Legislating Medicare Fraud: The Politics of Self-Regulation and the Creation of Professional Standards Review Organizations

Not long after the 1966 enactment of Medicare and Medicaid, evidence emerged that unscrupulous physicians and health care organizations were gaming the system. Research over the past 50 years shows that around 10 percent of the federal government’s annual cost for these programs is attributed to fraudulent claims or abuses where hospitals and treatments have been overused for undue provider profit. This article examines early congressional attention to this problem and describes lawmakers’ attempts to find legislative solutions to it. It historicizes the dilemma of balancing the ideological limits of government regulation with cultural assumptions about professional self-regulation, focusing on a major 1972 law, the Professional Standards Review Organization (PSRO) Act. The law launched a 10-year career for PSROs, physician-staffed peer-review boards designed to identify and sanction efforts to overcharge Medicare. The article contextualizes multiple actors’ concerns over cost containment and the crisis of faith in medical authority that persisted following failures to control professional malfeasance.