The Healthcare Fraud Circus

The trade press indicates that healthcare expenditures are again on the rise while the ACFE tells us that approximately $25 million dollars per hour is stolen, wasted or abused in the provision of healthcare services in the US alone. Not surprisingly, our Chapter members, CFEs and forensic accountants, employed by both governmental and private institutions, are being increasingly called upon to grapple with the fallout.

The Centers for Medicare and Medicaid Services (CMS) defines healthcare fraud as the intentional deception or misrepresentation that an individual knows, or should know, to be false, or does not believe to be true, and makes, knowing the deception could result in some unauthorized benefit to himself or some other person(s). The Health Insurance Portability and Accountability Act (HIPAA) is more specific, defining the term federal healthcare offense as “a violation of, or a criminal conspiracy to violate” specific provisions of the U.S. Code, “if the violation or conspiracy relates to a health care benefit program” 18 U.S.C. § 24(a).

The statute goes on to define a health care benefit program as any public or private plan or contract, affecting commerce, under which any medical benefit, item, or service is provided to any individual, and includes any individual or entity who is providing a medical benefit, item, or service for which payment may be made under the plan or contract. Finally, health care fraud is defined as knowingly and willfully executing a scheme to defraud a healthcare benefit program or obtaining, by means of false or fraudulent pretenses, representations, or promises, any of the money or property owned by. . . any healthcare benefit program. HIPAA establishes specific criminal sanctions for offenses against both private and public health insurance programs. These offenses are consistent with the common definitions of fraud in that they involve false statements, misrepresentations, or deliberate omissions that are critical to the determination of benefits payable and which may obstruct fraud investigations.

Practitioners new to fraud examination and forensic accounting in the healthcare arena need to develop a familiarity with the players involved in the provision of and payment for healthcare services if they are to effectively investigate identified instances of fraud, waste, and abuse in this ever-expanding sector of the economy.

Healthcare fraud differs from healthcare abuse. CMS says that abuse refers to incidents or practices that are not consistent with the standard of medical care (in other words, with substandard care)

–Unnecessary costs to a program, caused either directly or indirectly;
–Improper payment or payment for services that fail to meet professional standards;
–Medically unnecessary services;
–Substandard quality of care (e.g., in nursing homes);
–Failure to meet coverage requirements.

Healthcare fraud, in comparison, typically takes one or more of the following forms:

–False statements or claims;
–Elaborate schemes;
–Cover-up strategies;
–Misrepresentations of value;
–Misrepresentations of service.

It’s important to appreciate that healthcare is a dynamic and segmented market among parties that deliver or facilitate the delivery of health information, healthcare resources, and the financial transactions that underly and support the functioning of all the many components of the total business process. To fully appreciate what healthcare fraud looks like, it’s important to understand traditional and nontraditional players. The patient is the individual who actually receives a healthcare service. The provider is an individual or entity that delivers or executes the healthcare service. The payer is the entity that processes the financial transaction. The plan sponsor is the party that funds the transaction. Plan sponsors include private self-insurance programs, employer-based premium programs, and government programs such as Medicare and Medicaid. A vendor is any entity that provides a professional service or materials used in the delivery of patient care. Complicating matters is that each one of these player entities has a distinct perspective and point of view of the overall process which can differ significantly from that of each of the others.

So, what does healthcare fraud look like from the individual patient’s perspective? The patient may submit a false claim with no participation from any other party. The patient may exaggerate a workers’ compensation claim or allege that an injury took place at work when in fact it occurred outside of work. The patient may participate in collusive fraudulent behavior with other parties. A second party may be a physician who fabricates a service for liability compensation. The patient may be involved in an established crime ring that involves extensive collusive behavior, such as staging an auto accident. The schemes typically repeat themselves as well as constantly evolve in the creativity they demonstrate.

And from the provider’s perspective? The fraud schemes can vary from simple false claims to complex financial arrangements. The traditional scheme of submitting false claims for services not rendered has always been and continues to be a problem. Other maneuvers, such as submitting duplicate claims or not acknowledging duplicate payments, are issues as well.

Some schemes manifest great complexity and sophistication in their understanding of payer systems. One example is the rent-a-patient scheme where criminals pay “recruiters” to organize and recruit beneficiaries to visit clinics owned or operated by the criminals. For a fee, recruiters “rent,” or “broker,” the beneficiaries to the criminals. Recruiters often enlist beneficiaries at low-income housing projects, retirement communities, or employment settings of low-income wage earners. Detecting complicated misrepresentations that involve contractual arrangements with third parties or cost report manipulations submitted to government programs requires a niche expertise for identification representing an opportunity for anti-fraud practitioners expert in data mining.

And from the payer’s perspective? The fraud schemes perpetrated by this group tend to be pursued mostly in response to transactions between the payer and a government plan sponsor. They include misrepresentations of performance guarantees, not answering beneficiary questions on claims status, bad-faith claim transactions, and financial transactions that are not contractually based. Other fraudulent activities include altering or reassigning the diagnosis or procedure codes submitted by the provider. Auditing payer activities also requires a niche expertise involving operational as well as contractual issues.

Healthcare fraud schemes perpetrated by employers include underreporting the number of employees, employee classifications, and payroll information; failing to pay insurance premiums, which results in no coverage; creating infrastructures that make employees pay for coverage via payroll deductions; engaging in management activities that discourage employees from seeking medical treatment; and referring employees to a medical facility and in turn receiving compensation for the referrals.

Vendor perpetrated schemes furnishes numerous examples involving a range of participants, from professional healthcare subcontractors to suppliers of equipment, products, services, and pharmaceuticals. These schemes include false claims, claims for altered products, counterfeit medications, and services from unlicensed professionals. They include collusive behavior among several entities as well as between individual professionals.

In summary, the take away for anti-fraud professionals is that Healthcare fraud is growing at an accelerated rate in the United States. Traditional schemes include false claim submissions, care that lacks medical necessity, controlled substance abuse, upcoding (billing for more expensive procedures), employee-plan fraud, staged-accident rings, waiver of copayments and deductibles, billing experimental treatments as nonexperimental ones, agent-broker fraud relationships, premium fraud, bad-faith claim payment activities, quackery; overutilization (rendering more services than are necessary), and kickbacks. Evolved schemes include complex rent-a-patient activities, 340 B program abuse activities (setting aside discounted drugs, making them unavailable to those in need), pill-mill schemes (schemes to falsely bill prescriptions), counterfeit drug activities, and organized criminal schemes.

CFEs and forensic accountants have a significant role in combating all of this. The good news is that much information is available to guide practitioners from both governmental and private sources.

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