Fighting on new fronts: Pharmaceutical fraud leads a host of new ways crooks are scamming insurers, but armed with high-tech tools, insurers are fighting back.

Key Points

* Health-care fraud constitutes $1 out of every $10 spent on health care.

* Medicare lost nearly $12 billion to fraudulent or unnecessary claims in 1998.

* Billing for services not rendered and misrepresentation of provided services are the most common types of health-care schemes.

* Health plans use technology, special investigation units and hot lines to fight fraud.

In August, a Trenton, N.J., woman was indicted on charges t that she bilked an insurance company out of nearly $4,000 by filing false claims for medical treatment she never received. A few months earlier, a Cambridge, Mass., physician pleaded guilty to submitting false billings to the Medicare program, indicating that he had administered certain services to patients that he had not in fact provided.

These are just two of the many health-insurance fraud schemes that are running rampant in the United States, adding to already rising health-care costs. In the newest phase, pharmacists and dentists are getting in on the greed. Insurers, often the ones who end tip paying for these crimes, are fighting back. Equipped with anti-fraud technology, internal investigation units and fraud hot lines, many insurers are joining forces with local and federal law enforcement agencies, state insurance fraud bureaus, insurance commissioners and others to stop the scams.

Health-insurance fraud is a costly crime. Estimates of the amount of annual health-care expenditures lost to fraud range from 3% to 10%. Yet many constituents are turning a blind eye. According to an article in the Journal of the American Medical Association, nearly one in three physicians said it's necessary to game the health-care system to provide high quality medical care, while approximately one in 10 physicians reported medical signs or symptoms a patient didn't have in order to help the patient secure coverage for needed treatment or services in the past year. Some consumers also aren't blame-free. According to a survey by consulting firm Accenture Ltd., nearly one of four Americans believe it's acceptable to defraud insurers.

Common Schemes

Billing for services not rendered and misrepresentation of provided services remain the most common healthcare schemes. But that's not where it ends. Dr. Stephen Barrett, who operates Quackwatch.org and other Web sites dedicated to combating health-related frauds and fallacies, said some other common schemes include bundling (billing separately for procedures normally covered by a single Ice), double-billing (charging more than once for the same service), and miscoding, in which providers submit a standard code number for noncovered "quack" treatments.

In addition, identity theft, discount health cards and the increasing invasiveness of scares--useless eye surgery, for example--also are taking a toll on the industry. Fraud committed by dentists and pharmaceutical fraud are on the rise. In some instances, dentists are performing root canals and removing teeth from people with healthy mouths, and charging insurers inflated rates lot worthless surgeries, said James Quiggle, director of communications for the Coalition Against Insurance Fraud, a national nonprofit anti-fraud watchdog. He said in some cases, dentists even troll inner-city streets for children, promise them treats such as McDonald's Happy Meals, transport them to clinics and perform unnecessary teeth cleanings and drill lot cavities--"sometimes not even using Novocaine," he added.

When it comes to who's committing fraud, Byron Hollis, managing director, Blue Cross and Blue Shield Association National Anti-fraud Office, said anyone with access to money or the payer system is vulnerable to the temptation of committing the crime. Some statistics point to providers as the biggest perpetrators of fraud, but Hollis said it's important to realize that only a very small percentage of providers are involved in any type of fraudulent activity. Increasingly, organized crime groups are getting in on the health-care fraud action.

Bogus health insurance companies also are bleeding the nation's healthcare bill, and many patients are suffering as a result--not only from lost premiums but the inability to receive necessary care. Take for instance the case of an 11-year-old patient battling brain cancer whose so-called insurer refused in 2001 to cover his more than $250,000 in bills for surgery and treatment. The reason: The company was a fake plan. Since 2001, four of the largest unauthorized plans have left nearly 100,000 people with approximately $85 million in unpaid medical bills and without health coverage. Small businesses and self-employed individuals have felt the biggest punch.

Many of the so-called health plans deceive the public by bearing names similar to those of legitimate insurers. Employers Mutual LLC, a Nevada-based company that collected $16 million in premiums from 22,000 policyholders in 50 states, is one example. The company, which was shut down in 2001 after leaving more than $24 million in unpaid medical claims, borrowed its name from Iowa-based Employers Mutual Casualty Co.

Between 2000 and 2002, the U.S. Department of Labor and the states identified 144 unique entities not authorized to sell health benefits coverage. The plans sold coverage to at least 15,000 employers, covering more than 200,000 policyholders and leaving at least $252 million in unpaid medical claims. But that's changing. "The surge in the number of bogus health plans is finally beginning to peak," said Quiggle. Recently, some individuals involved with the so-called plans have been indicted, and many of the bogus companies have been shut down.

Monetary loss is not the only thing at stake when it comes to health insurance fraud: A growing number of providers are putting patients in harm's way to make a fast buck. The lid was recently blown off one of the largest and most publicized schemes, although some of the perpetrators remain in business today. The "rent-a-patient" schemes, in which hundreds of patients underwent unnecessary and sometimes dangerous surgical procedures, resulted in tens of millions of dollars in fraudulent medical claims. Earlier this year, 12 Blue Cross and Blue Shield plans filed a lawsuit--Blue Cross and Blue Shield of Alabama, et al. vs. Unity Outpatient Surgery Center Inc., et al.--in Federal District Court in Los Angeles against nine of the outpatient surgical centers involved in the scam, seven medical-management companies and 34 individuals for health insurance fraud. The plans said they were cheated out of $30 million from the swindlers.

"Health-care fraud was always considered a financial crime in the past, but now we're seeing a few providers willing to disobey or disregard their duty to their patients for the sake of money," said Hollis.

Insurers as Fraud Fighters

Insurers are increasingly becoming fraudbusters, and their efforts are paying off.

Last year, the National Health Care Anti-Fraud Association reported that 52 of its member insurers collectively recovered or prevented payment of $503 million in 2003 as a direct result of their anti-fraud activities. Blue Cross and Blue Shield health plans also are seeing big savings. In 2004, the plans reported saving $228 million by fighting fraudulent claims.

Today, most health plans are fighting back with hot lines for individuals to phone in suspected fraud tips and with internal special investigation units that work with local and federal law enforcement officials on suspected fraudulent activity. Humana Inc.'s Special Investigations Unit has been instrumental in uncovering and providing information on various fraudulent schemes over the years, including the recent "rent-a-patient" seam and several South Florida phantom provider rings. In 2004, Blues Plans received more than 80,000 calls to their anti-fraud hot lines, a 15% increase over the prior year. Blues Plans' special investigation units recovered approximately $120 million last year, and prevented the additional loss of almost $108 million. That year, 663 cases were referred to law enforcement authorities, and 189 warrants and indictments were issued.

Humana and Oxford Health Plans emphasize the importance of education in uncovering fraud. Humana's employees learn about the issue through mandatory privacy and ethics training. "People understand that fraud is an issue that we take very seriously," said John Malloy, director of Humana's Special Investigations Unit. About 80% of Oxford's cases come from referrals made by members who notice discrepancies on their explanation of benefits, claims processors, other employees or staff in providers' offices.

Associations also are joining the fight. In 2004, the Blue Cross and Blue Shield Association created an antifraud Strike Force comprised of top Blues plan investigators who work with the FBI and other national, state and local law enforcement agencies to fight fraud. America's Health Insurance Plans has launched a Web site and a public service announcement TV campaign, which is co-branded with various state insurance departments, to shine a spotlight on the problem of phony health plans, said Karen Ignagni, president and chief executive officer. AHIP just released a Spanish version of the campaign.

On the national front, several organizations, including the National Care Anti-Fraud Association and the Coalition Against Health Fraud, were created to educate consumers and other constituents about the potential for fraud and ways to help avoid and spot potential schemes.

But even concerted efforts from everyone won't completely erase the problem. "Fraud fighters sometimes feel a bit like salmon swimming up against the rapids because fraud is so widespread. Despite their best efforts, there's no dam big enough to contain all the swindles coming at them," said Quiggle of the Coalition Against Insurance Fraud. Health providers now are trying to strike a balance between eye-bailing claims closely for fraud and paying legitimate claims quickly. "But it's a balancing act that will continue to challenge the judgment of fraud fighters for decades to come," he said.

Technology to the Rescue

Software is a critical weapon for many insurers in the fight against health-care fraud.

"The old-fashioned gumshoe work still has its place in fighting health-care fraud, but we have to have some high-tech tools to help us gumshoe in the right direction," said the Blues Association's Hollis.

Aetna Inc., for example, relics on IBM's Fraud and Abuse Management System to help detect fraud and abuse via data analysis. Aetna, in partnership with IBM, recently took the program one step further and created a new system it calls "PFAMS" to go on the front end of claims coming into the company. Claims are analyzed based on peer profiles and behavior patterns, and are grouped by specialties within specific geographic areas. "It can, for instance, pick out a list of 50 dentists in New York who are acting differently than their peers. It analyzes the data, looks for irregularities and then kicks out report cards based on any 'red flags'," said Michael Stergio, head of Aetna's Fraud Investigation Unit.

While most anti-fraud technology analyzes historical claims data, a growing number of insurers now are looking at predictive analysis as a way to spot potential fraud or abnormal patterns before a crime is perpetrated.

Steve Skwara, director of fraud investigation and prevention and associate general counsel for Blue Cross Blue Shield of Massachusetts, agrees that technology is an important tool to detect fraud, but he says it can also "cut both ways." As an increasing number of medical transactions and claims submissions move online, Skwara said technology can "enable unscrupulous people to commit fraud." One of the best defenses, he said, remains with human interaction in examining paper claims for patterns or anomalies that may signal potential fraudulent activity.

Onward Bound insurers remain vigilant in their fight against fraud.

"What we do can change every day, but certainly the message is that you can't sit back and say you're one of the best in the industry and that you have a handle on this because there just isn't anyone who does," said Aetna's Stergio. "The volume and pressure are too great and it's just too easy."

Both federal and state governments are also continuing the fight. The FBI has made health-care fraud one of its top three priorities. In 2004, the FBI had more than 2,400 health-care fraud cases pending and closed more than 550 cases with either convictions or pretrial diversions. Most states now require insurers to report all suspected fraud to their fraud bureaus."I think we'll see an increased willingness by government and operating agencies to share information pertaining to healthcare fraud to assist the private side of the health industry to combat the problem," said Skwara of the Massachusetts Blues.

The Centers for Medicare & Medicaid Services is closely monitoring power wheelchair and scooter fraud--among the fastest growing scares threatening Medicare, resulting in the loss of tens of millions of dollars. "Medicare fraud in general continues to be one of the most expensive problems as America's baby-boomer generation continues aging and becoming Medicare eligible2 said Quiggle. "Money pouring out of that system will be too irresistible for crooks to pass up."

Insurers plan to continue fighting back. "We must make sure our staff" is educated on how to use anti-fraud technology to the maximum capacity, while also working with other agencies in sharing techniques and completing investigations in a timely manner," said Humana's Malloy.

Learn More

Aetna Health and Life Insurance Co. A.M. Best Company # 08189 Distribution: Brokers, consultants, retail networks (pharmacy products)

Blue Cross and Blue Shield of Massachusetts A.M. Best Company # 64562 Distribution: Brokers, consultants, exclusive sales tome, direct

Humana Health Plan Inc. A.M. Best Company # 68898 Distribution: Agent/brokers, direct to employees, direct

Oxford Health Insurance Inc. A.M. Best Company # 60022 Distribution: Independent agents and brokers, direct sales force

For ratings and other financial strength information about these companies, visit www.ambest.com.

RELATED ARTICLE: Rx for Pharmaceutical fraud.

The pharmaceutical arena is the largest growing segment of health-care expenditures, and that opens up the flood gates for potential fraud.

Earlier this year, a compounding pharmacist lost an appeal of his 30-year sentence for pleading guilty to diluting chemotherapy drugs, which prosecutors claim could have affected 4,200 patients. Robert Courtney, who admitted to diluting drugs since 1992, was arrested in 2001 and pleaded guilty to 20 counts of adulterating, misbranding and tampering with the cancer drugs Taxol and Gemzar.

And Courtney's not alone. A growing number of pharmaceutical fraud cases are occurring each year--from billing brand name prices for generics to shorting consumers' pharmaceutical supplies. "A lot of critical elements have identified pharmaceuticals as the new cash cow in adulterated or counterfeit drugs," said Byron Hollis, managing director, Blue Cross and Blue Shield Association National Anti-fraud Office. Although U.S. customs officers are seizing boatloads of these drugs daily, they're "only scratching the surface," and even common drugs, such as cholesterol-lowering pharmaceuticals, are susceptible to counterfieiting, he said.

In addition, the growing availability of new specialty drugs is raising a red flag to potential fraud. The costly drugs have a high street value, and some providers have been accused of charging insurers for the products and then selling the drugs at very profitable prices.

Everyone is keeping a close watch on a new potential for pharmaceutical fraud with the Medicare Part D drug benefit, slated to begin Jan. 1, 2006. "It has both us and law enforcement very concerned that it's opening up the opportunities for fraud to occur," said Hollis. "We suspect and have already identified risk areas with the benefit that we will need to be very vigilant with as we go forward."

In July, the Senate Appropriations Committee recommended allocating $75 million to monitor for fraud and abuse under Part D. The Senate bill would provide an additional $5 million "to augment the role of" the Centers for Medicare & Medicaid Services "in financial management and oversight of program integrity efforts" in Medicaid and State Children's Health Insurance Program grant programs, according to the bill. The bill allocates $53.6 billion for the first nine months of the Part D benefit.

The FBI's recent program,"Operation Goldpill," was investigated by 17 FBI field offices over a three-year period and targeted pharmacy fraud. Fake prescriptions, false Medicaid billings, unnecessary medical testing, and the illegal sale of prescription drugs to street vendors and corrupt pharmacists were uncovered. More than 200 pharmacists and others were arrested and convicted before the case was closed.

Health Insurance Fraud
By the Numbers

$85 Billion

Estimated amount lost to health insurance
fraud in the United States in 2003

5%

Percentage of U.S. health-care spending lost to
health insurance fraud in 2003

$162 Million

Amount Blue Cross and Blue Shield plans lost
to health insurance fraud in 2003, up from $98
million in 2002

$1 our of every $7

Amount of Medicare spending typically lost to
fraud and abuse

Sources: Blue Cross and Blue Shield Association
and U.S. Government Accountability Office