Healthcare Fraud

Auditing and Detection Guide

Rebecca S. Busch

• Publisher: Wiley
• Year: 2012
• ISBN:
  9781118240250
• Edition: 2
• Topic: Business
• Subtopic: Auditing
• Index: Business

An invaluable tool equipping healthcare professionals, auditors, and investigators to detect every kind of healthcare fraud

According to private and public estimates, billions of dollars are lost per hour to healthcare waste, fraud, and abuse. A must-have reference for auditors, fraud investigators, and healthcare managers, Healthcare Fraud, Second Edition provides tips and techniques to help you spot—and prevent—the "red flags" of fraudulent activity within your organization. Eminently readable, it is your "go-to" resource, equipping you with the necessary skills to look for and deal with potential fraudulent situations.

• Includes new chapters on primary healthcare, secondary healthcare, information/data management and privacy, damages/risk management, and transparency
• Offers comprehensive guidance on auditing and fraud detection for healthcare providers and company healthcare plans
• Examines the necessary background that internal auditors should have when auditing healthcare activities

Managing the risks in healthcare fraud requires an understanding of how the healthcare system works and where the key risk areas are. With health records now all being converted to electronic form, the key risk areas and audit process are changing. Read Healthcare Fraud, Second Edition and get the valuable guidance you need to help combat this critical problem.

Chapter 1

Introduction to Healthcare Fraud

Truth is often eclipsed but never extinguished.

–Livy, Historian (59 B.C.–A.D. 17)

When Willie Sutton, an infamous twentieth-century bank robber, was asked why he robbed banks, he replied, “Because that’s where the money is.” The healthcare industry, too, has lots of money. Long considered a recession-proof industry, healthcare continues to grow. Statistics from the Centers for Medicare and Medicaid Services (CMS), formally known as the Health Care Financing Administration, show that in 1965, U.S. healthcare consumers spent close to $42 billion. In 1991, that number grew in excess of $738 billion, an increase of 1,657 percent. In 1994, U.S. healthcare consumers spent $1 trillion. That number climbed to $1.6 trillion in 2004, which amounted to $6,280 per healthcare consumer. The figure hit $2.5 trillion in 2009, which translates to $8,086 per person or 17.7 percent of the nation’s Gross Domestic Product (GDP).1

How many of these annual healthcare dollars are spent wastefully? Based on current operational statistics, we will need to budget $550 billion for waste. A trillion-dollar market has about $329.2 billion of fat, or about 25 percent of the annual spending figure. The following statistics are staggering in their implications:

• $108 billion (16 percent) of the above is paid improperly due to billing errors. (Centers for Medicare and Medicaid Services, www.cms.gov)
• $33 billion Medicare dollars (7 percent) are illegitimate claims billed to the government. (National Center for Policy Analysis, www.ncpa.org)
• $100 billion private-pay dollars (20 percent) are estimated to be paid improperly. (www.mbaaudit.com)
• $68 billion in health insurance fraud (3 percent of expenditures). (www.insurancefraud.org)
• $50 billion (10 percent) of private-payer claims are paid out fraudulently. (BlueCross BlueShield, www.bcbs.com)
• $37.6 billion is spent annually for medical errors. (Agency for Healthcare Research and Quality, www.ahrq.gov)
• 10 percent of drugs sold worldwide are counterfeit (up to 50 percent in some countries) (www.fda.gov). The prescription drug market is $121.8 billion annually (www.cms.gov), making the annual counterfeit price tag approximately $12.2 billion.

What do these statistics mean? About $25 million per hour is stolen in healthcare in the United States alone. Healthcare expenditures are rising at a pace faster than inflation. The fight against bankruptcy in our public and privately managed health programs is in full gear.

Use this how-to book as a guide to walk through a highly segmented market with high-dollar cash transactions. This book describes what is normal, so that the abnormal becomes apparent. Healthcare fraud prevention, detection, and investigation methods are outlined, as are internal controls and anomaly tracking systems for ongoing monitoring and surveillance. The ultimate goal of this book is to help you see beyond the eclipse created by healthcare fraud and sharpen your skills as an auditor or investigator to identify incontrovertible truth.

What Is Healthcare Fraud?

The Merriam-Webster Dictionary of Law defines fraud as:

any act, expression, omission, or concealment calculated to deceive another to his or her disadvantage; specifically: a misrepresentation or concealment with reference to some fact material to a transaction that is made with knowledge of its falsity or in reckless disregard of its truth or falsity and with the intent to deceive another and that is reasonably relied on by the other who is injured thereby.

The legal elements of fraud, according to this definition, are:

• Misrepresentation of a material fact
• Knowledge of the falsity of the misrepresentation or ignorance of its truth
• Intent
• A victim acting on the misrepresentation
• Damage to the victim

Definitions of healthcare fraud contain similar elements. The CMS website, for example, defines 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) of 1996 is more specific, defining the term federal health care 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 next defines 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” 18 U.S.C. § 24(b).

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 health care benefit program” 18U.S.C. § 1347.

HIPAA establishes specific criminal sanctions for offenses against both private and public health insurance programs. These offenses are consistent with our earlier definitions of fraud in that they involve false statements, misrepresentations, or deliberate omissions that are critical to the determination of benefits payable and may obstruct fraud investigations.

Healthcare fraud differs from healthcare abuse. Abuse refers to:

• Incidents or practices that are not consistent with the standard of care (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 these forms:

• False statements or claims
• Elaborate schemes
• Cover-up strategies
• Misrepresentations of value
• Misrepresentations of service

Healthcare Fraud in the United States

Healthcare fraud has grown and continues to grow 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 co-payments 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.

Healthcare Fraud in International Markets

Healthcare fraud knows no boundaries. The U.S. Medicare and Medicaid programs are equivalent to many government-sponsored programs in other countries. Regardless of country, the existence and roles of players within the healthcare continuum are the same. All healthcare systems have patients, providers, TPAs (third party administrators) that process reimbursements to third parties, plan sponsors (usually government programs or private-pay activities), and support vendors.

Examples of international healthcare fraud are plentiful. In France, an executive director of a psychiatric nursing home took advantage of patients to obtain their property.2 In 2004, a newspaper in South Africa reported that “A man who posed as a homeopathic doctor was this week sentenced to 38 years in jail—the stiffest term ever imposed by a South African court on a person caught stealing from medical aids.” An Australian psychiatrist claimed more than $1 million by writing fake referrals of patients to himself; he also charged for the time spent having intimate relations with patients.

In Japan, as in the United States, there are examples of hospitals incarcerating patients, falsifying records, and inflating numbers of doctors and nurses in facilities for profit. A U.K. medical researcher misled his peers and the public by using his own urine sample for 12 research subjects. Switzerland, known for its watches, had providers sanctioned for billing 30-hour days. All of these examples include patterns of behavior consistent with the definitions of healthcare fraud in the United States.

What Does Healthcare Fraud Look Like?

It is 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 move along all components. To fully appreciate what healthcare fraud looks like, it is important to understand traditional and nontraditional players. The patient is the individual who actually receives a healthcare service or product. The provider is an individual or entity that delivers or executes the healthcare service or product. The payer is the entity that processes the financial transaction. The payer may be the party that takes on risk or manages risk for a plan sponsor providing the covered services. The plan sponsor is the party that funds...