Final answer:
Provider fraud in healthcare may involve clinics conducting unnecessary tests to receive more reimbursements, exploiting the fee-for-service system, and contributing to increased healthcare costs. The switch from fee-for-service to HMOs is meant to limit such fraud, but both systems have their risks, like moral hazard and adverse selection.
Step-by-step explanation:
An example of provider fraud associated with the costs of health care services provided to patients includes clinics performing unnecessary and expensive tests on Medicaid clients to defraud the government. This type of fraud manipulates the fee-for-service system where providers are reimbursed for the cost of services they provide, increasing healthcare costs.
In contrast, health maintenance organizations (HMOs) pay providers a fixed amount per patient, which can reduce moral hazard by incentivizing providers to limit unnecessary services. However, adverse selection may occur in insurance markets when there is asymmetric information between insurance buyers and the company, potentially leading to increased costs for insurers as high-risk parties are more likely to purchase insurance they perceive as a good deal.
Reforms such as the Patient Protection and Affordable Care Act (ACA) aim to mitigate these issues by regulating insurance markets and healthcare provider payments. Still, provider fraud remains a challenge for the healthcare system.