The Hidden Cost of Insurance Fraud

The Hidden Cost of Insurance Fraud
By Martin Maylor

In about one fifth of all known cases of health care fraud, consumers are the perpetrators, according to the insurance association. All but a fraction of the rest involve providers.
“I don’t take consumer fraud lightly,” says Greg Anderson, director of corporate finance investigations for Blue Cross-Blue Shield of Michigan. “We have 4.5 million customers and if each one is doing $1 in fraud, that’s $4.5 million. That’s worth paying attention to.” But provider fraud is where the bigger dollars are by far.

That’s not surprising, says the Anti-Fraud Coalition’s Mahon. “A consumer has a health plan, car insurance, a vision plan, maybe dental, but a provider has the whole patient population, the whole range of tests and treatments and the ability to bill a very wide array of third-party payers. Even in a managed care setting, if I’m a provider, I’m participating in a dozen or two plans, plus all the fee-for-service plans,” he points out.

In the indemnity world, provider fraud falls into one of two categories, whether it’s the work of a single doctor, an organized gang or a hospital or clinic: billing for services not rendered – tests not given, surgery not done, care not provided – and upcoding. A physician may spend just a moment with an office patient but bill for a full evaluation, for instance, or bill for foot surgery when he did little more than trim the toenails of a nursing home patient. “These account for 100 percent of the provider fraud in fee-for-service plans,” says Anderson.

But 85 percent of patients with employer-based coverage now are enrolled in some kind of managed care plan. Under plans that are not fully capitated, most of the same variations of provider fraud still apply. New methods also are emerging. Kirk J. Nahra, general counsel for the National Health Care Anti-Fraud Association, noted in a 1997 article in Benefits Law Journal that fraud continues to flourish the old-fashioned way. That’s because “fee-for-service transactions continue to figure significantly in virtually any managed care system,” he wrote. With some HMOs diminishing the role of – or doing away with – gatekeepers, such transactions are not about to disappear.

When providers share the financial risk, however, they have an incentive to provide less care – and that can be a subtle problem to detect. This might range from simple inadequate treatment to the “automatic” referral of sicker – and thus more costly patients to specialists outside the capitated network, perhaps in exchange for kickbacks. It might also include such subtle acts as the establishment of inconvenient service locations or appointment hours for managed care patients, “designed to suppress patient traffic,” Nahra wrote.

Initially, fraud squads will detect these kinds of abuses through statistical analysis, he predicts. But he cautions that legal proof won’t be easy. In a case where a provider has systematically provided low levels of services to capitated patients, for instance, prosecutors will have to show that providing reduced care is a “scheme to defraud.”

Insurers told the HIAA that they’d uncovered a wide range of managed care provider fraud. Ripoffs ranged from the embezzlement of capitation funds to falsifying new enrollee registrations, falsely elevating encounter rates in an effort to increase future capitated payments, illegally balance-billing patients and overcharging for copayments. Doctors also undercharge for copays in an attempt to lure more patients, either to collect more capitated payments or to use the insurance information to submit false claims.

In still another managed care scheme, the gatekeeper or PCP accepts kickbacks in exchange for referring almost exclusively – and more often than is genuinely necessary – to particular specialists, says Greg Anderson, director of investigations for Michigan Blue CrossBlue Shield. Although some plans reward doctors for keeping referrals to a minimum, physicians who accept kickbacks can more than make up for any incentives they might forfeit. And, says Anderson, “Kickbacks are really hard to prove.”

Some investigators also suspect that private capitated plans are being charged for excessive lab services and testing by some hospital emergency departments, which can bill them separately. Another variation: routinely admitting patients at 11:55 p.m. instead of 12:05 a.m., to collect for an extra day’s stay.

Higher Insurance Rates

The Canadian Coalition Against Insurance Fraud defines insurance fraud as any act or omission with a view to illegally obtaining an insurance benefit — in other words, any action where a claimant walks away with money that he or she is not entitled to. Insurance fraud includes a full range of fraudulent acts. Examples include: completely fabricated claims, inflation or padding of genuine claims, false statements on insurance applications, and internal fraud.

Fraudulent claims represent approximately 10 to 15% of claims paid out. General insurance fraud amounts to approximately $1.3 billion per year in Canada. Honest policyholders through increased premiums pay this cost. When the toll on other societal resources is factored in, insurance fraud costs an additional $1 billion per year. Police must investigate crimes in which the details have been altered, making the investigation more costly and time-consuming, or which, in fact, never occurred; firefighters risk their lives and expend valuable resources to extinguish arson fires; fire marshals investigate the cause of the fire; health service providers treat patients injured in arson fires or staged accidents, or who fake injury to make claims.

Higher Costs For Your Health Insurance

Americans pay about $ 1 trillion in health care costs per year. According to the United States General Accounting Office, 10 percent of what we spend on health care is fraudulently billed in services not rendered, overcharges, duplicate charges and other health fraud schemes. That means that $100 billion per year is fraudulently billed!

How much health care can be delivered for $100 billion?

$100 billion would give every man, woman and child in the United States and Canada a complete health examination and physical

$100 billion would pay for 20 million days in an intensive care unit at a hospital.

$100 billion would pay for 40 million CT scans.

Some common frauds of concern to insurers;

Employer Fraud

There are two types of employer fraud in workers compensation: that which is claims related and that which involves policy premiums. This is an area where others outside of the claims function, premium auditors, for example need to be vigilant for suspicious activity.

Employer claims fraud occurs when an employer knowingly misrepresents the truth in order to avoid, deny or obtain compensation on behalf of it’s employees; or knowingly lies about entitlement to benefits to discourage or encourage an employee from pursuing a claim. Employer premium fraud occurs knowingly lies in order to obtain a workers compensation insurance policy at less than the proper rate; e.g. :

Misrepresenting the risk of exposure for a given insured by; under-reporting payroll, mis-classifying payroll, reporting an injury under insured company “A” when in fact the injured employee was an employee of uninsured “B”, lying about the company ownership to avoid high experience modification.
Some Red Flags:

The injured worker is a new hire

The applicant took unexplained excessive time off prior to the claimed accidentinjury

The alleged injury occurs prior to or just after a strike, layoff, plant closure, job termination, notice of company relocation etc….

Lawyer Fraud

Such fraud arises when lawyers knowingly participate int the misrepresentation of the truth in order to either secure or deny compensation for their clients and or themselves. E.g:

Knowingly assisting a client in pursuing a false claim

Soliciting a person to file a claim

Knowingly pursuing collection of a lien the lawyer knows to be fraudulent

Related criminal acts that feed fraud, such as accepting consideration from or paying consideration to doctors, vendors or others for referral of clients or settlement of cases.
Red Flags:

The majority of claims in which a law frm is involved are of a highly questionable nature

A letter of representation is received, but the applicant denies representation or meeting with the lawyer.

In what is referred to as solicitation fraud, several employees from the same employer have reported similar injuries and are represented by the same law firm.

Adjuster Examiner Fraud

This occurs when a claims person purposely misrepresents the truth in order to either deny or support a claim; or offers or accepts any form of consideration for the referral or settlement of a claim. When the fraud involves compensation in the form of “kick-backs” as a reward for being given a contract or business, these frauds are particularly difficult to detect since the compensation is paid directly to the employee and does not go through the company books. Sometime’s it happens that an employee has an undisclosed interest in a transaction that results in harm to the company because the price of the contract is not in the best interests of the company. E.g..:

Accepting a gift such as a television or a trip from a vendor in exchange for implied promise of referrals.

Knowingly referring cases to a vendor when the services of that vendor are not required in exchange for consideration.

Altering the evidence in a claim in order to support denial or approval.
Red Flags

Inconsistent application of cost containment measures or agreement to pay above the fee

schedule.

Sloppy observance of procedure for referrals to outside vendors or increase in the use of a specific vendor.

Personal relationships with an outside contractor

Disclaimer; This publication by Marwen Consulting Group Inc., has been provided as a service to our customers and is meant for informational purposes only. Although this information has been researched exhaustively, the author assumes no responsibility for its accuracy, errors or omissions herein. Readers should use their own judgement or consult a legal consultant for specific advice. The following represents materials compiled from various sources; public resource, Insurance Institutes, claims forums, international news forums as well as information from our own files and sources.

Martin Maylor

Marwen Consulting Group Inc., a global fraud investigation agency headquartered out of St.Albert, Alberta, Canada. For a list of our services, please feel free to visit our website; http://www.marwen.ca or contact one of our experienced consultants.

For information on any of the literature completed by Mr Martin Maylor; “The Effective Management Of Surveillance Services” or to inquire about educational seminars please contact Martin directly at m.maylor@marwen.ca

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