Health Care Fraud and Abuse in the United States – Research Paper

  1. Introduction

The United States faces a big challenge of Medicare and Medicaid scams that span across the entire healthcare system. In 2012, more than 107 health care providers were arrested and charged with fraud, amounting to $452 million (Matthews, 2012). In 2007, the Medicare Fraud Strike Force visited Miami’s 1,600 businesses randomly, and the results were astonishing; nearly one-third of the healthcare businesses did not exist, but the government had billed $237 to them (Matthews, 2012). Of the $2.7 trillion budget for healthcare (17% of the total GDP), the amount lost to fraud is not known, but FBI estimates that the health care providers embezzle 3-10% of this amount every year (The Medicare News Group, 2015). Researchers Donald Berwick of CMS and Andrew Hackbarth of the Rand Corporation estimated that healthcare fraud amounted to $98 billion in 2012, which represented 10% of the total Medicare and Medicaid allocations that year (The Economist, 2014). Matthews (2012) suggests that the rise in health care fraud is because it is seen by fraudsters as a less dangerous yet lucrative activity compared to other traditional forms of organized crime in the United States.

Matthews (2012) suggests that the United States would save a lot of trouble for taxpayers if aggressive policies and efforts were targeted at healthcare frauds because millions of dollars are lost every year through frauds and abuse in the health care sector. Currently, efforts have been taken to reduce healthcare fraud. FBI probed more than 2,000 health care fraud cases towards the end of 2013 (The Medicare News Group, 2015). The Department of Justice and Department of Health and Human Services lead these fights against these fraud cases. Between 1980 and 2013, 48,023 cases of healthcare fraud were opened, and 46,667 of them were closed (Blue Cross Blue Shield of Michigan, 2015). Compared to the billions lost, this is still a small amount of recovery. Therefore, efforts need to be intensified to improve the situation.

  1. How Healthcare Fraud and Abuse Affects a Healthcare Organization

According to Price and Norris (2009), the ethical concerns of fraud in health care systems result in the failure of major corporate organizations due to increased cost of providing healthcare benefits. For example, the scandals of WorldCom, Adelphi, and Enron show the seriousness of the consequences of fraud in organizations. Healthcare fraud and abuse lead to losses of billions of dollars which could be used by organizations for various projects such as medicine, emergency room expansion, etc. These losses, therefore, lead to stagnation of the organization because it lacks funds to grow and meet the needs of the patients who flock into the facility for services every day. Price and Norris (2009) argue that the diversion of money to fraudulent activities increases the costs of service provision in the health care. Health care providers may go through certain mechanisms to recover the losses through unfairly high pricing strategies that cause lack of public trust. Fraud losses in healthcare organizations increase as Medicare and Medicaid continue to serve the increasing number of people seeking affordable medical services, causing more losses and risks to such organizations.

As organizations use deception and concealment to obtain an unfair advantage, they tend to lose trust from the public (Price and Norris, 2009). These result in decreasing public image, and increased chances of whistle-blowing. When caught, the individuals who engage in fraud will become a source of problems to their organizations because the organization will be responsible for the legal tussles that follow. In fact, the organization may end up using more funds and losing more public trust in the process of trying to solve cases related to trust. The practice tarnishes the reputation of the organization and the medical profession. Poor image in healthcare organizations causes low patient visits because the intention of providing affordable medical services becomes a challenge rather than a solution to poor people.

The increasing cases of health care fraud and abuse also lead to poor quality of healthcare services provided by healthcare organizations. Healthcare fraud and abuse may include the provision of wrong diagnosis to increase the amount paid by the patient’s insurance package above the required amount. Fraud also involves interference with patients’ health records to make room for deceit without being noticed from the health records (Price and Norris, 2009). These manipulations compromise the quality of services provided to patients. In the long run, these poor quality services may cause low trust from patients, and patients may seek medical services elsewhere.

  1. Examination and Evaluation

Corporate Structure and Governance

Corporate governance in the healthcare sector ensures that the managers of healthcare organizations act ethically and responsibly by taking care of the interests of patients and other stakeholders. The corporate structure usually consists of a board of directors whose responsibility is to provide oversight on the management of the health organizations (Jamali et al., 2010). It consists of a chairman, vice chairman and board members. The chosen directors should be qualified for the position and should be ethically upright so that they do not perpetuate frauds rather than fighting them.

Due to the unending cases of health care fraud, corporate structure and governance seem to be performing poorly in its mandate. Corporate boards and governance should be able to advise health organizations concerning state and federal laws that can help them deal effectively with fraud and abuse (Jamali et al., 2010). They should also advise health care organizations about how to prevent kickbacks and deal with individuals who engage in such fraudulent activities.  The Board is required to evaluate the financial performance of the company and ensure that the management has disclosed all the required information about the use of funds. The board should also provide good incentives to the managing directors in terms of compensation. The board also nominates managers with good ethics and qualifications. Corporate governance boards oversee the operations of hospitals and other healthcare organizations (Jamali et al., 2010). They also offer advice and engage in the decisions making processes of those organizations. The boards ensures that organizations follow the required laws governing Medicare, Medicaid, and other healthcare services.


Corporate culture also plays a significant role in healthcare fraud and abuse. Organizational culture is the set of norms or values that determine the way of doing things in an organization. The Economist (2014) suggests that the business of healthcare fraud is becoming lucrative and less risky for corporate thieves. Therefore, the practice of deceit and wrongful acquisition of funds from unsuspecting health insurance companies and patients has become the norm; healthcare organizations need to change it in order to reduce fraud (Carney, 2011). Kickbacks are also common among physicians who are bribed to participate in the fraudulence and abuse. If the perpetrators of these frauds and abuses in the health sector are not caught, they continue doing the practice. The increasing vulnerable and poor patients who do not understand the prices and services of the health organizations increase the difficulties in overcoming this practice. Fraudsters take advantage of this issue and make their fraudulent activities a norm in the workplace. Therefore, to change the situation all stakeholders need to change the entire culture of deceit and selfishness.

Social Responsibility

The concept of social responsibility can be used to examine the ethical issue of fraud and abuse in the healthcare sector. Corporate social responsibility requires corporations to act in the best interest of stakeholders and the society at large (Price and Norris, 2009). Healthcare organizations are therefore required to act responsibly by using the funds allocated by the government to perform the activities intended for those funds. Instead, a few selfish individuals are pursuing their interests at the expense of those for the poor majority members of the public who were targeted by those funds (Joudaki et al., 2015). Corporate social responsibility can be practiced through transparency, honesty and accountability to the general public. Without ethical responsibility, healthcare organizations will lose trust from the public, and their reputation will become low. As a result, the organization fails in to serve patients from poor backgrounds that have been considered for affordable services by the government (Price and Norris, 2009). Denying members of the public what is rightfully theirs is unethical and against the theory of corporate social responsibility.

  1. Resources to be Allocated to Prevent this Situation


The first recommendation to curb this menace is changing the culture of health organizations through sensitization and improvement of corporate structures and governance. Board of Governors of various health institutions and organizations need to be sensitized and educated on the need and approach of ethical responsibility in handling corporate funds (Moris, 2009). This activity should be done by government officials from the Department of Health and Human Services and the Department of Justice in collaboration with FBI, healthcare organizations, non-governmental agencies, and the local communities.

The second recommendation is to provide effective mechanisms for whistle-blowing and reporting so that the public can report common signs of malpractice (Moris, 2009). Government agencies should also sensitize the public about their rights regarding affordable healthcare and the services they should demand (Thornton et al., 2015). Good feedback mechanisms should be provided for the public to give their opinions regarding the services they are receiving and their expectations.

Ethical issues tied to the decision of those resources

Ethical responsibility in the healthcare sector depends on the effectiveness of corporate structure and governance. One of the roles of corporate governance in the health sector is to ensure transparency and accountability in the utilization of resources within healthcare organizations. The board of directors shows a duty of care by working with the management to overcome the problem of healthcare fraud and abuse. In this regard, the board of directors has an ethical responsibility to protect the welfare of patients and become the custodians of the resources intended for the poor. Ethical issues also affect feedback/reporting and whistle blowing in the health care sector. Whistleblowers may be threatened and silenced by being bribed. Kickbacks are also offered for physicians to win their collaboration in healthcare fraud and abuse.

  1. Conclusion

It is clear that healthcare fraud and abuse is becoming a serious problem in the healthcare sector. The healthcare sector is losing billions of money every year through frauds. These losses cause financial problems in the healthcare sector and ruin the reputation of healthcare organizations. The sector has also become an attractive environment for thieves who develop a culture of deceit and manipulations to commit fraud. Corporate governance that is supposed to oversee and advise managers to ensure transparency and accountability end up being compromised. The two recommendations offered to solve this issue are: sensitizing the board to change the culture of healthcare organizations, and encouraging effective reporting/feedback and whistle-blowing, and sensitizing the public about their health care rights.

References List

Blue Cross Blue Shield of Michigan (2015). Statistics. Accessed August 21, 2015 from

Carney, M. (2011). Influence of organizational culture on quality healthcare delivery. International Journal of Health Care Quality Assurance, 24(7), 523-539. Retrieved from

Jamali, D., Hallal, M.nand Abdallah, H. (2010). Corporate governance and corporate social responsibility: evidence from the healthcare sector. Corporate Governance International Journal of Business in Society, 10(5), 590-602. Retrieved August 28 from

Joudaki, H., Rashidian, A., Minaei-Bidgoli, B., Mahmoodi, M., Geraili, B., Nasiri, M. & Arab, M. (2015). Using Data Mining to Detect Health Care Fraud and Abuse: A Review of Literature. Global Journal of Health Science, 7(1), 194-202.Retrieved from

Matthews, M. (2012). Medicare and Medicaid Fraud is Costing Taxpayers Billions. Forbes, Accessed August 21, 2015 from

Morris, L. (2009). Combating Fraud in Health Care: An Essential Component of any Cost Containment Strategy. Health Affairs, 28(5), 1351-1356. Retrieved from

Price, M. and Norris, D.M. (2009). Health Care Fraud: Physicians as White Collar Criminals? Journal of American Academy Psychiatry and the Law, 37(3), 286-289. Retrieved from

The Economist (2014). The $272 billion swindle: Why thieves love America’s healthcare system. Accessed August 21, 2015 from

The Medicare News Group (2015). Medicare FAQs: How Much Money is Lost to Medicare Fraud Annually? Accessed August 21, 2015 from

Thornton, D., Mueller, R.M., Schoutsen, P., and Hillegersberg, J. (2013). Predicting Healthcare Fraud in Medicaid: A Multidimensional Data Model and Analysis Techniques for Fraud Detection. Procedia Technology, 9, 1252 – 1264. Retrieved from

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