What physician executives need to know.

HEADLINES IN THE PHILADELPHIA DAILY NEWS ON December 13, 1995, screamed, "Feds to Penn: Cough it Up! Medical center hit by $30 million charge for false Medicare bills--other major hospitals eyed." (1) In this case, the government contended that faculty physicians billed for work actually done by residents and also billed for more expensive services than were performed. The settlement included civil damages that are tripled in false claims cases. Thus, in December 1995, the University of Pennsylvania reportedly agreed to pay the Federal Government $30 million. As Van Dunn, MD, of CIGNA Healthcare wryly observed, "If you don't pay attention to what is happening, you can lose millions." (2)

But inattention isn't the only problem. Fraud and abuse, which can occur in all industries, also exist in the health care industry. This problem is compounded by the reality that "American medicine, although undergoing evolution, now faces changes of a magnitude that has never before been encountered." (3) These changes are creating new realities for physician executives and also new challenges. Many are unfamiliar with the nuances of changing reimbursement systems and thus assume, quite incorrectly, that the potential for fraud and abuse is lessened, when compared to the old indemnity reimbursement programs. This complacency only increases the opportunities for malfeasance--physicians need to have a higher index of suspicion as we go through change, rather than the lower index that we are commonly encountering.

There are many definitions of fraud. In general, fraud is "the intentional deception resulting in injury to another." The following essential elements are present: misrepresentation of a material fact, knowledge of the falsity of the misrepresentation, intent, and reliance on the misrepresentation by the victim.

When these concepts are applied to health care, the concerns become more specific. Fraud includes:

* billing for services, procedures, and/or supplies that were not actually provided

* the intentional misrepresentation of any of these claims information for the purpose of manipulating the amount of payable benefits:

* the nature of the services, procedures, and/or supplies provided

* the dates on which the services and/or treatments were provided

* the medical record of service and/or treatment provided

* the nature of the condition treated or diagnosis made

* the charges for reimbursement for services, procedures and/or supplies provided

* the identity of the provider or the recipient of services, procedures, and/or supplies

Abuse can be defined as the deliberate performance of unwarranted or non-medically-necessary services for the purpose of financial gain. Health care fraud has special features that relate to how business is done in the health insurance industry. As there are changes in business practice, there will be changes in how fraud occurs in health care. Thus, a violation can occur in managed care, when, for example, a capitated physician bills for services that were to be provided at no extra charge under the capitation agreement. Such billing is analogous to violating global fee arrangements by billing for a global fee and also for one of its components.

The occurrence of fraud in health care has been estimated at 10 percent of total health spending by the General Accounting Office (4) and at 3 to 5 percent a year by the National Health Care AntiFraud Association. (5) The fraud may range from a false claim by a consumer, physician, or pharmacist to systematic fraud by established institutions and corporations.

Whether a physician executive works for a provider or payer organization, he or she needs to know that the services billed do indeed match those provided and that they are delivered and billed according to previous agreements (contract or regulation). Otherwise, the provider may lose dollars through recoupment and fines, or the payer may lose dollars through payments for services that were never provided or weren't provided as claimed. The disparity between what service was performed and what was claimed to have been done may provide the basis for finding fraud.

Managed care is not immune from fraud. Indeed, it is easier to perpetrate fraud when managers are unconcerned about it because they incorrectly believe there is no problem. The continued presence of fee-for-service features in many plans allows for the type of fraud seen in indemnity or fee-for-service insurance to occur in managed care. Similarly, the presence of volume-dependent payments in managed care allows false claims, based on false volumes, to occur.

As markets become more price competitive, raising premiums is not an attractive option to replace losses due to fraud. In managed care, the fixed subscriber payments in conjunction with losses due to fraud will result in squeezed profits.

If a physician executive had the choice of reducing medical losses due to fraud and abuse or medical losses associated with subscriber convenience, satisfaction, or outcomes, the choice would be obvious. However, in order to detect and prevent fraud, it is necessary that adequate diagnostic systems and preventive processes are present. Additionally, medical directors should be aware of the possibility of fraud.

It is important to realize that fraud may occur, along with abuse and waste, by the same practitioner. One approach is to look for the presence of all three in conjunction with excessive costs and poor quality care. To detect fraud, information systems are needed that array data for deviance compatible with fraud and demonstrate abnormal patterns consistent with fraud.

Preventive processes are those arrangements that discourage or deter fraud, such as the explanation of benefits. This is a process that should allow subscribers to inform management that services claimed on their behalf have never occurred. However, if these explanations are not easily understood, they will not perform their intended purpose--that is, to alert the subscriber to a service claimed on their behalf.

Controlling fraud need not cause anxiety or anger on the part of honest physicians, who take pride in good care and professional integrity. However, lack of action against a practitioner, whose reputation for fraud is widely known in the professional community, may result in other physicians testing limits as they sense that "anything goes."

Advantages exist for managed care physician executives when dealing with fraudulent practitioners and providers. Contractual business arrangements allow the option of eliminating a physician from the network without cause, or not renewing a yearly contract. The basic approach to dealing with a defrauding practitioner or provider in managed care is: 1) stop the bleeding; 2) get the money back, and; 3) prevent future bleeding. This functionally translates to stopping payments, recouping stolen dollars, and eliminating the fraudster-physicians from future business dealings.

In contrast, in the indemnity market place, an insurer can only be rid of a fraudster-physician when the State has revoked that physician's license to practice medicine. Otherwise, the fraudster-physician has access to the market place in which the insurer functions because, there, the choice of physicians is up to the subscriber, not the insurer.

Managed care physician executives should take advantage of the analytic tools available to limit costly focused review. Emphasis on expensive care, adding costs to the HMO, and demonstrating a deviant pattern will define targets for review. If the fraudster-physician cannot steal well enough to rank significantly in costs, you may need to turn your attention elsewhere. Experienced professionals find that the proper emphasis in economic crime is on dollar loss, not moral outrage.

Investigators look for the concomitant presence of opportunity and motivation on the part of the fraudster. A bank employee with significant gambling losses might fit as a suspect in a bank embezzlement. Similarly, a physician whose diminished earnings do not meet previous obligations, or whose cash flow is being reduced by discounted fees, may be motivated to steal from the managed care organization. Some physicians are angered by a perceived loss of professional autonomy. Opportunity can consist of the ability to submit false claims or to provide excessive and unnecessary services, as well as to give or receive kickbacks in a scheme to provide excessive billable services.

There are executives in all industries who lack experience in dealing with fraud--its presence does not indicate that management has failed. However, many executives are embarrassed at the disclosure. Although convenient excuses may be provided to rationalize not looking for fraud, it remains a reducible loss. Delays in taking action may result in the fraudster not having any funds left to recoup, as other players (Federal, State, other private insurers) are already in line ahead of your organization to obtain recoveries.

Physician executives do not need to know how to investigate or prosecute fraud. They need to be sensitive to the possibility of fraud and to communicate their suspicions early to the appropriate corporate fraud specialists. They need to ensure that existing systems are adequate to obtain cost effective focused case review, that appropriate processes exist to deter fraud, and to know that fraud produces losses that can be reduced. Some understanding of basic fraud schemes and indicators of fraud are necessary in order that physician executives can be sensitive to fraud.

In conclusion, it is of utmost importance that physician executives be aware of the existence of fraud and abuse in the health care system. They must insist that they have adequate informatics to assist in detecting fraud and abuse, and if they are not personally adept at the process, they must not be reluctant to procure the necessary assistance and expertise. The financial viability of whatever entity you represent may be at stake, as well as the health and welfare of our primary concern, our patients.

Fraud and abuse in managed care

A managed care subscriber was notified that the limit for prescription benefits had been reached over the preceding 18 months for herself and her child. Upon requesting and reviewing a printout of services, she informed the plan that virtually none of prescriptions had been requested or obtained at the pharmacy listed.

The HMO staff contacted the prescribing physicians, who denied writing such prescriptions in almost all instances. Further review also showed unusual compounding of pharmaceutical agents and unusual quantities of drug per prescription. As other subscribers' claims for this pharmacy were reviewed, the prescribing physicians overwhelmingly denied writing the prescriptions listed. Analysis of claims data showed average cost per subscriber and per prescription at this pharmacy was a multiple of the health plan-wide average of all other pharmacies.

State law enforcement officials were notified. However, within a few days of the notification, the local newspaper announced that the subject pharmacy had been indicted for Medicaid fraud following investigation by Federal and State law enforcement. This example shows that:

1. explanation of benefits (and other fraud deterring processes) may be of value

2. deviant billing patterns of fraudsters can be demonstrated

3. focused review can begin with demonstrated deviance

4. fraudsters will cheat all available victims

5. there may not be enough dollars left upon discovery of fraud to provide recoupment to late claiming victims

--Kenneth M. Nelson, MD, MPH, CFE, & Joseph A. Lieberman III, MD, MPH

References

(1.) Philadelphia Daily News, December 13, 1995, p. 5.

(2.) Van Dunn, MD, personal communication.

(3.) The Fifteen Minute Hour: Applied Psychotherapy for the Primary Care Physician, Praeger 1993.

(4.) U.S. General Accounting Office, May 1992 (GAO/HRD-92-69).

(5.) "U.S. Health Care Spending and the Impact of Health Care Fraud," National Health Care Antifraud Association, 1996.

Kenneth M. Nelson, MD, MPH, CFE, is Medical Advisor for the Palmetto Government Benefits Administrators in Columbia, South Carolina. He can be reached at 803/7880222, extension 38124 or by fax at 803/786-9269.

Joseph A. Lieberman, III,MD, MPH, is Chairman of the Department of Family and Community Medicine Medical Center of Delaware. He can be reached at 302/428-2928 or via email at [e-mail].