Cost & Quality Problems

Fraud and Abuse

Fraud is the deliberate billing of services never provided and abuse is the billing of services not medically necessary or overpriced. Neither practice has a precise measure, but both are estimated by the Institute of Medicine (IOM) to account for $75 billion in health spending every year.1

According to the IOM, an estimated 10 percent of costs associated with fraud would be eliminated with increased detection, prevention and recoupment, but would come at the cost of ongoing support by public and private payers. Research indicates fraud is particularly prominent in Medicare durable medical equipment (DME) purchasing. The IOM suggests DME purchasing could be reduced  by 28 percent if high prices and fraud could be eliminated.2

Current efforts to curb fraud and abuse include:3

  • False Claims Act (FCA) imposes fines to physicians who knowingly overcharge or sell substandard goods to Medicare.

  • The Anti-Kickback Statute (AKS) imposes fines and/or imprisonment for the referral of patients to items or services offering the referring physician any kind of reward or payment for the sales.

  • The Physician Self-Referral Law (Stark Law) imposes fines and exclusion from participating in Federal healthcare programs for referrals to organizations with financial benefit to the physician or immediate family (i.e. company ownership, investment)

  • Criminal Healthcare Fraud Statute imposes fines and/or imprisonment for knowingly and willfully attempting to defraud a healthcare benefit program or fraudulently obtain money or property of any healthcare benefit program.

  • Participation exclusions of providers and suppliers who have been convicted of medicare fraud, patient abuse or felony convictions related to healthcare delivery or unlawful actions with controlled substances.

  • Civil Monetary Penalties Law (CMPL) imposes steep fines for knowingly filing a fraudulent claim, an illegitimate claim or for violating the AKS.



1. Yong, Pierre, L., and LeughAnne Olsen, The Healthcare Imperative: Lowering Costs and Improving Outcomes: Workshop Series Summary, Institute of Medicine, Washington D.C., (February 2011).

2. Ibid.

3. Centers for Medicare & Medicaid Services, Medicare Fraud & Abuse, (August 2014).