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Why is Healthcare Fraught with Fraud and Abuse?

  • Because that’s where the money is. Healthcare was a $2.5 trillion industry in 2015, according to the federal Centers for Disease Control and Prevention. That comes to nearly $10,000 for every person in the country. There is so much money being spent, so many patients, healthcare providers, medications, medical devices and supplies, it’s literally impossible to keep track of them all. Criminals of all kinds are taking advantage of this fact, and those trying to end fraud and abuse simply can’t keep up.


    To put the size of healthcare spending in context, in 2015 healthcare spending was two-and-a-half times more than the money spent on all types of new construction, reports Forbes, nearly four-and-a-half times more than all the spending on new vehicles, according to the Wall Street Journal, and equivalent to about 68% of the entire federal budget, according to the Congressional Budget Office.


    Estimates for the amount of healthcare fraud range from 3% to 10% of all spending, according to Blue Cross Blue Shield Blue Care Network of Michigan. For 2015, that would come to anywhere from $75 to $250 billion, or about $229 to $765 for each person living in the U.S.


    Types of healthcare fraud


    The relatively small number of people committing this fraud take advantage of the trust they’re given by patients, health insurance companies and the government. Their inflated or fictional bills are paid, in part, because of the complexity of providing health care to about 327 million people, the wide range of possible medical conditions and treatments, and the ease of billing multiple parties at the same time, according to the National Health Care Anti-Fraud Association.


    The most common types of healthcare fraud are:


    • Billing for services that were never rendered. Actual patient information, possibly obtained by identity theft, is used to create entirely false claims, or legitimate claims are “padded” with extra charges for procedures or services that didn’t take place.
    • Billing for actual services or procedures, but at an inflated cost or "upcoding." To bill for services, a diagnosis and treatment most be given a code; “upcoding” exaggerates the diagnosis and/or treatment.
    • Performing unnecessary services just to generate money, potentially harming the patient.
    • Describing treatments that wouldn’t be covered as medically necessary in order to obtain insurance payments, such as cosmetic "nose jobs" being billed to an insurer as a treatment for a deviated septum.
    • Falsifying a diagnosis to justify tests or procedures that aren't medically necessary.
    • Unbundling or billing each step of a procedure as if they’re separate, instead of billing it as one, less costly, procedure.
    • Billing a patient more than the required co-payment for services that were prepaid or paid in full by an insurer.
    • Acceptance of kickbacks for patient referrals.
    • Waiving co-pays or deductibles, then over-billing the insurance carrier.


    Medical identity theft and organized crime


    There are many issues contributing to the multibillion-dollar fraud being perpetrated. Two of them are medical identity theft and the role of organized crime.


    You may be concerned that identity theft could result in your bank account's being cleaned out or your credit card being used by a thief. Another way identity theft can result in ill-gotten gains is medical identity theft (your name or other identifying information is used without your knowledge or permission to obtain medical services or goods, or to submit false insurance claims for payment).


    • It has been estimated that somewhere between 250,000 and 500,000 individuals have been victims of medical identity theft.
    • This often causes incorrect information to be included in your medical records or the creation of a completely false medical record in your name.
    • You could receive the wrong medical treatment, discover someone else exhausted your benefits or find yourself deemed uninsurable for life and/or health insurance coverage.
    • Unraveling all the false information in your medical chart, billing history and insurance claims can take a lot of time and effort. This could cloud your medical and financial status for years.


    Given how lucrative healthcare fraud is, it should be no surprise that organized crime is involved. Criminals change from their illegal drug-trafficking operation or add healthcare fraud to it. It’s much safer and very profitable compared to street crime.


    Medical identity theft and organized crime go hand in hand. The most common method of medical identity fraud happens when a person with legitimate access to personal information, like a hospital administrator or a doctor's assistant, sells the information to an organized criminal group, according to CNN. The information is used to bill for drugs, equipment or treatment that were never prescribed.


    Medicare, the federal healthcare program for the elderly and disabled, is a major source of revenue for organized crime. Having a person’s Medicare information is a virtual goldmine, because of the program’s "pay and chase" system (Medicare must send payments within a very short time period, then chase after possible fraud).


    Private insurers are seen as better at preventing fraud because they're much smaller than the $709 billion Medicare program. Its process increases the chance for fraud and financial abuse because the government is more reactive, not proactive, when it comes to fraud.


    What can be done


    Private insurers, the Department of Health and Human Services (HHS), the FBI and state law enforcement are trying their best to combat healthcare fraud. HHS collected $2.77 billion through audits and investigations from October 2015 to March 2016, according to McKnight’s Long-Term Care News. The department stated that, during those six months, there were 428 criminal actions filed against individuals or groups accused of committing crimes against HHS programs, along with 383 civil lawsuits alleging false claims, administrative recoveries and civil monetary penalties. Often these cases are aided by “whistleblowers” who provide critical information from inside the organization.


    Despite these impressive numbers, tens or hundreds of billions of dollars meant to pay for healthcare continue to be diverted into the pockets of criminals.