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The Great Waste
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Up to $40 Billion per Year in Psychiatric Fraud

Although psychiatry is the smallest faction within the health care industry, authorities have estimated that psychiatric fraud accounts for 20 percent of fraudulent health care claims paid annually. This places the annual cost of psychiatric fraud in the tens of billions, ranging up to $40 billion per year, as described at the start of this article.

Investigators routinely find psychiatrists responsible for a disproportionate share of the fraud and corruption within the health care industry.

As far back as 1985, a U.S. Justice Department probe found that while psychiatrists represented only 8 percent of the physicians in the country, they accounted for 18 percent of the crooked doctors suspended from Medicaid programs over a 15-year period – the worst performance of any group in the medical field.

Crimes included charging for therapy when they had only doled out drugs; billing for patients who did not exist; falsely billing for up to 24 hours of therapy per day; and having sex with patients and billing the government for their lust.

Florida Medicare investigators found that 40 percent of all mental health outpatient service billings in 1994 were fraudulent.

And if fines collected by the federal government are an index, psychiatry is responsible for nearly 90 percent of the health care fraud in the United States. Of the $411 million paid in health-care-related fines in 1994, $379 million were paid by psychiatric hospitals.

Much of psychiatry’s cost to the taxpayer is hidden. The state budget of Colorado for 1995 allocated approximately $111 million dollars for mental health. However, when the costs of psychiatric programs tucked away inside the Education, Justice and other state departments were examined, that figure nearly tripled.

Much of the money for such programs is simply wasted. In 1990, for example, the U.S. House of Representatives’ Human Resources Subcommittee reported that up to $100 million in federal mental health funds had been illegally diverted. The subcommittee also indicated that while the National Institute of Mental Health (NIMH) knew about it, it was lax in doing anything.

NIMH’s squandering of research dollars drew national media attention in 1995. “Research” NIMH funded, to the tune of hundreds of millions of dollars, included:

  • a study of tree frogs to allegedly determine the development of speech in humans;

  • a 5-year study of the hormonal mechanisms in the brains of rats which make them want to eat salt;

  • a 17-year study of slang terms used under stress by members of an ethnic minority in New York City; and

  • a 31-year study of rhesus monkeys’ reactions to torture while on mind-altering drugs.

DSM-IV: Perpetuating the myth of mental illness.

Bar graph
MASTERPIECE OF DECEPTION: The psychiatrists’ Diagnostic and Statistical Manual for Mental Disorders contained seven “mental illnesses” in 1880, 112 in 1952, 163 in 1968 and 374 in 1994.

The Basic Fraud

Unfortunately, billions spent on psychiatry are worse than wasted. One look at our schools or any of the other areas psychiatry promised to improve – and not only failed to improve, but actually made worse – serves as proof.

Psychiatry’s promise that its programs would prevent mental “illness” is of interest. At the turn of the century, less than one in 1,000 people were considered mentally ill. After psychiatry secured massive funding increases in the 1960s for “preventive mental health” programs, that number jumped to one in ten. Today, psychiatrists claim that half of the population are candidates for their couches, drugs or electric shock tables.

Herein lies the basic fraud – the concept of mental illness itself. According to author and professor of psychiatry emeritus, Thomas Szasz, M.D., mental illness itself is a myth. “A disease is a change in tissues rather than behavior,” he said. “Behavior is in the realm of morals, religion and law.”

Psychiatry, therefore, is an instrument of social control, masquerading as medical science.

“Mental illness” is an extension of German psychologist Wilhelm Wundt’s proposition that man has no soul. Though Wundt had no proof of his theory, what he advanced in the 19th century has been a linchpin of the psychiatric industry ever since. And today, a century and billions of research dollars later, psychiatry is still trying to prove this position.

“Psychiatric hospitals, psychiatric wings of general hospitals, and addiction treatment centers are still largely trolling for customers who have insurance.”

– Joe Sharkey


This fact was affirmed in March 1996 by Rex Cowdry, the then director of the National Institute of Mental Health. Cowdry was called before a subcommittee of the Committee on Appropriations of the U.S. House of Representatives to explain the vast sums wasted on absurd projects by NIMH. These, he said, were necessary because: “We don’t know the causes [of mental illness]. We don’t have the methods of ‘curing’ these illnesses yet.”

Psychiatrists have also failed to prove the existence of these maladies, but this detail has not prevented the list of “illnesses” from growing each year. In 1952, the American Psychiatric Association published its Diagnostic and Statistical Manual for Mental Disorders (DSM). It listed 112 mental disorders, up from seven in 1880.

In 1968, the manual was revised and called the DSM-II. It listed 163 mental disorders, including a whole new category of “Behavior Disorders of Childhood and Adolescence.” These new ailments – each of which could be considered a “handicap” – appeared shortly after psychiatry procured federal funding for treating handicapped children.

Commentary in the DSM-II revealed that the listed “disorders” had not been established by scientific evidence but by a committee which voted on whether they existed. Later versions of the DSM used this same “scientific” criterion – “electing” new disorders.

When the DSM-IV was published in 1994, the number of mental disorders listed jumped to 374. While this manual provides an extensive list of mental disorders, it admits that no definition specifies precise boundaries for the concept of a “mental disorder.”

Masterpiece of Deception

Confused kid
THE BASIC FRAUD: Billions spent on psychiatry are worse than wasted. One look at our schools or any of the other areas psychiatry promised to improve—and not only failed to do improve, but actually made worse—serves as proof.

Psychiatrist Al Parides called the DSM a “masterpiece of political maneuvering” and not a scientific manual at all.

“A child doesn’t want to go to school and kicks the teacher,” he said. “They work out the psychiatric diagnosis [as] a medical problem.... What they have done is medicalize many problems that don’t have demonstrable, biological causes.”

The DSM is also a masterpiece of deception. Shrouded in the rhetoric of “science,” every human emotion, experience, habit and activity is listed as a symptom of a mental “disorder.”

Johnny’s trials learning math have become code number 315.1, “mathematics disorder.” His refusal to take out the trash is number 313.8, “oppositional defiant disorder” and Judy’s trouble with her English essay is number 315.2, “disorder of written expression.”

Parents of typical children – those who fidget; fail to pay close attention or follow through with homework; make mistakes in schoolwork; blurt out answers; run about; climb excessively; or are “on the go” – are frequently told their children have “Attention Deficit Hyperactivity Disorder” (formerly called Attention Deficit Disorder). They are also told this is a “brain disease” caused by a “chemical imbalance in the brain” and their child needs to take addictive “medication” to correct it.

What they are not told is that this “illness” does not exist. Fred Baughman, M.D., a child neurologist of 25 years, investigated ADHD and other so-called learning disorders. Finding he was unable to validate them as a biological illness, Baughman asked several experts to direct him to any studies or reports which would confirm the claims.

Gene R. Haislip of the U.S. Drug Enforcement Agency replied that, “We are also unaware that ADHD has been validated as a biological/organic syndrome or disease.” Paul Lever, M.D., with the U.S. Food and Drug Administration said, “As yet no pathophysiology for the disorder has been delineated.” Even the DSM admits that there are “no laboratory tests that have been established as diagnostic” for ADHD. When no one, including the American Psychiatric Association itself, can validate the lie that ADHD is a biological “illness,” it is a deception of magnitude to promote it as such. And it is fraud to charge for “treatment” of an “illness” that does not exist.

Unfortunately, the same holds true with psychiatry’s other “illnesses.” Even the widely publicized and frequently “diagnosed” “biological/genetic illness,” schizophrenia, cannot be validated. One edition of the DSM said: “Even if it had tried, the committee could not establish agreement about what this disorder [schizophrenia] is; it could only agree on what to call it.” Americans are bombarded with advertisements advising them that they may suffer one of more of these illnesses – but are in “denial” of this fact. When seen in conjunction with frequent headlines raving of a new biological breakthrough, many Americans are deceived into believing their normal activities and emotions are actually symptoms of one or more of these “illnesses.”

Tucked away in the text of the “biological breakthrough” articles is the disclaimer that this “discovery” is nothing more than a possible link which might lead to proof of the biological theory in the future – the same promise psychiatry has made for 100 years.

Those who fall for the deception are not only defrauded, they are subjected to damaging “treatments” for a condition they do not have. These can include psychotropic drugs which cause a permanent, Parkinson-like damage to the nervous system; electric shock; or brain surgery. Each of these leave the individual worse than before he came to psychiatry for help.

Why Psychiatry Cannot Survive in the Private Sector

“We don’t know the causes [of mental illness]. We don’t have the methods of ‘curing’ these illnesses.”

– Rex Cowdry
Former Director National Institute of Mental Health


When the U.S. Justice Department reported in 1985 that psychiatrists comprised a disproportionately large percentage of crooked physicians, psychiatry was ready with its excuse. A February 1985 article in the American Journal of Psychiatry said, “Psychiatrists may also cheat more than other doctors because they find the benefit system particularly unresponsive to what they consider to be their fiscal due.”

In 1995, a Wall Street Journal headline read, “High Anxiety: In the Name of Freud, Why Are Psychiatrists Complaining So Much?” Another leading paper reported, “The nation’s shrinks are depressed.” The reason, psychiatrists claim, is because they are being “unfairly” discriminated against and their incomes limited with managed care.

What they fail to see is that they are responsible for their own woes.

Psychiatry knew it had nothing to offer when it began to demand government appropriations. The demands were made because it had learned it could not survive in the private sector. Individuals seldom pay, year after year, for “therapy” which yields no improvement or leaves them worse than before they came.

But psychiatry had a “solution.” In the 1970s, psychiatric lobbyists began to descend on state legislative bodies with demands that psychiatry and the mentally “ill” be treated “fairly.” To psychiatry, “fair” treatment involved mandates that prohibited an insurance policy from being written if it did not include psychiatric coverage.

By the 1980s, a majority of states had passed mandated mental health coverage laws. The “corner” psychiatric facility phenomenon was born. Between 1984 and 1988, the number of psychiatric institutions doubled. The number of psychiatric hospitalizations rocketed 350 percent in just four years.

Insurance premiums went through the roof. A Blue Cross/Blue Shield study reported that average payments for those using psychiatric services were three times higher than for those who did not. Businesses reported that mental health claims were consuming up to 40 percent of their health care dollar – and rising.

“We have some employees going twice a week at $150 a visit – and no end in sight,” said Helen Darling, a benefits manager at Xerox Corporation.

These statistics were the combined result of psychiatry’s lobbying for mandatory coverage, abuse of involuntary commitment laws, and rapid invention and promotion of non-existent “illnesses.” Insurance companies fought back by placing limits on psychiatric coverage, but the costs continued to mushroom. Foster Higgins, an insurance benefits consulting firm, reported that mental health costs to the average company again doubled between 1987 and 1991.

Psychiatry was aware of the explosive situation created by its greed. An early warning came from Ralph Lopez, chief of the Health Facilities Division of Los Angeles County Health Services. In a 1983 memo, Lopez expressed alarm about the number of teenagers being placed in psychiatric hospitals and also about how psychiatrists played on patients’ fears. “These issues,” he said, “need to be faced and resolved before the lid blows off somewhere.”

Another caution came in 1987. A Psychiatric Times article entitled, “Psychiatry’s Time Bomb” warned that the “proliferation of private psychiatric hospitals ... poses a major threat to the psychiatric profession. It generates a significant pressure for admitting patients and keeping them in the hospital.... It is only a matter of time until the public, consumer groups and [insurers] become aware of this situation.”

Psychiatrists not personally responsible for the crimes leading to the August 1993 psychiatric hospital raids knew of the situation but did nothing about it. A Texas practitioner who requested anonymity told the Dallas Morning News, “Everybody would have a story to tell, and then we’d say, ‘I don’t see what we can do about it.’ We just sort of shied away from it.”

Because psychiatry refused to police itself, businesses, government agencies and the courts were forced to take action.

According to a 1994 survey by Foster Higgins, business fought to contain mounting health care costs by “carving out medical plan benefits with more volatile costs, such as prescription drugs and mental health/substance abuse care, and offering them through freestanding ‘managed’ care plans.” But, the survey warned, any savings enjoyed by doing so would be a one-time event because the factors creating the problem “have not gone away.”

Indeed they have not. State and federal lawmakers are inundated with the old, familiar cry that psychiatry is being treated “unfairly” and must be given more money.

Never mind that psychiatrists, psychologists and psychiatric hospitals who kidnap or use deception to lure insured individuals and then abuse the involuntary commitment laws to hold them against their will until their coverage is exhausted have been making national headlines for the last four years.

Never mind that countless justice actions and judgments have failed to stop this trend. Psychiatry must be treated “fairly” and laws mandating mental health insurance “parity” (i.e., without caps or limits) passed.

If the truth were told, psychiatry does not wish to be treated fairly – it seeks unfair advantage. According to an analyst at Blue Cross/Blue Shield, mental health coverage was always available for those who were willing to pay the additional premium. Psychiatry’s problem was that very few people considered the benefit worth the cost.

History has shown that psychiatry militantly refuses to police itself. Thus, the solution to fraud is to repeal all laws mandating private insurance and government payment for psychiatric “illnesses” and to rescind involuntary commitment laws which make it possible to imprison innocent individuals while these funds are milked dry.

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