Help ease the multibillion-dollar migraine of dishonest health care claims by taking action to improve employee and provider vigilance.
The Pennsylvania-based clinic’s purpose was to help people with mental illnesses rebuild their lives. But an investigative unit for Independence Blue Cross, which was processing the clinic’s insurance claims, suspected someone at the facility had another agenda: to rake in untold sums by submitting fraudulent claims.
The suspicions were confirmed when investigators found claims for individual psychiatrists seeing as many as 50 patients a day, for example. They even discovered claims for a particular psychiatrist when the doctor was actually traveling abroad. They were tipped off by a blog about bird-watching that the doctor wrote while she was traveling—all the while unaware of the fraud being committed back home under her name.
The investigation put an end to the scam and resulted in a 2.5-year prison sentence for the clinic’s CEO, who had submitted the fraudulent claims and was ordered to repay more than $1 million to Independence Blue Cross.
In May, Independence was one of three Blue Cross/Blue Shield companies cited for their efforts to counter health claims fraud. It was recognized not only for acting on individual cases—the company recovered $30 million in 2004, and 19 people were sentenced for fraud crimes—but also for making antifraud efforts a priority throughout the company.
Independence’s antifraud effort has drawn new attention to the major problem of claims fraud within the health care industry—a problem that costs businesses and insurers, and ultimately health consumers, an estimated tens of billions of dollars each year.
The True Costs
Although health care fraud, defined as the intentional submission of false medical claims, has been a serious problem for more than two decades, it is gaining widespread attention now as a major driver of health cost inflation.
“Fraud is a huge drain on an already overburdened health care system,” says Bill Mahon, a principal in the Washington, D.C., office of LECG, a global consulting firm specializing in independent expert testimony. He and others knowledgeable in the field estimate that of the roughly $2 trillion spent by Americans on health care every year, anywhere from $60 billion to $100 billion (a few experts estimate even more) is lost to fraud. About half of the fraud occurs in government programs such as Medicare and Medicaid.
Employers’ stake in eliminating health fraud is seen in the billions of dollars that insurers lose in the private sector each year. In turn, employers that sponsor health coverage pay the price of fraud through their premiums—or they pay directly if, like most large companies, they self-insure. Ultimately, employees pay, whether in higher premiums or in reduced compensation and benefits, when substantial resources are siphoned off by dishonest health providers.
In addition to the financial losses, fraudulent claims can distort patients’ medical records, compromise the quality of their care when they’re subject to unnecessary procedures, and often result in their paying for services they never received.
Most employers have yet to take a proactive stance toward health care fraud, however. “Corporate America needs to take a harder look,” says Lou Saccocio, executive director of the National Health-Care Anti-Fraud Association, a nonprofit organization based in Washington, D.C. Its members include all the major health insurance carriers and managed-care providers. At present, experts say, companies become concerned only after they understand the price they’re paying for not being attentive to health claims and proactive against fraud.
The Players and the Scams
Individual patients account for about 10 percent of health fraud investigations, and health providers account for the rest. The overwhelming majority of providers play by the rules, of course; probably less than 2 percent engage in unscrupulous practices. Nonetheless, “fraud is perpetrated by a wide variety of providers,” says Nick Ortner, an actuary with Seattle-based Milliman Inc., a global consulting firm. Fraudulent claims may come from doctors, hospitals, nursing homes, outpatient clinics, drug companies, laboratories and medical device manufacturers.
In addition, individuals who handle claims are sometimes found to be funneling payments to their own sham provider firms. And elements of organized crime have been found to be involved in some schemes.
Among the more common ways that health fraud is perpetrated:
- Billing for services not rendered. In a recent scheme, organized crime families in Latin America, using stolen insurance information, submitted millions of dollars worth of claims for services at phantom clinics in South Florida.
- Unbundling of services. To pry more money from insurance companies, doctors may generate a series of individual claims for each component of a procedure. The sum of the fees would be higher than the single fee for the multiple-part procedure. For example, rather than submitting one claim for removing several plantar warts from a patient’s foot, a podiatrist might submit a separate claim for removing each one. This is a practice that claims payers should be able to spot.
- “Upcoding.” Doctors may try to pad their fees by submitting claims for more service than they actually provided—say, for an hour-long office visit even though the time spent with the patient was only 10 minutes. Such erroneous billing, which patients may notice on statements, is sometimes a result of inadvertent miscoding, however.
- Billing for medically unnecessary services. In a recent case, three Illinois cardiologists were found to have performed unnecessary angioplasties on homeless men who were recruited with offers of free food. The proximate victim of such fraud would be the Medicaid program that was billed for the procedures. Another version of unnecessary-services fraud is persuading healthy people to undergo procedures that are not medically necessary for them.
- Renaming services to qualify for coverage. Some unscrupulous doctors bill for services not covered by a patient’s health plan as if the procedures were different from the ones excluded and were medically necessary. For example, cosmetic nose surgery might be billed as deviated-septum repair, or a cosmetic procedure on a patient’s eyes might be called tear duct surgery.
- Individuals requesting services for ineligible dependents. Although errors of eligibility can occur through simple oversight, some employees intentionally try to include among their eligible dependents their former spouses, their children who are beyond the age limit for coverage, even their grandchildren or other relatives. (To learn more about auditing health plans for eligibility of covered dependents, see “Exams for Health Plans” in the January 2005 issue of HR Magazine.)
- Individuals feeding their drug dependencies. It is not uncommon for patients who are addicted to the painkiller oxycontin, for example, to make several trips over a short period of time to different hospital emergency rooms to stock up on the drug.
What HR Should Do
In their responsibilities for managing employer-sponsored health benefits, HR professionals are pivotal in seeing to it that health plan administrators or health insurance providers are proactive about detecting fraud.
The burden of preventing health fraud may fall heaviest on HR professionals whose companies have self-funded health plans, in which all medical expenses—including the dollars lost to fraud—come directly out of the company’s till.
Companies that self-insure “must bear all the risks associated with fraud,” notes Kathleen Strukoff, SPHR, a senior vice president at Aon Consulting in Baltimore and a member of the Society for Human Resource Management’s national Total Rewards/Compensation & Benefits Panel. Companies that aren’t self-funded—typically smaller firms—have the cushion of insurance coverage against fraudulent claims, she notes.
But HR departments in small companies aren’t off the hook entirely. Even when shopping for a fully funded plan, HR professionals should ask about a plan’s antifraud program—just as they would ask about any other feature.
Carriers should be able to provide a copy of their fraud plan, laying out their specific measures for detecting, investigating and preventing fraud. If an insurer can’t provide such a plan or does not seem to take fraud seriously, HR might want to think twice about doing business with that carrier.
Likewise, to sniff out potential employee fraud, benefits consultants in com- panies of all sizes should make sure that eligibility records are accurate and are checked frequently.
Watching What Others Do
Benefits specialists in companies that hire third-party administrators (TPAs) to manage their health plans face complex challenges. HR professionals should be assertive, for example, about fraud clauses in the agreements they negotiate with TPAs to handle claims. Most contracts require TPAs to take a few steps to recoup overpayments—such as writing letters to providers or enlisting a collection agency. But HR may also be able to get TPAs to agree to refund overpayments within days of their discovery or even give the company an immediate credit.
HR also needs to make sure that TPAs are engaging in effective fraud prevention and detection efforts. Most TPAs do this work themselves, but some farm it out to subcontractors. According to experts, good TPAs rely on sophisticated software programs that can spot common forms of fraud such as upcoding and unbundling.
TPAs should also be combing through claims data to detect unusual patterns by either employees or providers. Such anomalies might include a sudden spike in gastric bypass surgeries throughout the work- force, or a higher-than-normal rate of patient visits to particular doctors.
In addition, TPAs should be reviewing all high-cost claims. “We set a threshold, depending on the needs of our clients,” says Thomas Brennan, who directs the Special Investigations Unit at Highmark, a Blue Cross plan in Pennsylvania. “And then we make sure someone signs off on it; we don’t leave this task to the computer.”
“We have worked very closely with Highmark to address fraud,” says Roni McDonough, corporate benefits manager at Kennametal Inc., a tooling manufacturer with about 1,000 of its 7,500 employees at its Latrobe, Pa., headquarters.
Highmark processes claims for both of the company’s health plans under an administrative-services-only agreement. Kennametal and Highmark compare eligibility records every week to make sure they’re accurate, and discrepancies are researched.
In addition, Highmark generates a report every month on whether any dependents of Kennametal’s covered employees may be over the covered age limit. And every three months, Highmark examines its records to see if any employee has racked up a particularly large amount in claims.
Over the past year, Highmark has investigated a couple of cases involving providers who have treated Kennametal employees, and one case is being investigated by the Pennsylvania attorney general’s office.
In keeping with its efforts to prevent fraud, Kennametal also has considered having a third company conduct a formal claims audit of Highmark. But since Kennametal estimates its fraud losses at under $10,000 per year and an audit would cost more than that, “the extra dollars may not be worth it,” McDonough says.
Enlist Employees’ Help
Besides monitoring their TPAs—and perhaps auditing them if it appears worth the extra cost—HR professionals can take steps to prevent fraud by educating employees on ways to spot and report it. Kennametal, for instance, includes information on fraud in its annual communications to employees on health care. HR can also make an on-site presentation on fraud or get the company’s health plan to do it. Highmark goes to many of its clients’ worksites once or twice a year to make such presentations.
Following are some suggestions that companies can make to employees to enlist their help in curbing fraudulent claims. Tell employees they should:
- Report any suspected fraud by either providers or fellow employees to the company’s insurance carrier or claims payer. Most companies have toll-free fraud hotlines. There is no need to call the police. The carrier will determine if law enforcement needs to get involved and will make the call. An employee who suspects that his or her record in the claims processor’s files may have been compromised should ask for help in making sure it is correct. Though workers may be reluctant to say anything about another employee, remind them that fraud is a crime and its costs affect their health coverage premium. According to a 2004 survey by the National Association of Insurance Commissioners, 40 percent of consumers are unlikely to report a person they suspect has committed health-claims fraud.
- Be careful with the information on their health insurance cards. They should avoid supplying such information to strangers or on Internet sites.
- Question doctors about procedures that sound unwarranted or suspicious. If a special diagnostic test is recommended, they should ask why it is necessary.
- Make sure they understand the purpose of every insurance form that they are requested to sign. Unscrupulous providers may ask them to sign a blank form.
- Review Explanation of Benefits (EOB) forms. These forms, which typically note that “This is not a bill,” are sent to the patient’s home—and usually are also available online—after medical services have been provided and billed. EOBs come from the health claims administrator; they should contain a description of the services provided, the amounts billed by the providers, the amounts paid by the insurer, and whatever remains as the patient’s responsibility. They should be read carefully to make sure that all charges are for services actually received. “Approach it the same way you would a bill from Sears,” advises health care consultant Mahon. “If you bought a push mower and were being billed for a lawn tractor, you would report this right away. Even if it is the health plan’s money, you still need to do this.”
- If your doctor bills you extra to recoup some of the fee that the insurance company did not reimburse, call your insurance carrier to see if you are required to pay it. For most standard medical procedures, doctors are entitled to nothing more than your insurance company’s reimbursement plus your co-payment or coinsurance amount. Some health providers, however, engage in “balance billing,” in which the patient is asked to pay an additional sum to make up for the insurer’s purportedly small reimbursement. The practice is illegal in most states. In some instances a doctor’s bill for additional payment may simply be an accounting error.
- Beware of “free” services. Although many free treatments such as depression and high blood pressure screenings are legitimate, providers may offer a freebie simply to get their hands on an employee’s medical insurance information. In a recent scam, 13 New York podiatrists provided “free foot care,” which consisted of little more than trimming patients’ toenails. For each patient they saw, they billed Empire Blue Cross Blue Shield $2,600 for “foot surgery.”
- Seek treatment from licensed providers only. A patient who is not sure about a doctor’s credentials should not hesitate to check. Such information can be found on the web sites of health plans and state medical associations, or on the web site of the American Board of Medical Specialties at www.abms.org (toll free at 1-866-ASKABMS).
Besides enlisting employees and providers in the fight against health-claims fraud, HR can help by making it harder for scam artists to get access to employees. It can be as simple as monitoring the employee bulletin board.
In the storied “rent-a-patient” scheme of a few years ago (see “A Vacation and a Colonoscopy”), perpetrators sometimes recruited patients by placing “advertisements” on shop room floors.
Although health care fraud is a pervasive problem that is not likely to disappear anytime soon, there is no reason not to try to neutralize its impact. By developing a prudent antifraud strategy, HR professionals can safeguard their companies’—and their employees’—health and well-being.
Joshua Kendall is a freelance writer and editor in Brighton, Mass., who specializes in health care and health policy issues.