How Healthcare Fraud Affects Us All

by James Marasco, CPA, CFE, CIA
Director, Corporate Services
StoneBridge Business Partners

Reprinted with permission from Fraud Matters Newsletter of CPA America.

As the debate over national healthcare reform wages on, another topic has started to receive notoriety. Healthcare fraud is running rampant.

The National Health Care Anti-Fraud Association estimate 3% - 10% of the nation’s annual health care outlay is lost to fraud and abuse. Healthcare costs have been one of the fastest growing costs to organizations recently. It can be reasoned that this problem will only grow worse. Understanding the frauds being perpetrated will assist in their prevention and detection. If left uncontrolled, your organization, along with the rest of the system will be left footing the costs. 

The Largest Victim

The Medicare system is estimated to spend $2.5 trillion dollars in 2009. Fraud doesn’t lurk too far behind. The latest estimates from the Center for Medicaid and Medicare Services (CMS) indicate that the government’s exposure to fraud and abuse within this program at over $100 billion annually.

Common Types

The two common types of health care fraud are described below:

Consumer Related:

  • False Claims – deceiving insurance companies and state worker’s compensation programs by falsifying injuries
  • Medical Identity Theft – using another’s medical benefits to obtain services personally
  • Physician Shopping – moving between doctors to obtain multiple prescriptions

Provider Related:

  • Kickbacks – accepting kickbacks for patient referrals
  • Phantom Billing – billing for services that were never performed
  • Pharmacy Fraud – dispensing less than the prescribed and charged amount of a prescription
  • Providing Unnecessary Care
  • Unbundling – charging separately for procedures that are actually part of a single procedure to increase the reimbursement
  • Upcoding – charging for a more expensive service than what was actually performed

Recent Developments

The federal government is starting to realize that false claims by those with Medicare provider numbers represent one of their largest exposures. Medicare participant lists are being sold on the streets to fraudulent suppliers who submit claims to Medicare for anything from artificial limbs to power wheelchairs. By the time their ruse is discovered, they fold up their tent and move elsewhere, defrauding the government of millions.

Insurance companies have also become unsuspecting victims. Criminal rings are operating fraudulent “health clinics” in states with weaker regulations. These clinics attract patients with lucrative “out-of-network” coverage and perform either needless procedures or charge for ones not performed. The insurance company then has the burden of chasing an out of state provider to determine their legitimacy which could prove to be time consuming and costly. 

One control that was created years ago to assist consumers has now become one of the greatest tools available to fraudsters. HIPAA was originally passed in 1996 and started to become effective between 2003 and 2005 for the privacy and security aspects of the act. This legislation was originally intended to prevent the unnecessary use of a patient’s healthcare information from being used for marketing or other inappropriate purposes. It has now become the greatest shield for perpetrators of fraud. The rules have become difficult and complex to work through for those trying to independently audit for healthcare fraud and abuse.

The Effects on Your Organization

Fraud perpetrated against the Medicare and Medicaid systems directly drains the taxpayers of this country. Medicare is funded through a payroll tax on both the employer and employee. As more funds are needed, taxes are raised. Thus, everyone employed is affected.

If your organization has a company-rated healthcare plan, fraud affects your claims history which will directly affect your rating and corresponding premium amounts. For self-insured plans, fraudulent claims directly steal from you.

Safeguarding Against It

Educate those on your plans. Each time they visit a doctor or have a service performed, a bill or claim is submitted to the insurance company or Medicare. The claim lists the services provided, when they were provided and who provided them. When the insurance company pays the claim, a report is sent to the participant called an Explanation of Benefits (EOB) outlining what was paid. Participants should carefully review these for accuracy. Discrepancies or suspicious activity should be immediately reported to the insurance company or CMS, if Medicare related.

If you monitor your own claims’ activity, then you should be paying close attention. Out-of-network providers may be subject to different reimbursement rates and take advantage of this. Examine your claims activity for high patient activity or similar procedures performed on plan participants by similar providers. If a third party claims processor is retained, ensure they are qualified and competent and analyze the claims for suspected fraudulent or duplicate activity. 

The best way to quell healthcare costs and related fraud is increased vigilance in what is being charged. We all must do a better job of asking questions and understanding the basis supporting the fees assessed to us.

– James Marasco, CPA, CIA, CFE