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Fraud May Account for Up to 10% of Healthcare Spending

Janice Simmons, for HealthLeaders Media, July 1, 2009

While the federal government has been involved in many high-profile fraudulent Medicare and Medicaid cases this year, some of the more striking examples of fraud are occurring within the private insurance industry, according to a new report from The George Washington University School of Public Health and Health Services in Washington, DC.

For instance, in 2007, when the U.S. spent nearly $2.3 trillion on healthcare and both public and private insurers processed more than 4 billion health insurance claims, fraud was estimated to reach as much as 10% of annual healthcare spending. With this rate, the losses in 2007 would have been more than $220 billion—or enough to cover the uninsured—if estimates from government and law enforcement are used.

The researchers found that no segment of the healthcare industry or geographical area was immune from fraud. Eighty percent of fraud was committed by medical providers, followed by consumers (10%). The rest was by others, which included insurers themselves and their employees. The examples have been drawn from a search of reported actions using legal search engines, legal journals, and news articles.

Among individuals, fraudulent billing, kickbacks, upcoding services, and bundling were common examples of fraud. In the private insurance industry, avoidance of sick and high-need members, plus systematic misrepresentation of the cost of care to group plan sponsors were examples.

"Vulnerable populations"—which include the elderly, women, minorities, or less educated—are the "most likely victims of fraud," regardless of whether the fraud is public or private, the report noted.

Therefore, researchers noted, as work continues on healthcare reform, attention should be directed at anti-fraud actions. This means in part considering steps to "strengthen the reach and scope" of HIPAA insurance fraud provisions regarding marketing, enrollment, consumer protections, healthcare access, and claims payment.

"The evidence presented in this analysis should put to rest the notion that the problem of fraud is limited to public programs. Because fraud can arise in any sector of the health industry, comprehensive efforts to both detect and deter fraud systemwide are essential to national health reform," said Sara Rosenbaum, professor and chair of the school's Department of Health Policy, in a statement.


Janice Simmons is a senior editor and Washington, DC, correspondent for HealthLeaders Media Online. She can be reached at jsimmons@healthleadersmedia.com.

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