The facts are indisputable: we can pay for the healthcare reform we seek, and make our economy more competitive in the process.

We all know the statistics: US healthcare costs are higher than all comparative advanced economies in the world. The U.S. spends 15.3% of its gross domestic product (GDP) on healthcare, compared with Switzerland’s 11.3%, the United Kingdom’s 8.4%, and Japan’s 8.1%.

Already 1/6th of our GDP, these costs are growing; if healthcare spend is not checked, it will continue to balloon.

It costs US employers substantially more to provide healthcare for employees, their families and retirees than it costs their foreign competition. General Motors, for example spent $5.2 Billion in 2004 on healthcare. This is significantly more than GM spent on steel, and accounted for $1,525 of the price of each new car it produced.

What’s worse is that many of these costs can be chalked up to waste. A recent report by Thompson Reuters estimates $700 Billion in inefficient healthcare spending.

• Fraud & Abuse account for 19% of the waste - $125-$175 Billion
• Provider inefficiencies and errors account for 12% of the waste - $75-$100 Billion
• Administrative system inefficiencies account for 17% of the waste - $100-$150 Billion

Recovery Auditing, however, is an oft-overlooked answer to recouping some of the waste,  particularly the 29% that can be chalked up to administrative system and provider inefficiencies.  It is a low-risk, high ROI option that can be employed today.

Post-payment recovery audits have been widely deployed in the retail industry, and have been successfully tested in the healthcare market. The Center for Medicare and Medicaid Services (CMS) conducted a Recovery Audit Contractor (RAC) demonstration program from 2005 to 2007. During fiscal year 2007, the audits conducted in California, New York, and Florida identified and recovered over $357 Million despite being limited to a narrow audit scope (RAC contractors only audited a small percentage of total claims paid in those states).

If recovery audits had been conducted on 100% of the claim volume, single year recoveries in the 3 states above could have yielded between $1.1 Billion to $2.4 Billion. The 3 states mentioned above represent 24.5% of the U.S. population.  So, extending the post payment recovery audits to the entire country could yield between $4-10 billion/year from Medicare alone.

Recognizing the potential of the program, Congress has made the recovery audit contractor program a permanent program, and CMS has already started national implementation for Medicare Part A & B.  In yet another positive move that demonstrates the value of post-payment recovery audits as a credible way to reduce healthcare costs, the Senate Finance committee’s healthcare reform bill proposes to extend the recovery audit contractor program to Medicare Part C and D and Medicaid, and mandates an implementation date prior to December 31st 2010.

Indeed, the extension of the RAC program to Medicare part C and D as well as to Medicaid, has the potential to double recoveries to a range of $10-20 billion/year.  OMB Budget Director Peter Orszag says evidence suggests that each dollar spent making sure medical providers “are receiving only what they are supposed to be receiving saves $1.60 in erroneous payments.… All told, $50 billion in ten years in reduced errors and improper payments both on the benefit side and revenue side.”

So, even if we take the low end of the range, post-payment recovery audits could easily yield over $100 Billion or 12.5% of the total added cost of the healthcare reform bill over 10 years.