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Article Excerpt
IN 1993, ATTORNEY GENERAL JANET RENO DECLARED HEALTH-CARE fraud the "number two crime problem in America" after violent crime--a remarkable status for a category of white-collar crime. In 1995, FBI Director Louis J. Freeh testified that cocaine-traffickers in Florida and California were switching from drug dealing to health-care fraud. The traffickers had discovered that health-care fraud was safer, easier, and more lucrative than the drug trade, and carried a smaller risk of detection (Freeh, 1995: 2). In 1997 the New York Times reported that mafia families in New York City and New Jersey were abandoning their traditional lines of business (extortion and bid-rigging rackets) in favor of new criminal enterprises, including health insurance (Raab, 1997: A1, B4). In 2003, Columbia HCA, America's largest hospital chain, finalized a $1.7 billion settlement with the U.S. Department of Justice, the largest in history, following 10 years of investigation into an array of whistleblower allegations (Department of Justice, 2003). In July 2008, Abner and Mabel Diaz, a couple in Miami Lakes, Florida, pleaded guilty to fraud, admitting they had submitted to Medicare $420 million in false claims for medical equipment (Weaver, 2008: 1).
All sorts, apparently, find attractive opportunities in health-care fraud. But why steal from the health-care system? Perhaps because, at least in the United States, that's where the money is! No other nation on earth spends as much on health care as the United States, where health care expenditures for 2006 (the last year for which reliable figures are currently available) reached $2.1 trillion (CMS, 2006: 1). Projections for calendar year 2008 put total costs at $2.4 trillion, equivalent to $7,868 per person or 16.6 percent of GDP (CMS, 2007, table 1). The future of American health care looks even more expensive, with costs projected to outpace economic growth by an average of 1.9 percent per year, so that by 2019 health care will account for 19.5 percent of GDP (CMS, 2007: 1). Current spending levels for the United States are roughly double the average for other Organization for Economic Cooperation and Development (OECD) countries, and several countries (for example, the United Kingdom, Holland, Denmark, Japan) enjoy significantly better medical outcomes spending less than half as much.
Health-care economists, in their attempts to explain how America spends so much compared with others yet fares worse in medical terms and leaves roughly 16 percent of the population without health insurance coverage, pay little attention to the possibility that fraud contributes substantially to these costs. Scandals abound in which a person or business is discovered to have stolen millions of dollars from health insurers without supplying any legitimate medical care at all. Nevertheless, reliable data regarding the underlying extent of the problem does not exist. Each scandal can be interpreted as evidence of"a few bad apples, thankfully detected, amidst an otherwise sound system," or as "the tip of an invisible iceberg." Each stakeholder group can choose whichever interpretation it prefers, and the majority prefer not to consider the possibility that the integrity of major public programs--such as Medicare and Medicaid, each of which now consume more than $400 billion in public funds each year--has been severely undermined by criminal enterprise.
STRUCTURAL FEATURES OF THE U.S. HEALTH SYSTEM
The financial and operational structure of any given health-care system profoundly affects the types of fraud liable to emerge within it. Transparency International's Global Corruption Report for 2006, focusing on corruption in health care, presents a wonderfully broad survey of health-system structures worldwide, and the distinctive patterns of corruption that emerge within them (Transparency International, 2006).
The following structural features of the American system help to account for the distinctive nature of the major fraud types that appear here:
* Fee-for-Service structure: Reimbursement for medical providers is mostly on a fee-for-service basis. Bills are presented to insurers by health-care providers, their staff, or billing agents; and the veracity of these claims is generally assumed, in the absence of any obvious indication to the contrary.
* Private-Sector Involvement: Private-sector entities provide the majority of health-care services. The insurers can be for profit, not for profit, or public. Purchasers of health-care insurance can be individuals, corporations, unions, associations, or public entities. For the majority of working Americans, the purchaser of their health-care insurance (that is, their employer), their insurance company, and their health-service providers are all nongovernmental entities.
* Highly Automated Claims-Processing Systems: The majority of health-care claims are now submitted electronically and processed automatically by computerized, rule-based systems. If the claims satisfy the criteria encapsulated within the edits and audits built into the system, then automatic payment follows, generally without any human involvement. Most claims paid, therefore, are not subject to any human scrutiny.
* Processing Accuracy Emphasized Over Verification: Claims-processing systems, designed with honest but possibly overworked and error-prone physicians in mind, do little or nothing to check that services billed were actually provided, or necessary, or that patients' diagnoses are genuine. Controls serve to ensure that claims are presented correctly and processed accurately: rule-based software checks that the prices charged are within appropriate limits, that the treatments lie within the bounds of policy coverage, and that the combinations of diagnoses and procedure codes represent orthodox medical practice. The implications for fraud perpetrators, who may choose to submit claims that are totally unwarranted or fictitious, is that they must take great care to submit their bogus claims correctly. Provided they learn to make the claims appear normal, then they remain free to lie. They can fabricate entire medical episodes and submit the resulting bills without the patient's knowledge.
* Postpayment Audits Focus on Medical Appropriateness, Not Truthfulness: A small proportion of claims paid may be selected later by insurers for postpayment utilization review (PPUR). Fraud perpetrators can generally beat such audits by taking the simple precaution of fabricating medical records to match their fictitious claims. Prevailing audit practices at the PPUR stage involve mailing requests for copies of the relevant medical record to providers. A medical record, once received, is then reviewed and compared with the claim or claims it is supposed to justify. Providers have plenty of time (typically 90 days) to prepare and provide such medical documentation, and the subsequent "desk-audit" accepts the documents provided as true, and uses them primarily to test the orthodoxy and appropriateness of the provider's treatment patterns. Fraud perpetrators subject to such reviews may therefore be required to lie twice, and consistently, in order to pass these audits. All but the least sophisticated perpetrators routinely generate matching medical records at the same time they produce their fraudulent claims, just in case anyone ever asks to see them.
The predominant forms of fraud, given this combination of factors, consist of overprovision of services based on false or exaggerated diagnoses, and billing for services that were not actually provided. Claims involving some material misstatement or deception are broadly termed false claims. The deception may relate to the diagnosis for the patient, or to the treatments provided, or both. Diagnoses and procedures may be exaggerated (which is called "upcoding"), or totally fictitious. The false claims problem remains the most blatant, extensive, and poorly controlled fraud issue within the health system.
The false claims problem is not the only fraud problem, of course. In the last five years significant attention has been paid to the behavior of pharmaceutical companies--in particular, to aggressive and deceptive advertising practices, off-label promotion of drugs (promoting uses not approved by the Food and Drug Administration), price manipulation, and improper "detailing" techniques (offering illegal inducements for physicians to prescribe specific drugs).
Alternate financial structures have also been introduced within the health industry that fundamentally alter the prevailing incentives, and thus alter the types of fraud liable to appear. Managed care programs that involve capitated payments reimburse providers a fixed amount per patient per month, regardless of the level of service the patient consumes. Managed care organizations, receiving capitation payments, therefore acquire an incentive to deny services, or under-provide, rather than to overuse or overbill. When managed care gained a substantial foothold in the industry, many officials believed it would "structurally eliminate fraud." In fact, what happened--given that as the structure changed many of the same bad actors remained in place--was that those inclined to cheat and steal quickly adapted to the new incentives. Fraud, under managed care, involves denial of services, substandard care, and construction of a daunting array of logistical and administrative obstacles for patients to navigate in order to be served. The resulting patterns of abuse involve diversion of resources away from frontline health-care delivery, and bring serious consequences for patients' health, sometimes death. Within the managed-care arena, as fraud became more dangerous to patient health, it also became harder to detect and to prosecute. (Sparrow, 2000: 98-113)
The advance of managed care has slowed somewhat over the last five years, and even slipped into reverse...
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