FOR FISCAL 1977 COMBINED COSTS FOR MEDICAID AND MEDICARE PROGRAMS ARE EXPECTED TO EXCEED $40 BILLION. TAXPAYERS AND LEGISLATORS ARE INCREASINGLY CONCERNED ABOUT THESE HEALTH CARE COSTS, PARTICULARLY THOSE ATTRIBUTABLE TO FRAUD AND ABUSE. WHILE THERE IS SOME DIFFICULTY IN DEFINING WHAT CONSTITUTES FRAUD AND ABUSE, THERE IS GENERAL AGREEMENT THAT, HOWEVER DEFINED, THERE IS A GREATER AMOUNT THAN CAN BE DETECTED FROM PRIVATE, FEDERAL, AND STATE RECORDS, THAT THE COST IS STAGGERING AND THAT SUCH ACTIVITIES CAN BE FOUND IN EVERY SECTOR OF THE HEALTH CARE DELIVERY SYSTEM. THE FOLLOWING CAUSES FOR THIS SITUATION ARE MOST FREQUENTLY CITED: (1) INAPPROPRIATE REIMBURSEMENT FORMULAS AND A LACK OF INCENTIVES FOR ECONOMICAL SERVICE DELIVERY; (2) LACK OF A SUFFICIENT DATA BASE FOR THE CONSTRUCTION OF PROVIDER CUSTOMARY-TREATMENT AND FRAUD/ABUSE NORMS; (3) LACK OF SUFFICIENT FINANCIAL AND MANPOWER RESOURCES TO VIGOROUSLY ENFORCE EXISTING MEDICARE/MEDICAID ANTIFRAUD STATUTES; (4) LEGITIMATE CONCERN FOR THE RIGHTS OF SERVICE PROVIDERS; AND (5) MISCELLANEOUS FACTORS SUCH AS TIME LAGS, ADMINISTRATIVE UNCERTAINTIES, AND PRIVATE INTEREST GROUP EFFORTS. THE CREATION OF THE OFFICE OF INSPECTOR GENERAL IN THE U.S. DEPARTMENT OF HEALTH, EDUCATION, AND WELFARE TO BE RESPONSIBLE FOR AUDITING AND INVESTIGATING FRAUD, ABUSE, AND DEFICIENCIES, REPRESENTS A STEP IN THE RIGHT DIRECTION. REMEDIAL ACTION WAS TAKEN BY THE U.S. CONGRESS IN THE FORM OF H.R. 3 AND S. 143 (THE MEDICARE-MEDICAID ANTI-FRAUD AND ABUSE AMENDMENTS), WHICH WERE SIGNED INTO LAW AS P.L. 95-142 ON OCTOBER 25, 1977. MAJOR PROVISIONS OF THIS LEGISLATION INCLUDE AN UPGRADING OF PENALTY SANCTIONS FROM MISDEMEANORS TO FELONIES, FULL DISCLOSURE OF OWNERSHIP AND BUSINESS TRANSACTIONS OF CERTAIN ENTITIES RECEIVING PROGRAM FUNDS, CLARIFICATION OF THE SCOPE AND NATURE OF RESPONSIBILITIES OF PROFESSIONAL STANDARDS REVIEW ORGANIZATIONS, AND SIGNIFICANT ADMINISTRATIVE REFORMS PERTAINING TO COST ACCOUNTABILITY, REPORTING, MONITORING, AND PROSECUTION OF FRAUD AND ABUSE. IMPLICATIONS OF REMEDIAL MEDICAID/MEDICARE LEGISLATION FOR THE HEALTH CARE DELIVERY SYSTEM AND FOR CONSUMER HEALTH CARE COST ARE DISCUSSED. IT IS CONCLUDED THAT THE CONTROL OF PUBLIC HEALTH CARE FRAUD AND ABUSE IS A MANDATORY CATALYST FOR FURTHER COST CONTROLS AND FOR THE DEVELOPMENT OF A MORE EQUITABLE AND EFFICIENT SYSTEM OF HEALTH CARE DELIVERY. (JAP)