Insurance Fraud and Abuse:
A Very Serious Problem

Stephen Barrett, M.D.

Fraud and abuse are widespread and very costly to America's health-care system. Fraud involves intentional deception or misrepresentation intended to result in an unauthorized benefit. An example would be billing for services that are not rendered. Abuse involves charging for services that are not medically necessary, do not conform to professionally recognized standards, or are unfairly priced. An example would be performing a laboratory test on large numbers of patients when only a few should have it. Abuse may be similar to fraud except that it is not possible to establish that the abusive acts were done with an intent to deceive the insurer.

Although no precise dollar amount can be determined, some authorities contend that insurance fraud constitutes a $100-billion-a-year problem. The United States Goverment Accountability Office (GAO) estimates that $1 out of every $7 spent on Medicare is lost to fraud and abuse and that in 1998 alone, Medicare lost nearly $12 billion to fraudulent or unnecessary claims [1].

Type of Fraud and Abuse

False claim schemes are the most common type of health insurance fraud. The goal in these schemes is to obtain undeserved payment for a claim or series of claims [2]. Such schemes include any of the following when done deliberately for financial gain:

Many insurance policies cover a percentage of the physician's "usual" fee. Some physicians charge insured patients more than uninsured ones but represent to the insurance companies that the higher fee is the usual one. This practice is illegal. It is also illegal to routinely excuse patients from copayments and deductibles. (A copayment is a fixed dollar amount paid whenever an insured person receives specified health-care services. A deductible is the amount that must be paid before the insurance company starts paying.) It is legal to waive a fee for people with a genuine financial hardship, but it is not legal to provide completely free care or discounts to all patients or to collect only from those who have insurance. Studies have shown that if patients are required to pay for even a small portion of their care they will be better consumers and select items or services because they are medically needed rather than because they are free. Routine waivers thus raise overall health costs. They are considered fraudulent because averaging them with the doctor's full fees would make the "usual" fees lower than the amounts actually billed for.

Other illegal procedures include:

Criminals sometimes obtain Medicare numbers for fraudulent billing by conducting a health survey, offering a free "health screening" test, paying beneficiaries for their number, obtaining beneficiary lists from nursing homes or boarding facilities, or offering "free" services, food, or supplies to beneficiaries.

Excessive or Inappropriate Testing

Many standard tests can be useful in some situations but not in others. The key question in judging whether a diagnostic test is necessary is whether the results will influence the management of the patient. Billing for inappropriate tests—both standard and nonstandard—appears to be much more common among chiropractors and joint chiropractic/medical practices than among other health-care providers. The commonly abused tests include:

Many insurance administrators are concerned about chiropractic claims for "maintenance care" (periodic examination and "spinal adjustment" of symptom-free patients) , which is not a covered service. To detect such care, many companies automatically review claims for more than 12 visits. In 1999, the U.S. Inspector General recommended automatic review after no more than 12 visits for Medicare recipients [8]. Some chiropractors attempt to avoid review by issuing a new diagnosis after the 12th visit.

Personal Injury Mills

Many instances have been discovered in which corrupt attorneys and health-care providers (usually chiropractors or chiropractic/medical clinics) combine to bill insurance companies for nonexistent or minor injuries. The typical scam includes "cappers" or "runners" who are paid to recruit legitimate or fake auto accident victims or worker's compensation claimants. Victims are commonly told they need multiple visits. The providers fabricate diagnoses and reports and commonly provide expensive but unnecessary services. The lawyers then initiate negotiations on settlements based upon these fraudulent or exaggerated medical claims. The claimants may be unwitting victims or knowing participants who receive payment for their involvement [9]. Mill activity can be suspected when claims are submitted for many unrelated individuals who receive similar treatment from a small number of providers.

Quackery-Related Miscoding

In processing claims, insurance companies rely mainly on diagnostic and procedural codes recorded on the claim forms. Their computers are programmed to detect services that are not covered. Most insurance policies exclude nonstandard or experimental methods. To help boost their income, many nonstandard practitioners misrepresent what they do. They may also misrepresent their diagnosis. For example:

Other Overbilling Schemes

In 2000, a Government Accounting Office (GAO) official told a Congressional committee how four other types of schemes are carried out:

Bogus Health Insurance Companies

The GAO has issued two reports concerning the sale of health insurance plans that lack legal authorization. These plans place the buyer at risk for financial disaster if serious illness strikes. One report focuses on consumer vulnerability [12]. The other notes that from 2000 to 2002, 144 unauthorized entities enrolled at least 15,000 employers and more than 200,000 policyholders who got stuck for over $200 million in unpaid claims [13]. The investigatirs found that many of the entitles bore names similar to those of legitimate companies. In response to the report, the Health Insurance Institute of America is again urging the National Association of Insurance Commissioners to create an online database of licensed health insurance companies so that anyone can easily check the legitimacy of companies offering health insurance products. Meanwhile, the Coalition Against Insurance Fraud offers ten warning signs of a possible swindle:

Viatical Fraud

In a viatical settlement transactions, people with terminal illnesses assign their life insurance policies to viatical settlement companies in exchange for a percentage of the policy's face value [15]. The company, in turn, may sell the policy to a third-party investor. The company or the investor then becomes the beneficiary to the policy, pays the premiums, and collects the face value of the policy after the original policyholder dies. Fraud occurs when agents recruit terminally ill people to apply for multiple policies. They misrepresent the truth and answer "no" to all of the medical questions. Healthy impostors then undergo the medical evaluation. In many cases, the insurance agent who issues the policy is a party to the scheme. The agent or one applicant may even submit the same application to many insurance companies. Viatical settlement companies then purchase the policies and sell them to unsuspecting third-party investors. The insurance industry is the biggest victim of this fraud [16]. Some investors receive nothing in return for their "guaranteed" investment.

Anti-Fraud Programs

Several large insurance companies have joined forces through the National Health Care Anti-Fraud Association to develop sophisticated computer systems to detect suspicious billing patterns. The Federal Bureau of Investigation (FBI) and the Office of the Inspector General (OIG) each have assigned hundreds of special agents to health-fraud projects. The Coalition Against Insurance Fraud, a public advocacy and educational organization founded in 1993, includes consumers as well as government agencies and insurers.

The Omnibus Consolidated Appropriation Act of 1997 authorized a Health Care Anti-Fraud, Waste, and Abuse Community Volunteer Demonstration Program to further reduce fraud and abuse in the Medicare and Medicaid programs. The program enrolled thousands of retired accountants, health professionals, investigators, teachers, and other community volunteers to help Medicare beneficiaries and others to detect and report fraud, waste, and abuse. The Health Insurance Portability and Accountability Act of 1996 funded a similar program that trained community agency workers [17]. This act also gave the U.S. Inspector General jurisdiction over private insurance plans as well as public ones.

The Inspector General's office has recovered over a billion dollars through fines and settlements. Its Operation Restore Trust, which began in 1995, was a joint federal-state program aimed at fraud, waste, and abuse in three high-growth areas of Medicare and Medicaid: home health agencies, nursing homes, and durable medical equipment suppliers. The questionable activities included:

Allstate Insurance Company announced that during 2004, judges and juries around the country awarded the company more than $30 million in damages resulting from insurance fraud schemes against the company—the result of a campaign Allstate began in 2001 to go after the pocketbooks of fraud perpetrators in court. Since that time, the company has gotten more than $55 million in judgments against criminals that range from individuals to sophisticated organized crime syndicates. Unfortunately, bankruptcies and money laundering make it difficult to collect such awards. In February 2005, Allstate reported that only $5.24 million out of the $30.81 million awarded in 2004 had been recovered [18].

What You Can Do

Many frauds can be detected by examining insurance payment reports to see whether they accurately reflect the services rendered. Suspicious reports involving a private insurer claim should be reported to the company's fraud department. Suspicious practices involving Medicare or other federal programs should be reported to the OIG Hotline by phone (1-800-368-5779) or e-mail.

Recommended Publications

Other Information Sources

References

  1. Department of Justice Health Care Fraud Report, Fiscal Year 1998. Washington, DC: Department of Justice, 1999.
  2. BlueCross & BlueShield United of Wisconsin. What is health care fraud? Accessed Nov 30, 1999.
  3. Guidelines to health care fraud. Adopted by the National Health Care Anti-Fraud Association Board of Governors, Nov 19, 1991.
  4. 1997 Documentation guidelines for evaluation and management services , Centers for Medicare & Medicaid Services, 1997.
  5. Rental of space in physician offices by persons or entities to which physicians refer. OIG Special Fraud Alert, February 2000.
  6. Homola S. Inside Chiropractic: A Patient's Guide. Amherst, NY: Prometheus Books, 1999.
  7. Campbell WW and others. Recommended policy for electrodiagnostic medicine. American Association of Electrodiagnostic Medicine, Sept 26, 1996.
  8. Brown JG. Utilization parameters for chiropractic treatments. Washington, DC: Office of the Inspector General, Nov 1999.
  9. Stern RA, Montana R. Identify patterns of medical provider fraud through data base graphic pattern. FDN Fraud Report, Nov 1999.
  10. Barrett S. Chelation therapy and insurance fraud. Quackwatch, May 8, 2000.
  11. Hast RH. Health care fraud: Schemes to defraud Medicare, Medicaid, and private health care insurers. Testimony before the Subcommittee on Government Management, Information and Technology, Committee on Government Reform, House of Representatives. GAO/T-OSI-00-15, July 25, 2000.
  12. Private health insurance: Employers and individuals are vulnerable to unauthorized or bogus entities selling coverage. #GAO-04-312, Feb 2004
  13. Private health insurance: Unauthorized or bogus entities have exploited employers and individuals seeking affordable coverage. #GAO-04-512T, March 3, 2004.
  14. Scam alert. Coalition Against Insurance Fraud Web site, accessed March 5, 2004.
  15. Viatical settlements. FTC, 1998.
  16. Kohtz DA. Viatical fraud. Quackwatch, Aug 16, 2000.
  17. Implementation of the Administration on Aging's health care fraud and abuse programs: 18-month outcomes. Washington, DC: Office of Evaluations and Inspections, Aug 1999.
  18. Fraudsters ordered to pay allstate more than $30 million in '04. Allstate news release, Feb 14, 2005.

This article was revised on January 10, 2006.

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