What is Health Care Fraud?

What is unique about healthcare fraud? Many of the types of fraud schemes conducted by and against health care organizations (e.g., theft of cash and non-cash assets, fraudulent vendor and payroll disbursements, fraudulent employee expense reimbursements, fraudulent financial reporting) also cut across multiple industries. However, the most prevalent types of fraud at health care organizations relate to inappropriate billings for patient services and the payments received for those inappropriate billings. The National Health Care Anti-Fraud Association has identified these most common types of health care fraud:1

  • Billing for services that were never rendered.
  • Billing for more expensive services or procedures than were actually provided or performed, commonly known as “upcoding.”
  • Performing medically unnecessary services solely to generate insurance payments.
  • Misrepresenting non-covered treatments as medically necessary covered treatments to obtain insurance payments.
  • Falsifying a patient’s diagnosis to justify tests, surgeries or other procedures that aren’t medically necessary.
  • Unbundling: billing each step of a procedure as if it were a separate procedure.
  • Accepting kickbacks for patient referrals.
  • Waiving patient co-payments or deductibles and over-billing the insurance carrier or benefit plan.

The Cost of Health Care Fraud and the Landscape of Increased Regulatory Enforcement 

According to the Federal Bureau of Investigation, “health care fraud costs the country an estimated $80 billion a year, and it’s a rising threat, with national health care spending topping $2.7 trillion and expenses continuing to outpace inflation.”2 Health care providers such as hospitals and clinics, home health agencies, nursing homes and physicians receive virtually all of their payments for health care services from “third party” payers, which are private insurance companies and government health care programs (e.g., Medicare and Medicaid). Congressional legislation requires that health care insurance pay a legitimate claim within 30 days. The FBI, the U.S. Postal Service and the Office of the Inspector General all are charged with investigating health care fraud; however, because of the 30-day rule for electronically filed claims, these agencies rarely have enough time to perform an adequate investigation before an insurer has to pay.3 The government is focused on combating health care fraud, waste and abuse through the investment of significant resources and coordination of efforts by various departments and programs to identify inappropriate Medicare and Medicaid payments and prosecute fraud. In 2011, the Department of Justice recovered more than $2.9 billion in payments made based on health care fraud. To help achieve this result, the Obama administration has expanded the use of Medicare Fraud Strike Forces, which are specialized teams of agents and prosecutors who monitor Medicare data in real time and work together to prosecute fraud. In 2011, the Medicare Fraud Strike Forces brought cases involving over $1 billion in fraudulent claims. For every dollar spent on this effort, the administration has recovered seven dollars.4 A recent headline provides an example of the results of these focused efforts. On January 17, 2012, the Department of Justice, the FBI and the Department of Health and Human Services announced that a Miami-area resident pleaded guilty in U.S. District Court in Miami for her role in a Medicare fraud scheme involving the payment and receipt of illegal health care kickbacks and the submission of more than $200 million in fraudulent claims to Medicare. Her participation resulted in $46 million in fraudulent billings to the Medicare program.5 Private health insurers have also established sophisticated techniques to identify and recover inappropriate reimbursements made to health care providers, and these entities may refer cases to law enforcement in instances of suspected fraud.

The Role of the CPA 

CPAs who provide services to health care organizations should have a working understanding of health care fraud schemes, as well as the programs and controls that are important in helping to prevent, detect and respond to health care fraud risks. In the next issue of the FVS Consulting Digest, we’ll kick off a series that will provide an overview of various health care fraud schemes, identify the missing or ineffective controls that allowed the fraud to occur, and discuss more effective controls that can be implemented.

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