By Fred Schulte, Center for Public Integrity 
Facing major budget and staff cuts, federal officials are scaling back several high-profile health care fraud and abuse investigations, including an audit of the state insurance exchanges that are set to open later this year as a key provision of the Affordable Care Act.
The Department of Health and Human Services Office of Inspector General, which investigates Medicare and Medicaid waste, fraud and abuse, is in the process of losing a total of 400 staffers — or about 20 percent of the workforce — from its peak strength of 1,800 last year. About 200 of those staffers will have departed by the end of this year, and the other 200 are slated to be gone by the end of 2015.
“As OIG’s budget resources decline, so do our enforcement and oversight activities,” reads an agency document obtained by the Center for Public Integrity. The OIG noted that it “will not be able to keep pace” with the rapid growth of taxpayer-subsidized health care anticipated under the Affordable Care Act, the signature health reform effort of the Obama administration.
Several of the canceled projects were included in the agency’s 2013 “work plan,” which serves as a barometer for suspected fraud or billing abuse.
Among them:
● A planned audit into computer security at state marketplaces — known as exchanges — that will sell individual health insurance policies under the Obama health care law. The IG’s office said “time pressures” to get the exchanges up and running by October 1 may increase risks that states will fail to shield private medical information from “hacker exploits, unauthorized data access and data theft or manipulation.” In addition, the OIG document said, about $3.8 billion in grant money to develop the exchanges is “potentially at risk for wasteful spending.” Seventeen states are planning to run their own exchanges, while the rest will be operated by the federal government or in state-federal partnerships.
● An investigation to determine if nursing homes overuse controversial antipsychotic drugs in treating the elderly and which of these drugs are prescribed most often. The canceled initiative was supposed to identify nursing homes that failed to follow federal rules requiring that patients “be free from unnecessary drugs.”
● A probe into how well state governments and Medicaid managed care groups ferret out fraud and abuse. Medicaid health plans collect more than $100 billion in tax dollars annually for serving about 30 million low-income people and are set to add millions of new members under Obamacare.
● A review of drugs marketed under Medicare Part D without first being approved by the Food and Drug Administration for safety and effectiveness. Medicare paid more than $3 billion from 2006 through 2010 for these products, but officials said they are abandoning plans to recover money improperly paid to drug companies.
● A study of crooked suppliers of costly durable medical equipment, such as wheelchairs and other medical devices used in the home, who manage to stay in business even after federal officials revoke their billing privileges. The durable medical equipment market has long been troubled by questionable expenditures. The audit was to target merchants in South Florida, a hotbed of Medicare and Medicaid fraud.
The inspector general’s office also is delaying an unspecified number of investigations into poor quality care in hospitals due to “significantly reduced” travel budgets and the high cost of paying experts to review medical files, which can cost $250,000 or more. This delay may result in a “potentially high-risk hospital not being reviewed” and “potentially erroneous claims not being reviewed,” according to the agency.
The cuts are “deeply regrettable,” said Malcolm Sparrow, a professor at Harvard University’s John F. Kennedy School of Government and health fraud expert. “We’d save a huge number of taxpayer dollars by doubling the size of these operations.”
Sparrow said fraud artists are adept at quickly figuring out how to exploit new health care initiatives and that officials have an obligation to “stay ahead” of them. “Otherwise three years from now we’ll be saying, ‘how could we not have predicted this mess?’ ”
Louis Saccoccio, chief executive officer of the National Health Care Anti-Fraud Association, said that OIG audits not only stem financial losses, but also can protect patients from harm. Money spent on these efforts “pays for itself many times over,” he said in an email.
OIG officials contend their investigations typically return $8 for every dollar invested. They reported fiscal 2012 expected recoveries of about $6.9 billion and more than 1,100 criminal and civil investigations of individuals or health care businesses.
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News of the budget crunch first surfaced during questioning at a June 24 hearing of the Senate Committee on Homeland Security and Governmental Affairs. One official said at the hearing that existing staff was stretched so thin that the agency had failed to act on 1,200 complaints over the past year alleging wrongdoing — a number expected to rise.
The Obama administration has often touted its record for cracking down on health care fraud, pointing to recoveries of more than $10 billion since 2008, and noting criminal cases that busted major fraud rings.
But OIG records show that the agency has been in a hiring freeze since February 2012 and has offered two rounds of buyouts and early retirements this year. The HHS office is the largest such IG unit, responsible for oversight of 24 cents out of every tax dollar spent by the federal government.
While sequestration has played a part, the IG’s funding problems are actually more complex, agency officials say. The agency is operating with “significantly reduced” [funds] due to the expiring of a $30 million per year appropriation from the Deficit Reduction Act of 2005 and the end of stimulus funding and other budget cuts, officials said.
“OIG will not be able to keep pace with the ACA (Affordable Care Act) expansion, maintain/expand our highly successful Medicare Fraud Strike Forces, or keep pace with the expanding Medicare and Medicaid enrollment and the expected need for growth to combat on-going health care fraud,” an agency document states.
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