The second area requiring urgent attention, and a much higher level of understanding, is the issue of fraud and abuse under capitated managed care systems. As capitated systems continue to expand, so we must understand how the nature of fraud will change and how the new forms of fraud might be controlled.
Many within the industry still believe that managed care structurally eliminates the fraud problem. Many times, during interviews with senior managers at both private and public payers, I found that they would acknowledge some of the more serious weaknesses in their fee-for-service controls and then close the discussion by pronouncing it irrelevant anyway: The inevitable expansion of managed care would eventually consign fee-for-service, with all its associated problems, to the history books.
Managed care systems certainly alter the financial incentives for providers. Under capitation--where a fixed fee is paid each month for each patient, regardless of usage--the traditional financial incentives for overutilization are indeed eliminated. Capitation, therefore, should eliminate the incentives for provision of medically unnecessary services. Capitation fees, moreover, are paid regardless of the level of service provided and thus eliminate the possibility of false claims.
By eliminating the incentive for overutilization and the possibility of false claims, managed care--so the argument goes--should eliminate fraud. This chapter tests that hypothesis and clarifies the impacts that managed care will have on opportunities for fraud and on methods for fraud control.
The growth of managed care continues, although the growth rate has slowed since 1997. Roughly three out of every ten Americans are now en-