Health care fraud is usually committed against private and public insurance companies (Medicare/Medicaid) by providers, subscribers, non-subscribers masquerading as subscribers, insured groups, claims processors, insurance company employees, brokers, and agents. Providers commit most of the acts because they have greater access to the claims system than others.

The most common methods are:

• Billing for services not rendered.
• “Upcoding” a procedure to one reimbursed more lucratively.
• Making a fraudulent diagnosis or applying fraudulent dates to a diagnosis.

Kickbacks are also common in health care fraud. Providers waive deductibles and co-payments for patients; and/or offer free transportation, free goods and services, and cash to patients. Some services pay from $50 to $500 to “cappers” or “runners” who bring in new patients—many of the “patients” are indigent or homeless people who may receive treatment or simply allow their identification to be used for filing false claims. Providers also offer kickbacks in return for insurance and vendor contracts.

The health care industry is especially susceptible to electronic data interchange (EDI) fraud. EDI is used by providers to file claims directly and is widely used for Medicare claims. According to the Health Insurance Association of America, at least a quarter of health insurers’ claims are processed electronically.

The cost of fraud in the American health care industry is estimated at around $100 billion a year, with approximately 10% of the $1-trillion-plus spent each year on health care. Loss estimates range from 3% to as much as 14%. In 2003, health care fraud was estimated to total $85 billion, or 5% of U.S. health care spending. For Medicare, $1 out of every $7 was lost on fraud and abuse, according to the Blue Cross and Blue Shield Association and the U.S. Government Accountability Office.

Besides government insurance programs, there are over 1,500 private insurance companies processing over four billion medical claims every year. These organizations also estimate annual fraud losses at about 10% of all claim dollars. Americans pay up to $1 billion in inflated drug prices caused in part by fraud and loopholes in insurance programs.

According to an analysis by New Directions for Policy, released in 2001, the U.S. government recovered more than $8 for every dollar spent on anti-fraud efforts using the False Claims Act.