America knows by now that the costs of the American health care system are staggeringly high. But there is a certain paradox in these high costs. For an industry in which so much money is spent, it is worth asking who benefits most.

President Obama would like us to believe it is primarily insurance companies. While many of them are massive businesses, note that the two biggest health insurance companies, UnitedHealth and WellPoint, make profits at a modest 4% margin. Moreover, doctors and providers are notoriously--and increasingly--underpaid since the advent of the managed care system, and the Obama administration’s health care package only threatens to limit their compensation further by capping the premiums insurance companies can charge and cutting Medicare reimbursements.

Given that health care makes up one-sixth of the American economy, somebody is making money, right? Indeed, they are called lawyers.

While there are a number of factors that contribute to the high costs of health care, the massive costs of non-medical expenditures--specifically administration, legal compliance, and fraud--figure prominently. Most troubling, these costs do not actually contribute to delivering people health care, and they are ultimately passed on to patients and taxpayers.

Fraud alone costs the system an estimated $100 billion, a significant sum even by today’s profligate standards. Medicare fraud has now surpassed cocaine as the largest criminal enterprise in south Florida, which is somewhat unsurprising when you consider that public funds cover the costs of a significant portion of health care. While much of this fraud is of the blatant criminal variety, in many cases it also orchestrated through complex corporate schemes by sophisticated players.

For instance, recently New York real estate owner Rubin Schron and attorney Leonard Grunstein, along with a number of other corporate defendants, settled a case (without acknowledging wrongdoing) that alleged a violation of federal anti-kickback laws, which prohibit knowingly or willfully receiving or giving any remuneration for referrals covered by Medicare or Medicaid. The defendants allegedly masked the kickbacks through a corporate acquisition in which Omnicare purchased a nursing home chain unit with less than $3 million in assets for $50 million, while, on the same day, executing a 15-year referral contract with the company.

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