HHS Watchdog Cuts Could Increase Waste, Fraud and Abuse, Inside Sources Say

A Department of Health and Human Services (HHS) plan to cut purported waste by slashing oversight staff could enable far more waste, fraud, and abuse, insiders told the Project On Government Oversight (POGO). They stressed that the costs of such a move could fall largely on taxpayers.

Earlier this year, HHS announced a plan to close six offices overseeing the legal implementation of two of the most expensive government programs: Medicare and Medicaid. The planned cuts are a case study in how an effort to slash government spending could instead enable waste and other problems. These teams help HHS conduct oversight by focusing on cases that involve misspent federal dollars, and they provide legal support when the federal government steps in to protect patients from abusive or negligent practices like substandard conditions in nursing homes or the theft of controlled substances.

An Unexpected Watchdog

At $2.86 trillion for fiscal year 2024, HHS’s budget is one of the largest in the federal government, representing more than a fifth of the federal budget. More than 90% of the resources allocated to the department in fiscal year 2024 went to the Centers for Medicare and Medicaid Services (CMS).

The agency’s Office of the General Counsel (OGC) plays a key oversight role within the department. It currently has 10 regional offices across the nation, which ensure that providers comply with Medicare and Medicaid regulations, and that money is spent on patients — not diverted by fraud or waste. 

The work of OGC offices touches hospitals, nursing homes, and rural and tribal healthcare facilities, and it can range from recovering millions owed to Medicare and Medicaid when a facility goes into bankruptcy, to overseeing compliance with healthcare regulation, to supporting in administrative and judicial litigation when facilities or providers are accused of abuse or negligence. 

More than half of HHS OGC offices are slated to be closed this fall.

“If you cut all of the people who are responsible for administering the programs, what happens to the programs?” asked one HHS attorney, who spoke with POGO under an agreement not to publish their name due to fear of reprisal.

On March 11, HHS Acting General Counsel Sean Keveney announced the closure of six of the 10 OGC regional offices as part of a larger “reorganization effort.” The announcement was made over a video call lasting a few minutes, according to multiple staff members present.

“He said there was going to be no questions, and he shut his computer,” said an HHS attorney. “It was a shock.”

That day, the agency issued a press release announcing the office closures, explaining the decision only by saying it was “part of the department’s ongoing efforts to advance the Secretary Kennedy’s mission to Make America Healthy Again.” On March 14, a new statement of organization was published to the federal register, naming the four remaining offices: Philadelphia, Atlanta, Kansas City, and Denver. 

Keveney sent managers an email that same day clarifying that the six offices will close by September 30, 2025. He added that staff who wish to leave through voluntary early retirement or buyout must do so between April 19 and May 9. 

On the initial call, staff said, Keveney explained that the decision to close the office was made because the OGC was asked to cut staffing down to 90% of fiscal year 2019 levels. A few weeks later, an HHS spokesperson was quoted again referring to 90% of fiscal year 2019 levels. But internally, staff say, there’s been confusion. And a closer examination shows the proposed closures would bring staffing levels far lower than the goal identified by HHS officials.  

In fiscal year 2019, OGC had 143 full-time employees, and it had 161 in fiscal year 2024, according to fiscal years 2019 and 2024 HHS Congressional Budget Justifications. To bring staffing levels down to 90% of 2019 levels would mean cutting about 30 employees.

 However, an email from Keveney to staff on March 27 confirmed that the closures would result in 120 staff departures — leaving roughly 40 employees to do the work of 161.

Staff estimate this will create a 300% increase in workload for the remaining offices. The increase in workload could lead to less enforcement, cases falling through the cracks, and the quality of legal analysis declining, insiders say.

“If you were to get rid of a very substantial proportion of the lawyers that work in these regional offices, what you’re going to do is make it a lot harder to attack waste, fraud, and abuse,” said former HHS general counsel Samuel Bagenstos.

“The waste is going to go undetected, the fraud is going to go undetected, and the abuse, with very significant consequences, is going to go undetected and unresponded to.”

Bagenstos is currently a law professor at the University of Michigan specializing in civil rights, labor and employment law, health law, and governance. 

POGO reached out to HHS to explain the discrepancy between its officials’ statement to the press and its internal communications about the extent of the proposed cuts, and why the cuts appear far deeper than publicly indicated.

HHS did not respond to POGO’s request for comment, declining to provide additional information on the reasoning behind the closures and their impact on workload for the four remaining offices. 

Although the cuts have been justified as an effort to deconstruct “a wasteful and weaponized bureaucracy” and eliminate “wasteful spending,” a source within the General Counsel’s Office told POGO the decision was “reckless” and “a direct attack on the integrity of federal legal enforcement in healthcare.”

“Honestly, I think it’s a slander on hard working, dedicated, outstanding civil servants,” said Bagenstos. “It’s just infuriating that people would say that those offices do anything other than protect the American people and the interests of the American people.”

Protecting Patients

Offices of general counsel across the government exist to ensure compliance with the law and look out for the interests of their agencies. But HHS OGC’s regional offices have additional missions that make them unusual. For instance, these offices serve as watchdogs over the Medicare and Medicaid programs — namely by helping to ensure recipients of those programs’ funds are complying with federal rules, and by enforcing financial penalties when they don’t. 

“It doesn’t mean anything to have a regulation on the books unless there’s enforcement. That’s where the rubber meets the road, that’s where the regional offices come in,” an HHS attorney said. 

The OGC regional offices work closely with the Centers for Medicare and Medicaid Services (CMS), the agency that administers Medicare and Medicaid, to enforce quality of care standards in healthcare facilities. 

In one case, for example, OGC went to administrative court to defend a CMS decision to revoke Medicare enrollment from a registered nurse who had admitted to diverting fentanyl from his employer while on duty and allowing “family members to administer epidurals for multiple patients.” An administrative law judge affirmed CMS’s decision. These kinds of cases exist in health care facilities ranging from hospitals and rehabilitation centers to nursing homes.

“The accountability for things like abuse, neglect, mold contamination, infection control, life safety codes, whether or not there’s physical hazards, environmental hazards in nursing homes — the regulatory framework is very, very specific,” an HHS attorney told POGO. 

“The only way to hold facilities’ feet to the fire is through enforcement, and the only way that enforcement works is to have attorneys who are advising the program and defending those enforcement actions. It just can’t happen without counsel.”

The decision to close these regional offices could significantly impact healthcare access in more rural areas as well. OGC offers advice to different facilities on how to ensure they meet standards for patients’ care. It also advises the Indian Health Service and its facilities, which are responsible for providing federal health services to members of federally recognized tribes.

“A number of the regional offices, including a number of the regional offices that are going to be closed under this plan, are the principal in-house legal advisors to Indian Health Service facilities in their region,” said Bagenstos. “They make sure that staff are appropriately screened so that staff are there to heal and not harm.”

Recovering Taxpayer Dollars

OGC is also responsible for recovering misspent taxpayer dollars. Part of this work happens through collaboration with the Justice Department to identify and prosecute fraud and abuse in the Medicare and Medicaid programs.

Because of the wide range of work these regional offices take on, they often collaborate with other watchdog offices, particularly watchdog offices within the Department of Justice and HHS’s Office of Inspector General, on larger litigation cases around fraud or abuse in healthcare programs. 

The savings to the government are significant. The Health Care Fraud and Abuse Control Program (HCFAC) is an example of what that collaboration looks like. In fiscal year 2023, OGC received $8 million in funding to support its HCFAC activities, and it helped the government establish approximately $881.4 million in “judgments, settlements, or other types of recoveries, savings, or receivables.” That’s a return on investment of over 10,000%.

Among the recoveries OGC facilitates are bankruptcy cases. When a healthcare provider files for bankruptcy, there is often money owed to Medicare. OGC regional offices are responsible for this money, helping to ensure that this debt is accounted for or paid.  It’s work that can be labor-intensive and time-sensitive. 

“It’s the bankruptcy cases that are often very, very complex and require quick action to respond, otherwise you end up waiving our rights to any potential recovery,” an HHS attorney told POGO. 

One example shows how much funding the offices slated to be closed have recovered — and how complicated the recovery can be. In November 2023, a co-owner and chief executive officer of MedComp Sciences LLC (MedComp), was indicted for his part in defrauding Medicare and Medicaid of more than $148 million in “medically unnecessary” urine drug test services, according to a Justice Department press release.

CEO Brad Paul Schaeffer allegedly was involved in “directing MedComp staff to fill out and submit order forms on providers’ ‘behalf,’ concealing the true nature, permissibility, and extent of testing from providers, orchestrating a pass-through billing scheme using hospitals, and paying kickbacks to physicians disguised as laboratory ownership interests.” The proceeds allegedly went to a pool renovation, pool house, and work on Schaeffer’s truck. His trial is set to begin in October 2025.

MedComp filed for Chapter 11 bankruptcy in August 2023, before the indictment, and according to insiders, while the Justice Department led this criminal case, lawyers in the Dallas OGC regional office, one of the six that will be closed September 30, flagged the bankruptcy case and worked to preserve and protect against the loss of millions of dollars owed to Medicare. 

Now, as OGC staff expect a 300% increase in caseload, they say they are struggling to see how bankruptcy will fit into the work. 

A Larger Pattern of Cuts

Insiders say that if the closures were a way to cut waste, fraud, and abuse of government programs, these cuts were poorly conceived. 

“It’s obvious that this plan was in the works for a while, but none of the thinking, or much less the details, were shared with any of the managers,” an HHS attorney said. “To this day, I don’t think there’s a plan.”

The goal to shrink federal agencies like HHS was named in February, in a government-wide memo from the Office of Management and Budget that decried a “bloated, corrupt federal bureaucracy” and called for large scale cuts in the federal workforce. It’s an effort that has involved the Department of Government Efficiency (DOGE). The March announcement about the HHS reorganization came weeks after the Office of Management and Budget issued the memo.

Now, Republican leaders are looking to make significant cuts to Medicaid in the name of slashing waste, fraud, and abuse. Some GOP lawmakers want more savings to come from greater efficiencies, rather than deep cuts in benefits.

“Efficiency and transparency must be prioritized for program beneficiaries, hospitals, and states,” a group of a dozen Republican lawmakers wrote in April to House leaders considering legislative changes to Medicaid. “We support targeted reforms to improve program integrity, reduce improper payments, and modernize delivery systems to fix flaws in the program that divert resources away from children, seniors, individuals with disabilities, and pregnant women — those who the program was intended to help.”

Whether the law or rules governing Medicaid or other HHS programs change or not, cutting these offices is shortsighted and could bring long-term losses because it takes adequate, competent staff to ensure these programs work as intended, sources say. 

“I don’t think the public understands how complicated the Medicare program is, how many billions of claims are submitted every year to various Medicare contractors and how to make a determination of overpayment, the level of scrutiny that’s required in a claim, by claim analysis and the lawyers that need to review that, I don’t think people get it,” an HHS attorney told POGO.