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Busted! Part 2: How health insurance companies spot bogus claims
When patients of Houston-area physicians Dr. Arun Sharma and his wife, Dr. Kiran Sharma, balked at signing blank medical insurance claim forms, the doctors threatened to withhold prescriptions for powerful narcotics to which many of the patients were addicted. Once the doctors obtained the patients’ coerced signatures, they made up claims for fictitious clinic visits and then billed Medicare for the bogus treatments, according to FBI affidavits filed in a criminal case against the Sharmas.
After documenting these and other abuses, federal agents and prosecutors secured guilty pleas in April 2010 against the couple that led to a 15-year sentence for Arun Sharma and eight years for his wife, and the relinquishment of more than $44 million in assets they accumulated during their decade-long scam.
Consumers, employers and the U.S. government spend more than $2.3 trillion on health care every year, according to the National Health Expenditure Accounts, or $7,681 per person. Of that amount, at least 3 percent -- or more than $60 billion annually -- is fraudulent, according to the National Health Care Anti-Fraud Association (NHCAA). Whether you have employer-sponsored group health insurance coverage, an individual health insurance policy or Medicare, health care fraud costs everyone.
"If insurance companies are paying claims they don't legitimately owe, it affects everybody," says insurance expert Jack Taylor, the Joseph S. Bruno Professor of Retailing at Birmingham-Southern College in Birmingham, Ala. "Premiums will go up, insurers will make underwriting more stringent and health insurance claims will be more closely scrutinized."
In addition to general concerns about health insurance rates and accessibility, health insurance companies and the federal government are cracking down on bogus claims. They increasingly deploy everything from an 1863 law originally enacted to stem fraud against the U.S. government during the Civil War to sophisticated matching and predictive-analytics software that enable insurance companies to spot suspicious claims among the millions submitted daily.
"People filing fraudulent claims will be identified," vows Russ Schreiber, vice president of insurance for FICO. Although probably best known for its consumer credit scores, FICO also helps health insurance companies identify fraud. "The question is not whether they'll be caught, but whether they'll be prosecuted."
Red flags for health insurance companies
According to the industry- and law-enforcement-backed NHCAA, the most common types of health insurance fraud committed today include:
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- Billing for medical procedures or services that were never provided. This may involve using actual patient information -- with or without the patients' consent -- and then either fabricating claims or padding legitimate claims with charges for additional treatment that didn't take place.
- Falsifying a patient's diagnosis to justify additional but unnecessary tests or procedures, or performing medically unnecessary services solely to generate additional insurance payments. This is most common in nerve and soft-tissue diagnoses and treatment, such as a muscle sprain or carpal tunnel syndrome.
- Upcoding. This practice is billing health insurance companies or Medicare for more expensive services or procedures than were actually provided.
- Misrepresenting non-covered treatments as medically necessary. This can occur in plastic surgery when, for example, a cosmetic procedure that’s not covered by insurance, such as a nose job, is billed to insurance as a deviated-septum repair.
- Unbundling. This involves billing each step of a procedure as if it were a separate treatment.
- Health care providers billing patients for costs in excess of what the provider agrees to accept under the terms of an HMO, PPO or other managed care contract. Conversely, it's also fraud if health care professionals waive patient co-pays or deductibles and instead over-bill the health insurance company.
In addition, Taylor, who regularly provides expert testimony in insurance fraud cases, says red flags arise when:
- Health insurance claims are filed very quickly after the effective date of a policy. "The quicker, the more suspicious," he says. "If you're in a massive automobile accident shortly after your coverage begins, that's probably not a problem. But if you have soft-tissue injury treatment claims related to a fender-bender, it will get a closer look."
- Frequency of claims. Lots of claims from one individual are a potential indicator of fraud.
- Health care professionals providing the same (often pricey) treatment to a large number of patients.
Daniel Teachey, senior director of marketing for DataFlux, a North Carolina data-monitoring company that helps companies such as Consortium Health Plans, First Health Group and VHA Inc., flags suspicious insurance claims, also cites the following suspicious events:
- Medical care providers filing multiple health insurance claims for the same treatment. This often occurs when providers file the same claim repeatedly – in their own name and in the names of their hospital, practice or clinic.
- Suspicious diagnosis and treatment coding. For example, it’s suspicious if a podiatrist files a claim related to treatment for a heart ailment.
"Fraud" versus "misrepresentation"
Because one-time instances of fraud by an individual can be difficult and costly to prove legally, insurance companies frequently view small-scale fraud as "misrepresentations." While health insurance companies don't usually pursue criminal convictions or jail time for such incidents, misrepresentations take their toll in other ways, according to Taylor.
For example, failing to disclose a pre-existing condition when you buy health insurance and then filing a claim related to that condition will come back to haunt you if your insurance company uncovers your pre-existing condition. "The health insurance company is going to deny that claim, which puts you on the hook for the bill, and the insurer also could rescind your policy," he said.
According to the NHCAA, there are other potentially lifelong repercussions for patients who collude with health care providers in order to defraud insurance companies:
- Allowing a provider to report, as part of a health insurance scam, a disease or a condition for which the patient has never been diagnosed could backfire if the patient fails a physical exam for employment or life insurance coverage. This history would be documented in the patient's health records.
- Exhausting lifetime caps or other limits on health insurance policies because of fraudulent claims may make coverage unavailable when patients legitimately need it.
- Health care identity fraud, in which a patient's personal information is used to file fraudulent claims, can cost that individual financially. The cost to individual victims of health identity fraud was nearly $1,200 each in 2008, more than double that of overall identity theft, according to Javelin Strategy & Research, a research firm specializing in trends in security and fraud initiatives.
Detection is more sophisticated
FICO has created a global business out of mining vast amounts of data to arrive at what it terms "predictive analytics" that help determine which customer behaviors and outcomes are highly unusual. To help insurers spot "enormous numbers of aberrancy" in claims, the company has developed analytics that tackle almost every medical claim scenario, Schreiber says. When the software spots an unusual claim, it triggers a thorough review, sometimes before the check to pay for a claim has even been issued, he adds.
"The sophistication of health insurance companies' technology is catching up, which is likely to be accelerated by national health care reform and President Obama's push for electronic medical records," Teachey says. "Besides the altruistic idea that fraud is just not a good idea, the window and the ability to get away with this stuff is closing."
Stiffer criminal penalties
In response to increasing frequency and higher dollar amounts of medical fraud, Congress -- through the Health Insurance Portability and Accountability Act (HIPAA) -- specifically designated health care fraud as a federal criminal offense. The basic crime now carries a federal prison term of up to 10 years, along with stiff financial penalties, according to the NHCAA. The federal law also stipulates that if fraud results in a patient's injury, the prison term can be doubled. If it leads to a patient's death, it can result in a life sentence.
In addition, Congress also mandated the establishment of a national Coordinated Fraud and Abuse Control Program to encourage data sharing among federal, state and local law enforcement, as well as with private health insurers, according to the association.
Individuals and insurers who commit fraud involving Medicare claims also may face a new application of a historic law. The False Claims Act, originally championed by President Abraham Lincoln to curtail fraud by government suppliers during the Civil War, was amended in 1986 to add greater incentives for private citizens to report fraud against the government, notably in Medicare claims, according to a February 2010 report authored by U.S. law firm McGuire Woods. In 2009, the U.S. government recovered $2.4 billion dollars under the False Claims Act, which was the second-highest annual collection amount recorded in history, the report states.