WASHINGTON, DC – Insurance Watchdog Coalition (IWC)commends the U.S. House Energy and Commerce Committee for focusing its hearing today on fraud and abuse in Medicare and Medicaid—areas where the scale of the problem has grown significantly and demands urgent scrutiny.
“Large insurance companies have turned Medicare and Medicaid into giant ATMs—and taxpayers are footing the bill,” said Mark Merritt, executive director of IWC.
As Congress examines fraud in federal health programs, IWC warns that the largest drivers of waste are no longer isolated actors, but large, vertically integrated insurance companies and the intermediaries they control.
Three Major Drivers of Waste and Abuse
PBM Practices Inflating Drug Costs
Vertically integrated pharmacy benefit managers (PBMs), often owned by large insurers, now control most of the prescription drug market and play a key role in determining drug pricing and access.
Key practices driving higher federal spending include:
- Spread pricing, where PBMs charge payers more than they reimburse pharmacies
- Rebate-driven formularies, favoring higher-priced drugs with larger rebates
- Steering to PBM-owned pharmacies, particularly for high-cost specialty drugs
These arrangements allow insurers and their affiliated PBMs to extract additional revenue
from taxpayer-funded programs, while obscuring the true cost of prescription drugs.
Medicare Advantage Upcoding and DOJ Litigation
Medicare Advantage has become one of the largest and fastest-growing components of federal healthcare spending. Its payment system creates strong incentives to maximize reported diagnoses—and therefore federal payments.
These practices are now at the center of federal fraud litigation. In United States ex rel. Poehling v. UnitedHealth Group, the U.S. Department of Justice alleges that UnitedHealth Group identified unsupported diagnoses through internal reviews but failed to delete them before submitting data to Medicare, inflating payments.
Beyond individual cases, the broader fiscal impact is substantial. Analysis from the Committee for a Responsible Federal Budget estimates that current Medicare Advantage payment policies could result in approximately $1.2 trillion in excess federal spending over the next decade.
This is not incidental overpayment—it reflects a system that rewards higher coding intensity and drives higher federal spending, with costs passed on to seniors through increased Medicare Part B premiums.
“This isn’t incidental overpayment—it’s a business model,” Merritt said.
Taken together, these practices reflect a system where the largest financial gains come not from delivering care, but from maximizing payments.
Offshore GPOs: “Ghost PBM Organizations”
PBM-controlled Group Purchasing Organizations (GPOs) operating offshore have emerged as a new mechanism for collecting administrative fees tied to drug rebates.
These entities:
- Operate under a 1987 Anti-Kickback Statute safe harbor never designed for this purpose
- Collect fees tied directly to rebate volume and drug prices
- In some cases operate outside the United States, increasing opacity and limiting oversight
These structures allow PBMs to capture additional revenue tied to higher drug prices, embedding incentives that drive up costs in taxpayer-funded programs.
These entities exist not to lower prices, but to collect fees tied to higher ones—embedding incentives that work directly against taxpayers.
Call for Congressional Action
IWC urges Congress to align oversight with how the healthcare system actually operates today.
This includes:
- Full transparency into PBM pricing and rebate flows
- Stronger auditing and enforcement of Medicare Advantage risk-adjustment practices
- Reform of the GPO safe harbor as applied to PBM-controlled entities
Until Congress addresses these structures, the largest drivers of Medicare and Medicaid waste will remain untouched.
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The Insurance Watchdog Coalition’s mission is to educate legislators, regulators, key opinion leaders, the media and the American people about the harmful impacts of vertically integrated insurance monopolies, especially in our healthcare system, which in turn will help create more competition in the marketplace, lower healthcare costs, and ensure that healthcare savings go to patients, not big insurers.