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You are a health care insurance executive. You suspect your company is being ripped off by certain medical professionals, or policyholders, or even your own employees. Your suspicions are not based solely on your imagination, but on facts which pass all the tests of reasonableness; customer service inquiries from policyholders about services paid for but not delivered; pharmacy claims reports indicating aberrant levels of certain brand medications being billed by certain pharmacies; operational reports that reveal specific provider reimbursement levels skyrocketing above the norms; data analyses indicating extraordinary levels of particular procedures being performed; or any myriad of other indicators.
What can you do? What should you do? What are the risks of liability if you initiate inquiries or actions? What is your responsibility to your company … to your policyholders … to your employees? What are the risks if you fail to act?
It is an oft-heard lament that insurance companies don’t do enough about fraud. In the January/February edition of The John Cooke Fraud Report, Dewey H. Kim, Jr., Deputy Attorney General, State of Hawaii, when asked by an interviewer, “What if a major insurer called you this afternoon?” replied, “But they don’t call.” He added, “Why should one come forward and put itself on the line?” The implication being, why take the risk of publicizing an organization’s perceived lack of management oversight and/or initiating action that could result in protracted and expensive litigation? Deputy A.G. Kim also went on to mention the commitment of manpower required for the kind of investigations that would lead to convictions.
John Tripodi, President of Heritage Information Systems, Inc., of Richmond, Virginia, has dealt with these issues over the past 15 years and believes there are ways to address them – effective ways. He suggests the application of forensic audit techniques with a focus on finding fraud. Then, when fraud is found, Tripodi suggests producing an audit findings report that practically “gift wraps” a case and conviction for the prosecuting law enforcement agency.
On those cases where prosecution is not possible, the professional forensic-based audit philosophy still assures the identification of evidence needed to support less stringent measures (ie. civil process, negotiated recovery, network restrictions, etc.) Tripodi states that “negotiated recoveries can only be completely successful if undertaken from a position of strength. I can’t emphasize strongly enough the need for insurance executives to take a hard line against fraud, but to not approach it in a haphazard manner. It should be done with professional assistance; experts who have a proven track record of success. A less than thorough audit or slipshod internal review can result in the insurance company not only holding the bag financially, but facing potentially expensive litigation – circumstances that are an invitation for abusers to continue their gregious activity.”
Why don’t some insurance companies do more about fraud? John Burry Jr., President and Chairman of the Board of Blue Cross Blue Shield of Ohio, is not familiar with this mentality. BCBSO is nationally recognized for their aggressive proactive approach to investigating fraud. In the eleven years of their fraud unit’s existence, investigations have resulted in 402 indictments, over $26 million in savings and recoveries and a conviction rate of 93 percent. Mr. Burry implemented the first such proactive, prosecution oriented investigation unit when he was Chief Financial Officer of the Michigan Blues in the late 1970’s. He commented, “Insurance companies have a responsibility to protect policyholder funds and a right to protect themselves from being victimized. BCBSO wants crooks to know they are taking a big risk by stealing from us and our policyholders. Our investigators fight fraud with vigor; they are professionals and they do the job right.”
Richard Rob, Manager of Investigations for BCBSO recently commented on his department’s success. “Risks of adverse litigation are reduced to an absolute minimum by adhering to proven, time tested, investigative techniques and audit protocols performed by professional, experienced personnel. In prescription fraud alone, we’ve indicted over 30 pharmacists and pharmacies with a 100 percent conviction rate. Competent, professional audits are an important component in the process.”
Ed Horning, Director of Program Integrity for Blue Cross Blue Shield of Kentucky, and an attorney, agrees. “Any business which makes payments based on data supplied by contractors who, if so inclined, can bill on an ‘as needed’ basis, must employ stringent measures to ensure the integrity of that data,” said Horning. “Don’t audit and you can be insured that your pocket will be picked; don’t prosecute and you can be assured it will be picked again, and again, and again.”
Tripodi agrees. “There are no medical areas or specialties which do not avail themselves of the opportunity to audit for – and to suppress – fraud,” offers Tripodi, “and a good medical auditing firm should always utilize a report format that conforms with all necessary requirements of law enforcement and prosecution personnel. In other words, that report can be picked up and walked directly into the Grand Jury or courtroom. The company you hire should have proven processes already in place. In this business, you can’t invent processes as you go along.”
In the complex field of insurance, especially health care insurance, it is incumbent upon the industry itself to take the initiative in the fight against fraud. A July 1994 Staff Report of the United States Senate Special Committee on Aging noted that as much as 10 percent of U.S. health care spending or $100 billion is lost each year to health care fraud and abuse. The report also concluded that “as the health care system moves toward a managed care model, opportunities for fraud and abuse will increase unless enforcement efforts and tools are strengthened.”
The frustration is that law enforcement, whether Federal, State or Local, simply does not have the time, resources or expertise to concentrate on and effectively tackle the problem. However, bring them a case thoroughly investigated and properly documented and the results can be swift and sure.
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Law enforcement does not have the time, resources or expertise to concentrate on and effectively tackle the problem. However, bring them a case thoroughly investigated and properly documented and the results can be swift and sure.
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Rob tells a tale of the Cleveland area pharmacy which had an exclusive, on site contract to supply all pharmaceutical services for a stand alone Blue Cross and Blue Shield of Ohio HMO and its clients. Rob’s fraud unit had been asked by a federal law enforcement agency to perform a standard evaluation of use levels of certain controlled substances by company owned HMO pharmacies.
All fully cooperated except one, whose owners “didn’t have time” to be bothered, and whose answers to innocuous questions were obviously concocted to obfuscate rather than enlighten. Without engaging in argument or arm twisting, Rob’s staff commenced a full investigation, including a complete audit of claims and inventory.
Massive generic/brand substitution fraud was uncovered. To illustrate the extent of the fraud, the private industry auditors confirmed that, for one medication alone, Hycodan Cough Syrup, the pharmacy had billed BCBSO for 126 gallons of the brand product when their own invoices confirmed they had only purchased one gallon of brand and over 126 gallons of the generic product. Both owners and the corporation pled guilty rather than face trial on multiple fraud charges. They returned $509,000 in restitution on the day of the sentencing and they had their pharmacy licenses revoked.
Or take the case of a pharmacy in Virginia where the owner developed a bad habit of electronically submitting bogus claims on Sundays, when the store was normally closed. All were phantom claims for high cost antibiotics which were never dispensed.
Bryan Childress, Vice President of Financial Investigations for Trigon Blue Cross Blue Shield took exception to such activities and hired an outside source to implement an in depth investigation and audit – which resulted in the conviction of the owner and recovery of $265,000 for Trigon.
Horning says, “Another problem is ‘doctor shoppers,’ prescription drug-addicted policyholders who use their insurance coverage to maintain their drug habits.” While at first blush this may appear to be an innocuous, low-impact situation, don’t be mislead. It is not unusual for a ‘doctor shopper’ to visit multiple physicians and hospital emergency rooms, misrepresenting symptoms in order to obtain drugs. For example, for one small client, auditors identified three doctor shoppers. Each one visited no less than 19 different physicians and 14 different pharmacies. The total loss to the health insurer was over $46,000 for the year.
Tripodi recommends that insurance executives look for certain absolutes in assessing firms to assist them in impacting fraud. First and foremost, such a firm should have a proven track record of successes in this field and be able to provide substantiating references. Second, to effectively and efficiently identify fraud, a state-of-the-art firm must make use of sophisticated computer models and “artificial intelligence” in its data analyses. The “needle in the haystack” approach is expensive, time-consuming and often unproductive. Third, firms must employ statistically valid data samplings and extrapolation techniques to pass muster in a court of law. Fourth, they must stick to proven, consistent investigative techniques and audit processes. Fifth, they must produce investigatively and legally coherent, detailed and cross-referenced reports.
“Every dollar lost to fraud impacts the bottom line,” says Burry. “Fighting fraud should be an integral part of the insurance process. Done right, the benefits far outweigh the costs.”
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Doug Fowler is the Director of Fraud and Abuse Programs for Heritage Information Systems, Inc. He is also the author of John Cooke’s favorite quote, “Fraud will never disappear. The reason is that you can never be in front of the curve of human ingenuity.”
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