Health care fraud drains lifeblood from patients, system

A husband and wife who operated a drug and alcohol treatment program were indicted on 52 counts of health-care fraud. The indictment charges them with taking $1.24 million in funds for services they either didn't provide or services to people who didn't qualify for Medicaid drug and alcohol treatment.

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A large surgery center paid hundreds of dollars to patients who endured largely unnecessary operations and then falsely charged the government. One of the operations involved collapsing the patient's lung to snip a nerve that supposedly would control "sweaty palms."

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Fraudsters, posing as nurses, go door-to-door looking for seniors who need health-care. Instead they collect Medicare and Medicaid numbers and bill the government for services they never provide.

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A jury decided that a doctor's unlawful prescribing of controlled substances resulted in the deaths of five people. He was found guilty of 18 counts of wire fraud, five counts of defrauding health-care benefit programs, and 75 counts of dispensing or distributing controlled substances.

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Health-care fraud affects everyone. Some pay with their lives, others with their jobs, all of us with a smaller paycheck. "Many people believe that health-care fraud is a 'victimless crime' - a crime against big insurance companies who won't miss it," says Byron Hollis, the national anti-fraud director for Blue Cross Blue Shield Association. "But the truth of the matter is that health-care fraud is stealing from your family and your neighbors. When someone commits health-care fraud they are stealing money or services that are then rendered unavailable to someone who may in fact need those services or that coverage," he says.

"Patients who undergo bogus or unnecessary procedures run the risk of life-altering complications. ... In addition the creation of false medical records can have a devastating effect," Hollis says. False entries in medical records entered by fraudsters can cause honest employees to lose their jobs or be ineligible for sensitive positions, he says.

Hollis says that consumers are the first line of defense against health-care fraud. "An informed and vigilant consumer can stop fraud in its tracks by refusing to be victimized, questioning your medical provider when things don't seem right, and by reporting unresolved suspicions to the appropriate authorities," he says.

"CFEs ... should learn more about health-care fraud and its effects and encourage their clients, employees, and friends to look for and report fraud," Hollis says. "They should recommend to their clients and employers that they should examine their insurer and benefits manager to determine if they are taking all the necessary steps to protect them from fraud."

Hollis will be the keynote speaker at the 2006 ACFE Insurance Fraud Conference, April 24 - 26 in Philadelphia, Pa.

He spoke to Fraud Magazine from his office in Washington, D.C.

First of all, can you describe the structure of the Blue Cross Blue Shield Association and the independent Plans throughout the United States?
The BlueCross BlueShield Association is a trade organization that owns and protects the BlueCross and BlueShield trademarks. BCBSA is made up of 38 independent member companies that have pledged to adhere to standards set by BCBSA in return for the privilege of displaying one of the top three most recognizable brands in the world within a local market or defined geographic area. In addition to setting the standards that each member company must meet, BCBSA assists each member plan by providing a national presence and an opportunity for each plan to compete with national competitors and provide services to its customers in the national and international markets.

What is your working definition of health-care fraud and the main categories? And why is health-care fraud now one of the largest and fastest growing aspects of the insurance industry?
My definition of health-care fraud is "the intentional misrepresentation of a material (important) fact submitted on, or in support of a claim for payment of a health-care insurance claim, or the theft of money or property belonging to a health plan or health insurance company."

Health-care fraud has been with us for as long as we have had health-care insurance programs. Fraud is driven by a basic human weakness. We are all tempted by greed and we all are intrigued by the idea of getting something for nothing. Unfortunately, some people succumb to the temptation at the expense of others. As health-care costs continue to rise, the reasons for the increasing costs continue to be explored. The American people spend over 1.7 trillion dollars for health-care in 2004. If the conservative industry estimates of 3 percent to 5 percent loss due to outright fraud are accurate, then the losses are staggering - in the range of $51 to $85 billion dollars every year. That is unacceptable in my estimation. That is money that could be used for research, emergency treatment and holding down premiums.

Do you think we're seeing the tip of the iceberg?
Fraud by its very nature is hidden and therefore no one really knows how much fraud really exists in the health-care system. Some government estimates actually put the fraud loss figure at over 10 percent. Remember, that fraud is an intentional crime. Insurers, government officials, and academic researchers can easily determine the "error rate" for a given set of paid claims. However, finding the rate of fraud in that same group of claims is virtually impossible. It would require an in-depth analysis of the motivation and knowledge of each party involved with each claim. Insurance auditors and investigators, law enforcement officials, prosecutors, judges and juries struggle with this issue in virtually every case. Anyone who says they know how much fraud is out there is fooling themselves.

Many people believe that health-care fraud is a "victimless crime" - a crime against big insurance companies who won't miss it. But the truth of the matter is that health-care fraud is stealing from your family and your neighbors. When someone commits health-care fraud they are stealing money or services that are then rendered unavailable to someone who may in fact need those services or that coverage.

Patients who undergo bogus or unnecessary procedures run the risk of life-altering complications from anesthesia, drug interactions, and side effects from the treatment they receive. In addition, the creation of false medical records can have a devastating effect.

For example, an individual with false entries in their medical record indicating that they have some sort of addiction or mental disease or defect could lose their job or be excluded from consideration for a new career especially those professions that require access to sensitive information, involve public safety or require security background checks and clearances. Living and working in and around Washington, D.C., has given me a new appreciation for how these issues can be devastating.

It's beyond me how people who are charged with caring for the sick and infirm can methodically steal thousands of dollars through various health-care fraud schemes. Besides being greedy, are there any common traits among health-care fraudsters? Why is it fairly easy for health-care providers to commit fraud?
Anyone who has access to the health-care system can commit health-care fraud and unfortunately many do. Health-care providers have more access to the claims payment system, which translates into more opportunities to commit health-care fraud. These opportunities, if acted upon, lead to large losses and one could be tempted to condemn the health-care professions as being less than honest but that is not fair. The fact of the matter is that only a small number of bad people commit health-care fraud. The vast majority of health-care providers are ethical, honest people who are just as interested as I am in stopping this epidemic.

Because most providers submit their billing electronically and have inside knowledge of the insurance company's billing systems and practices, what's being done to combat provider fraud?
Most insurers including the member companies of the BCBSA use a number of system edits and other "add-on" computer logic to ensure that claims are paid correctly. Many fraudulent claims are stopped by these "routine" claims processing edits.

Many of our plans use a combination of "homegrown" and commercial software programs that look for anomalies and patterns of billing that fall outside expected norms. These software programs are employed in two ways. The most common and well-known method is to examine batches of paid claims. This method is good at finding the abnormal patterns of billing that sometimes indicate that fraud may have occurred. The downside of this technology is that the money is already in the hands of the perpetrator and you rarely get it all back. This pay-and-chase methodology is frustrating and not as effective as we would like it to be. Newer technology is allowing us to look at claims as they are being processed. In the second way, investigators use software programs based on predictive analysis to isolate claims that fall outside expected norms before the claim is processed. This new technology is promising and we hope it will show a greater return on investment and create a stronger deterrent or sentinel effect as more cases are prosecuted and the easy money becomes harder to get. But there is another factor that cannot be ignored: insurers are getting better at sharing information and working together to attack large organized fraud schemes.

What needs to be fixed in the health-care system (including the insurance system) to help deter and prevent fraud?
The key to a better system, in my opinion, is greater knowledge. An informed consumer is our first line of defense. We need to do a better job at making the health-care payment system more understandable and we need to teach consumers like you and me, to question health-care bills or services that don't seem to make sense or did not occur. Then we need to empower these educated consumers to do something about their suspicions by providing them with easy access to investigators who follow up on these reports of suspicious bills. This greater knowledge extends to the health-care provider community as well. Both insurer and providers need to work together to eliminate gray areas and ambiguity in procedure coding system. It has always amazed me that professionals like doctors and lawyers rarely receive practice management training. Many of these highly intelligent individuals graduate and enter their profession under a crush of financial debt from school loans, etc. and expect to catapult into the lives of the rich and famous. Unfortunately they begin their careers with no clue how to run a medical or legal practice - and subsequently they make bad decisions that can ruin them forever.

Health-care fraudsters - both providers and users - have devised scores of schemes. What new frauds do you see taking root?
We humans have been lying, cheating, and stealing from each other for as long as we have been on this earth, so the schemes are all variations of old schemes. Again, what is disturbing in health-care fraud is the number of cases that seem to have appeared recently where people are physically damaged for no other reason than to put another dollar in someone's pocket. We are all shocked when these cases hit the front-page news. Examples include the so-called rent-a-patient scam, the doctors who were diluting cancer-fighting and AIDS drugs to increase their profit margin and the murder of a witness in Illinois who was preparing to testify against her physician who was committing health-care fraud. Many relatively simple schemes seem to resurface on a regular basis.

Phantom billing or the billing of services that were never rendered to patients is a common scheme that all insurers have to guard against. We hear of schemes where common street thugs steal or otherwise obtain insurance cards or Medicaid and Medicare cards and use those cards to bill thousands of dollars of medical services before the victims, the cardholders, the government and/or the insurance companies is aware there is a problem.

Upcoding and unbundling are common schemes that are particularly troublesome. Upcoding is the practice of rendering a health-care service but billing for that service using a code that indicates that a higher level of service was rendered. Unbundling is the practice of breaking down a multi-step procedure or service into a series of separate or distinct services to increase the rate of reimbursement. I equate this type of scheme to buying a car from the auto parts store one piece at a time. The cost of all the individual parts will most likely be substantially higher than the cost of the car if bought whole.

In March of 2005, 12 BCBSA Plans filed a lawsuit against nine southern California-based outpatient surgery clinics, seven medical management companies, and 34 individuals alleging massive "rent-a-patient" schemes, which you've mentioned. Can you briefly describe the gist of these schemes?
The rent-a-patient scheme evolved out of an old cosmetic surgery scheme that was discovered in the 1990s.

The scheme was allegedly carried out using paid recruiters to enlist patients nationwide to travel to the California-based surgical centers and undergo needless and hazardous diagnostic surgical procedures. In return, the "patients" received cash compensation or cosmetic surgery and the providers submitted and collected on inflated insurance claims.

The most common procedures performed were: colonoscopies, endoscopies, septoplasties (nasal surgeries) and gynecological operations such as laparoscopies and D & Cs. Another commonly performed procedure was palmar hyperhidrosis, also known as "sweaty palm surgery." This surgery involves collapsing a patient's lung to gain access to the spinal area where the surgeon severs or clamps a nerve that controls perspiration of the hands. Law enforcement authorities consider this scheme to be the first major scam in which invasive, risky procedures were actually performed as part of the fraud.

In 2001, at a meeting of both Blue and non-Blue Investigators, it became apparent that many insurers were investigating cases that exhibited the same distinguishing characteristics. The insurance investigators and law enforcement agents present at the meeting realized that all of these cases were related and began working together to discover the details and the alleged perpetrators of this scheme.
(Read more about rent-a-patient schemes in the iFRAUD column by Dan Draz, M.S., CFE, in the May/June 2006 issue of Fraud Magazine. - ed.) 

What does your job entail? How do you work with the other BCBSA plans throughout the United States?
My job is to lead 38 independent companies in a common direction when it comes to fighting health-care fraud. I am fortunate to work with a great number of motivated and highly intelligent individuals, employed by our member companies who are dedicated to reducing or eliminating fraud in our health-care system. The Blue's anti-fraud efforts are locally based. Each Blue Plan is responsible for addressing the fraud that occurs in their assigned service area. My office provides training and support to the local Blue Plan investigators and when fraud schemes reach across service areas, we assist the Plans by coordinating the response or investigation.

You worked as a deputy sheriff for several years, became a district attorney's investigator and then earned your law degree. What motivated you to move throughout different areas of the criminal justice arena? How have your different positions prepared you for this current job?
I enjoy a challenge and have always been driven by the need to help people. Some of my earliest memories were of my parents teaching me the so-called "golden rule," which in essence says "Do unto others as you would have them do unto you." I try to live by that rule every day and it really bothers me when I see bad people take advantage of the unsuspecting or helpless. Street-level law enforcement work and investigations are like working a puzzle - you figure out what happened by taking one piece of evidence at a time and putting them in a logical order - but then what happens? I like to see things through to their conclusion so my career path just naturally developed from street-level law enforcement to prosecution. And in my present position, I can see all the pieces of the puzzle as they fall into place. That gives me great pleasure - at least when things go our way.

I think my previous endeavors have taught me three things that are important in my present job: pay attention to detail, every piece of evidence is important, and good luck is not random; it is a byproduct of preparation and perseverance.

Have you or anyone that you know been personally affected by health-care fraud, and if so, did it motivate you to want to become more involved in the professional fight against fraud?
We are all personally affected by health-care fraud every time our employer withholds a big chunk of money from our paycheck to pay for health-care premiums, every time a small or large business fails or is forced to reduce benefits or staff because they can't afford their health-care bill, when the price of goods and services increase because the cost of health-care continues to rise. I have met many individuals who have been affected by health-care fraud. The trauma of discovering that someone you trusted with your health was more interested in your dollar than your well-being is difficult to measure and difficult to ignore. But I think what motivates me more than anything is when I see individuals that ignore their health issues and continue to unnecessarily spiral downward because they have to choose between feeding their family and paying for their medical services - then I see unscrupulous individuals living the high life on the money they steal from the rest of us.

What can the average consumer do to help in the fight against health-care fraud?
Consumers are our first line of defense against health-care fraud. An informed and vigilant consumer can stop fraud in its tracks by refusing to be victimized, questioning your medical provider when things don't seem right, and by reporting unresolved suspicions to the appropriate authorities. BCBSA has tried to make it easier for anyone to report fraud by setting up a toll-free hotline, 1-800-877-BLUE, which is available for anyone to call if you suspect that someone is committing health-care fraud, regardless of your insurance affiliation (or lack of insurance). We also created an anti-fraud Web site bcbsa.com/antifraud that is periodically updated. This Web site contains interesting facts and information about health-care fraud and will soon allow you to report your suspicions through e-mail.

How is the BCBSA Anti-Fraud Strike Force organized? Besides the rent-a-patient cases, what are the results of the strike force so far?
The BCBSA Strike Force is a BCBSA-led effort that brings several Blue Plans together in a coordinated manner when we are faced with a fraud scheme that affects multiple plans and crosses jurisdictional lines. In this way we can work these widespread fraud schemes more efficiently and effectively by pooling our investigative talent and financial resources. The Strike Force was born out of the lessons learned in the rent-a-patient cases and we now have several cases at various stages of investigation located around the country. It is too early to predict how these cases will be resolved, so I cannot comment further on these Strike Force matters.

How are the BCBSA Plans' special investigative units organized?
There are 38 independent Blue Plans and each has its own unique structure and philosophy based on the environment of their respective local market. The Blues collectively field over 500 investigators and analysts, with a variety of backgrounds including former law enforcement, registered nurses and other health-care practitioners, doctors, chiropractors, and lawyers. These diverse individuals work together to protect our customers, our Plans, and the health-care system. There are BCBSA requirements for all national accounts that require Blue Plans to include all claims regardless of where the subscriber calls home in their anti-fraud activity.

How can Certified Fraud Examiners, especially those not in the health-care field, help in the fight against this fraud?
CFEs, as other consumers, should learn more about health-care fraud and its effects and encourage their clients, employees and friends to look for and report fraud. They should recommend to their clients and employers that they should examine their insurer and benefits manager to determine if they are taking all the necessary steps to protect them from fraud.

Will you have a special message for the participants of the ACFE's Insurance Fraud Conference in April?
Everyone has a role to play in the fight against health-care fraud. From the consumer to the insurer's CEO we all have a responsibility to protect our health-care system and to ensure that everyone has access to affordable health-care.

How do you feel the ACFE is helping in the fight against health-care fraud?
By encouraging its members to think about health-care fraud, raising their awareness and providing them with opportunities to learn.

What advice would you give young CFEs wanting to break into health-care fraud examination or investigation?
Read Malcolm Sparrow's book "A License to Steal" and then study as many treatises and other materials that are available that discuss health-care fraud. Study medical coding and how it can be manipulated. Then look for employment or contracting opportunities with companies that are willing to admit that fraud exists in health-care and other business endeavors. The CFE is a highly sought designation by insurers and others who hire health-care investigators so don't be afraid to emphasize it. And lastly, be patient and persevere. Don't be discouraged if you don't get the first investigator's position you apply for. Just keep trying.

What do you enjoy most about your position?
Working with the dedicated investigators employed by the Blues and other insurers and with the hundreds of law enforcement officials that are willing to work long hours and decipher tons of paper and electronic records in pursuit of those individuals who are intent on stealing from the health-care system.

At the end of the work day, what gives you the most satisfaction?
Going home to my family and knowing that I did the best I could on this day to right a wrong and defend the best health-care system in the world.

Dick Carozza is the editor of Fraud Magazine.