How Fraudsters Are Bilking the Government Out of Billions of Dollars

After his victory, Donald Trump announced that Elon Musk and Vivek Ramaswamy would be leading up a new Department of Government Efficiency in order to crack down on wasteful, fraudulent spending inside the federal government. Setting aside the question of how effective this particular endeavor will be, the basic premise of cracking down on waste and going after fraudsters should generally be non-controversial. So what does fraud look like? How do companies bilk programs like Medicare and Medicaid for billions of dollars every year? And what can be done about it? On this episode, we speak with Jetson Leder-Luis, an assistant professor at the Questrom School of Business at Boston University and a faculty research fellow at the National Bureau of Economic Research. Jetson walks us through such things as ambulance fraud, identity theft, and other techniques that are used to milk the system. He also explains the tactics and strategies that the government can deploy to reduce billions in wasted spending. Become a Bloomberg.com subscriber using our special intro offer at bloomberg.com/podcastoffer. You’ll get episodes of this podcast ad-free and exclusive access to our daily Odd Lots newsletter. Already a subscriber? Connect your account on the Bloomberg channel page in Apple Podcasts to listen ad-free. See omnystudio.com/listener for privacy information.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

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• 1:01Joe Weisenthal?

  Hello and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

• 1:06Tracy Alloway?

  And I'm Tracy Alloway.

• 1:07Joe Weisenthal?

  Tracy, what do you think about Doge?

• 1:11Tracy Alloway?

  The coin or the new Department of Government Efficiency?

• 1:16Joe Weisenthal?

  The latter.

• 1:17Tracy Alloway?

  I, 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 also think that the government wasting money is also bad.

• 1:50Joe Weisenthal?

  So there's no constituency. There probably shouldn't be an ideological constituency or political constituency for waste, right?

• 1:58Tracy Alloway?

  Yeah, exactly. Like, I feel like we should all agree on this, but also I hate the way it's kind of unrolling. Let's, let's put it that way.

• 2:06Joe Weisenthal?

  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's like, you call this waste, I call this a good allocation of whatever.

• 2:48Joe Weisenthal?

  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.

• 3:01Tracy Alloway?

  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, 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.

• 3:27Joe Weisenthal?

  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.

• 3:54Tracy Alloway?

  And one- This is your other middle aged man thing. You've decided to become like a real resource constraint guy, right?

• 4:01Joe Weisenthal?

  Yeah, I'm like, oh, we gotta, we gotta crack down.

• 4:03Tracy Alloway?

  We have to make tough decisions.

• 4:04Joe Weisenthal?

  We gotta make tough decisions. We're taking the candy away from the kids. I'm going to be one of those guys.

• 4:08Tracy Alloway?

  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.

• 4:14Joe Weisenthal?

  Well, Elon would get more downloads if we had him on the 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 Leder Luis. He is an assistant professor at the Questrom School of Business at Boston University. He's also a faculty research fellow at the NBER. 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 Odd Lots.

• 4:54Speaker 04

  Thanks so much for having me.

• 4:55Joe Weisenthal?

  What do you describe your research? I kind of described it, but why don't you describe what you do and your background?

• 5:01Speaker 04

  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.

• 5:20Tracy Alloway?

  Was there a particular moment or reason that drew you to this particular field?

• 5:25Speaker 04

  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, you know, 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 of World Development. And so overall, I'm really interested in this question about, you know, where is the money going and how can we, you know, fix that to make sure that the federal funds are being used for people who need them?

• 6:03Joe Weisenthal?

  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. Because, no, for real, because I sometimes will see headlines. It's like so and so arrested for insurance fraud of some sort. And, you know, that's bad. But I also like have this Like weird thing that happens in my head where I'm like, I wouldn't even know how to defraud.

• 6:28Tracy Alloway?

  Tell us what's the most accessible way to defraud the government?

• 6:32Joe Weisenthal?

  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?

• 6:45Speaker 04

  So in the world of healthcare, 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.

• 6:55Joe Weisenthal?

  Okay, say more.

• 6:56Speaker 04

  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 healthcare 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.

• 7:24Joe Weisenthal?

  Yeah.

• 7:25Speaker 04

  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.

• 7:54Tracy Alloway?

  Wait, what's a non-emergency ambulance?

• 7:56Speaker 04

  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 they, 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.

• 8:19Joe Weisenthal?

  That's incredible stat.

• 8:20Speaker 04

  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. So. 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

• 9:04Speaker 04

  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.

• 9:10Tracy Alloway?

  Hmm.

• 9:11Speaker 04

  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.

• 9:21Tracy Alloway?

  Hmm.

• 9:22Speaker 04

  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. Yeah. 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.

• 10:00Tracy Alloway?

  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 like highly trained medical doctors.

• 10:38Speaker 04

  This is super interesting that that's your intuition, because that's exactly how they fixed it.

• 10:42Tracy Alloway?

  Hmm.

• 10:43Speaker 04

  So 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, you know, please give me this ride, or even worse, the ambulance company... 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.

• 11:15Joe Weisenthal?

  An actual test.

• 11:16Speaker 04

  A difference in difference. Exactly. When they rolled this out in different places and different times, we see a 67% drop in spending the next month. Persistent. 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's sign.

• 11:42Tracy Alloway?

  Why didn't they do it before?

• 11:45Speaker 04

  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 doctor's visits, hospitals, medical equipment, pharmaceuticals. We pay for a lot of things and there is a real worry that requiring too much paperwork

• 12:04Tracy Alloway?

  Right.

• 12:05Speaker 04

  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 this.

• 12:36Joe Weisenthal?

  Well, let's talk about, so, okay, it sounds like the ambulance fraud is taken care of, more or less.

• 12:43Speaker 04

  So the ambulance fraud is less than it used to be. And that's the dialysis ambulance fraud.

• 12:48Joe Weisenthal?

  Oh, yeah.

• 12:48Speaker 04

  This paper was just accepted at the Journal of Political Economy. So we're super happy. Shout out to my co-authors who did a great job there. The ambulance market itself has other frauds, right? 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.

• 13:14Tracy Alloway?

  Yeah, talk to us about the data, because I imagine like you're talking about government spending and programs, plus in some instances, the medical industry. There must be interesting data available to you.

• 13:24Speaker 04

  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 equipments. I can see 20% of physician office visits and Part D pharmaceuticals. So it's a ridiculous volume. And, you know, I'm, I'm very equipped with data. I teach data analysis and I have, you know, 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.

• 14:07Speaker 04

  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.

• 14:18Joe Weisenthal?

  Okay, so you mentioned there's still some ambulance, the dialysis specifically, it 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?

• 14:38Speaker 04

  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.

• 14:55Joe Weisenthal?

  Okay, say more about wound care.

• 14:57Speaker 04

  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 healthcare touches. Another thing right now that's really popular, we're seeing a lot of fraud in vascular care.

• 15:38Speaker 04

  That is helping patients who have collapsed veins be able to receive intravenous treatments. But again, it's just like.

• 15:44Joe Weisenthal?

  Well, just but just to drill into specifics, let's just durable medical equipment fraud.

• 15:49Speaker 04

  Yes.

• 15:50Joe Weisenthal?

  I I want to get into it. What am I? What am I doing?

• 15:53Speaker 04

  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.

• 16:00Joe Weisenthal?

  Okay.

• 16:00Speaker 04

  With billions of dollars of fraud, I have to admit, I'm writing a paper on it right now. That's I'm excited. I know a lot about it. So you remember the scooter store that used to like advertise on late night TV? Are you an old person?

• 16:12Joe Weisenthal?

  Oh, yeah.

• 16:12Tracy Alloway?

  I do not remember this.

• 16:13Speaker 04

  Would you like a free wheelchair?

• 16:15Joe Weisenthal?

  Yeah.

• 16:15Speaker 04

  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, CPAP machines.

• 16:29Joe Weisenthal?

  Yep.

• 16:30Speaker 04

  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. This is sort of a Florida story. If you're interested in selling someone a, you know, a fraudulent walker or pump or something like that.

• 16:49Joe Weisenthal?

  But what does it mean a fraudulent walker? One that doesn't work?

• 16:52Tracy Alloway?

  One that you don't need, I guess.

• 16:54Speaker 04

  This is super interesting, right? So what do we mean when we say fraud? Healthcare fraud has different types, right? And I can break it. There are three types of healthcare fraud. There's upcoding. That's where I sell you a little push wheelchair, but I go bill the government for a super luxe automatic wheelchair. We call that upcoding. There's 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. Hi, 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

• 17:38Speaker 04

  for the durable medical equipment products. But the fraud, and that's designed by Medicare to make sure that patients aren't getting stuff that they don't need.

• 17:45Joe Weisenthal?

  So they have to have some skin in the game.

• 17:47Speaker 04

  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.

• 17:55Tracy Alloway?

  Yeah. What's been the, 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 up 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?

• 18:24Speaker 04

  The government generally underinvests 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.

• 19:07Speaker 04

  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. And, 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

• 19:53Speaker 04

  written to them in terms of checks back. Right. 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, right? It's look, there's a press release, they trot out the attorney general, maybe the civil servant gets some career boost.

• 20:12Tracy Alloway?

  Yeah, at a minimum, I could go to my boss and be like, I saved us $20 million.

• 20:16Speaker 04

  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 realise that private industry pays three times as much and they leave.

• 20:45Speaker 00

  What's next for virtual assets? I'm Jacob Rees, host of Economy Scale, a series exploring growth in key global sectors. And in this episode, we're diving into the digital forces shaping finance. Sean McHugh from Dubai-based Virtual Assets Regulatory Authority has this to say.

• 21:01Speaker 05

  We're seeing a lot of insocial players come in, digital asset dedicated hedge funds, high-frequency traders and that sort of thing, and folks who service insocial clients.

• 21:09Speaker 00

  As more capital enters the market, adaptive regulation is likely to become increasingly key. Rees-Merrick of Ripple says.

• 21:17Speaker 06

  A lot of regulators globally would like to keep the industry at arm's length. That's the opposite here. I think also what you'll find is that regulation and frameworks can come out, but some of them are maybe a slight iteration on some 80-year-old policy and not actually in line with what the technology can do and offer. And again, that's very different in Dubai.

• 21:37Speaker 00

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• 22:16Joe Weisenthal?

  When we were talking about the 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, because 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 versus the mechanism which you used to crack down on it?

• 22:58Speaker 04

  So I'm actually really in favor of this program we use, the big whistleblower program called the False Claims Act.

• 23:04Joe Weisenthal?

  Okay.

• 23:04Speaker 04

  And I've written extensively. Do you guys know how this works?

• 23:06Tracy Alloway?

  No.

• 23:07Joe Weisenthal?

  No.

• 23:07Speaker 04

  It's the weirdest, coolest thing, I mean, for an economist. Okay. So 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.

• 23:29Joe Weisenthal?

  Wow.

• 23:29Speaker 04

  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...

• 23:41Joe Weisenthal?

  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 a lot of money.

• 23:48Tracy Alloway?

  I'm going to become a fraud bounty hunter.

• 23:50Joe Weisenthal?

  All right, yeah, say more. Keep talking about that.

• 23:52Speaker 04

  It's bounty hunting.

• 23:52Tracy Alloway?

  Yeah.

• 23:53Speaker 04

  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 right if 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 right 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

• 24:38Speaker 04

  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

• 24:56Joe Weisenthal?

  Say more about that

• 24:57Speaker 04

  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 this there are thousands of these cases they've brought in billions of dollars for the government 55% of them are in healthcare 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

• 25:32Tracy Alloway?

  Since you mentioned transportation and education just then can you talk about some examples of fraud outside of the medical sector?

• 25:38Speaker 04

  Absolutely so I have a recent paper about the unemployment insurance market during covid so I'd be happy to talk about that

• 25:45Tracy Alloway?

  Oh that's great

• 25:46Speaker 04

  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

• 26:07Joe Weisenthal?

  This is starting to feel like history to me. It's so crazy because this is like yesterday, but also it's like.

• 26:11Tracy Alloway?

  It feels so long ago.

• 26:12Joe Weisenthal?

  Yeah, but yeah, keep going.

• 26:13Speaker 04

  The time distortion is real.

• 26:14Joe Weisenthal?

  Yeah.

• 26:15Speaker 04

  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, or 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 bilk 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

• 26:57Speaker 04

  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.

• 27:32Tracy Alloway?

  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?

• 27:50Speaker 04

  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 billions.

• 28:28Joe Weisenthal?

  What was that about?

• 28:29Speaker 04

  So if you go inpatient 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 know, you have a pneumonia, we're gonna 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 gonna lose money on you.

• 28:48Joe Weisenthal?

  Oh, yeah, yeah.

• 28:48Speaker 04

  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, excuse me, they ended up to settle claims so that tenant never admitted fault, I should say, but the government received $900 million back from tenant, because, you know, these allegations were, I think, true, that that tenant had done this. And I estimate, actually, that the government lost billions of dollars to that. Okay, so, 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? Amazing. And that's how we think that that fraud spread, and it spread all over the country.

• 29:31Speaker 04

  So there's 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.

• 29:49Joe Weisenthal?

  Yeah.

• 29:49Speaker 04

  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, or 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, and 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.

• 30:31Joe Weisenthal?

  Right. Someone figures it out and then tell family members.

• 30:33Speaker 04

  That's right.

• 30:33Joe Weisenthal?

  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, et cetera. 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?

• 31:00Speaker 04

  So there are huge run ups in spending in every type of fraud I've ever seen. And every type of, 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, you know, 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 upward ramp. But when it's fraud, it, it, you know, first of all, it looks like, you know, 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.

• 31:44Speaker 04

  But like the home care visits are 60 minutes and the doctor's billing for 5,000 of them a year. 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.

• 32:05Joe Weisenthal?

  Right.

• 32:05Speaker 04

  And that's where we get back to this limited enforcement capacity.

• 32:07Tracy Alloway?

  How do you measure benefits on the other side? Cause that seems again, like a, a potential avenue where there could be some disagreement.

• 32:16Speaker 04

  So I think it's super important that we preserve access to the public programs. And my research is not focused at all on, you know, 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 were 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.

• 33:00Speaker 04

  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 Antichrome.

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• 35:09Joe Weisenthal?

  So it's very obvious why, whether we're talking about the government or private insurance, that 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 US 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

• 35:51Joe Weisenthal?

  your research in which there is some sort of positive externality from deviation from the

• 35:59Speaker 04

  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

• 36:42Speaker 04

  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.

• 37:12Speaker 04

  And the federal government cried fraud. And we saw 163 federal whistleblower lawsuits against for-profit hospice companies, more than $300 million in settlements, saying, this is fraud. You shouldn't have taken the patients. 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

• 37:56Speaker 04

  than 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 want. They don't want the hospital. So they're getting the 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 threw the baby out with the bathwater.

• 38:34Tracy Alloway?

  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?

• 38:59Joe Weisenthal?

  Yeah, they make you, they make you the real point person on this. How do you start?

• 39:03Speaker 04

  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. So 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 US Attorney, they've got 30 good cases on their desk and they get to pick two of them. So, 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

• 39:48Speaker 04

  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. Okay? 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, there are some that work at the Office of the Inspector General of Health and Human Services, but not that many.

• 40:33Speaker 04

  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, right? 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.

• 41:20Joe Weisenthal?

  I just have one more question, and I don't even know like 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?

• 41:45Speaker 04

  So I think healthcare fraud alone in the United States is something like $100 billion a year. Now, that's across private and public, but we spend $1.5 trillion on Medicare and Medicaid. So the idea that-

• 41:58Joe Weisenthal?

  So that's a big chunk.

• 41:59Speaker 04

  It's a, it's, no, it's, it's not that big of a chunk. We spent, you know, $2.3 trillion overall. And so to say 50 to 100 billion dollars a year of fraud, yeah, I think that that number is reasonable.

• 42:08Joe Weisenthal?

  Yeah.

• 42:09Speaker 04

  So can we move the needle on it? Absolutely. We, there are things that we know work really well, huge treatment effects at very low cost. Now, government spending overall, we spend about six, seven trillion dollars a year in the government.

• 42:22Joe Weisenthal?

  Yeah.

• 42:22Speaker 04

  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 100 billion dollars of fraud there as well. The PPP program, we spent, you know, 100 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, what,

• 43:05Speaker 04

  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 dollars just for Medicare and Medicaid spending, or maybe, you know, throw in the advantage spending and the, you know, other, the federal employees' health benefits and the VA to get to the 100 billion number, of that healthcare fraud, I think that it very easily, that 100 billion dollars also occurs-

• 43:27Joe Weisenthal?

  Yeah.

• 43:28Speaker 04

  -yet again in some of these other, like, defense, I'm sure that there's plenty.

• 43:31Joe Weisenthal?

  Jensen Leader-Louis, amazing. Thank you so much for coming on the pod.

• 43:35Speaker 04

  Thanks for having me.

• 43:48Joe Weisenthal?

  Tracy, I am pro getting rid of fraud. No, I for real. I don't take a lot of-

• 43:54Tracy Alloway?

  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.

• 44:01Joe Weisenthal?

  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 suing-

• 44:10Tracy Alloway?

  The bounty hunters.

• 44:11Joe Weisenthal?

  Yeah, that sounds great, but I feel like I need to know how it works so I can identify. But I really do think, you know, setting aside, setting aside everything, fraud is bad.

• 44:20Tracy Alloway?

  I do think, and I kind of said this in the beginning, that we can all agree that fraud and waste is bad. Like, no matter where you fall on the political spectrum, because if you free up money that's not doing anything, then you, 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, like, 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.

• 45:02Joe Weisenthal?

  For sure.

• 45:02Tracy Alloway?

  And we kind of talked about it, especially in these specific sectors like healthcare.

• 45:07Joe Weisenthal?

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

• 45:14Tracy Alloway?

  Go to the DOJ.

• 45:15Joe Weisenthal?

  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, right, of how government pays and whether the, 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 with, when they discover it. And then, you know, it was 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,

• 45:58Joe Weisenthal?

  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 you or I 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. And is this part really worth this much money? Or maybe it's a competition thing. There's a lot of fruit there for future episodes.

• 46:40Tracy Alloway?

  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. And so, yeah, I always wonder how you sort of overcome that informational gap.

• 47:06Joe Weisenthal?

  There's a lot there. Let's do more on this topic.

• 47:08Tracy Alloway?

  All right. Shall we leave it there for now?

• 47:10Joe Weisenthal?

  Let's leave it there.

• 47:11Tracy Alloway?

  This has been another episode of the All Thoughts Podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway.

• 47:16Joe Weisenthal?

  And I'm Joe Weisenthal. 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 Kel Brooks at Kel Brooks. Thank you to our producer, Moses Andam. For more Odd Lots content, go to Bloomberg.com/oddlots, where we have transcripts, a blog, and a newsletter. And you can chat about all of these topics in our Discord with fellow listeners, discord.gg/oddlots.

• 47:51Tracy Alloway?

  And if you enjoy Odd Lots, if you like it when we dive deep into the data around government fraud, then please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, in addition to getting our new daily newsletter, you can listen to all of our episodes absolutely ad free. All you need to do is find the Bloomberg channel on Apple Podcasts.

• 48:13Speaker 01

  And follow the instructions there. Thanks for listening.

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