The DoJ just announced an historic bust of a $14.6 billion (with a “b”!) scam charging more than 300 hundred healthcare bureaucrats with multi-year fraud. Given the laxity of auditing and accountability in payments by Medicare and Medicaid, this comes as no surprise.

There is an easy way to prevent healthcare fraud before it happens rather than prosecute embezzlement after the fact.

Healthcare is the only industry in which a third party rather than the consumer pays for what is consumed. Normally, when purchasing a product like a sweater or a service like dry cleaning the sweater, the seller hands the bill to the buyer/consumer who pays it after assuring the desired product or service was delivered at the agreed-upon price. Even when using insurance such as paying for auto repairs after an accident, the buyer of the policy decided the amount and price of coverage, who repaired the car, and whether or not the repair was satisfactory.

Healthcare is fundamentally different. Having health insurance is required by law per the Affordable Care Act. Roughly half of the U.S. population — 154.7 million — has government-provided health insurance: Medicaid/CHIP (78.5 million), Medicare (66.7 million), and Tricare for veterans (9.5 million). Approximately 150 million Americans have private insurance, most paid through employer-supported health benefits. Twenty-seven million are uninsured and receive care via the unfunded mandate of EMTALA (Emergency Medical Transport and Labor Act). Illegal residents are not included in above statistics as their status and even their numbers are not accurately accounted.

Regardless of whether Washington or private insurance is the third-party payer, in healthcare, buyer and seller do not interact directly. The buyer, who is consumer and patient, does not pay the bill. The seller or provider hands the bill to the third party through a complex billing system using codes to identify the goods or services provided. Whether they actually were provided and whether they satisfied the consumer is not tracked.

There are roughly 1,500 ailments that afflict humans. The third-party billing system uses codes for payment. The ICD-10 code book (International Classification of Diseases) contains more than 68,000 codes such as W61.33: Pecked by a chicken; Y92.146: Injured in a swimming pool within a prison; and Z63.1: Problems with in-laws. Another billing system used is the CPT (Current Procedural Terminology) code book with more than 11,000 codes in use and new ones added almost daily. The doctor’s office staff, hospital billing department employees, or health plan workers review notes, charts, and reports to translate what was done into such codes, fill out detailed forms trying to comply with federal regulations and insurance company procedure, and send them to the insurance carrier for payment.

“Trying to” was written above because some procedures and regulations are internally contradictory, and many are changed without timely notice. Commonly, bills are returned as incomplete, inaccurate, or non-compliant. Review process can take months, even years, delaying or denying payment to the provider.

Fraud in healthcare occurs during the billing process. (Fraud does not include honest error.) The three forms of billing fraud are upcoding—using a code that pays more than the code for the actual service provided; duplicate coding—billing two or more times for the same service; and phantom codes—billing for goods or services not provided. Presumably, all three methods of billing fraud were utilized by the individuals named in the DoJ charges.

There are three fundamental flaws in the third-party payment system. The first and most obvious is the potential for fraud exemplified by the recent DoJ lawsuit. Second is dollar inefficiency—healthcare spending that produces no care. Procedural expenses of federal BURRDEN—bureaucracy, unnecessary rules and regulations, directives, enforcement, noncompliance activities—combined with costs incurred processing insurance claims consumes at least half of all U.S. healthcare spending. The third problem is time wastage: all that time providers must use to comply with regulations and to fill out forms is time they cannot spend with or simply thinking about the patient.

Imagine healthcare without third-party payment, where the provider (seller) hands the patient (buyer) a Bill for Services Rendered written in words with associated charges in the right-hand column. The patient knows what was provided and checks to see only those services were charged. The patient adds up the charges on the bill but knew in advance what those charges would be, so no surprises. The patient pays the provider out of a well-funded, tax-free no-limit HSA.

Without third-party payment, medical fraud is no longer possible. Spending is dollar efficient as all the money goes to pay for care, none to BURRDEN or process. Best of all, patient has time with the provider.

Is this scenario a wish-fulfillment fantasy on steroids? Actually, it is readily doable. The title is “simple fix” not easy fix as the resistance from Washington will be massive. Nonetheless,  if We the People, or We the Patients, rise up and demand it at the ballot box, this impossible dream, called Empower Patients, can become reality.

Deane Waldman, M.D., MBA is Professor Emeritus of Pediatrics, Pathology, and Decision Science; former Director of Center for Healthcare Policy at Texas Public Policy Foundation; former Director of New Mexico Health Insurance Exchange; and author of 13 books, latest: “Empower Patients – Two Doctors’ Cure for Healthcare.” Follow him on X.com @DrDeaneW or contact via www.deanewaldman.com.

Image from Grok.