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What Insurers Can Do about Escalating Medical Fraud in Health and Property/Casualty Insurance


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By Dr. Barry L. Johnson

Fraudulent medical schemes are a growing problem in the health and property/casualty insurance sectors. In fact, they are the largest issue facing the industry today. Unfortunately, the volume and expansion rate of medical fraud is uncontrolled in comparison with other property/casualty risks. The Insurance Research Council (IRC) estimates that fraud and abuse losses in the health care industry waste an estimated $70 to $255 billion annually and contribute to rising expenditures. In addition, 18 to 27 percent of bodily injury claims and 12 to 17 percent of personal injury protection claims contain the appearance of buildup or fraud. Perpetrators of such fraud range from insureds, members and providers, all the way to organized fraud rings.

Billions of dollars are wasted each year on payments made as a result of falsified medical claims. Not only does this affect the property/casualty and health care insurance industries, but it also exploits state and government health care programs.  For example, Federal authorities recently arrested more than thirty suspects, including doctors and health care business owners and operators across the nation, suspected in a major Medicare fraud scheme. Their scams included giving patients “arthritis kits,” which were nothing more than expensive orthotics, such as knee or shoulder braces and heating pads, billed at $3,000 - $4,000 each. Another recent Medicare fraud case involved a doctor in Miami, FL, and two physician’s assistants billing the government program for $10,903,509 worth of unnecessary HIV infusion treatments. All three conspirators have been sentenced to prison terms.        

It is a common misperception among consumers that the insurance industry bears the brunt of losses from this ongoing abuse. Instead, it is consumers who are suffering, as the cost of fraud is one of the primary reasons behind constantly increasing health insurance rates. Recently, governmental agencies, regulators and politicians have issued antifraud and waste messages to consumers, intending to change their attitudes and clear up any confusion about fraud.

President Obama believes reducing fraud and abuse in the health care system is necessary to control escalating costs and provide coverage for uninsured Americans. With the administration’s current focus on the issue, now is the perfect time for the health care and insurance industries to work in tandem with the government toward the common goal of reducing, and eventually eradicating, the alarming amounts of fraud and abuse that occur within the system. The need to act now is underscored by recent indictments in the $154 million fraud scheme uncovered in southern California.  According the Orange County District Attorney, the scheme involved nearly 3,000 patients that underwent unnecessary surgeries in exchange for cash and discounted cosmetic surgery.

Insurers can use a variety of tools to combat fraud. However, there are two essential components to establishing a fundamental fraud prevention program.  

The first, and most critical factor, is to provide consumers with the tools to identify, report and prevent questionable claims and bills. Insurers should establish a program, led by veteran fraud investigators and communications experts, to assist consumers in fighting fraud. Newsletters, websites and hotlines should be implemented for consumers to reference and consult for information and answers. In addition, it is important to establish a means by which an individual can report fraudulent submissions and reward them for doing so. Websites such as www.stopmedicarefraud.gov and www.stophealthcarefraud.com are examples of existing online resources for consumers with public and private health care insurance.     

The second component comes from within the insurance organization: a corporate commitment to combating fraud. This may consist of a team of professional health care fraud analysts with the latest diagnostic tools or establishing a relationship with a vendor that specializes in health care antifraud. It is important to note that health care fraud prevention and detection should not rely solely on data modeling and other advanced analytic tools. Clinical knowledge, including medical, dental and pharmaceutical, is vital to identifying and investigating complex schemes and accurately recovering lost funds. Emerging patterns are regularly identified by clinical analysts who review claims on a daily basis.  

Due to the ongoing fraud problem that affects all of society, insurers must do their part to educate, support and empower consumers regarding the dangers of fraud. The more informed consumers become about medical fraud, the more aware they will be of the impact it has on them directly. We can anticipate that the public will speak up and demand action from the parties involved in providing payments to deceitful consumers and corrupt providers. 

In order to prepare for such demand, insurers and providers must come together, with the support of the government, to share information and focus on ways to eradicate fraud, using new tools, techniques, and technology.

Dr. Barry L. Johnson is president of ISO’s HealthCare Insight (HCI) unit.  To learn more, visit www.hcinsight.com.

© Copyright 2009 The John Cooke Fraud Report