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Sniffing Out Claims Fraud Before the Check is Cut

Joe McKendrick December 2007

Thanks to new technologies, carriers are unearthing fraud such as "rent-a-patient" schemes and physician upcoding.

In a health care insurance scam that knew no limits in outright audacity, two Los Angeles doctors were indicted (one has so far pleaded guilty) on fraud charges for submitting fraudulent bills and patient records to numerous insurance companies. In this "rent-a-patient" scheme, the doctors hired "marketers" to recruit people with private health insurance to undergo unnecessary surgical procedures in exchange for cash or discounted cosmetic surgery procedures. Those willing to undergo the unneeded procedures were promised between $300 and $1,200. Patients were instructed by recruiters to describe false and exaggerated symptoms that were used to create medical charts used to make the surgical procedures appear to be justified. The doctors reportedly racked up claims totaling more than $2 million before being caught. Procedures performed on the otherwise normally healthy patients included colonoscopy, sinus surgeries and thoracic sympathectomy, commonly called "sweaty palm surgery."

Unearthing such scams requires both vigilance on the part of healthcare payers and an ability to rapidly look through claims data to connect the dots on suspicious activities. Carriers not only face the challenge of detecting and forestalling outrageous schemes such as the rent-a-patient fraud, but also are tasked with detecting the even-more pervasive instances of "soft fraud," in which otherwise legitimate claims information may be fudged or exaggerated.

Although fraud has reached crisis proportions across the industry, the ability to effectively contain it is an area of opportunity for carriers, which face increasing pressure to simultaneously cut costs and improve customer service while meeting regulatory requirements for rapid claims resolution.

TIME IS NOT ON OUR SIDE

When it comes to identifying claims fraud, time is of the essence; carriers may only have a matter of days to detect it before the check needs to be cut and sent. Many carriers are stepping up their anti-fraud efforts, but often lack adequate resources to fully investigate fraudulent claims and prosecute the perpetrators. And, once the money is sent, follow-up investigations and attempts to recover the money are more costly than many companies can afford. The Coalition Against Insurance Fraud, Washington, estimates that claims adjusters and investigators detect only about 20% of the fraud that occurs, and in many cases, payments were already made against these claims.

The ability to recoup fraud losses is greatly diminished at this point, observes Kyle Cheek, director of data analytics for Health Care Service Corp. (HCSC), Chicago, Ill., the parent company of Blue Cross Blue Shield in Illinois, New Mexico, Oklahoma and Texas. "At least 3% of health care dollars are paid to fraudulent claims," he says. "Of the claims that are fraudulent, about 10% are identified, and in 10% of those identified, about 10% of the dollars are recovered. It is difficult to recover dollars after they've gone out the door."

Typically, "payers have only been able to identify fraud after claims have been paid," says Joanne Galimi, research director with Gartner Inc., Stamford, Conn. "They may have some kind of analytic tools to look at the claims data and flag claims that were potential fraud, but from there the flagged claims would be sent to investigative units, and they would have to do it all manually by paper, with no automated processes, to determine if this is indeed fraud. Then it would go through the whole litigation process, and basically, the ability to recoup those dollars is very minimal at that point."

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