Controlling Medical Fraud in Health and Property/Casualty Insurance

By Dr. Barry L. Johnson

At the 2009 Insurance Fraud Management Conference (sponsored by ISO and the National Insurance Crime Bureau), one key speaker identified medical schemes as the single most significant fraud issue facing the property/casualty industry this year. Several of the conference breakout sessions expanded on the medical fraud theme. Statistics quantifying the projected size and growth rate of medical fraud in property/casualty insurance claims support the concern that the problem is increasing and is relatively uncontrolled compared with other traditional property/casualty risks — including risks managed by sophisticated methods of prevention, detection, and recovery.

The budding focus on medical fraud prevention in property/casualty claims comes at an opportune time. It coincides with the new administration’s announced emphasis on reducing fraud and abuse in healthcare claims, viewed as part of the overall solution to controlling escalating healthcare costs and funding coverage for uninsured Americans. At this moment in history, the healthcare and insurance industries have the rare opportunity to make significant progress through a mutual effort with the government, working toward a common goal that will benefit everyone.

We see counterintuitive trending in the property/casualty insurance industry that reveals declining accident and injury rates juxtaposed with an alarming rate of rising medical costs. The Insurance Research Council (IRC) estimates that 18 to 27 percent of bodily injury claims and 12 to 17 percent of personal injury protection claims contain the appearance of buildup or fraud. In the healthcare industry, fraud and abuse losses waste an estimated $70 to $255 billion annually and contribute to ballooning healthcare expenditures. The alarming reality is that billions of dollars are wasted every year on fraudulent payments for medical services of all types. This exploitation targets both the insurance industry (property/casualty as well as healthcare payors) and state and federal government health programs. The perpetrators of the fraud range from providers and insureds to organized crime rings.

Who bears the cost of the billions of dollars wasted every year to reward greedy healthcare providers, dishonest claimants, and professional criminals? Most consumers believe the only victim of the fraud and abuse epidemic is the insurance industry, but that’s simply not accurate. The general public doesn’t associate the cost of fraud with the problem of constantly increasing rates for health insurance. Even the property/casualty insurance industry can mistakenly legitimize this perception because rates are generally stable due to improved risk management and discounting. In turn, this makes it difficult for the public to associate fraud with any increase in personal insurance rates. However, consumer attitudes and confusion about fraud should soon change as a result of antifraud and waste messages from governmental agencies, regulators, and politicians.

As consumers become more informed about healthcare fraud, they will also become progressively more aware of the economic impact realized on a personal level. With increasing unemployment and the growing stresses on the average American household’s finances caused by the economic downturn, we can expect the public will soon demand action from the entities responsible for dispersing payments to dishonest providers and fraudulent consumers.

In the current climate, regardless of initiatives insurers already have in place, there are two essential components to establishing a perceptibly improved fraud prevention program. The first and most crucial initiative is to empower consumers with the tools to detect, report, and prevent questionable bills and claims. That type of empowerment requires insurer hotlines, websites, and newsletters to communicate antifraud information, answer questions, and reward individuals who report and document fraudulent claims submissions or inaccurate bills. Each insurer should have seasoned fraud investigators teamed with ­commu­nication experts to implement a program designed to assist consumers in fighting fraud.

The second initiative is an internal corporate commitment and mindset to combat healthcare fraud. This can be accomplished by a staff of trained medical fraud analysts armed with data and diagnostic tools. A far more cost-effective and targeted approach may be to engage a vendor with healthcare antifraud expertise. Healthcare fraud detection and prevention require not only data modeling and other advanced analytic tools but also demand clinical knowledge, including medical, dental, and ­pharmaceu­tical expertise to identify sophisticated fraud schemes, properly investigate them, and accurately pursue the recovery of funds.

Albert Einstein is quoted as saying, “The world is a dangerous place, not because of those who do evil, but because of those who look on and do nothing.” In that light, insurers should view fraud as a growing problem that affects the majority of citizens and society. They can inform, educate, assist, and empower consumers. Payors can serve notice on those who defraud the system that they will be discovered, pursued, and prosecuted. And finally, insurers and healthcare providers can team up with commonly aligned organizations to share information and focus antifraud efforts. As an industry, insurers and their partners can use a host of modern tools and techniques to be visionary, preemptive, and proactive in the prevention and prosecution of fraud.

Dr. Barry L. Johnson is president of ISO’s HealthCare Insight unit. HCI provides healthcare claims payors with a comprehensive suite of cost-reduction services focused on identifying and preventing healthcare fraud, abuse, and overpayments. HCI’s services are integrated into all claims-adjudication operations and are affordable for payors of all sizes. Each of HCI’s customizable software as a service (SaaS) solutions relies on a prepayment process that combines proprietary software systems with detailed review by physicians, nurses, dentists, and investigators on all suspect medical bills and billing patterns. HCI’s differentiated process enables payors to target fraud with greater efficiency by increasing the quality of results while decreasing the total number of false positives. To learn more, visit www.hcinsight.com.