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New report suggests billions in public MH funds lost to fraud, waste and excess profits

News Release: Sept 28, 2015

Contact: Lead author Dr. E. Fuller Torrey:; 301-571-2078

New report suggests that $4 to $8 billion in public mental health funds are being lost to fraud, waste, and excess profits.  These funds are sufficient to provide significant psychiatric services to most of the estimated 216,000 individuals with serious mental illness who are homeless as well as the 350,000 who are in jail or prison.

(New York. NY) Public mental illness services have markedly deteriorated over the past three decades.  The “mayhem du jour” includes mentally ill individuals carrying out mass killings; overflowing jails and prisons; being kept in emergency rooms for days while awaiting a psychiatric bed; being killed by law enforcement officials; and taking up permanent residence on the nation’s sidewalks and other public spaces.  It is widely assumed that the cause of the problem is a decrease in public funds for mental illness treatment programs, when in fact the funds available to state mental health agencies in constant dollars have increased modestly since 1982.  So where does the money go?

A new report, “Fraud, Waste and Excess Profits: The Fate of Money Intended to Treat People with Serious Mental Illness”, suggests a partial answer.  Between $4 and $8 billion, which is 10 to 20 percent of the $40 billion spent annually by state mental health agencies, is being lost to fraud, waste, and excess profits to for-profit managed care companies.  For example:

  • In 2014 we identified 18 media accounts of mental health Medicare and Medicaid fraud, totaling approximately $1 billion.  A nurse in Iowa submitted more than 6,000 false claims; a social worker in North Carolina submitted claims for 64 hours of therapy in a single day; and a mental health center in Louisiana submitted $258 million in false Medicare claims for partial hospitalization.
  • California voters in 2004 approved a special tax to generate new revenue for providing services for individuals with serious mental illness. The tax produces over $1 billion each year.  However, some of the funds have been wasted by being diverted to activities such as yoga, line-dancing, therapeutic drumming, and community gardens.
  • For profit managed care companies are commonly allowed to keep up to 20 percent of state contracts for administrative costs and profit.  In Florida WellCare was given a contract to provide mental health care to the state’s Medicaid population.  A WellCare vice-president was recorded as claiming that the company was keeping 50 percent of the contract.  Three WellCare executives were subsequently convicted of fraud and sentenced to prison.

Such findings suggest that Richard Kusserow, the former Inspector General of the Department of Health and Human Services, was correct in 2014 when he claimed that “many healthcare fraud investigators believe mental healthcare givers, such as psychiatrists and psychologists, have the worst fraud record of all disciplines.”

The present report also makes several recommendations.  The federal Health Care Fraud Prevention and Enforcement Action Team (HEAT Task Force) should be significantly expanded since it has been shown to pay for itself. State mental health agencies should exert active, assertive oversight over community programs.  This oversight should include vigorous examination of Medicaid and Medicare claims; unannounced audits of community mental health programs looking for fraud and waste; and a prohibition on the use of for-profit managed care companies.  Such corrective actions are unlikely to happen unless mental health advocacy groups and the public in general demand it.

In commenting on the report, lead author Dr. E. Fuller Torrey noted: “The core problem is not how much money is being spent, but rather how much money is being misspent. Until we mental health professionals clean up our act, just throwing more money at the problem is not going to solve it.”  The other authors of the report are D.J. Jaffe, Director of Mental Illness Policy.Org; Dr. Jeffrey L. Geller, Professor of Psychiatry at the University of Massachusetts Medical School; and Dr. Richard Lamb, Professor of Psychiatry at the University of Southern California Keck School of Medicine.

 The complete report is available at

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