Fiscal Cliff Debate, Mortgage Interest Deduction Compared to Cost of Medicare Fraud

We replied today to an article in the Washington Post regarding the Fiscal Cliff Debate and the nascent discussions regarding the mortgage interest deduction.  The Washington Post states,

“…But as Congress and the White House negotiate the first major rewrite of tax laws in decades, changing the generations-old mortgage-interest deduction — which costs the government roughly $100 billion a year — has gone from far-off possibility to part of the conversation…”

When we consider what the U.S. Administration may hope to gain by curtailing the mortgage interest tax deduction, we should consider it in light of inefficiencies and fraud in healthcare that cost more.   Analytics, ICD-10, and other components of healthcare reform and HIPAA regulations can help solve this problem.

Bloated charges to Medicare cost an estimated $90 billion in 2011. In other words, the government is reimbursing some for services that were never provided to any taxpayer. This isn’t a Red or Blue issue it is an American issue. We could clean that up first and leave the U.S. taxpayer alone. We would all benefit by more than the $100 billion the Fed thinks it can get back near term, and $200 plus billion longer term, by reducing bloat and fraud factor in healthcare.  There is a potential disastrous effect that eliminating the mortgage interest tax deduction might have on real-estate values, at a time when we are trying to rehabilitate the real-estate industry.

Healthcare is a $3 trillion economy, and a large portion is government entitlements. It isn’t bad that the government provides healthcare for those who need it, it is bad that abusive charges from healthcare providers to Medicare bloat the system and cost the U.S. government and the taxpayer far more than what might be gained by reducing the mortgage deduction.

RAC auditsand enforcement penalties are being issued to hospitals and other healthcare providers now who inflate their bills or who commit fraud, but there is a huge pot of gold to be had in these inefficiencies that could be cleaned up before we start taking tax deductions away from wage earning homeowners to make up for other deficits.

According to an article posted just minutes after the Fiscal Cliff news of today in Market Watch, Why mortgage deduction may sail by fiscal cliff:

…the [fusion_builder_container hundred_percent=”yes” overflow=”visible”][fusion_builder_row][fusion_builder_column type=”1_1″ background_position=”left top” background_color=”” border_size=”” border_color=”” border_style=”solid” spacing=”yes” background_image=”” background_repeat=”no-repeat” padding=”” margin_top=”0px” margin_bottom=”0px” class=”” id=”” animation_type=”” animation_speed=”0.3″ animation_direction=”left” hide_on_mobile=”no” center_content=”no” min_height=”none”][tax] break is of particular importance now given a still-fragile housing market. The National Association of Realtors, the heavyweight trade association, opposes any changes to the law, saying that most homeowners use the deduction at some point, and cutting the break would lead to a decline in home values of 15%.

So, here is the math.  There is over $10 trillion of outstanding debt in residential mortgages.  A 15% decline in housing values might create a valuation gap of  $1.5 trillion.  This asset devaluation would be much greater than the increased tax revenue to the U.S. government.   Second, approximately one-third of the $3 trillion healthcare economy is based on Medicare and Medicaid.   This $1 trillion sector of the healthcare economy could contribute back more than $100 billion per year to the federal government, or $300 billion in three years, with minor adjustments in the way claims get submitted.  That is more than the expected revenue from the mortgage deduction revision.

One of the things that will help with the detail and accuracy of Medicare (as well as private pay and not for profit insurance related claims) is ICD-10.  ICD-10 offers more specific detail as to the diagnosis and procedure coding system.

For meaningful results in reducing Medicare fraud, we would also need to move away from a “pay and chase” retrospective system where bloated or inaccurate payments are found after they are billed in healthcare claims, to one where prospective reviews of clinical documentation, bills and insurance claims are enabled via high-speed analytics.  Post adjudicated claims would be the first place to start.  There are solutions today that can assist in ‘cleaning up’ claims to make sure that the reasonable claims, which accurately document medical necessity are formed electronically to sail through the system with the least amount of friction.  And, the increased granularity of ICD-10 which is expected to become effective on October 1, 2014 2015 can help.  ICD-10’s increased detail provides more data that could be analyzed by these prospective claims analytics systems.

For healthcare providers who are well-intended, there are analytic solutions that can help review their claims to ensure that they are accurate, and provide protection against unwarranted RAC audits.

Senator LeMieux has similar things to say in his Wall Street Journal editorial, “Lots of Talk, Little Action on Medicare Fraud.”[/fusion_builder_column][/fusion_builder_row][/fusion_builder_container]

Michael F. Arrigo

Michael Arrigo brings four decades of experience in the software, financial services, and healthcare industries. In 2000, Mr. Arrigo founded No World Borders, a healthcare data, regulations, and economics firm with clients in the pharmaceutical, medical device, hospital, surgical center, physician group, diagnostic imaging, genetic testing, health IT, and health insurance markets. His expertise spans the federal health programs Medicare and Medicaid and private insurance. He advises Medicare Advantage Organizations who provide health insurance under Part C of the Medicare Act. Mr. Arrigo serves as an expert witness regarding medical coding and medical billing, fraud damages, as well as electronic health record software for the U.S. Department of Justice. He has valued well over $1 billion in medical billings in personal injury liens, medical malpractice, insurance fraud cases. The U.S. Court of Appeals considered Mr. Arrigo's opinion regarding loss amounts, vacating, and remanding sentencing in a fraud case. Mr. Arrigo provides expertise in the Medicare Secondary Payer Act, Medicare LCDs, anti-trust litigation, medical intellectual property and trade secrets, HIPAA privacy, health care electronic claim data Standards, physician compensation, Anti-Kickback Statute, Stark law, the Affordable Care Act, False Claims Act, and the ARRA HITECH Act. Arrigo advises investors on merger and acquisition (M&A) diligence in the healthcare industry on transactions cumulatively valued at over $1 billion. Mr. Arrigo spent over ten years in Silicon Valley software firms in roles from Product Manager to CEO. He was product manager for a leading-edge database technology joint venture that became commercialized as Microsoft SQL Server, Vice President of Marketing for a software company when it grew from under $2 million in revenue to a $50 million acquisition by a company now merged into Cincom Systems, hired by private equity investors to serve as Vice President of Marketing for a secure email software company until its acquisition and multi $million investor exit by a company now merged into Axway Software SA (Euronext: AXW.PA), and CEO of one of the first cloud-based billing software companies, licensing its technology to Citrix Systems (NASDAQ: CTXS). Later, before entering the healthcare industry, he joined Fortune 500 company Fidelity National Financial (NYSE: FNF) as a Vice President, overseeing eCommerce solutions for the mortgage banking industry. While serving as a Vice President at Fortune 500 company First American Financial (NYSE: FAF), he oversaw eCommerce and regulatory compliance technology initiatives for top ten mortgage banks and led the Sarbanes Oxley Act Section 302 internal controls IT audit for the company, supporting Section 404 of the Sarbanes Oxley Act. Mr. Arrigo earned his Bachelor of Science in Business Administration from the University of Southern California. Before that, he studied computer science, statistics, and economics at the University of California, Irvine. His post-graduate studies include biomedical ethics at Harvard Medical School, biomedical informatics at Stanford Medical School, blockchain and crypto economics at the Massachusetts Institute of Technology, and training as a Certified Professional Medical Auditor (CPMA). Mr. Arrigo is qualified to serve as a director due to his experience in healthcare data, regulations, and economics, his leadership roles in software and financial services public companies, and his healthcare M&A diligence and public company regulatory experience. Mr. Arrigo is quoted in The Wall Street Journal, Fortune Magazine, Kaiser Health News, Consumer Affairs, National Public Radio (NPR), NBC News Houston, USA Today / Milwaukee Journal Sentinel, Medical Economics, Capitol ForumThe Daily Beast, the Lund Report, Inside Higher Ed, New England Psychologist, and other press and media outlets. He authored a peer-reviewed article regarding clinical documentation quality to support accurate medical coding, billing, and good patient care, published by Healthcare Financial Management Association (HFMA) and is published in Healthcare IT News.

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