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MOST COMMON HEALTHCARE PROVIDER FRAUD SCHEMES IN THE US
Healthcare provider fraud occurs when doctors and medical service providers engage in false and misleading practices for personal gain.
INTRODUCTION
In the era of Covid-19, healthcare fraud continues to be a growing problem in the US. And healthcare provider fraud, when doctors and other medical service providers engage in false and misleading practices for personal gain, is among the most prevalent forms of fraud in the healthcare industry.
Federal and state law enforcement agencies are devoting massive resources to crack down on healthcare fraud schemes. In fact, 2020 was a record year for prosecuting healthcare fraud in the US.
At this point, one of the most frequent questions about healthcare fraud in the US is how can healthcare fraud be stopped?
Healthcare fraud can be stopped by strict law enforcement combined with more people realizing how healthcare fraud affects everyone.
*Pro-Tip: Stay tuned for an upcoming blog on solutions to stop healthcare fraud and abuse.
While only a small fraction of people deliberately engage in healthcare fraud, even a small amount of healthcare fraud raises the cost of healthcare benefits for everyone.
Health insurance fraud hurts everyone. Recent estimates show that healthcare fraud costs as much as 10 percent of US annual healthcare expenditures, meaning that 10 cents of every dollar spent on healthcare pays for fraudulent healthcare claims.
In 2020, total US healthcare spending projections exceeded $4 trillion. By that measure, 10% of the cost of healthcare fraud is about $400 billion for 2020. That is how much everyone paid to cover the costs of healthcare fraud in 2020.
Healthcare fraud is a felony under state and federal law, and penalties include time in prison and fines.
This healthcare fraud blog series discusses the top healthcare fraud schemes in the US over time, the most common by healthcare providers, and the most recent trends in healthcare fraud. We also answer the most frequently asked questions about the investigation and prosecution of healthcare fraud in the US.
What is Healthcare Fraud?
Healthcare fraud is a crime involving the filing of false and dishonest healthcare claims. The federal government can prosecute anyone involved in healthcare fraud for either fraud or conspiracy to commit healthcare fraud. Schemes to defraud the healthcare system come in many forms.
What Agency Investigates Healthcare Fraud?
More than one federal agency investigates healthcare fraud. The Federal Bureau of Investigation, the U.S. Postal Service, and the HHS Office of the Inspector General are three agencies that share responsibility for investigating healthcare fraud.
Violators can be prosecuted primarily under 18 USC § 1347 (Health Care Fraud) and 18 USC § 371 (Conspiracy).
People inside and outside the healthcare industry can become the targets of a criminal healthcare fraud investigation by the FBI and other agencies. Potential targets include patients, payers, employers, vendors, suppliers, and healthcare providers, including pharmacists.
2020 Statistics On Federal Healthcare Fraud Cases
The Department of Justice (DOJ) prosecuted a record number of healthcare fraud cases in 2020. Reported 2020 statistics provide a window into the extent of ongoing federal law enforcement efforts to crack down on healthcare fraud.
The 2020 Annual Report of the Departments of Health and Human Services (HHS) and Department of Justice (DOJ) on Health Care Fraud and Abuse Control Program FY 2020 provides the following information on 2020 federal healthcare fraud investigations and prosecutions.
In FY 2020:
- DOJ opened 1,148 new criminal healthcare fraud investigations.
- Of those investigations, federal prosecutors filed criminal charges in 412 cases involving 679 defendants.
- A total of 440 defendants were found guilty of healthcare fraud-related crimes during the year.
Also, in FY 2020:
- DOJ opened 1,079 new civil healthcare fraud investigations and had 1,498 civil healthcare fraud matters pending at the end of the fiscal year.
In addition, the FBI reports that in 2020 its law enforcement efforts disrupted over 400 operational criminal fraud organizations and dismantled the criminal hierarchy of more than 101 healthcare fraud criminal enterprises.
Another investigative agency, HHS’s Office of Inspector General (HHS-OIG), was also very active in targeting healthcare fraud and healthcare provider fraud. Specifically, HHS-OIG reports that in fiscal 2020 its healthcare fraud investigations resulted in 578 criminal actions against individuals or entities that engaged in crimes related to Medicare and Medicaid.
Do doctors abuse Medicare? Yes, HHS-OIG firmly believes that doctors abuse Medicare and Medicaid. Thus it aggressively files criminal actions against healthcare providers who abuse Medicare.
Finally, HHS-OIG also banned 2,148 individuals and entities from participation in Medicare, Medicaid, and other federal health care programs. Most of the bans were based on criminal convictions for crimes related to Medicare and Medicaid (891) or other health care programs (316).
The intense focus on healthcare fraud, and specifically healthcare provider fraud, at the DOJ, the FBI, and HHS-OIG are only expected to rise.
What Is Healthcare Provider Fraud?
Healthcare provider fraud occurs when doctors and other medical service providers engage in false and misleading practices for personal gain. Upcoding, unbundling, accepting kickbacks, unnecessary prescriptions, and falsifying records are examples of healthcare provider fraud.
These most common healthcare provider fraud schemes are explained below:
- Charging for services not actually performed.
- Misrepresenting procedures to obtain payment for non-covered services, such as cosmetic surgery or experimental treatment.
- Unbundling services to maximize billings (unbundling – billing each stage of a procedure as if it were a separate procedure).
- Accepting kickbacks for patient referrals, bribery, and other forms of corruption.
- Providing false or medically unnecessary prescriptions.
- Waiving patient copays or deductibles and overbilling the insurance carrier or benefit plan.
- Falsifying a patient’s diagnosis to justify tests, surgeries, or other procedures that are not medically necessary and generally over utilizing medical services.
- Altering and falsifying medical records (such as diagnoses, locations and dates of service, and using unlicensed staff).
Most Common Healthcare Provider Fraud Schemes- Explained
While most healthcare providers are honest and dedicated to improving their patients’ health, some providers exploit vulnerabilities in the healthcare system to earn illegal profits.
When people question how does healthcare fraud occurs, the answer is that a large amount of healthcare fraud occurs through healthcare providers such as doctors.
There is another frequently asked question about healthcare fraud we see: why do doctors commit healthcare fraud or healthcare provider fraud when doctors have so much to lose? A common theme we noticed is that they are a basic way for doctors to increase their reimbursements from the federal government and health insurance carriers.
1. Charging For Services Not Rendered.
- Healthcare fraud investigators report numerous instances of fraud where medical providers or facilities submit claim forms to government healthcare plans and health insurance companies for services not actually provided. This crime often occurs when unscrupulous healthcare providers add extra dates and billing codes on claim forms seeking payment. Sometimes called upcoding, it is the most common method of defrauding the government. Each year, dozens of healthcare fraud cases accuse doctors of billing for services that were never rendered, or for billing for one service when a cheaper service was actually provided. Experienced fraud investigators identify this type of fraud by looking at the service dates on the claim forms and checking for documentary evidence that the patient went to the provider on the alleged service dates. For example, investigators know that when staff members see a patient, they typically document, at a minimum, the patient’s height and weight. Also, sign-in logs and appointment calendars can be helpful. To be clear, fraud investigators are not looking to nail healthcare providers of failure to document a patient visit. They are looking for a pattern of charging for services and medical care with no supporting documentation. Investigators do not rely on missing documents alone to prove intentional wrongdoing in this type of healthcare fraud case. Witness interviews are crucial to the investigation. Whenever possible, fraud investigators seek to interview actual patients, employees and former employees of medical facilities.
2. Misrepresenting Procedures to Obtain Payment For Non-covered Services (such as cosmetic surgery or experimental treatment).
- Here, the medical provider simply uses the billing code for a covered service while rendering a non-covered service. Even when a doctor or other healthcare provider rationalizes that they are providing their patient a beneficial treatment or that the patient should not suffer just because an insurer has not yet approved a treatment, these actions are still fraudulent and can subject healthcare providers to prosecution for healthcare fraud.
3. Unbundling Services to Maximize Billings.
- The practice of unbundling refers to billing each stage of a procedure as if it were a separate procedure, which typically results in higher charges. Unbundling occurs when a healthcare provider charges a comprehensive code plus more component codes. The Association of Certified Fraud Examiner’s (ACFE’s) Manual (2013) provides this hypothetical example: A correctly billed procedure for a hysterectomy would cost $1,300. Suppose a medical provider were to unbundle that procedure. In that case, the doctor might charge $1,300 plus $950 for removal of ovaries and fallopian tubes, $671 for the exploration of the abdomen, $250 for an appendectomy, and $550 for “lysis of adhesions” — for a total of $3,721. (See 1.1130 of the 2013 Fraud Examiners Manual.) The numbers in this example show why this scenario is tempting for medical providers to maximize revenues and profits quickly. No doubt, unbundling is a form of healthcare provider fraud. Unbundling is medical billing fraud where the medical provider takes a medical procedure they could bill with one code and instead use multiple codes that add up to higher reimbursement.
4. Accepting Kickbacks For Patient Referrals, Etc.
- The healthcare industry is not immune from corruption such as kickbacks or bribes. Healthcare providers have been charged and convicted for unlawfully paying for or receiving payment for referrals. Even worse, sometimes the referrals are made for unnecessary services, such as X-rays, MRIs, or prescription drugs, compounding the fraud.Kickbacks are rampant in the healthcare industry, even though it is illegal for any doctor or medical facility to receive anything of value from another doctor, healthcare facility, pharmacist, or anyone else in exchange for referrals. In addition to patient referrals, healthcare providers cannot promise to prescribe a specific medication, use a particular treatment or device, or make any medical decision tainted by cash or gifts. Generally, bribery/kickback schemes require proof of some form of “quid pro quo” (or “this for that” exchange). Prosecutors need evidence that the healthcare provider paid or received something of value in return for patient referrals. Establishing the direct connection can be challenging in some cases. Often, the alleged payments are luxury vacations, discounts, or gifts instead of direct payments in cash or checks.
5. Providing false or medically unnecessary prescriptions.
- Millions of people regularly misuse prescription drugs in the US, and this is a growing problem for the healthcare industry and federal regulators. Moreover, the street value of prescription drugs makes this type of fraud a seemingly profitable endeavor. How many people misused prescriptions in 2019? According to the 2019 National Survey on Drug Use and Health, 9.7 million people misused prescription pain relievers, 4.9 million people misused prescription stimulants, and 5.9 million people misused prescription tranquilizers or sedatives in 2019. That is a total of over 20 million people misusing prescriptions in 2019.No surprise, painkillers are the most commonly abused prescription. To obtain painkillers and other prescriptions, patients are known to “doctor shop.” Doctors and other healthcare providers are sometimes unaware that patients are doctor shopping to obtain the same or other drugs from different doctors. Other times, doctors suspect “doctor shopping” but choose to ignore the red flags. The patients may be doctor shopping to satisfy an addiction, or to sell prescription drugs for street value.In addition, patients and medical facility employees face criminal charges for stealing doctors’ prescription pads to forge prescriptions. Others attempt to change the quantity or authorized refill numbers on prescriptions, although electronic prescriptions from providers to pharmacists are curbing this fraud. Although pharmacists now more regularly validate the prescribing physicians’ DEA numbers before filling prescriptions for controlled drugs, they are often the targets of investigations into prescription fraud. For example, there are reported cases where pharmacists alter the quantity listed on legitimately received prescriptions for painkillers or other drugs, falsify the patients’ paperwork and receipts and steal extra drugs for themselves. The street value of prescription drugs being as high as it is makes schemes of this type tempting.
6. Waiving patient copays or deductibles and overbilling the insurance carrier or benefit plan.
- At first blush, people may ask why it is illegal for a doctor to waive a patient’s copay, as the harm may not be readily apparent. The illegality of routinely waiving co-pays lies in the fact that some providers waive patients’ deductibles or copayments and then submit false claims to insurance companies to make up the dollar difference. They may even bill additional false services on their claim forms to increase their gains. Moreover, they know that patients will not complain when a doctor waive the copay or deductible.It is a felony to waive co-pays, coinsurance, and deductibles for patients regularly. The practice is illegal and considered healthcare provider fraud or health insurance fraud because the healthcare provider’s claims to the insurer or government program are false, misleading, and augmented.Healthcare providers sometimes rationalize this practice by claiming that it does not give them any extra profits. However, to the extent that this practice raises the costs for health insurers and government programs, this illegal practice results in higher costs for everyone in the form of higher premiums or higher taxes. Law enforcement investigators, auditors, or fraud examiners often obtain evidence of this illegal practice from interviews with former employees or whistleblowers.
7. Over Utilizing medical services, medical facilities.
- Often, healthcare providers falsify a patient’s diagnosis to justify tests, surgeries, or other procedures that are not medically necessary. This is a way to increase profits and generally overutilize medical services.In this type of fraud, the services billed are not medically necessary. They will perform tests and exams for at least as long as a patient still has health insurance coverage. Substance abuse service providers are notorious for overutilization. Unethical healthcare providers seeking to defraud know that they can bill for extra services if they report false, serious diagnoses or procedures performed. For example, suppose an elderly patient reportedly fell inside a nursing home. In that case, the provider could knowingly misdiagnose the patient with head trauma requiring unnecessary CT scans, blood tests, and other medical services to follow up on the diagnosis. Healthcare fraud examiners report investigations in which patients were admitted for hospitalization (unnecessarily) but immediately improved once health insurance coverage ran out.Many more examples of this type of healthcare provider fraud abound.
8. Altering and falsifying medical records (such as diagnoses, locations, and dates of service).
- These are not innocuous or “minor” issues. Healthcare providers know that they can make more money when reporting they saw and treated the same patient on multiple occasions, as each “office visit” is a separate billable service. Misrepresenting dates of service is healthcare provider fraud.Misrepresenting locations of service on claim forms is also healthcare provider fraud. For example, some providers will bill for seven office visits when giving a patient seven days worth of injections to self-inject at home. Those are not office visits. And many healthcare insurers do not accept home self-injection as a reimbursable expense. Indeed, the appropriate medical procedure with many medications is to monitor patients for several minutes after injections to ensure the patients do not experience adverse reactions. In any event, reporting that patients received daily injections at the clinic when they received self-injections to take home is healthcare provider fraud. Another form of fraud involves misrepresenting who provided the medical care, and charging for the more expensive professional rather than the cheaper employee who actually conducted the patient’s therapy or treatment.
CONCLUSION
As the costs of healthcare fraud are enormous and growing, healthcare fraud prevention and enforcement is a top priority for the DOJ.
By some estimates, the financial losses due to healthcare fraud are in the hundreds of billions of dollars each year, as high as 10% of the annual health care spending in the US. Healthcare fraud means higher premiums and out-of-pocket expenses for consumers, as well as reduced benefits or coverage.
In this environment, criminal punishment for healthcare fraud is bound to remain harsh, including prison time for people convicted of healthcare fraud. Doctors who commit healthcare provider fraud can be subject especially harsh sentences given their status and ethical obligations. And doctors who commit healthcare fraud risk suspension or revocation of their license to practice medicine. Regardless of the reasons why doctors commit healthcare fraud, any doctor or other healthcare provider in the throes of a criminal investigation must be proactive to obtain a better outcome.
