Health care fraud is often depicted as the great, five-headed hydra in Greek mythology. When you cut off one head, two more grow back.  But more to the point, health care fraud has been presented as one of the primary (if not the primary) causes of unnecessary healthcare spend.  However, just because fraud sounds bad and clearly is a problem, sometimes it is too easy to simply blame fraud with such broad strokes.

According to the World Health Report 2008, fraud and error account for roughly seven percent of the cost of claims in the United States (Adjusted to USD 2013, that comes out to $487 Billion annually). However, compare that with the analysis of PriceWaterhouseCoopers Health Research Institute 2007, which puts avoidable costs at 54 percent. Likewise, Berwick & Hackbarth, 2011, says that “waste in healthcare” is 47 percentof claims.  Waste takes on many forms, including:

• Medical errors.
• Extreme treatment variation.
• Fragmented healthcare delivery.
• Inefficient administration.

Now, obviously $487 Billion is still a significant amount of money, making health care fraud a major continuing concern. But the far bigger issue lies in what is commonly known as waste and abuse. Within most organizations, it is socially and politically easier to pursue fraud than it is to admit that process or policy inefficiencies are costing hundreds of millions of dollars (billions, nationally).

For many reasons, most organizations are unaware of their level of exposure. But I would conjecture many simply are not looking that hard (a least with any new eyes). It may be a very simple case of no one within an organization wanting to "call the baby ugly."

Every organization has some form of special investigation unit (whatever it might be called) that uses analytics, reports and investigators to identify aberrant behavior. But when it comes to the "waste department," things usually get a bit unclear. Are any analytics used for waste? Are there any investigators? Are the processes or procedures modified regularly to keep up with changes in the health care industry? And who defines what those changes are?

With the never ending increases in health care costs around the world, one can only hope that organizations will look both externally and internally to help address the obvious growing problem – but who will be the first within an organization to point out that the emperor has no clothes?