From the editor, Mary Johnson:
According to the 2003 Medicare Trustees Report, Medicare received $866,796,000 in fraud and abuse control receipts during the government’s 2002 fiscal year that ended September 30, 2002.  Those receipts included both criminal fines and civil penalties and damages.  Whether those funds are returned to Medicare or to the general fund is less clear.  The Medicare Trustees account for the fraud and abuse recovery funds in a column labeled “interest and other income.”  This information is extremely hard to find because it appears in almost indecipherably small print as a footnote in the 152-page document. 

It’s important to understand what the government means by “interest.”  Just like the Social Security Trust Fund, when the Medicare Part A (hospital insurance) Trust Fund receives more funds than is needed to pay benefits, the surplus is used to purchase “special obligation bonds.”  These bonds are IOUs from the Treasury to Medicare and they earn “interest.”   The real cash is immediately used for other government spending.  Because fraud and abuse recoveries appear in the same column as the “interest,” it suggests such recoveries are immediately used for other purposes.

That being said, it’s important to remember that three-quarters of the cost of Medicare Part B benefits are paid for from the general revenues.  Medicare premiums pay just one-quarter of the cost.  Thus, we can reason that the money recovered is used to pay Medicare Part B benefits. 

The amount recovered, however, is just a small fraction of what is actually due to Medicare.  According to the General Accounting Office (GAO), “the agency and its claims administration contractors have not been effective at collecting some of the money owed to Medicare.  At the end of fiscal year 1999, over $7 billion of debt had accumulated on contractors’ books.”  The GAO reports that about $4 billion had been referred for collection by the third quarter of fiscal year 2002.  In other words it appears that the $866,796,000 in 2002 represents less than 12% of what was actually owed to Medicare. (The GAO report does not even include monies owed from 2000 or 2001.)  The GAO further noted that, “the agency lacks a comprehensive database tracking all its debts, has inaccurate information on the debts its limited database contains, and has not developed a comprehensive debt referral plan.”

Sources:  2003 Medicare Trustees Annual Report, March, 2003.  “Major Management Challenges and Program Risks,” Department of Health and Human Services, General Accounting Office, January 2003, GAO-03-101.

July 2003