Medicare's payment system is rife with bad payments, some of which are billing errors and some of which are outright fraud. A 2011 review by the Government Accountability Office (GAO), for example, estimated that the system made some $48 billion in improper payments each year. That's about 10 percent of Medicare's budget. The problem has always been that there are very few checks on who can bill the system. As I noted in a 2011 story on fraud in government health systems, a 2008 GAO report found that it's possible to set up shop billing Medicare with little more than a few forged documents and a dummy phone number—one that went to an empty desk at GAO's office. Medicaid, the health program for the low-income and disabled, has been similarly plagued by abuse and outright fraud.
This has been going on for years, and yet relatively little has been done to stop it. Under the Obama administraiton, Medicare's managers have taken some steps to address fraud and abuse in the system, but at best these efforts have succeeded only at marginally reducing the problem, cutting out a few billion dollars in wasteful or fraudulent spending each year. The magnitude of the problem is still pretty enormous, and what the IRS IG report suggests is that it may soon grow to encompass Obamacare as well.
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