In 2018, the United States spent a staggering $3.6 trillion on healthcare. Within this colossal sum, billions were processed as health insurance claims. While most of these claims are legitimate, a portion is, undeniably, fraudulent. Though seemingly a small fraction, these fraudulent claims inflict a heavy toll, both financially and on public trust in our healthcare system. Understanding the basics of healthcare finance is a crucial tool to combat this issue.
The National Health Care Anti-Fraud Association (NHCAA) estimates that healthcare fraud causes financial losses in the tens of billions of dollars annually. Conservative estimates place this loss at 3% of total healthcare expenditure, while some government and law enforcement bodies suggest it could be as high as 10% – potentially exceeding $300 billion each year. This financial drain makes understanding healthcare finance a basic, yet vital, tool for everyone.
Whether your health insurance is employer-sponsored or purchased through platforms like HealthCare.gov, state marketplaces, or the individual market, healthcare fraud inevitably drives up premiums and out-of-pocket costs for everyone. It can also lead to reduced benefits and coverage. For businesses, both private and public, fraud inflates the cost of employee health benefits, ultimately increasing the overall cost of operations. For many American families, the increased financial burden caused by fraud can be the deciding factor in whether or not they can afford health insurance at all. Thus, recognizing and addressing fraud becomes a basic necessity for maintaining affordable healthcare finance.
However, the financial impact is just one aspect of the problem. Healthcare fraud has very real human victims. These are individuals who are exploited through unnecessary or unsafe medical procedures, whose medical records are compromised, or whose legitimate insurance details are used to file false claims. It’s essential to see healthcare finance not just as numbers, but as a system that impacts real people’s lives and health.
Don’t be misled into thinking healthcare fraud is a victimless crime. Its consequences are undeniably devastating.
Recognizing Healthcare Fraud: What Does It Look Like?
The majority of healthcare fraud is perpetrated by a small minority of dishonest healthcare providers, and in some disturbing cases, by individuals falsely presenting themselves as legitimate medical professionals. Sadly, the actions of these deceitful individuals tarnish the reputation of the vast majority of trustworthy and respected healthcare professionals – our doctors.
Fraud perpetrators often exploit the trust placed in them to commit widespread and ongoing fraud. Their schemes are often sophisticated, leveraging numerous variables to devise various forms of wrongdoing. Understanding the basics of how healthcare finance works and where vulnerabilities lie is a basic tool in preventing these schemes.
Their tactics can include:
- Targeting the entire population of patients, and shockingly, even deceased individuals.
- Exploiting the entire spectrum of medical conditions and treatments to base false claims.
- Distributing false billings across numerous payers and insurers, including public programs like Medicare and Medicaid, maximizing illicit gains while reducing detection chances by any single insurer.
Some common types of fraud committed by dishonest providers include:
- Billing for services never rendered: Using genuine patient information, sometimes obtained through identity theft, to create fictitious claims or inflating legitimate claims with charges for non-existent procedures or services.
- Upcoding: Billing for more expensive services or procedures than actually provided. This involves falsely billing for a higher-priced treatment and often requires artificially inflating the patient’s diagnosis code to align with the fabricated procedure code.
- Performing medically unnecessary services: Providing services solely to generate insurance payments. This is frequently seen in diagnostic-testing schemes like nerve-conduction and genetic testing.
- Misrepresenting non-covered treatments as medically necessary covered treatments: Falsely classifying treatments to obtain insurance payments. Cosmetic surgery schemes, where cosmetic procedures like rhinoplasty are billed as deviated septum repairs, are common examples.
- Falsifying patient diagnoses and medical records: Manipulating records to justify unnecessary tests, surgeries, or other procedures.
- Unbundling: Billing each step of a procedure separately as if they were distinct procedures to inflate costs.
- Overbilling patients beyond co-pay amounts: Charging patients more than the required co-pay for services already prepaid or fully covered by their benefit plan under managed care contracts.
- Accepting kickbacks for patient referrals: Receiving illegal payments for directing patients to specific services or facilities.
- Waiving co-pays and overbilling insurers: Illegally waiving patient co-pays or deductibles while inflating the bill sent to the insurance carrier or benefit plan. While co-pay waivers are sometimes permissible for genuine financial hardship, routine waivers are prohibited, especially under programs like Medicare.
Understanding Your Risks from Healthcare Fraud
False Patient Diagnoses, Treatment and Medical Histories
Healthcare fraud, at its core, relies on presenting false information as truth. A prevalent fraud scheme involves manipulating patient records by adding false diagnoses, either for conditions the patient doesn’t have or exaggerating existing conditions. This manipulation facilitates the submission of fraudulent insurance claims for payment. Without a basic understanding of your healthcare finance and medical records, you become more vulnerable to these schemes.
These fabricated or inflated diagnoses become part of a patient’s documented medical history within the health insurer’s records, often remaining undetected until a critical situation arises.
For example, a psychiatrist in Miami-Dade pleaded guilty in 2016 to multiple fraud-related charges, including conspiracy. He was ordered to pay $50 million in restitution and sentenced to over twelve years in federal prison for his role in a fraud scheme involving the systematic entry of false psychiatric diagnoses into patient medical records. He falsely documented conditions like auditory hallucinations, bipolar disorder, and depression with psychosis in the medical file of an FBI informant. His false diagnoses led to over $20 million in unwarranted disability payments to various “patients” between 2002 and January 2016, according to his guilty plea.
Medical Identity Theft
Most people are aware of the dangers of financial identity theft and its devastating consequences on bank accounts, credit scores, and borrowing ability. However, medical identity theft poses equally significant risks. Over 2 million Americans have been victims of this growing crime, according to the Medical Identity Theft Alliance (MIFA). Being informed about healthcare finance basics includes safeguarding your medical identity.
Medical identity theft occurs when someone uses another person’s personal information without their consent to obtain medical services, goods, or submit fraudulent insurance claims. This often results in incorrect information being added to a victim’s medical record or the creation of entirely fabricated medical records under their name.
Victims of medical identity theft may receive inappropriate medical treatment, become ineligible for life insurance, and find inaccurate diagnoses in their medical records. A victim might unexpectedly fail an employment physical due to a disease or condition falsely documented in their health record.
Resolving the complex issues created by medical identity theft can be a lengthy and stressful process, impacting a victim’s medical and financial well-being for years.
Physical Risks to Patients
Shockingly, some healthcare fraud schemes intentionally put trusting patients at serious risk of injury or even death. It is alarming to consider, but numerous cases exist where patients have undergone unnecessary or dangerous medical procedures driven purely by greed. These unnecessary procedures can result in irreversible harm, such as loss of fertility or physical mobility.
In December 2015, an Ohio cardiologist received a 20-year federal prison sentence for performing unnecessary catheterizations, tests, stent insertions, and causing unnecessary coronary artery bypass surgeries. This scheme aimed to overbill Medicare and other insurers by $29 million.
In a 2019 case in Virginia, an OB/GYN was arrested and accused of performing medically unnecessary surgeries on female patients to fraudulently collect insurance payments. The number of concerned former patients contacting federal authorities led to the establishment of a dedicated hotline for potential victims. The alleged unnecessary surgical procedures included hysterectomies, dilation and curettages, and removal of ovaries and fallopian tubes.
Healthcare Fraud and Organized Criminal Groups
Healthcare fraud is not limited to individual dishonest providers. The vast amount of money in the healthcare system has attracted organized criminal groups, who in some areas have shifted from illegal drug trafficking to the less risky and more profitable business of defrauding Medicare, Medicaid, and private health insurers. Understanding the scale of healthcare finance helps to understand the motivation for such organized crime.
Enterprise crime, as it is often called, can be widespread and rapidly mobile. In 2007, Medicare Fraud Strike Force Teams were established in fraud hotspots across the U.S. to combine federal, state, and local law enforcement resources to combat healthcare fraud, waste, and abuse. Strike Force “takedowns” often involve dozens of defendants engaged in complex, enterprise-wide fraud schemes. Strike Force Teams are currently active in major cities and regions including Miami, Los Angeles, Detroit, Houston, Brooklyn, Baton Rouge and New Orleans, Tampa and Orlando, Chicago, Dallas, Washington, D.C., Newark and Philadelphia, and the Appalachian Region.
In FY 2018 alone, FBI investigations disrupted over 812 criminal fraud organizations and dismantled the leadership structure of more than 207 healthcare fraud criminal enterprises.
A Federal Crime with Severe Penalties
Recognizing the severity of the issue, Congress, through the Health Insurance Portability and Accountability Act of 1996 (HIPAA), specifically designated healthcare fraud as a federal criminal offense. The basic crime carries a federal prison sentence of up to 10 years, alongside substantial financial penalties. [United States Code, Title 18, Section 1347.]
Federal law also stipulates that if fraud results in patient injury, the prison term can double to 20 years. If it leads to a patient’s death, perpetrators can face life imprisonment in federal prison.
HIPAA also established the Health Care Fraud and Abuse Control Program (HCFAC), a comprehensive initiative to combat fraud against both private and public health plans. Jointly directed by the Attorney General and the Secretary of the Department of Health and Human Services (HHS), through the HHS Inspector General (HHS/OIG), HCFAC coordinates federal, state, and local law enforcement efforts against healthcare fraud and abuse. The Department of Justice (DOJ) and HHS have published an Annual Report since 1997 detailing the Control Program’s activities and outcomes.
Many states have also taken strong action against healthcare fraud, strengthening their insurance fraud laws and penalties, and mandating that health insurers meet specific fraud detection, investigation, and reporting standards to maintain their state licenses.
Essential Public-Private Cooperation Against Fraud
Founded in 1985 by a small group of private insurers and law enforcement professionals, the National Health Care Anti-Fraud Association (NHCAA) is a non-profit organization dedicated to enhancing both private and public sector capabilities to detect, investigate, prosecute, and ultimately prevent fraud and abuse against private and public health insurance programs. This cooperation highlights that understanding healthcare finance and fraud prevention is a basic tool for collective protection.
Today, NHCAA represents the combined efforts of anti-fraud units from the vast majority of private health payers in the country, along with the full range of federal and state law enforcement and regulatory agencies with jurisdiction over healthcare fraud, and hundreds of individual members from the private health insurance sector and law enforcement.
NHCAA advances its mission by fostering public-private partnerships against healthcare fraud at both operational and policy levels. It facilitates the sharing of investigative information between health insurers and government agencies and disseminates information about healthcare fraud to all stakeholders.
The NHCAA Institute for Health Care Fraud Prevention, a non-profit educational foundation, provides specialized professional education and training for industry and government anti-fraud investigators and personnel.
Your Role: Preventing Healthcare Fraud
Here are simple steps you can take to protect yourself from healthcare fraud and help lower healthcare costs for everyone: These actions represent basic tools in responsible healthcare finance management.
- Protect your health insurance ID card: Treat it like a credit card. In the wrong hands, it’s a license to steal. Never give out your policy numbers to door-to-door salespeople, telephone solicitors, or over the internet. Be cautious about disclosing your insurance information, and report a lost ID card to your insurer immediately.
- Report suspected fraud: Contact your insurance company immediately if you suspect you might be a victim of healthcare fraud. Most insurers now offer online fraud reporting through their websites.
- Stay informed: Be knowledgeable about the healthcare services you receive. Keep detailed records of your medical care and carefully review all medical bills.
- Review your policy and benefits statements: Read your policy, Explanation of Benefits (EOB) statements, and all paperwork from your insurance company. Verify that you actually received the treatments billed to your insurance and question any suspicious charges. Check the dates of service for accuracy and confirm that the services billed were actually performed.
- Be wary of “free” offers: Be skeptical of offers for free healthcare services, tests, or treatments. These are often fraud schemes designed to illegally bill you and your insurer for thousands of dollars in services you never received.
Healthcare fraud is a serious crime that affects everyone – government, taxpayers, insurers, premium payers, healthcare providers, and patients. It is a costly reality none of us can afford to ignore. By taking proactive steps to protect yourself and understand the basics of healthcare finance, you are contributing to the integrity of our national healthcare system and the responsible use of our finite healthcare resources. This basic understanding and proactive approach is the most essential tool in combating healthcare fraud and securing a healthier healthcare finance system for all.
