There are no lack of anecdotes from people who have had close encounters with someone who has crossed the line and defrauded an insurance organization. One actuary’s story spoke of a neighbour, whose garage was broken into and the lawn mower was stolen—but, he was glad to get a new set of golf clubs from his(false)claim. A fraud investigator recounted how she was in line at a shoe store when the customer in front of her asked to have the receipt marked as “orthopedic shoes”; the sales clerk obliged and she turned to her friend and said, “My insurance company pays for most of my shoes, isn’t this great?”

So how big is the problem? What percentages of insurance claims are fraudulent? In 2005, the Canadian Health Care Anti-fraud Association in Toronto conducted a qualitative survey in conjunction with Fraudbox, a company focused on data mining as a means of detecting fraud. Results from that survey put the fraud in the healthcare system at 2% to 12%. Given that Canadians spend about $130 billion a year in healthcare costs, this estimates the cost to the system at somewhere between $2.6 and $15.6 billion. If we are right, or even just close, this is a staggering leakage to the health system, the result of which is increased costs to employers and taxpayers alike—at a time when we are struggling to make the best of every dollar that is spent.

Healthcare fraud is defined by the National Health Care Anti-Fraud Association in Washington as “an intentional deception or misrepresentation that the individual or entity makes knowing that the misrepresentation could result in some unauthorized benefit to the individual or the entity or to some other party.” This serves as a working definition for activities in Canada.

But Don Marshall, a U.S.-based fraud investigator, describes most of the provider fraud schemes as falling into one of five patterns:

1. Billing for services not rendered: the pharmacist who bills for drugs that were never dispensed;

2. Treating outside of scope of practice: the practitioner who is practising in an area for which he has no professional training;

3. Allowing unlicensed persons to treat: the untrained assistant whose work is billed as physiotherapy services(often using someone else’s billing number);

4. Kickbacks or referral payments;

5. Over-utilization/over treatment: the dentist who does work that is not required, the physiotherapist or chiropractor who maximizes the number of visits the patient comes for, in order to “milk” the plan.

Of particular note for plan sponsors are plan members who put their own spin on this—presenting claims for fictitious services; presenting claims for unlicensed practitioners; participating in kickback schemes; and milking their benefits for every dollar they can.

If the premise presented earlier is correct, fraud at sometime or another affects all benefit plans. This is an equal-opportunity crime. The perpetrators of fraudulent activity, likewise, are quite varied. There are several examples of plan sponsor, plan member, provider or supplier (medical supplies, etc.)fraud. Some examples include: plan sponsors who knowingly do not report the worker’s compensation claims and instead pass that cost on to the government or private insurers; plan members who submit fake claims—often done with access to colour printers and copiers; and selling counterfeit or grey-market products.

Several cases of health fraud have been reported(and in some cases prosecuted)in the last few years. One recent case involved a plan member who was caught sending fraudulent claims for both himself and his spouse to two large insurers. The claims totalled almost $30,000 and were only detected when an astute claims adjudicator noticed the same fancy paid stamp on receipts coming from different healthcare providers. This plan member was submitting fraudulent claims to three plans and two carriers a few dollars at a time. He was even going to great lengths to maximize his return through full use of co-ordination of benefits. One of his victims described it as “death by a thousand cuts.”

A few years back, several dentists were exposed in a CBC TV Marketplace investigative report—a reporter posing as a patient visiting dental offices was told, on a number of occasions, that she needed two to 10 times more dental work than was deemed necessary by dental consultants who had reviewed the case and her oral health in advance of the undercover story.

A dental receptionist was convicted of submitting fraudulent claims on behalf of her family, and in the process, running up claims utilization for the family’s employers. Plan members are sometimes complicit accomplices in provider fraud. There have been cases where they allow healthcare providers to submit claims using their benefit cards in exchange for a percentage of the revenue collected.

At its extreme, healthcare fraud can result in injury and/or death. There have been cases where pharmacists dispense diluted medication. In one such case chemotherapy drugs were diluted contributing to the hastened death of patients. In a recent case in Hamilton Ont., pharmacists were charged for dispensing counterfeit Norvasc, a blood pressure medication. In this case, a number of deaths are under investigation for patients at this pharmacy. In another case, two Canadians were charged with allegedly operating a fake cancer clinic in Mexico. This affected more than 800 patients, many of whom travelled to Mexico from Canada and the U.S. It is estimated that there were 12 million dollars in billings for treatment.

Both the government(Ministries of Health)and private payors have been victimized by individuals returning from overseas trips with claims for out-of-country coverage from providers and clinics that do not even exist or for others who are complicit through kickbacks in this fraud.

Through the 1990s, two groups were making attempts to address these issues. Within the Canadian Life and Health Insurance Association(CLHIA), there was an active group looking at schemes and trends in the area. Similarly, the members of the Association for Claims Exchange(ACE) established an audit committee in 1995, primarily to deal with issues that were emerging in the electronic commerce arena. In 2000, the Canadian Health Care Anti-fraud Association was formed by public and private payors to provide a common force in the fight against fraud and to work diligently to root out fraud whenever and wherever it occurs, as well as to restore the integrity of the healthcare system.

These are lofty goals, and indeed, quite the challenge—but this is the challenge for the industry and its partners. Through working together, the association has raised the profile of healthcare fraud with the public healthcare providers and plan sponsors. Members share information on fraud trends and best practices in the detection and prevention of fraud. This raises the standards across the industry—putting more and more benefits administrators and claims adjudicators on higher ground.

Every plan sponsor knows that fraud increases the cost of health benefits and this results in increased costs in the products and services in economy. Working together, the industry needs to raise awareness in the public that fraud costs everyone. It costs us as taxpayers as well as consumers. In addition, there are tangential costs when employees do not return to work as quickly as they should.

We need to engage the public, plan members, plan sponsors, human resources professionals, brokers, benefit consultants, third-party administrators, benefits managers and insurers in this fight. The more people who are aware of the problem and who serve as part of the detection system, the better off the system will be. Specifically, plan sponsors have a role to play in the full cycle—from prevention to detection, investigation and prosecution of health fraud.

So what are plan sponsors supposed to do? Prior to current privacy legislation, plan sponsors had more access to detailed claims information. One could see the errant claims behaviours of an individual plan member. In today’s world, plan sponsors have to rely on having a good benefits administration partner—whether this be an insurer, non-profit benefits provider or third-party administrator. Employees must choose a benefits administrator who has made commitments and stepped up to emerging standards of practice in the area of anti-fraud. They should also be held accountable for ongoing efforts and continuous improvements in their counter-fraud initiatives.

Plan sponsors can focus on making plan designs more fraud resistant. Co-pays and deductibles encourage plan members to be partners in scrutinizing claims that are submitted on their behalf. In some benefit areas, capping the benefit over a defined time period(similar to what is done for vision care)is being recommended. Most plans have seen increased utilization for orthotics, medical stockings and other medical supplies. Many plans are implementing caps for these benefits as a way of controlling costs over time.

Plan sponsors should encourage their members to be a partner in ensuring that their benefit dollars are optimized. Encourage all plan members to check the Explanation of Benefits(EOB)provided by the carrier and/or the receipts they get from a provider for the services performed or products dispensed for its accuracy. If the carrier sends a member an EOB and she doesn’t recall having been with that provider at that time and place they should report this. When members hear colleagues talking nonchalantly about aberrant behaviour, pass the message on, let them know that this problem is real and they should not take it lightly. If everyone embraces the notion that this is their money that is being wasted, then we can raise the pressure on the abusers.

Rather than “look the other way,” if plan sponsors or plan members suspect or know of a case of health fraud, plan sponsors have several options. They can report this activity anonymously through many of the tip lines that benefit payors maintain on their Web sites. Employers can call law enforcement directly—if they think it serious enough to be able to catch their attention and interest. And, if possible, let the perpetrator know that you think his activities are fraudulent and that you will be reporting him.

While it is extremely important to detect fraud, it is equally, if not more important, to prevent fraud from occurring in the first place. Plan sponsors can be a part of the overall awareness campaign and make sure plan members are aware of the consequences of submitting fraudulent claims.

Joel Alleyne, the executive director of the Canadian Health Care Anti-fraud Association, is in Toronto.

For a PDF version of this article, click here.