With Medicare fraud costing the federal government an estimated $60 billion a year, it makes perfect sense that the Centers for Medicare and Medicaid Services has tapped aerospace innovator Northrop Grumman to create a predictive model that will detect fraud. Or does it?
With all the great technology and healthcare companies out there, Northrop Grumman may not be the obvious choice, but in some ways it is perfect for this role. After all, Northrop is one of the worst perpetrators of fraud against the U.S. government. While some could see this as an unfortunate decision to reward a chronic offender, maybe the government is using a “takes a thief to catch a thief” model.
The reality is that the government’s decision to call on Northrop as its designated fraud detector shows a complete unwillingness to punish wrongdoers. A quick perusal of Northrop’s rap sheet shows how little the company respects the law. Indeed, the Project on Government Oversight—a Washington, D.C.-based public interest watchdog—has identified 33 instances where Northrop Grumman has had ugly dust-ups with the law, from False Claims Act violations to derelictions in environmental compliance and the failure to pay workers in accordance with regulatory and contractual requirements.
And the company has had to pay for its transgressions. That includes a $325 million penalty that Northrop paid on behalf of its aerospace subsidiary to settle claims that defective parts were used for a satellite project. Or the $700,000 in fines the company paid to settle claims that it submitted improper invoices to the Defense Department for lodging expenses. Northrop also settled claims that it installed substandard parts in military drones and even misled the Air Force about paint used on aircrafts.
In announcing the new contract, Peter Budetti, CMS’s new Medicare anti-fraud czar, noted that Northrop would be able “to translate its experience from the private sector to the public sector.” That statement is dubious. Would the Federal Parks Department hire Yogi Bear to guard picnic baskets at Jellystone Park and announce the appointment by saying that “the government hopes that Yogi will translate his experiences from the private sector to the public sector?” Mr. Budetti’s comment is similarly curious because with whatever private sector origins its constituent companies may have had, with over $20 billion a year in government revenue, Northrup now seems more of a permanent government appendage than a true private company.
Northrop isn’t the only violator to remain on the public take. While the average citizen who commits a crime undoubtedly has a hard time finding a job, the same cannot be said for government contractors.
Take the case of one of Northrop’s top competitors, Boeing, which enjoys more than $20 billion in government business each year even though it has settled multiple claims alleging violations of the False Claims Act, including allegations that it sold defective military hardware to the government.
Booz Allen, a mainstay of the government contracting world, generates more than $3 billion annually in government contracts even after settling two false claims cases involving allegations of overbilling and the submission of false reimbursement claims. SAIC, another large technology and services contractor, averaging more than $6 billion a year in government revenue, has settled or been held liable for more than one violation of the Federal False Claims Act. These are not isolated examples. These days it may actually be easier to find a billion-dollar government contractor that has settled allegations of wrongdoing than it is to find one that has never had an encounter with the law.
While it is bad enough that our government continues to reward wrongdoers with more business, the Northrop contract sets a new low. Does CMS really want to send the message that wrongful conduct can be rewarded with a lucrative contract to help the government detect wrongful conduct?
With a wealth of talent in our nation’s great universities, and with the fantastic work done by so many technology companies, it is hard to fathom that Northrop Grumman has a lock on the design of software to detect fraud. CMS’s Mr. Budetti is right about one thing: there is something to learn from the private sector and perhaps even Northrop Grumman. Rather than continue to reward wrongdoers, government contracting officers need to study them, and their misdeeds, in order to be in a position to exercise adult supervision over them.
It is possible that hiring a thief to catch a thief just might send the wrong message about the government’s seriousness in cracking down on fraud. Hiring Northrop and saying that there is much to be learned from its private sector experiences sends exactly the wrong message to American business.