Pharmacy Fraud: A Detailed Prescription

Auditors and fraud examiners for insurance companies and "pharmacy benefit managers" use data mining, risk assessment algorithms, and investigative audit techniques to battle multimillion-dollar fraud schemes. Here's how all fraud examiners can learn from their prevention, detection, and examination techniques.

Thuan Huy Ha was a millionaire because his customers were sick. At least that's what he told the insurance companies and pharmacy benefit managers.

As operator of Ha Pharmacy in Garden Grove, Calif., in 2000, he was making piles of free money by billing expensive false prescription claims to unsuspecting payers. When he needed some extra cash, he would invent a disease scenario for an existing patient, submit a claim for a false prescription to a payer via computer, and wait for the green to flow in.

The claims typically involved doctors and patients who had never seen each other. For at least one "pharmacy benefit manager" (PBM) the drastic submission of false claims began suddenly and was identified just as quickly. As other payers got wise to Ha's scheme (more on that later), he transferred the pharmacy to My-Huong Thi Hoang, a Garden Grove, Calif., resident, who had worked as a pharmacist at the business.

Hoang changed the name to Care Pharmacy and began new agreements with several other insurers and PBMs, but she was no better than her predecessor. After the first few months of her management, she opened a pharmacy business in the name of Ha's 85-year-old mother and claimed that mom was now the new owner. Shortly after, Hoang began filing false claims for more than $1 million and laundering them through Ha's mother's bank account into Hoang and Ha's pockets.

Hoang and Ha were caught and are now serving federal jail sentences of 14 years and 63 months, respectively. The courts ordered Ha to pay a $100,000 criminal fine and about $1.4 million in restitution to several insurance companies and PBMs.

HOW ONE PBM CAUGHT HA AND HOANG 

The audit department of the authors' PBM routinely reviews the pharmacy's claims data for unusual patterns prior to payment. Throughout that process in this case, we identified schemes, prevented payment of any false claims, and then conducted a full investigation. We also contacted the patients and physicians whose information Ha and Hoang used to submit the bogus phantom claims.

Fortunately for our firm's clients, we didn't pay the nearly $9 million to Ha pharmacy for these claims. However, other payers weren't so fortunate; they eventually paid more than $5 million for nonexistent claims.

PHARMACY FRAUD: A MULTIBILLION-DOLLAR PROBLEM 

According to the National Health Care Anti-Fraud Association (NHCAA), health-care fraud accounts for an estimated 3 percent to 10 percent of annual health-care costs. The Centers for Medicare and Medicaid Services (CMS) reports that in 2005 public and private payers spent almost $2 trillion on health-care including $200.7 billion for prescription medications.

Although there are no estimates specific to the prescription drug industry from authoritative sources, a number of unique factors might be helping to hold prescription fraud below the rate of health-care fraud in general. These include:

• The prevalence of chain, mass-merchandise, supermarket, and mail-order pharmacies According to the National Association of Chain Drug Stores, chain and institutional pharmacies filled approximately 81.6 percent of all prescriptions in 2005. It's generally accepted that these types of pharmacies are less susceptible to fraud because of the many anti-fraud controls they employ and because payments from third parties aren't made to individual pharmacies.
• The prevalence of electronic adjudication systems According to an industry source associated with Blue Cross and Blue Shield, approximately 85 percent of health-care claims are currently processed electronically, but based on our experience, the pharmacy industry processes well in excess of 99 percent of all third-party claims via sophisticated online adjudication systems. These systems help reduce fraud and payment errors; electronically filed claims lessen the opportunity for some types of fraud.
• A higher percentage of cash customers Out-of-pocket payments for customer prescription claims totaled 24.9 percent in 2004 and are projected to drop to 16.1 percent by the end of 2007, compared to only 11.3 percent for health-care claims in general. (Source: Centers for Medicare and Medicaid Studies, 2007)

According to CMS projections, 83.9 percent of all U.S. prescription claim dollars will be paid by third parties in 2007 (up from 75.1 percent in 2005). Because the majority of these third-party claims will be processed electronically, the opportunity for identifying potentially fraudulent claims very soon after they're submitted (by pharmacies, for instance) will increase.

While the level of sophistication varies among PBMs and other third-party payers, most use specialized computer programs that ferret out claims meeting certain predefined criteria such as:

• Exceeding preset dollar limits (for example, more than $100, $500, etc.)
• Flagging certain drugs prone to fraudulent or accidental overbilling

Such timely auditing, as well as routine desk and on-site (field) audits, is primarily designed to recoup overpayments caused by incorrect billing that aren't necessarily fraudulent in nature. While incorrect billing often occurs by accident or from a lack of understanding of proper billing procedures, fraudulent billing is obviously an intentional act typically perpetrated for financial gain or to cover up the diversion of drugs.

ACTIONS AGAINST PHARMACISTS AND PHARMACY STAFF 

According to the National Practitioner Data Bank, 1,446 pharmacists have been excluded from the Medicare/Medicaid program in the United States between Sept. 1, 1990 and May 26, 2006. With the implementation of the Medicare Part D drug benefit and the significant fraud, waste, and abuse requirements it contains, there might be an even higher number of pharmacy professionals excluded over the next few years as compared to historic rates.

PREVENTING PHARMACY FRAUD 

In addition to other anti-fraud efforts, payers should take these commonsense steps to reduce pharmacy fraud:

• Increase awareness of pharmacy fraud through targeted educational programs for employees and beneficiaries.
• Take a more aggressive stance against health-care fraud to put perpetrators out of business and discourage potential perpetrators through the sentinel effect.
• Develop more sophisticated detection techniques.
• Improve communication and cooperation among private payers, PBMs, and law enforcement.

CASE 1: BUSINESS IS GREAT IN THE COUNTRY  

Our firm's audit department initiated an investigation of a participating network pharmacy located in a sparsely populated rural community with a population of less than 6,000 because it had a high "risk score" relative to its peer group. This score was generated by a proprietary risk assessment algorithm that measures and compares a number of key risk factors including:

High Average Ingredient Cost -- average dollar value of the claim;
Claim Reversal Rate -- percentage of total claims reversed from payment by the pharmacy;
Percentage of Compound Claims -- claims for prescriptions with multiple ingredients; and
Control Substance Fill Rates -- Percentage of narcotics and high abuse potential medications.

During a thorough desk review of claims history in the early stages of the investigation, we discovered that the pharmacy had very high billing rates -- far above its peer group average -- for several expensive drugs including compounds for intravenous use, Synagis, Dobutamine, Freamine, Lovenox, and Rebetol.

Based on our findings we conducted an on-site field audit and found that:

• Many compound prescriptions were overpriced
• Incorrect National Drug Codes (NDCs) were submitted, which resulted in significant overpayments [NDCs are product identification numbers for each drug, its strength, and the form it takes (such as pill, capsule, or liquid)]
• Total on-site audit discrepant findings exceeded $500,000

Based on our on-site findings, we initiated a thorough investigation including a "purchase verification" procedure designed to determine if the pharmacy actually purchased sufficient quantities of the drugs billed. The basic purchase verification procedures included:

• Deciding whether to select the highest impact drugs for inclusion or to include all drugs
• Requiring the pharmacy to have its wholesalers or other suppliers submit a summary directly to the auditor of all purchases for the targeted drugs
• Verifying in writing after all purchase summaries were received that the pharmacy didn't receive any of the target drugs from any other sources including transfers or purchases from other pharmacies, direct from manufacturer purchases, etc.
• Completing an analysis comparing the quantities of the targeted drugs purchased versus the quantities billed

Based on these procedures, we identified a number of serious issues including hundreds of claims billed for an amino acid solution, Freamine, that were dispensed as a different and much less expensive amino acid solution, Aminosyn. Additionally, the pharmacy didn't have sufficient purchases to support billings for seven other drugs. The purchase verification discrepancy totaled more than $5.3 million for the 33-month audit timeframe.

Concurrent with the purchase verification stage of the investigation, our investigator sent letters to seven of the top prescribing physicians about claims billed using their physician ID numbers and asked them to indicate on the letters if they had prescribed the drugs to the patients as listed. The investigator received responses from all seven prescribers; four denied all or some of the claims listed, and three verified that they had authorized the claims.

The investigator gave the pharmacy ample opportunity to provide documentation addressing the findings but the pharmacy didn't do so for most of the claims in question.

This case has been referred to the state attorney general's office where it's currently under consideration for prosecution.

Case Conclusion
This case demonstrates the importance of an effective claims monitoring program that incorporates data mining and analysis with desk, on-site, and investigative audit techniques.

CASE 2: A LITTLE BIT OF EVERYTHING  

A tip from a client (the payer, a large managed care organization) initiated this investigation of a pharmacy in a rural community of less than 700. During an audit, the payer (which had included the pharmacy as part of its network prior to becoming a client of our company) found numerous missing prescriptions and denials from both members and physicians. The client had also informed law enforcement of its audit results.

Because law enforcement was already involved, our company's investigator contacted the agency to discuss the case and possible audit procedures. After receiving the agency's approval, the investigator promptly performed purchase verification and physician verification audits, which showed that the pharmacy had failed to purchase sufficient quantities of numerous drugs.

The investigator found more than 200 suspicious "prescriptions," almost all of which supposedly were called in by 13 physicians who also supposedly submitted ID numbers with the claims. The investigator showed the physicians the prescription requests and all of them denied they had written them or given their ID numbers. Most of the original suspicious prescriptions were written on pre-printed physician pads from a clinic, which said the pads had been stolen by an unidentified party.

The subsequent field audit discovered that:

• More than 1,700 claims were billed for refills with no documentation that they had been authorized by the prescribing physician;
• More than 1,000 claims were billed for double the quantity prescribed;
• More than 400 claims were billed after the prescription had legally expired;
• More than 400 claims were billed late at night and on weekends when the pharmacy was closed including many claims with one or more of the problems listed above; and
• 660 miscellaneous discrepancies were identified including many that were believed to have been created after the fact with assistance from a Certified Nurse Practitioner who reportedly was a close friend of the pharmacy owner's wife.
• Some of these discrepancies included billings prior to the prescription date, wrong patient name, and wrong drug.

Case Conclusion
Based on the findings of the payer and the investigating law enforcement agency, the pharmacy was indicted on 15 counts of fraud. The estimated amount of the fraud is more than $350,000. The defendant entered into a plea agreement to conclude this case.

In the July/August Issue: We explore the essential elements for building and maintaining a successful program to battle pharmacy fraud, specific procedures, and legislative actions that could be hindering investigative efforts.

Dwayne Luby, CFE, MBA, CPA, AHFI, is senior director of network audit and program integrity at Express Scripts Inc. 

Dan Geiger, CFE, MBA, AHFI, is director of network program integrity at Express Scripts Inc. 

Andrea Lopez, MSM, AHFI, is senior manager of network program integrity at Express Scripts Inc. 

To Our Readers: In August of 2004, the Office of the New York State Attorney General announced a lawsuit against Express Scripts Inc., the firm employing this article's authors. The state's complaint alleges certain breaches of contract and violations of civil law in connection with Express Scripts' management of the prescription drug plan for the State of New York and its employees. As of publication time, this case was still pending. This article's authors haven't been named in this lawsuit. -- ed.

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