I only wish this story was more shocking than it actually is. It begins with a gentleman in New York City standing near a homeless shelter and announcing to the transient population that free sneakers, boots and shoes were being given away that day. That’s a pretty sweet deal and quite generous, particularly if there’s cold weather coming. But in this particular case, there was a catch: the shoe seeking homeless folks needed to provide a valid Medicaid card and be willing to go in for some medical “testing and treatment” if they wanted to score the footwear.

But wait! Free doctor services and free shoes! That’s pretty awesome, isn’t it? Well, it would be if there was any actual medical care taking place.

Mr. Rorie was recruiting homeless people, prosecutors said, and whoever had a valid Medicaid card would be packed into a van and sent to medical clinics around New York City. There, after hours of unnecessary tests and fake diagnoses, the homeless people would be sent off with sneakers — selected from stacks of shoeboxes in the clinics’ basements. The doctors, staff members and billing specialists, meanwhile, would rack up hundreds or thousands of dollars per recruit in false Medicaid claims, prosecutors said.

On Tuesday, nine New York doctors were among 23 people indicted in State Supreme Court in Brooklyn in connection with the sneaker scheme, which the Brooklyn district attorney’s office said made almost $7 million and took advantage of thousands of homeless people.

The charges in the indictment include health fraud, enterprise corruption and money laundering.

The Times article linked above talks about the “the exploitation of poor people,” which is true, but it’s hardly the real problem here. While this was anything but honorable, it sounds like the only real abuse of the homeless was wasting some of their time as they were shuttled back and forth to the doctor’s offices, and at least they did get some shoes out of the deal. The real crime here is the seven million dollars in taxpayer money which disappeared into the pockets of these doctors and their accomplices in the scheme, never to be seen again.

The person who organized the recruiters who were setting up the “appointments” for the “patients” just happened to be somebody who dealt in devices for foot and leg problems as well as owning some medical clinics. While you might expect the medical problems of the homeless to be along the lines of malnutrition, effects of drug and alcohol abuse or just exposure to the elements, most of the patients were set up for medical care aimed at dealing with their foot problems. How convenient.

What should be truly alarming is that the New York City case wouldn’t even qualify as the tip of the iceberg, and seven million dollars is chump change in the Medicaid fraud business. Even the Attorney General’s office has estimated that anywhere from 10 to 20 percent of Medicaid billing is fraudulent and costs the treasury between 60 and 90 billion dollars per year. That’s more than half a trillion in a decade, which could make a significant dent in the national debt if we were remotely serious about entitlement reform.

How bad is it? At a minimum, you can say that it clearly isn’t exclusive to New York.

The problem isn’t new.  Federal officials set up the Medicare Fraud Strike Force in 2007, which visited at random nearly 1,600 businesses in Miami, ground zero for Medicare fraud, that had billed Medicare for durable medical equipment.  Officials found that nearly a third of the businesses, 481, didn’t even exist, yet they had billed Medicare for $237 million over the previous year, according to National Public Radio.

The stories are legendary in scope. One dentist in New York submitted 991 claims for services in a single day. That guy has to be the Flash Gordon of dentistry.

The is such a gravy train for criminal activity that the Russian mob is alleged to have gotten in on the act, but none of this should come as a surprise. Any time you pile up a vast amount of money it’s going to attract thieves. And when that money is under the control of a sprawling bureaucracy which relies on a mountain of essentially automated forms to distribute it with no good way to verify each claim, the results are predictable. This isn’t a relatively small scale problem like a contractor charging the military an extra fifty cents each for socks. We’re talking about trillions of dollars here. Medicaid is broken and there is nobody out there with a solution that I’ve seen. A law enforcement remedy simply tackles the weed by clipping the tips of the leaves and will overwhelm all the investigators you throw at it rather than killing it off at the root. This needs a top down fix by fundamentally changing the system so that each transaction is more accountable.