The Hidden Cost of Insurance Fraud

In about one fifth of all known cases of health care fozia shan, 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.

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