When it comes to healthcare fraud, most Special Investigations
Units (SIUs) within insurance companies focus on the recipients of
the largest benefits: the healthcare providers. Scams committed by
this faction often are serial and result in huge monetary losses.
As fraud examiners, we intrinsically "follow the money."
But what about the patients, or insured subscribers, who
defraud the system? These perpetrators typically swindle smaller
amounts of money and are one-time offenders. Because the monetary
losses typically are minimal and the cases often cost more to
resolve than what will be recovered, many fraud examiners place
these cases on "the back burner" in favor of the larger,
serial crimes of the crooked providers. But there's a flaw in this
approach. Consider the following analogy.
Bream fishing is a popular activity across much of the country
and one that I particularly enjoy. Sometimes, as fast as you can
put the bait in the water, the little fish will jerk your line
downward and nibble away at the bait. What you want, however, is
the larger fish that swim at the bottom of the lake, so you pull
up your empty hook and bait it again, hoping to sneak past the
less-rewarding catch the next time around. Over time, you manage
to hook a few more of these little fish, but you throw most of
them back without giving them much thought. They're not worth your
time.
When you left the bait shop, you had about 100 crickets. You
expected this to last most of the day, but before you know it, you
have no more crickets and only a couple of large fish. You begin
to understand that all those little fish you've dismissed have
caused real damage.
Does this sound familiar? Are you responding to insured
subscriber fraud only after the fraud has become significant? Many
wayward subscribers defraud insurance companies only once to
fulfill an immediate or short-term need, but sometimes individuals
find it too easy to make quick cash and they become serial
offenders. That's when these small "fish" become
embarrassingly large. As SIUs, we need to consider ways to catch
these menacing minions before they get away.
Sometimes it's a happenstance discovery of a serial case that
makes you reconsider your approach to insured subscriber fraud. As
you read the following case example, consider what policies your
SIU has in place right now to detect this type of activity. Could
this happen to you?
Jenny was no stranger to fraud. She had served time in
prison for insurance fraud and had become even savvier about the
crime while there. Back on the streets, she immediately put her
newfound skills to work and began making money the easiest and
quickest way she knew how.
Jenny created Ax-C-Dent Rehabilitation Center Inc. Ax-C-Dent
shared a physical address with a dress shop, but Jenny opened a
post office box as the billing address. From experience, she knew
that the insurance company wasn't likely to check the physical
address of her business, because insurance was built on trust.
Also, Ax-C-Dent wasn't open to the public; Jenny only needed to
appear legitimate on paper.
To set her plan in motion, Jenny needed health insurance, so
she obtained a contract under her maiden name and began paying her
premiums. Then, posing as Ax-C-Dent's office manager and using her
married name, Jenny contacted her insurer and enrolled her shell
company with the insurance company's provider networks. She used
the names of several area physical therapists, without their
knowledge, to legitimize the company.
Jenny then went to a medical doctor and complained of pain. The
doctor gave her a prescription for physical therapy. Now she was
halfway there. She took the physical therapy receipt and had it
photocopied, being careful to remove the date entry so she could
use it again. Jenny then visited a physical therapist and obtained
a receipt for her visit. She now had what she needed. From the
physical therapist's receipt, she had the medical procedural codes
to make her false claims look valid. She had this receipt
photocopied as well (without the date), so she could attach it to
her fraudulent claims.
Jenny stayed in business for more than a year; she was careful
not to bill her false invoices on Sundays and holidays. After a
year, however, Jenny decided that Ax-C-Dent had made too much
money to remain undetected. She consequently changed her shell
company's name and address. I.M. Crooked & Associates would be
her new moneymaker.
Jenny continued to file false claims and receive money for
another year. All her claims looked alike: same procedural codes
and same charges. Only the dates differed. But one day she made a
grave error: Jenny filed too many claims at once and it prompted
the claims processor who handled the account to comment on his
workload to another employee. Coincidentally, this employee knew
Jenny and was familiar with her shady past. The company's SIU was
alerted and a fraud examination commenced. Sometimes, coincidence
can be essential to a fraud's detection.
It didn't take long for the SIU to determine what had occurred.
Both companies had only one patient for I.M. Crooked &
Associates: Jenny - the same Jenny who was also the office manager
and the person cashing the checks. Her luck finally ran out, but
not before she netted more than $250,000! Jenny pleaded guilty to
healthcare fraud, and, because of her prior record, she received a
46-month sentence in prison.
The Frontline Defense
When focusing on systematic and complex provider schemes, you
can gather historical data on multiple suspect patients and
perform trend analyses and peer comparisons to uncover fraud.
However, detecting insured subscriber fraud requires a different
approach.
Perpetrators of insured fraud simply lack the procedural
coding, medical terminology and claim-filing knowledge to
orchestrate the long-term frauds committed by providers.
Consequently, trying to detect these scams through historical data
and trend analyses is nearly impossible. To catch frauds committed
by subscribers, it's best to train your "frontline"
claims processors simply to recognize red flags, or fraud
indicators, on submitted claims. Providing a list of fraud
indicators as a desktop reference for your claims handlers (see
Exhibit 1: Signs of a Suspicious Claim) is an effective tool.
Consider what you define as suspicious activity and then train
your claims processors how to recognize those signs. You could
have the processors circle the applicable suspicious activity on
their reference sheets and then forward that paperwork along with
the original claims to the SIU. Be sure to emphasize, however,
that the suspect claims must be submitted absent of any marks or
notations. You want the processors to recognize red flags, not
perform diligent investigations. This method usually will generate
a substantial amount of suspicious claims to the SIU - some of
them valid, others merely false alarms. However, it's a
constructive first step in fighting potential insured subscriber
fraud. A frontline defense was successful in detecting the
following case.
Susie was a kindhearted woman who loved her friend John.
When John was diagnosed with terminal cancer, Susie vowed to stay
by his side until the end. She visited John every day in the
hospital and continued to stay with him when he went home to die.
She changed his bedding, cooked his meals and took him to the
doctor. The day finally came when John succumbed to his sickness.
Susie was devastated and she grieved.
Then Susie got greedy. She decided that her services to John
were no different than the services of a valid home-health agency,
and she was due compensation. Susie found a way to obtain an
insurance claim form, and she filed home-health services for
$10,000.
An alert processor, who had received in-house fraud prevention
training and was given a suspicious claims indicator desk
reference tool, noticed that Susie's claims contained several red
flags, including:
-
Susie wasn't listed in the network database as a provider;
-
Susie used abbreviations to describe her services rather
than recognized procedural codes;
-
John was receiving legitimate home-health services while
simultaneously receiving Susie's "services"; and
-
John was in the hospital when Susie rendered most of her
"home" services.
With the aid of a state fraud examiner posing as an insurance
company representative, the SIU interviewed Susie and obtained a
confession. She pleaded guilty to insurance fraud. The judge
ordered two years of probation, a fine, and an assignment to write
an essay stating why it's wrong to steal.
Ad Hoc Reporting
Because providers are the customary recipients of direct
payments from insurance companies, it's worth examining cases in
which the insured subscriber receives large amounts of direct
payments. An ad hoc report that identifies direct payments to
insured subscribers can highlight potential abuses when monitored
over time.
Ad hoc reports are extremely useful because they not only
identify potential fraud but any activity that may result in
erroneous payments. For example, an ad hoc report identifying
providers and insured subscribers with the same name could
identify providers treating themselves or family members - a
practice usually excluded in healthcare coverage.
An ad hoc report detected the scheme in the next case study.
The insured subscriber had been committing this scheme long before
the ad hoc report was created and would probably still be carrying
it out if not for the report.
Bob worked as a pharmacy technician for a small pharmacy,
where he regularly had access to the computers that stored
transaction records. At night, Bob worked at a neighborhood
bar owned by his friend Tom.
Tom had Hepatitis A. He had been given a prescription to treat
this condition, but the medicine was expensive at more than $1,000
a vial. Tom didn't have this kind of money, but he did have
insurance. He soon came up with an idea. What if he filed claims
for the medicine but never actually received it? There would be no
out-of-pocket expenses, so Tom could make straight profit. He even
could enlist Bob's assistance and pay him a kickback.
Tom contacted Bob, who immediately began providing fake
receipts for Tom's medicine. Tom attached these receipts to his
claim forms and submitted them to the insurance company. The money
soon started rolling in.
Bob knew, however, that the Drug Enforcement Agency (DEA)
routinely audited records, and if he reported Tom's drugs as being
dispensed, the inventory wouldn't match. To throw off detection,
he created a dummy account and recorded all the fake prescriptions
in this account. However, the DEA would never see these records.
Only if the insurance company called to verify services would
these papers come in handy.
What Bob didn't know, however, was that the insurance company
had implemented an ad hoc report to identify insured subscribers
who received substantial amounts of benefits. Tom instantly topped
the report. The insurance company auditors visited Bob and asked
him to verify the services and Bob gave them the falsified account
records. What Bob didn't realize was that these
"auditors" were actually undercover fraud examiners, and
they had many questions about Tom's claims.
Instinctively, the fraud examiners felt Bob was too
accommodating during the interview, and they found it strange that
the other pharmacist at Bob's work knew nothing about Tom, yet Bob
seemed to know everything. A few weeks later, the fraud examiners
decided to visit Bob a second time to retrieve the invoices to
support the receipts. Bob stalled the fraud examiners but assured
them that he could produce the records.
Unbeknownst to Bob, at this point, the fraud examiners already
knew the drugs never were purchased. They had been working with
law enforcement officials and the pharmacy's suppliers. They
played Bob's game anyway and left the pharmacy. They hoped Bob
would build upon each lie until he was buried too deep to get out.
With the auditors and investigators hanging around, Bob and Tom
knew that their luck was running out, even though they had
succeeded in avoiding detection for two years and had netted
$250,000. The pair knew they had to think of another plan - and
quickly. Because Bob couldn't produce the requested invoices, they
decided the pharmacy would have to burn in a fire, forever
destroying the documents in question.
The crooked pair looked for a "torch," or arsonist,
to set the blaze and they soon found one. To their demise,
however, the torch also happened to be a local snitch. And that's
exactly what he did.
With the snitch's information, law enforcement agents were able to
obtain an expedited search warrant. They raided the pharmacy and
seized everything, including Bob and Tom. Now, instead of living
on easy street, the two crooks faced charges of insurance fraud,
money laundering and theft.
Detection tools can bring to light suspicious activity,
identify potential losses, and serve as predication for initiating
fraud examinations. It's important, however, to realize that we
must still rely on our skills and expertise as fraud examiners.
Had the fraud examiners in the last case ignored their instincts,
they might have taken Bob's faked records at their apparent value
and ended the investigation. The ad hoc report tool identified a
suspicious activity, but it was the fraud examination that
confirmed the fraud.
Recovery from insured subscriber fraud is small, but isn't that
the best justification for early detection? If you can't recover
the money, then you should be concerned with stopping it from ever
leaving. Do you add more value to your function as an SIU by
stopping a $1,000 loss from occurring or by identifying a $100,000
loss you never may recover? To borrow from the proverb, remember,
"An ounce of prevention is worth a pound of cure."
