Healthcare Fraud Is Costing Americans Hundreds of Billions

Over the past 18 months there has been a renewed interest in weeding out government waste, fraud and improper payments. These problems are particularly evident in government healthcare expenditure.

Professor Malcolm Sparrow at Harvard University recently noted that during a period of just 2 months last year, several individuals were charged for fraudulent medical claims, with each case totaling hundreds of millions of dollars in fraudulent payments:

· In May 2025, Dr. Jorge Zamora-Quezada, a Texas rheumatologist, was sentenced to 10 years in prison for submitting $118 million in fraudulent claims to public and private insurers.

· Syed Murtuza and Syed Mehdi Hussain were arrested in Illinois for submitting $227 million in fraudulent Medicare claims.

· In June 2025, Gary Cox, CEO of healthcare software company DMERx, was convicted of generating more than $1 billion in fraudulent claims by targeting hundreds of thousands of Medicare patients using false advertising.

· Tyler Kontos, Joel Kupetz and Jorge Kinds were indicted for billing more than $1 billion for unnecessary amniotic wound allografts, specifically targeting elderly Medicare patients in hospice care.

· The Department of Justice charged Farrukh Jarar Ali, a Pakistani national, in a fraud scheme involving at least 41 addiction clinics in Arizona. False claims totaled $650 million.

While the Department of Justice notes that a record level of fraudulent payments—$14.6 billion—resulted in criminal charges in 2024, this is just the tip of the iceberg of such payments in the healthcare system.

Fraudulent and Improper Payments

The Paragon Health Institute published a paper in 2024 estimating that for the Affordable Care Act’s Medicaid expansion, there were 1.7 sign-ups for every eligible person. The authors estimate that for 2024 alone, this fraudulent exchange enrollment cost between $15 billion and $20 billion.

While the scale of fraudulent payments for all national healthcare spending is difficult to measure, the National Health Care Anti-Fraud Association uses a rule-of-thumb estimate for healthcare fraud:

• Conservative estimate: about 3% of total healthcare spending.

• Upper-bound estimate used by some law-enforcement sources: up to 10% of spending.

Total healthcare spending in 2024 was approximately $5.3 trillion; the rule of thumb implies at least $160 billion, and as much as $530 billion, in fraudulent payments. Using instead a central estimate for the fraud rate (6.5%), then the figure is around $344 billion.

However, the $5.3 trillion figure is for 2024 healthcare spending, so the figure for 2026 will be larger. Using Centers for Medicare and Medicaid Services (CMS) projections for healthcare spending in 2026 ($5.9 trillion), total fraud is estimated to be around $383 billion using the same central estimate of the fraud rate.

Then there are improper payments—federal payments that should not have been made or were made in the incorrect amount, covering overpayments, underpayments and payments to ineligible recipients or for ineligible services.

CMS estimates that in 2025 improper payments for government healthcare programs were as follows:

· Medicaid = $37.4 billion (6.12% of all spending for this program)

· Medicare (Fee-for-Service) = $28.8 billion (6.55%)

· Medicare Advantage = $23.7 billion (6.09%)

· Medicare Part D = $4.2 billion (about 4%)

· CHIP = $1.37 billion (7.05%)

In other words, improper payments for all government healthcare programs in 2025 totaled $95.5 billion, or roughly 6.1% of all government healthcare spending.

Even these figures, however, likely underestimate improper payments. Rachel Greszler at the Economic Policy Innovation Center and Brian Blase at Paragon Health Institute have estimated that improper payments for programs like Medicaid are twice as large as those reported.

Why Fraud Occurs and How To Stop It

One foundational problem that drives this trend is the structural nature of how the healthcare market operates, creating moral hazard and opaque pricing systems. As Veronique de Rugy recently noted:

The person receiving care is almost never the person actually paying for it. Roughly 90 cents of every dollar is covered by a third party — an insurer or the government.

The arrangement severs the give-and-take relationship between provider and customer that disciplines every other sector of the economy. When someone else pays, no one shops around, no one compares prices and no one asks whether a service is worth it. When someone else is paying, there is no reason to restrict one’s consumption. The result is predictable: opaque pricing, resistance to competition and no discipline to keep costs aligned with benefits.

Professor Sparrow’s solution is to ramp up spending on fraud and abuse control. He notes that total fraud prevention spending equates to only 0.07% of government healthcare spending. Citing a report by the Office of Inspector General (OIG), which estimates that every dollar spent on fraud and abuse control results in $11 of fraudulent payments being identified, Sparrow argues that spending more on fraud detection is an investment with a very rewarding return.

Another option is to better utilize artificial intelligence and data analytics to review cases and better detect fraudulent claims.

In a February statement, the Government Accountability Office (GAO) said that AI and data analytics can help agencies sift through huge volumes of data to spot fraud and improper payments, but the agency still needs high-quality data, human review and an AI-ready workforce. GAO also noted that the federal government loses an estimated $233 billion to $521 billion annually to fraud and has accumulated about $2.8 trillion in improper payment estimates since fiscal year 2003, which explains why agencies are under pressure to modernize these tools.

Some federal agencies have already been testing small pilot programs with data-driven approaches. Last year CMS leveraged data-driven analytics to proactively detect, address and prevent fraud, waste and abuse in real time.

Over the one-month pilot, 106 providers were assessed, payments were suspended to 50 providers on suspected fraud saving $105 million, and two providers had their Medicare billing privileges revoked. In one case, a dermatologist billed $16 million for skin substitutes to a single beneficiary who had no supporting medical history.

Going a step further, Congress could require states to conduct more frequent eligibility redeterminations, improve hospitals’ presumptive eligibility enrollment and require full eligibility checks in audits of government healthcare programs.

Reducing healthcare fraud will require more than better enforcement or more sophisticated data analytics. It will also require confronting the deeper incentive problems created by third-party payment systems and opaque pricing structures. Until the healthcare system restores stronger connections between patients, providers and prices, the incentives that allow fraud, waste and improper payments to flourish will remain firmly in place.