New Developments in Health Care Fraud Schemes

Background

In a recent The United States General Accounting Office report on health care fraud entitled, Schemes to Defraud Medicare, Medicaid, and Private Health Care Insurers, The GEO discusses emerging trends and schemes in health insurance fraud committed against both governmental health plans (Medicare & Medicaid) and private health insurance companies. The report stresses several points on developing trends and characteristics of health care related fraud. These include:

  • the increasing involvement of career criminals and organized crime groups in health care fraud related schemes,
  • the concern that health care related fraud has become a significant drain on the resources of the American health system, impacting federal and state health plans as well as commercial health insurance products,
  • the cost to Medicare of fraud and abuse for fee for services claim payments alone was estimated to be $13.5 billion for fiscal 1999, and,
  • the growth of new fraud sources designated as rent-a-patient, drop box and third party billing schemes has become significant.

These new schemes have several common characteristics.

  1. Unlike provider related health care frauds, many perpetrators of these schemes have no significant medical or health care education, training, or experience. Frequently they have prior criminal histories for economic fraud, drug dealing, theft or forgery.
  2. The schemes rely heavily on obtaining legitimate patient medical and insurance information, which is then used to bill for bogus services or equipment.

The remainder of this update will explain the operation of these new non-provider based schemes, outline the steps the federal government proposes to reduce fraud from these sources and suggest practical steps that consumers, especially seniors, can take to prevent health insurance fraud.

Rent-a-Patient Schemes

In rent-a-patient schemes, organizations in the "health care business" either induce individuals to go to clinics for unnecessary tests and cursory examinations, or buy the health insurance information of unsuspecting citizens for fraudulent billing purposes. Such schemes usually use"recruitors" in housing projects, retirement communities or malls to drive people to clinics and pay them a small fee. The clinic performs a cursory examination and uses the patient’s health information to bill Medicare, Medicaid or private insurers for expensive tests or medical equipment. Medical information may also be obtained from unsuspecting consumers under the guise of "free testing" or screening for hearing disorders, or high blood pressure, or by outright theft from medical offices. In some cases licensed doctors are paid to sign charts for services they neither perform nor supervise, or falsify certificates of medical necessity for medical equipment.

Pill Mill Schemes

Pill mill schemes divert prescription drugs to obtain fraudulently billed reimbursements from insurers. Patients participate with criminal pharmacies, providers and middlemen distributors in exchange for cash, drugs or other pay-offs. The scheme seeks to locate individuals who will allow their insurance information to be used to bill prescriptions to insurers, middlemen working with the "patients" then resell the drugs back to pharmacies for cash. In addition to the financial fraud on the health plans, this scheme exposes later innocent purchasers of the recycled drugs to potential harm, if the drugs are not stored or handled properly, or where potency may have been altered or expired.

Drop Box Schemes

The drop box scheme involves the use of a private mail box in a commercial mail receiving agency (CMRA) to establish an official "provider" address to receive fraudulently billed payments. Criminals use the drop box together with dummy corporations to open bank accounts in order to deposit fraudulently obtained claim checks. Once deposited, the proceeds are quickly converted to cash or transferred to other accounts offshore or beyond the reach of authorities. Often criminals will steal an innocent person’s identity to set-up the accounts, substituting their own picture on the documents required for identification or for banking transactions.

Third Party Billing Schemes

Medicare, Medicaid and many commercial health insurance plans allow third-party independent billing companies to process claims and payments. Criminals have used this legitimate process to transact billing fraud and depend on the sheer volume and complexity of the billing process to cover their fraud. Such schemes may take several forms. In one case, criminals generate fraudulent computerized claims by using the names and data of recruited individuals. The information is downloaded and given to the third party billing company that may or may not be involved in the fraudulent billings. The third party biller then enters the information into its computers and bills Medicare, Medicaid or a commercial insurer. Payments are then sent from the health plan to the third party biller for the fraudulent claims along with legitimate payments.

Another alternative in this scheme involves a company that poses as a health services provider which also functions as a broker of medical services. In this case, the company submits health insurance claims on behalf of contracted doctors or providers through a legitimate third party biller and adds claims for services not provided. The broker company then receives both the payments and the benefit statements from Medicare or the health plan for the claims. Since the doctors or providers do not receive the benefit statements, they are not aware that the broker is adding claims and keeping the payments for the fraudulently billed claims.

Steps to Reduce Health Care Fraud from these Schemes

The Federal government is proposing several legislative and technical steps to reduce health insurance fraud. Legislation has been proposed to require a universal product number (UPN) for all medical equipment claims in order to make billing easier to audit and to enable inspectors to check the inventory purchases of suppliers. Legislation has also been proposed to make the purchase, sale or distribution of two or more Medicare or Medicaid numbers a felony with the object of making trading in health insurance information a specific crime.

To combat pill mill and mail drop frauds against Medicare, legislation has been proposed to require all billing entities to be registered with the government and have a unique billing number as a condition to bill any claims to Medicare. The objective of this provision would be to easily identify specific billing entities and to make them directly responsible for their filings. Finally, criminal investigators for federal agencies charged with fighting health care insurance fraud would be given full law enforcement authority to perform investigations and make arrests.

The Practical Steps that Consumers, can take to prevent health insurance fraud

Citizens can help combat rent-a-patient fraud by safeguarding their insurance numbers and identification documents and by checking explanation of benefits received to ensure only services they have received and needed were billed to the health plan. A high degree of skepticism should be maintained for any offers of "free" medical testing or services. Often these are just ruses to get medical insurance information.