Fraud Prevention as a Way to Finance Healthcare

Everywhere you look nowadays someone is talking about preventing fraud in healthcare.

Attorney General Eric Holder and Health and Human Services Secretary Kathleen Sebelius announced The Health Care Fraud Prevention and Enforcement Action Team (HEAT) in May. The team, which consists of senior Department of Justice and HHS employees, was created to strengthen existing fraud prevention tools and investigate new ways to root out and prevent fraud. Lewis Morris, chief counsel for the Office of Inspector General, suggested that 3% of the government's annual healthcare investment—a whopping $60 billion—is lost to healthcare fraud annually.

HEAT is already making its presence felt with the arrest of 53 physicians, healthcare executives, and Medicare beneficiaries in New York City, Miami, and Detroit last month.

Those arrested were charged with submitting more than $50 million in Medicare claims related to unnecessary or fraudulent procedures. But it's not only the feds who are creating programs to prevent fraud. The BlueCross BlueShield Association announced last week that some of its Blues plans saved a total of $350 million in 2008 through anti-fraud investigations. From 2007 to 2008, the number of fraud cases investigated by BCBSA rose by nearly 34%, and the number of closed cases increased by about 43%.

Blues' investigators were able to recover money that was lost through:

• Improper billing
• Cooking the books by submitting false claims and fabricating medical records
• Non-covered procedures
• Over-prescribing narcotics to patients
• Phantom durable medical equipment and labs
• Questionable manipulation under anesthesia

BCBSA estimated that the Blues' Special Investigation Units have recovered $7 for every $1 spent on investigating the cases (anti-fraud efforts on the federal level reportedly return $4 for every $1 spent on the investigations). These are both amazing ROIs that any health company would enjoy.

When you think about the billions of dollars health insurers lose each year, preventing such losses from fraud could have a huge impact on health costs—especially at a time when insurers are streamlining programs to reduce spending.

BCBSA's news is buffered by a George Washington University School of Public Health and Health Services report last week that found as much as 10% of healthcare spending is lost to fraud. That means the healthcare system loses more than $200 billion annually to fraud.

Employers are also involved in their own fraud prevention programs, which experts say could reduce employee healthcare costs by 2%-5% annually. The ineligible dependent problem is one major type of fraud that comes about because most human resources and benefits departments do not perform checks or require tax returns, birth certificates, and marriage certificates at the time of enrollment. This leaves them open to fraud.

As health insurers, employers, and healthcare organizations struggle during a difficult economy, anti-fraud efforts have gained popularity as a way to cut costs without reducing health programs. For insurers, which are faced with dropping enrollment because employers are cutting health coverage, anti-fraud could play a key role in reducing costs without passing more costs onto employers and ultimately individuals.