it.

Whereas in the US, you seem to have all these decision makers in the process, and yet we're talking about medical care, which you would think would need to be dictated by highly trained medical doctors. This is super interesting that that's your intuition because that's exactly how they fixed it. The way that Medicare closed this loophole was by requiring what's called prior authorization. Now, if instead of going to an ambulance company and saying, please give me this ride or the

even worse, the ambulance coming to the patient and saying, do you want a taxi ride, which is actually what was happening. Instead, they required that a physician sign off and say, look, this patient is actually sick. They're bedridden. There's no other way that they can get to dialysis this week. And if you didn't have the doctor's note, Medicare didn't pay. And we estimate that around the timing of them implementing this prior authorization requirement, which they rolled out in different states at different times, this is like what economists love in our research. An actual test. A difference in difference, exactly. When they rolled this out,

in different places in different times, we see a 67% drop in spending the next month per system. And not only that, we can then trace the patients and say, were these patients harmed? Did they actually miss their dialysis visits and end up in the hospital? And we find no evidence at all of negative patient health effects. And so we actually saved billions of dollars by putting in something that was so basic, which is this, the doctor sign. Why didn't they do it before?

The structure of Medicare is largely disaggregated where individuals are able to go to different services as long as they qualify for them. And some of those are doctors visits, hospitals, medical equipment, pharmaceuticals, we pay for a lot of things. And there is a real worry that requiring too much paperwork.

can burden the system. We don't want to turn the Medicare system into an even more heavily administrative burden system. So there are different qualification rules, but largely what happens is the qualification rules are not always enforced upfront. We do a lot of requiring people to follow the rules. Maybe we do some audits. Maybe we chase after them with criminal lawsuits afterwards.

But largely, there are circumstances where nefarious actors, it's a relatively high-trust system, nefarious actors, will find these loopholes and drive a truck through them. And I can talk about a million examples of that. Well, let's talk about it. So, okay, it sounds like the ambulance fraud is taken care of more or less. So, the ambulance fraud is less than it used to be, and that's the dialysis ambulance fraud. Oh, yeah. This paper was just accepted at the journal Political Economy, so we're super happy. Shout out to my colleagues. Congratulations. Who did a great job there.

The ambulance market itself has other frauds. We're talking about one type, which is this repetitive dialysis fraud. There are still lots of unnecessary ambulance rides, ghost ambulance rides where patients don't even get in the ambulance and bills are sent. One question is, what can the government do? And part of it is, I think, that there needs to be a better focus on using data to detect and stop the fraud.

Yeah, talk to us about the data, because I imagine you're talking about government spending and programs, plus in some instances, the medical industry. There must be interesting data available to you. So I have fantastic access to data. I use 100% sample Medicare claims data from 1999 through 2019 for all inpatient and outpatient services, durable medical equipment. I can see 20% of physician office visits and party pharmaceuticals. So it's a ridiculous volume.

I'm very equipped with data, I teach data analysis, and I have PhD students and other professors who work with me. And even for us, it's a big problem. How do we actually wrap our hands around this? The government has not historically invested very well in its data analysis for anti-fraud. Part of the reason is that the organizations that are responsible for this, which are the Department of Justice and the Office of the Inspector General, those

Career lawyers are fantastic. I cannot say enough positive things about my colleagues at the Department of Justice and the Office of the Inspector General. But there are too few of them. We do not pay them very well, and they are not data analysts. They are lawyers.

Okay, so you mentioned there's still some ambulance. The dialysis specifically sounds like that was mostly taken care of. There's other ambulance fraud out there. You mentioned that some people that there's billing, ghost ambulances or people never even ride the ambulance. What's hot right now? What's the new ambulance fraud?

So what's amazing here is that it seems like it's a constantly evolving marketplace, right? We have to think fraud is a technology where people figure out a loophole and then they tell their friends and these things spread and eventually the government catches up. And so we're playing cat and mouse every year. Right now, I think it's wound care.

Okay, same more about wound care. There's been a rise in these expensive treatments for patients with non-healing wounds. So if you're diabetic, you're likely to have neuropathy. And one of the things that comes with diabetic neuropathy is that you often have wounds, particularly on their feet where the patient doesn't heal. There are some modern technology, skin substitute things you can graft onto these wounds that seem like they pay pretty well and potentially even work. And then a few doctors have just started spending millions of dollars on that. But that's a flash in the pan.

Historically, we see fraud really rife in the durable medical equipment industry. There's been fraud in basically everything that health care touches. Another thing right now.

That's really popular. We're seeing a lot of fraud in vascular care that is helping patients who have collapsed veins be able to receive intravenous treatments. But again, it's just like, yeah. Well, just to drill into specifics. Let's just durable medical equipment fraud. Yes. I want to get into it. What am I doing? So you want to get into durable medical equipment fraud? Well, you're in luck because it's, you know, durable medical equipment has been the wild west of the healthcare system for 20 years. Okay.

billions of dollars of fraud. I have to admit, I'm writing a paper on it right now that I'm excited. I know a lot about it. So you remember the scooter store? They used to like advertise on late night TV? Are you an old person? Would you like a free wheelchair? Yeah. So there's been some excellent and kind of investigative journalism on this. So durable medical equipment, I want people to think walkers, wheelchairs, oxygen pumps, hospital beds in their home, things that people need that are supposed to be permanent, you know, CPAT machines. Yep.

And these are largely given by suppliers that are sometimes big national firms and sometimes small mom and pop shops. I want you to think about Florida because it's sort of a Florida story. If you're interested in selling someone a fraudulent walker or pump or something like that,

It's actually- Wait, wait, it doesn't mean a fraud you'll unlock or one that doesn't work? One that you don't need, I guess. This is super interesting, right? So what do we mean when we say fraud? Health care fraud has different types, right? And I can break it. There are three types of health care fraud. There's up-coding. That's where I sell you a little push wheel chair, but I go build a government for a super lux automatic wheelchair. We call that up-coding. There is medical necessity fraud.

That's where we say that a patient needs something and they don't. And then there's substandard care. That's where we have a patient who actually does need something and we give them junk. And all of them happen in all forms of medicine. But in particular, in durable medical equipment, I think it's a lot of medical necessity fraud. I think we have patients who are getting a knock on the door high. Do you want this fancy new device free to you? Now what's really interesting is we're actually supposed to collect a 20% copay.

for the durable medical equipment products, and that's designed by Medicare to make sure that patients aren't getting stuff that they don't need. They're supposed to, but if you're a fraudulent firm, you just don't collect it. You're very happy to have the government's 80%, and the patient wouldn't take it if they had to pay.

I'm trying to think how to frame this, but I guess what's been the cultural or like incentive approach in government to stamping out fraud? If I am a government official and I design a poor social service program of some sort that has a bunch of loopholes that ends up costing lots of money, do I get in trouble? Or do I get rewarded if I manage to tweak the program so that it doesn't have a lot of fraud in it?

The government generally under invests and misprices its anti-fraud investments, by which I mean when we consider how we are measuring what the government is doing to stop fraud. You're talking about these career civil servants and how we reward them. Historically, the focus has been on how much are you getting back?

And I've made this point in a bunch of research and I recently released a white paper through the Center for Medicare and Medicaid Services saying, how much money you get back is irrelevant. That is the wrong number. That is really the number that everyone in government is focused on when you say anti fraud, recovery. We caught this many people, we put this many people in jail and we got, you know, a billion dollars back this year. And the point that I've made is the money you're getting back

is just a small share of the effect of your anti-fraud efforts. What you should really care about is your deterrence effect. And I've shown in research deterrence effects are in many cases, like 10 times larger than these recovery dollars. So if you go to the Department of Justice and you talk to their healthcare fraud people, they write a report to Congress every year. It's called the healthcare fraud and abuse report. And they put a number there for return on investment. And Congress asks them, tell us how much money did you spend and what was your return on investment? And they say the number is four.

Okay, first of all, 4x return on investment, already very good. That immediately means that we should spend more resources there. But I think that's actually the wrong number. I think the number is 40 because the 4 is only counting money that they're getting written to them in terms of checks back. But if you count deterrence and you have to count deterrence, the value of these anti-fraud efforts is huge. So do we reward people in terms of the value they bring? This is Tracy's question.

In some sense, yes. There's a press release. They trot out the attorney general. Maybe the civil servant gets some privilege. At a minimum, I could go to my boss and be like, I saved us $29. But largely, no, we don't pay these people well. We don't retain them well. If you look at your average assistant US attorney, they go to the government for a few years, do a fantastic work, and then realize that private industry pays three times as much in Italy.

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The forces shaping markets and the economy are often hiding behind a blur of numbers. So that's why we created The Big Take from Bloomberg Podcasts, to give you the context you need to make sense of it all. Every day, in just 15 minutes, we dive into one global business story that matters. You'll hear from Bloomberg journalists like Matt Levine. A lot of this meme stock stuff is, I think, embarrassing to the SEC. Follow The Big Take podcast on the iHeartRadio app, Apple Podcasts, or wherever you listen.

When we were talking about the original dialysis ambulance fraud, it sounded like there was a very elegant solution. Just get a doctor sign off.

When you look at some of these other emerging frauds and you mentioned wound care, for example, or you mentioned someone gets a really nice scooter that they didn't really need or something like that. And you mentioned that the requirement of putting up 20% copay is not that effective because the seller is just like, you know what, we'll take the hit and only take the 80% is no big deal.

How much of the challenge is on the data and identification side, which we should talk a little bit more, versus the mechanism which you use to crack down on it? I'm actually really in favor of this program we use the big whistleblower program called the False Claims Act. I've written extensively. Do you guys know how this works? No. No. It's the weirdest, coolest thing for an economist. There is a private market for anti-fraud.

In the US, if you know about a company or person that is defrauding any public program, not specific to healthcare, you can hire your own attorney, and there are firms that specialize in this, you can sue that person in federal civil court, and the whistleblower gets a share of the money they bring back to the government.

And this is a super effective program because it means that every nurse, every billing agent, every doctor in a hospital, if that organization decides- This is what we're going to get into, Tracy. I'm not going to do fraud because even though I want to know how it works, but I do want to make- I'm going to become a fraud bounty hunter.

It's bounty hunting. But bounty hunting is great because of two reasons. The first is there's this private information component. Rather than waiting for some analyst in Washington to figure out today's fraud, just make a huge reward available for the individuals who know about it because there's lots of information. From an economist perspective, the problem here is the problem we have in a lot of healthcare, it's information asymmetry.

The doctors and the hospitals and the nursing homes know so much more about the patient than the insurance company. And here, the insurance company is the government. And so rather than trying to make just top down solutions, and there are some top down solutions, don't get me wrong, it's really important that we also allow

the individuals who have the information, the valuable information to be rewarded for that. So the whistleblower program, private information, there's also the private cause of action. The idea that every person can become literally the legal term sometimes used as private attorney general, right? You can go and hire a lawyer and sue and that lawsuit is on behalf of the United States of America. And this has been an extremely effective program historically. Same more about that.

Yeah, so I ran a Freedom of Information Act request on the Department of Justice for data on every whistleblower lawsuit from 1987 through about 2017 when I first filed a cost. There are thousands of these cases. They've brought in billions of dollars for the government. 55% of them are in health care, but they're also used all over the government. We see cases related to the Transportation Department, the Department of Education, the Department of Defense, and the idea is the same.

Instead of trying to have the government figure out how to run anti-fraud, anti-fraud can pay for itself. There are lots of people who would love to earn a million dollars being a whistleblower, and these whistleblowers get paid pretty well.

Since you mentioned transportation and education just then, can you talk about some examples of fraud outside of the medical sector? Absolutely. So I have a recent paper about the unemployment insurance market during COVID. So I'd be happy to talk about that. Oh, that's great. So during COVID, we had the biggest expansion of unemployment insurance in history. I think you guys know about this. You've talked a little bit about PPP, and there's some great research there on fraud.

PPP was for companies, unemployment insurance was for individuals who lost their job. And we expanded it to also include gig economy workers through a program called PUA. You guys probably know about this. So this is starting to feel like history to me. It's so crazy because this is like yesterday, but also it's like it feels so long. Yeah, but yeah, keep the time distortion is real. Yeah. So unemployment insurance rose heavily during the pandemic and with it came a lot of fraud. Now, why is there fraud in the unemployment insurance sector? Well, the government's cutting checks.

And the government's cutting checks really fast. So you might remember at the beginning of the pandemic, there was this immediate recession, and there was fear of the big macroeconomic consequences of everybody being out of a job. And many people, I should say, being out of a job. And so the government really loosened and expanded its use of unemployment insurance. But whenever the government says, hey, we're going to write $800 billion in checks, people get creative about ways to build the government. And in particular, this type of fraud was really identity theft.

It is super easy, super easy to go on the dark web and buy a social security number. And so that's what a lot of criminals and organized criminal groups did during the pandemic. There was a widespread fraud where individuals would

Go, purchase identities, apply en masse to state unemployment insurance programs, collect the money, take it out of the system, and then we think in many cases it was either offshored or rerouted to criminal organizations. So this was so incredibly widespread. Actually, my wife got a prepaid debit card in the mail from the unemployment agency and she didn't lose her job. I've talked to just dozens of people across the country and in all sorts of sectors who said, yeah, this actually happened to me.

Wait, this leads to something that I wanted to ask as well, which is how is fraud propagated? Because this kind of gets to Joe's question earlier. How do people actually do this? How do I learn to do fraud? Is it like, I just look it up on the internet or is it like someone I'm associated with tells me?

So different frauds have different mechanisms by which people learn them. But in general, there is a social learning component to this, absolutely. So with some of the institutional frauds that we've been talking about, a hospital that decides that they're going to suddenly charge a lot of money through some loophole, often there are business decisions being made by executives. Sometimes there are consultants involved.

And big national chains often are the ones that spread these because they have kind of centralized management. The hospital administrators from different hospitals look at this. I'm thinking, for example, of the tenant hospitals, which paid $900 million back to the government for a small little loophole that was supposed to be for an outlier payments program. And they just drove a truck through that loophole. They ended up stealing. What was that about?

So, if you go in a patient in a hospital, the hospital gets paid a fixed amount under Medicare, through what's called a prospective payment system. They don't pay per cost, they just say, you have a pneumonia, we're going to pay this much. The government was worried when they set this program up that some very expensive patients wouldn't get treatment, because if the hospital knows that and they know that they're going to lose money on you, so they made this asterisk, a lot of these things are asterisks, to have an outlier payment system.

where if a patient is super expensive, then they pay extra. And the tenant hospitals figured out how to make every patient look super expensive by manipulating some of their balance sheets. And they ended up spending $900 million to settle claims so that tenant never admitted fault, I should say, but the government received $900 million back from tenant.

because these allegations were, I think, true, that Tenet had done this. And I estimate, actually, that the government lost billions of dollars to that. But I want to go back to this question. So how did that one happen? Well, there was a consultancy in New Jersey that was going around telling people, hey, do you know about this outlier payment system? And that's how we think that that fraud spread, and it spread all over the country. So there are some of this corporate learning from other companies, and there's also a lot of social learning. So in the case of unemployment insurance fraud, or PPP fraud, you can go and you can find

Telegram groups and Facebook groups of people that are like, here's how you apply for a PPP loan. There's a great new paper by John Griffin at the University of Texas on these Facebook groups. And like they're called like fraud kings. Like they know what they're maybe PPP loan kings or something like that. It's like really obvious what they're doing and everyone knows. And so in the case of healthcare fraud, in the case of non healthcare fraud, often it's you're surrounded by people who know how to do this or you meet them through digital platforms and then people learn. And so a lot of the fraud we see propagates through communities.

In the case of the ambulance market, we saw that there were certain Eastern European groups that were responsible for this in different parts of the country and often from the same, from original areas. And so, you know, generally the understanding at least from the government is that there must have been some social learning going on there. It's very hard to prove, of course. Right. Someone figures it out and then tell family members. That's right. That makes sense. Let's talk about detection via data and more. And you talked about how you have access to all of this data and so forth.

Obviously, you can describe fraud qualitatively by saying this is how an ambulance company cheats the government, etc. What do the fingerprints of fraud look like when you look at it on the macro scale? What do you what pops up in the data that would at least

be a yellow flag and say, this is something we need to look at more. So there are huge run-ups in spending in every type of fraud I've ever seen. And every type of fraud, I mean, the whole point is if you're not making money, it's not a good fraud, right? And so if you just make a plot of spending against time, you can often just see these really big exponential growth. Now, some of those are legitimate because if there's a new great medical technology and people start using it, that also looks like a technological adoption curve, right, of a kind of big upper range.

When it's fraud, first of all, it looks like massive year over year increases. The second is that it'll often be way too much to the point where it's obvious that nobody's getting this. For example, sometimes you'll see a doctor who's just billing for too many home care visits, but the home care visits are 60 minutes and the doctor's billing for 5,000 of them a year. And it's like, well, that's 5,000 hours. There aren't 5,000 work hours in the year.

The government should just be able to detect that. We should just not pay those. So where the failure is is not in how hard it is to detect in data. It's actually not that hard to detect in data. It's on the incentives for the enforcers to look at that data and use it appropriately. And that's where we get back to this limited enforcement capacity. How do you measure benefits on the other side? Because that seems, again, like a potential avenue where there could be some disagreement.

So I think it's super important that we preserve access to the public programs. And my research is not focused at all on how do we take things away from people. And in particular, I always try to measure very hard whether there are health effects associated with this. So in the case of the ambulances, we're able to show pretty definitively that there are no negative health effects associated with cutting this. And this is something I do in all my papers. You really have to ask the question, were people losing care that they needed?

And so super, super great question. In the context of some of these very obvious frauds.

Sometimes people aren't even getting the service. So if the government's paying for something and nobody ever got it, taking it away is costless. So that's the best efficient thing that we could do is just stop paying for things that aren't even happening, right? Let's not even talk about waste. Let's just talk about these outright frauds. And so how do you measure it? I mean, if you look at very large scale claims data as I do and the government can, you can see, okay, we cut out this provider. Let's look at their patients.

Did they go to the hospital more? That's an empirical question, right? And so there's no reason that it just has to be a guess, right? This is something that we should be measuring as part of our data analysis associated with Andy from.

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Listen for just a few minutes to stay on top of the latest news from around the world. Get it on your smartphone. Subscribe to Bloomberg News now on Apple Podcasts, Spotify or anywhere you listen. So it's very obvious why whether we're talking about the government or private insurance, then it's just rules on top of rules on top of rules and asterisks and so forth because this is very complicated stuff. Rules also create problems.

And compliance by the rules can, you know, strict adherence to the rules can also have negative effects. I have to imagine, for example, that there are, say, many people in the U.S. currently on some sort of GLP-1 drug, but maybe technically they don't have the thing. But, you know, there are a lot of, there seem to be a lot of benefits from weight loss and so forth. Have you found examples in your research in which

There is some sort of positive externality from deviation from the rules. Absolutely, absolutely. Thanks for queuing this up. I have a great story. So let's talk about the hospice industry. Hospice care is an end-of-life benefit for patients who have a prognosis of six months or less. So if you're dying and a physician certifies that you're dying within six months, you qualify for hospice. What is hospice? You give up the curative care and you stop taking all of these meds with the horrible side effects and you stop going to the hospital as often and you can die peacefully at home

with pain medication. And I think that this is a great program. I think it's really important. We spend $20 billion a year on the federal hospice program and more than 50% of Medicare patients who die every year will have had a hospice claim. Okay, this is important. This is the way that we're treating people at the end of life. It's really hard to know who's dying within six months. That is not a trivial estimate. And historically, there was subjectivity in this.

So over the 20-year period, 1999 through 2019, there was a quadrupling of for-profit hospices, and many of them increasingly took Alzheimer's and dementia patients. Why? Because they stay for a long time on these hospice programs, and the hospice programs are paid about $200 a day.

and the federal government cried fraud. And we saw 163 federal whistleblower lawsuits against four profit hospice companies, more than $300 million in settlements saying, this is fraud. You shouldn't have taken the patience. You should have known that they weren't dying fast enough that they did not qualify for hospice.

So I wrote a paper with John Gruber at MIT as well as one of our PhD students and David Howard at Emory, some really top-notch economists. And we looked at this program, we said, OK, this is something people are really concerned about. And what we found really knocked our socks off, the fraud actually was not as bad as people said, in particular because did some patients go to hospice who may otherwise not have because they were not dying fast enough? Sure. But it's still a heck of a lot cheaper.

to go to hospice for six months, then it is to go to the hospital and the nursing home and the home care agency and the durable medical equipment and the pharmaceuticals. And we estimate that these patients saved tens of thousands of dollars and the patients liked it. They and their families are picking hospice. This is something that they'd want. They don't want the hospital. So they're getting a service they want and the government is saving money. And yet we've decided that this is a fraud because there's this rule. Now, when you think about it from that way, six months is totally arbitrary. Why is it six months and not eight months?

And so this paper, it's called Dying or Lying. It just was accepted last week at the AER. It shows pretty conclusively that the policies aimed at limiting fraud through the baby out with the bathroom.

You know, we started this conversation mentioning Doge, the new department of government efficiency. I guess one obvious question to ask you would be, you know, if you were in Elon or Vivek's shoes, what would be your, you know, the first thing you would start with when it comes to rooting out fraud, or I don't know if you want to get into wider types of inefficiencies, but

What's the first thing you would do? Yeah, they make you the real point person on this. How do you start? So first, I'm optimistic about the Department of Government Efficiency because I think that there are some clear evidence-based obvious wins that we have left on the table in terms of saving government money.

The first is, we know that anti-fraud efforts, particularly in the Medicare and Medicaid programs, have huge return on investments, and we underfund them. We could staff up those offices at the Department of Justice, at the Department of Justice Districts, at the Office of the Inspector General, and literally just chase down the leads that we already know about. We don't even have to go after other leads. If you look at your average civil assistant U.S. attorney, they've got 30 good cases on their desk, and they get to pick two of them.

And many of these cases allege millions of dollars of fraud, and they say, I'm sorry, we have a number, we can't go under anything right now less than 10 million, and they drop the case. So even if we just doubled the number of people at the Department of Justice who focus on fraud against the government, that would pay for itself many times over. So that's an obvious one. The second is to start getting serious about data. If we do not hire and recruit excellent analysts to look at government data from the government, we are going to miss obvious frauds.

Everything I've talked about so far is not rocket science. We're talking about huge amounts of billing for patients who obviously don't need it in some of these cases, and the government pays it and they miss it. They have access to that data in real time. They're writing the checks. Why are we not screening that? And the answer is not a lot of data analysts work at the Department of Justice. And there are some that work at the Office of the Inspector General of Health and Human Services, but not that many. Why? Because they pay like $70,000 a year.

And if you're a good data analyst, you don't go to work for the government for $70,000 a year. If the government wants top talent, it's got to be willing to recruit. And those are competitive positions. And so if we get serious about data, we get serious about machine learning, we get serious about investing in the attorneys who are doing the good work, and just the programs work really well. The second is rigorous evaluation. We need to know when we try policies, do they work or do they not work? When we put in a prior authorization program,

When we put in a new screening for people to take a selfie on their phone before we pay their unemployment insurance claim, that's actually how we fix the unemployment insurance problem. It was an identity theft problem. You just got to take a selfie on your phone. These ideas work, but we need to evaluate them as serious policy analysts.

I just have one more question and I don't even know whether this is capable of being ascertained in a substantive way. But when you think about the stuff that you research and we're talking about like, you know, big question is, can we meaningfully move the dial on fraudulent spending or maybe wasteful spending? And do we have a number that exists? Do we know how much could potentially be saved?

So I think health care fraud alone in the United States is something like a hundred billion dollars a year. Now that's across private and public, but we spend one point five trillion dollars on Medicare and Medicaid. So the idea that it's a big chunk, it's a, it's no, it's, it's not that big of a chunk. We spent, you know, two point three trillion dollars overall. And so to say 50 to a hundred billion dollars a year of fraud. Yeah. I think that that number is reasonable. Yeah.

Can we move the needle on it? Absolutely. There are things that we know work really well. Huge treatment effects at very low cost. Now, government spending overall, we spend, what, six, seven trillion dollars a year in the government. When we look at these other public programs, there are some that have obvious frauds going on. Like I mentioned the unemployment insurance system that had tens or possibly a hundred billion dollars of fraud there as well. The PPP program we spent, you know, a hundred billion dollars or at least on fraud in that program.

And so not every program is rife with fraud. There are programs that are very hard to defraud. It's hard to defraud social security. Why? Because they have your full earnings record and they pick the number and they send you a check.

very limited fraud in the Social Security system, I think that there's probably a lot of fraud in some of the infrastructure and defense. And so our framework has to be like, where does the government know the least? The government doesn't really know what's going into every element of a defense spend or every element of, you know, how is the road being built? Or what is the hospital doing? And when you have those big information asymmetries, that's where the big fraud is.

So if I think that there's $100 billion just for Medicare and Medicaid spending, or maybe throw in the advantage spending and the other federal employees' health benefits and VA to get to the $100 billion number, of that health care fraud, I think that very easily that $100 billion also occurs yet again in some of these other defense, I'm sure, that there's a plan. Jensen, Leader Luis, amazing. Thank you so much for coming on the blog. Thanks for having me.

Tracy, I am pro getting rid of fraud.

No, I'm for real. I don't take a lot of it. It seems like a low bar. Although you did ask repeatedly how you could commit it, but I know that was for informational purposes only. No, I'm going to actually, I'm not going to get into the business of medical fraud. I'm going to get into the business of being one of those independent whistleblowers. The bounty hunters. Yeah, that sounds great, but I feel like I need to know how it works so I can identify it. But I really do think, you know, setting aside, setting aside everything fraud is bad.

I do think, and I kind of said this in the beginning, that we can all agree that fraud and waste is bad. No matter where you fall on the political spectrum, because if you free up money that's not doing anything, then you could, in theory, put it to a different use and get more bang for your buck, so to speak.

I think, obviously, and we touched on this, a lot of these decisions over what's fraudulent or especially what's wasteful, maybe not necessarily fraud, come down to specific judgments. And they can be subjective. And I think that's where a lot of the disagreement is going to be going forward. But I do think the point about using the data better, the government must have some amazing data. And we kind of talked about it, especially in these specific sectors, like health care.

Two things on the data that were really interesting. So one is just this idea that if you're a talented data scientist,

Go to the DOJ. And this has come up in some of our past episodes that we've done with a few other guests. There does seem to be this structural issue of how government pays and how compelling a job in government is, et cetera. And so there does seem to be an issue with how do you staff up a big team of data scientists that are incented and have the agency and capacity to use that data or do something when they discover it?

And then, you know, it's a very interesting comment that last one about, it's very hard to defraud social security. And so this idea of like, where is the fraud most likely to exist, areas in which there is some limited asymmetrical as economists like to use, information which is, you know, the government doesn't know what happens

when you are not you and I go into a doctor, right? There's some level of information asymmetry there. It doesn't really know what kind of walker your eye are going to need in 30 or 40 years to get around, et cetera. And then furthermore, we didn't touch on it, but I do think we're absolutely as a as a podcast are going to need to do more should do way more on defense spending. There's a million angles that we have to do on that.

But you could see like, oh, we don't really know what went into the assembly of this and the cost of this program.

Is this part really worth this much money or maybe as a competition thing? There's a lot of fruit there for future episodes. But I do think one of the big tensions here is the sort of government generalists versus like the experts that they're listening to. What I mean is, for instance, if you're a defense contractor and you're building, I don't know, like a submarine launch pad or whatever, like the government official isn't necessarily going to know all the nuts and bolts that need to go into that.

Yeah, I always wonder how you sort of overcome that informational gap. There's a lot there. Let's do more on this topic. All right. Shall we leave it there for now? Let's leave it there. This has been another episode of the All Thoughts podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway. And I'm Joe Wiesenthal. You can follow me at the stalwart. Follow our guest.

Jetson Leader Luis, he's at Jetson Econ. Also, he has a number of papers on his website that you can just click on and go read. They're all really fascinating. Follow our producers. Carmen Rodriguez at Carmen Armin. Dashal Bennett at Dashbot and Kilbrooks at Kilbrooks. Thank you to our producer, Moses Andam.

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This is Tom Kean. I'm Carol Masser. And I'm Joe Matthew. And we want to tell you about Bloomberg News Now. It's news when you want it on your schedule. Subscribe to Bloomberg News Now on Apple, Spotify, or any podcast platform. These are short audio reports, five minutes or less, that bring you the latest headlines with context 24 hours a day.

Listen for just a few minutes to stay on top of the latest news from around the world. Get it on your smartphone. Subscribe to Bloomberg News now on Apple Podcasts Spotify or anywhere you listen.