Insurance Fraud and Abuse:

A Very Serious Problem

Stephen Barrett, M.D.

Fraud and abuse are widespread and very costly to America's health-care system. Fraud involves
intentional deception or misrepresentation intended to result in an unauthorized benefit. An
example would be billing for services that are not rendered. Abuse involves charging for services
that are not medically necessary, do not conform to professionally recognized standards, or are
unfairly priced. An example would be performing a laboratory test on large numbers of patients
when only a few should have it. Abuse may be similar to fraud except that it is not possible to
establish that the abusive acts were done with an intent to deceive the insurer.

Although no precise dollar amount can be determined, some authorities contend that insurance
fraud constitutes a $100-billion-a-year problem. The United States Goverment Accountability
Office (GAO) estimates that $1 out of every $7 spent on Medicare is lost to fraud and abuse and
that in 1998 alone, Medicare lost nearly $12 billion to fraudulent or unnecessary claims [1].

Type of Fraud and Abuse

False claim schemes are the most common type of health insurance fraud. The goal in these
schemes is to obtain undeserved payment for a claim or series of claims [2]. Such schemes
include any of the following when done deliberately for financial gain:

 Billing for services, procedures, and/or supplies that were not provided.
 Misrepresentation of what was provided; when it was provided; the condition or diagnosis; the
charges involved; and/or the identity of the provider recipient.
 Providing unnecessary services or ordering unnecessary tests [3].

Many insurance policies cover a percentage of the physician's "usual" fee. Some physicians
charge insured patients more than uninsured ones but represent to the insurance companies that
the higher fee is the usual one. This practice is illegal. It is also illegal to routinely excuse
patients from copayments and deductibles. (A copayment is a fixed dollar amount paid whenever
an insured person receives specified health-care services. A deductible is the amount that must
be paid before the insurance company starts paying.) It is legal to waive a fee for people with a
genuine financial hardship, but it is not legal to provide completely free care or discounts to all
patients or to collect only from those who have insurance. Studies have shown that if patients are
required to pay for even a small portion of their care they will be better consumers and select
items or services because they are medically needed rather than because they are free. Routine
waivers thus raise overall health costs. They are considered fraudulent because averaging them
with the doctor's full fees would make the "usual" fees lower than the amounts actually billed
for.

Other illegal procedures include:

  Charging for a service that was not performed.
 Unbundling of claims: Billing separately for procedures that normally are covered by a single fee.
An example would be a podiatrist who operates on three toes and submits claims for three
separate operations.
 Double billing: Charging more than once for the same service.
 Upcoding: Charging for a more complex service than was performed. This usually involves billing
for longer or more complex office visits (for example, charging for a comprehensive visit when
the patient was seen only briefly), but it also can involve charging for a more complex procedure
than was performed or for more expensive equipment than was delivered. Medicare
documentation guidelines describe what the various levels of service should involve [4].
 Miscoding: Using a code number that does not apply to the procedure.
 Kickbacks: Receiving payment or other benefit for making a referral. Indirect kickbacks can
involve overpayment for something of value. For example, a supplier whose business depends
on physician referrals may pay excessive rent to physicians who own the premises and refer
patients. Another example would be a mobile testing service that performs diagnostic tests in a
doctor's office. Kickbacks can distort medical decision-making, cause overutilization, increase
costs, and result in unfair competition by freezing out competitors who are unwilling to pay
kickbacks. They can also adversely affect the quality of patient care by encouraging physicians to
order services or recommend supplies based on profit rather than the patients' best medical
interests. In 2000, the Office of the Inspector General issued a fraud alert warning against
kickbacks disguised as rental payments [5].

Criminals sometimes obtain Medicare numbers for fraudulent billing by conducting a health
survey, offering a free "health screening" test, paying beneficiaries for their number, obtaining
beneficiary lists from nursing homes or boarding facilities, or offering "free" services, food, or
supplies to beneficiaries.

Excessive or Inappropriate Testing

Many standard tests can be useful in some situations but not in others. The key question in
judging whether a diagnostic test is necessary is whether the results will influence the
management of the patient. Billing for inappropriate tests—both standard and nonstandard—
appears to be much more common among chiropractors and joint chiropractic/medical practices
than among other health-care providers. The commonly abused tests include:

 Computerized inclinometry: Inclinometry is a procedure that measures joint flexibility.

Inclinometer testing may be useful if precise range-of-motion measurements are needed for a
disability evaluation, but routine or repeated measurements "to gauge a patient's progress" are
not appropriate [6].
 Nerve conduction studies: These tests can provide valuable information about the status of
nerve function in various degenerative diseases and in some cases of injury [7]. However,
"personal injury mills" often use them inappropriately "to "follow the progress" of their patients.
 Surface electromyography: This test, which measures the electrical activity of muscles, can be
useful for analyzing certain types of performance in the workplace. However, some
chiropractors claim that the test enables them to screen patients for "subluxations" and to
follow their progress. This usage is invalid [6].
  Thermography: Thermographic devices portray small temperature differences between sides of
the body as images. Chiropractors who use thermography typically claim that it can detect nerve
impingements or "nerve irritation" and is useful for monitoring the effect of chiropractic
adjustments on subluxations. These uses are not appropriate [6].
 Ultrasound screening: Diagnostic ultrasound procedures have many legitimate uses. However,
ultrasonography is not appropriate for "diagnosing muscle spasm or inflammation" or for
following the progress of patients treated for back pain [6].
 Unnecessary x-rays: X-rays examinations can be important to look for conditions that require
medical referral. However, it is not appropriate for chiropractors to routinely x-ray every patient
to look for "subluxations" or to "measure the progress" of patients who undergo spinal
manipulation [6].
 Spinal videofluoroscopy: This procedure produces and records x-ray pictures of the spinal joints
that show the extent to which joint motion is restricted. For practical purposes, however, simply
physical examination procedures (such as asking the patient to bend) provide enough
information to guide the patient's treatment [6].

Many insurance administrators are concerned about chiropractic claims for "maintenance care"
(periodic examination and "spinal adjustment" of symptom-free patients) , which is not a covered
service. To detect such care, many companies automatically review claims for more than 12
visits. In 1999, the U.S. Inspector General recommended automatic review after no more than 12
visits for Medicare recipients [8]. Some chiropractors attempt to avoid review by issuing a new
diagnosis after the 12th visit.

Personal Injury Mills

Many instances have been discovered in which corrupt attorneys and health-care providers
(usually chiropractors or chiropractic/medical clinics) combine to bill insurance companies for
nonexistent or minor injuries. The typical scam includes "cappers" or "runners" who are paid to
recruit legitimate or fake auto accident victims or worker's compensation claimants. Victims are
commonly told they need multiple visits. The providers fabricate diagnoses and reports and
commonly provide expensive but unnecessary services. The lawyers then initiate negotiations on
settlements based upon these fraudulent or exaggerated medical claims. The claimants may be
unwitting victims or knowing participants who receive payment for their involvement [9]. Mill
activity can be suspected when claims are submitted for many unrelated individuals who receive
similar treatment from a small number of providers.

Quackery-Related Miscoding

In processing claims, insurance companies rely mainly on diagnostic and procedural codes
recorded on the claim forms. Their computers are programmed to detect services that are not
covered. Most insurance policies exclude nonstandard or experimental methods. To help boost
their income, many nonstandard practitioners misrepresent what they do. They may also
misrepresent their diagnosis. For example:

 Brief or intermediate-length visits may be coded as lengthy or comprehensive visits.

 Patients receiving chelation therapy may be falsely diagnosed as suffering from lead poisoning;
and the chelation may be billed as "infusion therapy" or simply an office visit [10].
  The administration of quack cancer remedies may be billed as "chemotherapy."
 Live-cell analysis may be billed as one or more tests for vitamin deficiency.
 Nonstandard allergy tests may be represented as standard ones.
 Services not covered because they were performed outside of the United States may be billed as
though they were performed within the United States.

Viatical Fraud

In a viatical settlement transactions, people with terminal illnesses assign their life insurance
policies to viatical settlement companies in exchange for a percentage of the policy's face value
[11]. The company, in turn, may sell the policy to a third-party investor. The company or the
investor then becomes the beneficiary to the policy, pays the premiums, and collects the face
value of the policy after the original policyholder dies. Fraud occurs when agents recruit
terminally ill people to apply for multiple policies. They misrepresent the truth and answer "no"
to all of the medical questions. Healthy impostors then undergo the medical evaluation. In many
cases, the insurance agent who issues the policy is a party to the scheme. The agent or one
applicant may even submit the same application to many insurance companies. Viatical
settlement companies then purchase the policies and sell them to unsuspecting third-party
investors. The insurance industry is the biggest victim of this fraud and could incur huge losses
(conservatively estimated at $1 billion+) within the next few years [12]. Some investors receive
nothing in return for their "guaranteed" investment.

Bogus Health Insurance Companies

The General Accounting Office has issued two reports concerning the sale of health insurance
plans that lack legal authorization. These plans place the buyer at risk for financial disaster if
serious illness strikes. One report focuses on consumer vulnerability [13]. The other notes that
from 2000 to 2002, 144 unauthorized entities enrolled at least 15,000 employers and more than
200,000 policyholders who got stuck for over $200 million in unpaid claims [14]. The
investigatirs found that many of the entitles bore names similar to those of legitimate companies.
In response to the report, the Health Insurance Institute of America is again urging the National
Association of Insurance Commissioners to create an online database of licensed health
insurance companies so that anyone can easily check the legitimacy of companies offering health
insurance products. Meanwhile, the Coalition Against Insurance Fraud offers ten warning signs
of a possible swindle:

 The coverage costs 25 percent or more below the norm, yet promises generous benefits and a
large provider network.
 The plan readily accepts people with serious illnesses and other medical conditions that other
plans normally reject.
 The insurance has few or no underwriting guidelines—the agent or rep appears almost too
eager to sign you up.
 You're approached by an insurance agent, phone or direct mail. Honest group plans normally
are sponsored by your employer—and aren't sold directly to individuals.
 The plan isn't licensed in your state, and the agent (falsely) assures you the federal ERISA law
exempts the plan from state licensing.
  The plan seems like insurance, but the agent or rep avoids calling "insurance," and instead uses
evasive terms such as "benefits."
 The agent or rep doesn't have clear answers to your questions, seems ill-informed, or avoids
sharing information.
 You've never heard of that health insurance company—and nobody else has, either.
 You have to join an "association" or "union" to obtain the health coverage. But you get no voting
rights, receive no bylaws or other material, and aren't involved in the group's activities.
 Your hospital keeps calling you to complain that your health plan isn't paying your medical bills.
Often the plan's reps keep making flimsy excuses, or stop returning phone calls altogether [15].

Anti-Fraud Programs

Several large insurance companies have joined forces through the National Health Care Anti-
Fraud Association to develop sophisticated computer systems to detect suspicious billing
patterns. The Federal Bureau of Investigation (FBI) and the Office of the Inspector General
(OIG) each have assigned hundreds of special agents to health-fraud projects. The Coalition
Against Insurance Fraud, a public advocacy and educational organization founded in 1993,
includes consumers as well as government agencies and insurers.

The Omnibus Consolidated Appropriation Act of 1997 authorized a Health Care Anti-Fraud,
Waste, and Abuse Community Volunteer Demonstration Program to further reduce fraud and
abuse in the Medicare and Medicaid programs. The program enrolled thousands of retired
accountants, health professionals, investigators, teachers, and other community volunteers to
help Medicare beneficiaries and others to detect and report fraud, waste, and abuse. The Health
Insurance Portability and Accountability Act of 1996 funded a similar program that trained
community agency workers [16]. This act also gave the U.S. Inspector General jurisdiction over
private insurance plans as well as public ones.

The Inspector General's office has recovered over a billion dollars through fines and settlements.
Its Operation Restore Trust, which began in 1995, was a joint federal-state program aimed at
fraud, waste, and abuse in three high-growth areas of Medicare and Medicaid: home health
agencies, nursing homes, and durable medical equipment suppliers. The questionable activities
included:

 Billing for advanced life support services when basic life support was provided. Documentation
may be falsified to indicate a patient needed oxygen—which is a key indicator in establishing
medical necessity for advanced life support.
 Billing for larger amounts of drugs than are dispensed; or billing for brand-name drugs when less
expensive generic versions are dispensed.
 Billing for more miles than traveled for transportation.
 Falsification of documentation to substantiate the need for a transport from a hospital back to
the patient's home. Medicare will only cover transport from hospital to home if the patient
could not go by any other means.

Allstate Insurance Company has announced that during 2004, judges and juries around the
country awarded the company more than $30 million in damages resulting from insurance fraud
schemes against the company—the result of a campaign Allstate began in 2001 to go after the
pocketbooks of fraud perpetrators in court. Since that time, the company has gotten more than
$55 million in judgments against criminals that range from individuals to sophisticated organized
crime syndicates. Unfortunately, bankruptcies and money laundering make it difficult to collect
such awards. In February 2005, Allstate reported that only $5.24 million out of the $30.81
million awarded in 2004 had been recovered [17].

 Insurance Fraud
Types of Fraud Using Insurance

Insurance fraud is a serious crime that can bring from 5 to10 years in prison

Insurance fraud is defined as an act that is committed to fraudulently receive payment from an
insurer. A large percentage of insurance claims each year can be attributed to fraudulent claims,
which cost insurers and other parties billions of dollars.

Insurance fraud can range from mild to severe. A mild insurance fraud claim can involve the
exaggeration of a claim while a severe claim can involve deliberately causing accidents or
damage to your own property or to others’ property for financial gain.

Insurance fraud can be committed by applicants for insurance, policyholders, third-party

claimants or professionals who provide insurance services to claimants.

Insurance Fraud Types

There are various types of insurance fraud around today and they include the following:

 medical provider fraud

 staged auto accidents
 insurance agent fraud
 fabricated theft reports
 worker’s compensation fraud
 fire
 healthcare

Insurance fraud, of any type, is considered a Class 6 Felony. A class 6 Felony can be punished
with imprisonment for one to five years or jail for up to 12 months and a fine of up to $2,500.
These punishments can be assessed separately or together. In most cases, felonies will remain on
a person’s record for their lifetime unless they have them removed. Felonies can be removed,
depending on the state the defendant lives in, by either taking required classes or paying fees to
the state where the crime was committed.

Enforcing Insurance Fraud

Insurance fraud is enforced in 41 states via the Enforcement Branch of the Department of
Insurance. When an insurance complaint is filed with an insurance company, the enforcement
branch of that state’s department will conduct an investigation to make sure that the claim is
legal and follows all the state’s statutes and laws regarding insurance claims. If disciplinary
actions need to be taken against the claimant then the enforcement branch of the insurance
department will do so. When the enforcement branch determines that a case needs to be
prosecuted, the case will be referred to the state’s Office of the Attorney General for prosecution
by the state.

Read more at Suite101: Insurance Fraud: Types of Fraud Using Insurance

http://law.suite101.com/article.cfm/insurance-fraud#ixzz0vM7gQeSn

Opportunistic Fraud

 THIRD PARTY HEALTH INSURACE FRAUD

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EXAMPLES
1.Lemons problem and health insurance fraud