The U.S. Department of Health and Human Services Office of the Inspector General (OIG) admitted last week that the Centers for Medicare and Medicaid Services (CMS) hospital payment process is broken.

The OIG’s report, “Significant Vulnerabilities Exist in the Hospital Wage Index System for Medicare Payments,” showed that from 2004 to 2017, CMS overpaid nearly 300 hospitals more than $140 million in taxpayer dollars.

The reason? Government interference and lax oversight, of course.

The process pays hospitals based upon wage data and additional associated costs, submitted by hospitals and reviewed by CMS.

As a result, hospitals are incentivized to overstate their wages and seek greater reimbursements, a point driven home by the OIG’s report. In one example, a hospital in Connecticut “overstated wages by approximately $5 million and hours by approximately 9,900 in its cost report, causing Medicare to overpay Danbury Hospital and five other hospitals in its area $990,000 in fiscal 2014.”

It should come as no surprise, though, that CMS has utterly failed to correct these flaws. Worse still, the law authorizing these payments forbids CMS to retroactively correct these payments, meaning that once the money is gone, it’s gone for good!

The program is the paradigm of government waste, illustrating how when the government steps in to “help” regulate an industry, they often create perverse incentives.

We would be remiss if we didn’t note that these overpayments have not increased the cost of the program, as CMS is charged with ensuring the program is budget neutral. However, these overpayments could be re-appropriated where needed or, even better, returned to the taxpayer to ensure a more streamlined and efficient program.

It should come as no surprise that a government program is woefully inefficient and wasteful. We look forward to Congress and the Secretary of Health and Human Services taking this report seriously and addressing this problem at once.