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Why Health Insurance is Vulnerable to Fraud and Abuse

March 1, 1995
Related Topics: Benefit Design and Communication, Health and Wellness, Featured Article
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The increased use of computers for processing claims may be making health-care fraud more inviting to unscrupulous providers. There also are some basic characteristics inherent in the health-insurance system in the United States that enables fraud and abuse to flourish unchecked. Some examples:

Obstacles to Detection:

  • More than 1,000 payers process 4 billion claims each year to pay hundreds of thousand of providers, using different payment methods and subject to different billing regulations.
  • Providers' claims are paid by many different insurers, making billing patterns hard to identify. Thus, a provider who bills for more than 24 hours of visits on a single day might not be discovered when the claims filed by that provider are split among many insurers.
  • Collaboration among insurers to detect improper billing can be hindered by privacy concerns and incompatible claims data.
  • Insurers must weigh the financial benefits and deterrent value of their detection efforts against the legal and administrative burden they may cause providers.

Obstacles to Prosecution:

  • Successful prosecutions may not result in insurers recovering their money.
  • Federal prosecutors may not accept criminal health care cases involving less than $100,000 because of limited resources.
  • An insurer's efforts against unscrupulous providers can result in scams being shifted to other insurers. For example, when Medicare excluded providers who were cheating the program, the providers moved their unlawful operations to private insurers.

Issues that Foster Fraud:

  • Increasingly, health providers are investing in medical facilities, allowing them to control the demand for and supply of services; this creates a potential conflict of interest.
  • Insurers are limited in their ability to trace and hold accountable the source of fraudulent billing in new, unregulated medical facilities.
  • Physicians frequently invest in medical facilities but aren't always required to disclose their investment in facilities to which they refer patients.
  • Anti-kickback statutes aren't always applicable to providers who, through private insurance, profit from their patient referrals.

SOURCE: Health Insurance: Vulnerable Payers Lose Billions to Fraud and Abuse, U.S. General Accounting Office, Washington, D.C. May 1992.

Personnel Journal, March 1995, Vol. 74, No. 3, p. 32.

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