According to the Washington, D.C.-based National Health Care Anti-Fraud Association (NHCAA), as much as 10% of what the United States spends on health care is lost to outright fraud. Last year's dollar amount could be as high as $100 billion, according to the U.S. General Accounting Office. "Any health-care fraud means totally wasted dollars," says Jim Garcia, head of the health-insurance tracking unit for Hartford, Connecticut-based Aetna Life & Casualty Co. "It's making it difficult for us to compete in the world."
It may be a while before health-care reform takes effect. Even then, it's unclear whether any reform will address fraud and abuse. Employers and human resources professionals, therefore, need to take immediate, proactive steps to recognize and prevent such practices. Otherwise, a company could end up spending wasted dollars on health problems that never existed or were unnecessarily treated. Consumers, of course, would bear most of the burden through skyrocketing insurance premiums, higher taxes, increasing medical expenses, shorter hospital visits and inferior health services. So whether your company is self-insured or not, HR professionals must be involved in learning how to detect and prevent fraudulent practices early on.
Health-care fraud and abuse include a variety of practices.
The most common examples of fraudulent abuse include misrepresenting services, overcharging for services delivered or providing more costly services than required. Abuse may involve actions that are inconsistent with acceptable business and medical practices, such as the approach taken by one mother who called her infant's pediatrician to the house four times in two days-once at 3:30 a.m.-because the child had a cough. (Because the employer's health insurance covered the charges, the mother was unconcerned about the cost.)
Fraud, on the other hand, involves a willful misrepresentation, concealment or nondisclosure of a material fact or misleading conduct that results in some unauthorized benefit such as receiving money. For example, a provider bills the insurance company for procedures that weren't actually performed, along with legitimate claims for the same patient. Health-care fraud and abuse can be committed on any level or at any stage of the health-care delivery system. The culprits can be an employee, a service provider, an insurer, a lawyer, a claims processor or a third-party administrator and investigator. But San Francisco-based Blue Shield of California has found that most fraud and abuse practices it discovers occur among service providers, according to Louis L. Lovato, manager of the company's special-investigations department. Although the majority of health-care providers are honest and ethical, NHCAA estimates that about 2% engage in deliberate or systematic criminal attempts to defraud the private and public-payment systems.
The intent may be as innocent as trying to get the health-insurance company to pay for a needed treatment, or it may simply be an attempt to make extra money. Some examples of provider-generated fraud include:
- Billing for services not rendered;
- Rendering unnecessary or inappropriate services;
- Altering diagnoses;
- Waiving copayments;
- Submitting claims for free services.
Some of these practices may involve a conspiracy between the doctor and the patient, usually in an effort to get the insurance company to pay for a procedure that isn't covered by the insurance, such as a tummy tuck. "We get records and are careful, but plastic surgeons sometimes get these through," Lovato says.
Providers may be tempted to waive copayments for a patient who seems to be in need of treatment but unwilling or unable to take on the expense involved. In such cases the provider may submit to the insurance company a bill for an amount of which 80% covers the entire cost. Sometimes, to avoid detection, the provider may even bill the patient for the remaining 20%, but tell him or her to disregard the bill. These bills are then written off at the end of the year as bad debt.
Although insidious and costly, these practices usually are a byproduct of legitimate use of the health-care system. Other cases of fraud are more blatant. Some operations have no purpose in mind other than to bilk the system. Common scams include rolling labs, programs for weight-reduction, detoxification programs and basic health screenings.
One of the most costly and effective fraud schemes, however, is the rolling lab. According to Harry S. Miller, vice president of consumer affairs for Blue Shield of California, rolling labs set up operations in a mobile van unit or temporary-office locations-sometimes appearing in shopping malls or other public locations-and offer health screenings to people who have health insurance. They perform routine, noninvasive procedures, such as blood pressure measurements.
After obtaining identifying information such as plan and group numbers on the insured's health-care plan, Miller says, the scam artists use the information to bill health carriers and insurers directly for amounts as much as $10,000 or more, usually by using false diagnoses. Normally, they have made no effort to contact the patient's personal physician to verify the need for these procedures. If the insurer's anti-fraud program results in nonpayment, the rolling-lab personnel may hire collection agents to attempt to collect from the patient.
One of the most famous rolling-lab scams operated in California until May 1991. It was run by two individuals who set up mobile, noninvasive testing labs in Los Angeles, San Diego and Orange counties, according to Lovato. The pair and their accomplices offered people free screenings, and the lab spent at most an hour processing the tests. Then they wrote false diagnoses on the claim forms, Lovato explains. The scam artists made no effort to make the diagnoses fit the patient. "Health problems common to people in their 70s were reported for people in their 20s and 30s," he says. The bills could be for as much as $150,000 for an hour's work. Insurance companies received bills for $1 billion; $50 million of that amount was actually paid, he says.
Insurers began working with authorities as early as 1985 to try to stop the rolling-lab scam. In August 1994, two of the principals were sentenced to 21 years in prison, fined and ordered to pay restitution, according to Lovato. This scam may have been the largest in California, but by no means was it the only one. At one time, as many as 348 different operations were under investigation by a joint state and federal crime task force, according to Miller.
Lovato also says that psychiatric fraud started escalating in the '80s. For example, some psychiatric hospitals promote admitting patients for weight reduction or substance abuse. The admitting psychiatrists then lie to the insurance company about the severity of the problem or the diagnosis. This problem often goes beyond an attempt to get coverage that patients legitimately need. Sometimes the treatment program provides little benefit except to line the pockets of unscrupulous providers.
"People are sent to Florida or California and admitted to the hospital just for a simple weight-reduction program or a substance-abuse program involving little more than Alcoholics Anonymous-type activities. They go on outings to ball games, or to Disneyland, and the insurance company pays for it," Lovato explains. The insurance companies think that they're paying for treatment for severe depression or alcoholism. The patients may think that the program is costing as little as $8,000, but the hospital is billing the insurance companies for far more. "This type of scam has cost insurance companies at least $100 million," Lovato says.
Employees in an employee-assistance program (EAP) may also knowingly or unknowingly fall into the hands of unscrupulous scam artists. Lovato says that he knows of one individual who worked in an EAP and received $2,000 to $3,000 for each referral to a certain treatment program. Another employer was concerned about such abuses, but was afraid to monitor its EAP [it was controlled by the union] too closely. "The company was afraid that the union would think that it was trying to deprive people of benefits if they tried to get the records for people referred through the EAP," Lovato says.
Some fraud has been generated by unscrupulous or underfunded insurance companies and collective schemes, such as multi-employer benefit trusts. Some set up shop while planning to abscond as soon as enough money has been accumulated from companies that provide health-insurance coverage for their employees without sufficient background checks. "Some aren't even licensed to write coverage. Some are based in the Bahamas or Cayman Islands," Lovato explains. Other insurance companies succumb to poor management and become bankrupt. In either case, both the organization and the employees are left holding the bag of unpaid medical bills.
Employees also can be guilty of fraud and abuse.
Among the more common employee-generated fraud schemes are:
- ID-card abuse;
- Non-COBRA former employees still using the plan;
- Listing ineligible dependents;
- Billing for unqualified dependents;
- Billing for unqualified expense;
- Seeking reimbursement for phony medical bills.
Many employers would add employee abuse of the organization's sick-leave policy. Although this practice doesn't involve the insurance company, it does cost the organization through a program that provides for the health of its employees.
Some employees defend their abuse by claiming they were desperate. Many say their legitimate health-care needs were denied under his or her plan. Patient and doctor may subsequently conspire to use another diagnosis to obtain payment for treatment of the condition. "It's a sneaky fraud," says Marilyn Eisele, former personnel administrator for Kent, Ohio-based Schneller Inc. "It's not as blatant as changing billing amounts from a doctor's office. It's often a gray area," she adds.
In other cases, the intent is clearly to receive money. Lovato cites the case of a man who worked as a clerk for a financial institution. The man took his family to Egypt each year, whereupon he became ill. A private investigator, however, went to Egypt and was able to get the doctor there to admit to the fraud, which amounted to $80,000, according to Lovato.
HR can reduce health-care fraud.
One way HR can protect its health-care benefits from fraud and abuse is by thoroughly investigating all organizations that impact the health-care program it provides, including third-party administrators, insurance providers and multi-employer benefits trusts.
For example, before entering into a contract with a multi-employer benefits trust, investigate that organization's track record. "Before entering such a union, check with the department of insurance and talk with brokers," says Lovato, noting that multi-employer benefit associations are unregulated at the current time.
When choosing an insurance company or its counterpart, some advise getting recommendations from other companies, investigating the company's past performance and other ratings, and checking with other companies with which they have conducted business.
When Robinson Memorial Hospital in Ravenna, Ohio offered a new health-care plan, the staff formed a task force to evaluate the plan, according to Bill Timmins, the hospital's manager of compensation and benefits. "Members of the task force included a nurse, a doctor, a utilization review specialist and someone from HR," Timmins explains. They asked the candidate insurance provider for a list of current customers. To check the references, they called hospital providers and doctors, as well as employers using the plan to see how well the insurance company provided service and made payments. In addition, they checked the potential insurance provider's record with the Ohio State Insurance Commission, as well as the Small Business Bureau, the Better Business Bureau and the local hospital association in the city in which the organization's headquarters are located.
In making a request for a bid, Robinson Memorial presented the candidate organization with six pages of questions it was asked to address, says Timmins. Then they went through the bidding process. "During that time you should be able to flush out anything that isn't legitimate," he says.
If the insurance company you're considering has a reputation for being ethical and well-financed, the next step is to find out what provisions have been made by the company for identifying fraud. If your organization is self-insured, what kind of help can you expect from your third-party administrator or your in-house people?
One thing to look for during the investigation stage is a method for dealing with illegal or unethical conduct by claims processors or fraud investigators. A person who discovers a case of significant fraud, for example, may be tempted to try to blackmail the provider or individual committing the fraud. An effective fraud-investigation unit in an insurance company should have safeguards in place to prevent such activity. Aetna has a system called C-fraud, which monitors the employees who have responsibility for adjudicating claims, according to Garcia.
If the problem of health-care fraud is to be resolved, HR must be knowledgeable about it and know how to prevent it. "People in HR play a key role," Garcia says. "They have the responsibility for communication with employees. They receive a lot of complaints, and they may be in a key position to identify different instances of fraud," he says.
Some attempts are being made to address this problem. For example, New Jersey's Fraud Bureau is a clearinghouse for information about providers that commit fraud. "The unit can solicit information from insurers on the providers it's investigating and alert other insurers to providers suspected of fraudulent or abusive activity," the GAO report says. Without some kind of information sharing, scams can just move on to other locations or to other providers after they've been discovered by an organization's fraud-detection efforts.
Many companies may curb their investigations because of costs. If done correctly, however, the returns can outweigh the costs. Blue Shield's experience bears this out. "For every dollar invested in ferreting out fraud, the company has averted $12 in charges," says Miller.
The city of Chicago also gained cost-effective results. The organization had been paying out an estimated 10% of its health-care costs in unnecessary expenses, according to John Holden, a spokes-person for the organization. The city discovered that it had been paying medical expenses for ineligible dependents, in-cluding grandchildren or dependent children above the eligibility age. Now it requires proof of relationship for dependents to receive coverage.
Donald B. Franklin, deputy comp-troller for the city of Chicago, says that it has eliminated more than 11,000 ineligible persons from its benefit eligibility files. "This was done by extensive auditing of every file and (requiring) relationship documentation for all dependents for whom coverage was requested," he says.
Take steps to combat fraud.
The first step in reducing health-insurance fraud and abuse is to find out what other companies are doing. Some organizations are banding together to help each other fight fraud. One way to do this is through membership in the National Health Care Anti-Fraud Association. The NHCAA is an issue-based organization comprising private- and public-sector individuals and organizations responsible for the detection, investigation and pro secution of health-care fraud.
Linn Downs, vice president of Campton, New Hampshire-based TE Corporation, also recommends contacting the National Association of Claims Assistance Professionals. "Their members are certified to handle claims processing and they're watchdogs on health-care fraud," she says. "If a company outsourced its health-care processing to one of their certified members, it might help cut down on health-care fraud," she recommends.
For anti-fraud programs to be effective, more attention must be paid to educating the consumer, says Miller. Employees need to know about the tactics unscrupulous providers use to perpetrate fraud. This isn't an expense borne by the insurance company and the employer alone. Some of the expense filters down to the employee as well. But that isn't the only concern he or she should have. The employee could end up being harassed by a collection agency for bills. He or she might even wind up with a record of a diagnosis that may surface later and make it difficult to get life insurance or result in unwanted exclusions under another health-insurance plan.
Downs says, "Employees must understand that health coverage isn't a free lunch. The money has to come from somewhere, and eventually the employee is paying, whether it's directly or indirectly," she says.
"People should be informed consumers," Lovato says. "If it seems too good to be true, it probably is. Before they become involved in health screening or any other procedure that seems to be questionable, they should ask the people who monitor the services for their employer or ask the medical society," he says.
Employees also should learn to ask their doctors or hospitals if they are unsure about a recommended procedure or its costs. They also should know not to sign blank claims forms for any provider. A blank claims form is just like a blank check.
In addition to investigating the recommended procedure, employees and their dependents should investigate any provider they consider using if the provider is not part of a plan's preferred-provider list or HMO. They should take special care to investigate any provider they learn about through advertising or encounter while shopping or attending a fair or other public event. If contemplating entering any treatment program, they should check into similar programs before making a decision. Most urban areas have consumer watchgroups that can provide information about health-care providers.
Employees also should learn to be informed consumers when using health-care providers for themselves and their families, even if the provider is on a list provided by the company's health plan. Make sure that employees know that feedback on providers is welcome, and that they know how to register a complaint. It's only through this kind of vigilance that inadequate providers can be weeded out. A toll-free hot line can make it easier for them to report any questionable charges or activities.
Some companies have even begun to offer incentives to employees who uncover and report instances of provider fraud. The city of Chicago pays 25% of recovered money, subject to a $500 award limit, to employees who report claims paid in error or for services they didn't receive, according to Franklin. "In 1993, the city recovered nearly $100,000 while paying out about $15,000 in incentives," he says. "This year, the city already has recovered more than $55,000, while paying out $9,000 in awards."
Whatever consumer-education plan you choose or develop, make sure that it demonstrates:
- The importance of eliminating health-care fraud and abuse to the organization;
- The cost to employees and their families of health-care fraud and abuse;
- What employees and their dependents can do.
Educating employees can be ineffective if the policies you have are unfair, or even if employees only perceive that they are being treated unfairly. "Coordination of benefits between the corporation and its health-care policy administrator (payer) are often miscommunicated," Downs says. According to Downs, HR personnel often are caught in the middle, trying to maintain the precarious balance between the interests of the health-care administrator, the corporation and the employee. "In general, employees respond to corporations in the way they perceive they're treated," she says. "If employees feel that the corporation is good and treats them respectfully, they don't abuse the company's health-care policy or sick day limits."
As for the service providers who commit fraud, Garcia says: "We just can't tolerate it. They're like weeds in a garden. If you let them go, they'll suffocate the garden."
Personnel Journal, March 1995, Vol. 74, No. 3, pp. 28-33.