Time for a Check-Up: Taking the Pulse of Health Care Fraud

January 2010

IN THIS ISSUE

— A Problem for Every Solution: Difficulties Fighting Health Care Fraud
— Every Door You Close Opens Another: Efforts to Fight Health Care Fraud
— In the next issue

GREETINGS!

Welcome to the February 2010 edition of our newsletter! In this issue, we’ll look at the pervasive problem of fraud in the health care industry, and what proposed reform do – and don’t do – about it.

A PROBLEM FOR EVERY SOLUTION: DIFFICULTIES FIGHTING HEALTH CARE FRAUD

It’s no surprise to anyone that large infrastructure – whether a private corporation or government bureaucracy – breeds opportunities for fraud and abuse. The larger an organization, typically, the better chances it can be manipulated to a fraudster’s benefit. This was true in the 1980s when the Pentagon acquired items on a massive scale – recall the $436 hammer – and it remains true today, with a health care system that may be reformed in either large or small ways. But will any of those methods help protect health care consumers from further fraud-related losses?

The situation is rather dire: one private consultancy estimated that each instance of identity fraud within the health care space costs an average of $19,000, versus only $1,200 per instance of identity theft overall. Many times, the perpetrators of such frauds are health care employees who abuse their access to sensitive patient data – also often taking advantage of Medicare’s quick reimbursement system to obtain the cash far quicker than their crime can be detected. In other cases, fraudsters target the hospital, insurer or government organization itself, using a dummy corporation to convert invoices for non-existent goods into very real cash. The conservative estimate for losses to fraud each year throughout health care? $60 billion annually.

EVERY DOOR YOU CLOSE OPENS ANOTHER: EFFORTS TO FIGHT HEALTH CARE FRAUD

Despite the Obama administration’s much-publicized intention to root out fraud and abuse within health care – and to use the proposed cost savings to partially offset the costs of expanding coverage – through the administration’s first year, little tangible progress has been made. An “Interagency Health Care Fraud Prevention and Enforcement Action Team” was announced in May 2009 to combat fraud related to Medicare — which still only spends less than one-fifth of one percent of its budget on anti-fraud measures.

Against this backdrop, it is clear that whatever reforms may be signed into law, the onus of being a health care watchdog will fall largely to the private sector. Health care companies, especially those which seek Medicare reimbursement, will want to fortify their use of internal auditors and independent fraud examiners to both detect abuse and review internal controls and policies to spur deterrence. As Washington continues to debate what shape reform should take – and whether it should include any meaningful attempts to create more transparency within the system – the companies that may well be at risk should take it upon themselves to get ahead of that curve.

IN THE NEXT ISSUE

In the March issue, as talk of creating a unified consumer finance regulatory agency gains some momentum, we’ll look at which areas are most ripe for abuse, and what might be done to remedy them.