[ericjmorey]

Insurance executives' pay is limited by a pool of money that is calculated as a % of total expenses. If expenses are higher due to this sort of fraud, have an incentive to ignore it to keep that pool of money available for compensation as large as possible.

[nradov]

For health plan executives the financial incentives run both ways. Most medical "insurance" companies no longer provide much insurance and primarily act as third-party administrators for self-insured employers. In the short term, health plans can make more profit by approving more claims. But in the long term they have to compete for the business of those group buyers and so they try to block waste/fraud/abuse that drives up customer costs.