Health Reform Looks to Eliminate Medical Fraud

Health reform has ramped up anti-fraud efforts, but the almost $70 billion price tag that is paid out to fraudsters each year demonstrates that health fraud is still an enormous problem.

The National Healthcare Anti-Fraud Association estimates that approximately 3% of the $2.5 trillion in annual health-care spending is lost to. According to Lou Saccoccio, NHCAA executive director, the government reports an even larger figure: 10% of total health-care expenditures or $225 billion, which includes not only intentional fraud, but the grayer area of mistake-driven waste and abuse.

The financial ramifications are staggering, and the trickle-down effect hurts subscribers—both individual and corporate--who are forced to pay higher premiums and more money out-of-pocket.

As providers necessarily cut back to save dollars, subscribers receive reduced benefits and coverage. In some cases, premium spikes may make-or-break a person’s ability to buy insurance.

Experts say that in some respects, the new health reform has made the public more vulnerable to falling victim to medical scams. Crooks prey on the confusion that comes from change and peddle fake medical plans door-to-door and discount medical cards disguised as insurance.

Deadly Medical Consequences

When thieves steal your identification and make false claims against your policy, hospitals or other providers are on the hook for the cost of service and you are left with a diminished credit rating and “a bill for an amputation that never occurred,” says James Quiggle, director of communications for the Coalition Against Insurance Fraud. Identity theft can have potential deadly ramifications: Your blood type may be recorded incorrectly, or a drug to which you are allergic goes unnoted or your health record shows usage due to a bogus claim.

Fraud also brings medical consequences, including unnecessary surgeries or procedures, over-prescribing or illegal prescribing of pain killers and other controlled substances.

The faces behind the fraud vary from savvy business people, members of organized crime and a small minority of dishonest physicians. And their bag of trucks include scams like upcoding, in which a provider bills for more time and service than actually provided, overbilling, creating phantom lab medical equipment companies and false home-health services and clinics.

In 2005, the authorities and a group of Blue Cross Blue Shield companies successfully investigated and prosecuted a “Rent a Patient” scheme: workers at outpatient clinics recruited patients to undergo unnecessary procedures in exchange for cash or free or discounted cosmetic surgery.

More recently, 20 people in South Florida were indicted in a con involving approximately $200 million in Medicare billing for alleged mental health services to Alzheimer’s and dementia patients who were not eligible for and would not benefit from purported partial hospitalization programs.

Identifying Fraud-Prone Programs 

The administration is working to implement reforms and expand authorities that were recently signed into law. The Patient Protection and Affordable Care Act (PPACA) contains several provisions designed to reduce improper payments in health programs--particularly federally-run Medicare and Medicaid. As enormous systems with payouts in billions of dollars of claims and no managed care networks to provide upfront control, these programs easily fall prey to fraud.

It could take as long as four years to investigate, prosecute and convict, says Jim Sheehan, New York State Medicaid Inspector General. “Essentially, we’re looking to change behavior, so does that system really work? If you prosecute Doc X is that a deterrent and does Doc Y change his or her behavior? With such a long lag time, chances are you’re not influencing behavior on a timely basis.”

By contrast, PPACA imposes a 60-day limit to report, return and explain any overpayment to a health provider whether the overpayment was caused by a clerical mistake, the compliance system doesn’t work or the overpayment is a result of abuse or fraud. Failure to comply with the 60-day timeframe means that the overpayment may be considered a “false claim,” which may require a provider—even one who is operating legally—to pay fines of $5,500 to $11,000, plus treble damages; what’s more, the provider runs the risk of expulsion from the Medicaid program.

“That’s remarkable leverage,” says Kirk Nahra, a Wiley Rein attorney who specializes in health care fraud.

Granted, the tougher policies relate to government programs, but it does establish a mindset of no sympathy for fake claims.

The hope of NHCAA and private insurers, says Saccoccio, is to share information between sectors to create a coordinated effort—especially because fraud schemes involve multi-jurisdictional complexity.

In the meantime, private companies, particularly some of the big national and regional players, have been beefing up their fraud efforts with considerable success.

Byron Hollis, managing director of the BlueCross BlueShield Association’s national anti-fraud department, says that the company, which oversees BCBS’ 39 companies, ensures the efficiency of BCBS’ investigative resources by sharing information among units.

Hollis says that its “go for prosecution” mentality in all cases increases the quality of investigations. In 2009, BCBS companies reaped more than $510 million in savings and recoveries, a significant increase over 2008, and a three-year average return of $7 for every $1 spent on anti-fraud efforts.

Similarly, WellPoint covers multiple bases in its anti-fraud initiatives. Lee Arian, staff vice president of the fraud and abuse department says the company relies considerably on technology-commercial and proprietary systems--for data mining. On the simplest level, it uses Google Earth searches to sniff out phantom companies when certain locations signal red flags.

Because the company sees considerable narcotic prescribing for purchase and resale on the secondary market, WellPoint uses a clinical team comprising nurses to do coding analysis to uncover negative patterns. The team also provides information to the DEA.

Arian says WellPoint has shown a good return on investment, averaging $6 to $8 for every $1 spent on anti-fraud tactics, and as high as $10 to $14 for every $1 spent.

Still, consumers must not forget that they are an important line of defense, here's what you can do to protect yourself from being a victim:

*Read your Explanation of Benefits statements to make sure you actually received a treatment.

*Call your state insurance department to question a company licensure.

*Question your physician.

And, never be afraid to call in a consumer complaint. It may well prevent a bad situation from snowballing.