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Fraud in Health Care
By: David J. Gibson, MD
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The mythology surrounding abused doctors gives permission to the profession to
ignore the 800 pound gorilla sitting in the room. Fraud is a serious problem that
adversely affects our patients.
Doctors generally find themselves in the cross fire of our unending cultural wars. Take
almost any issue – abortion, the use of narcotic analgesics, the use of marijuana in the
treatment of AIDS or glaucoma, class action lawsuits, gender issues – we are always in
the middle of the battlefield taking unfriendly fire from polarized partisans. In addition,
should unpleasant consequences result from “reforms” in health care wherein we had
little involvement in planning – managed care, workman’s compensation, entitlement
benefit expansion – physicians always get singled out for special blame when the
inflationary consequences become evident. Within this siege context, mythological
stories proliferate when doctors meet and converse. The classic, a hard working, heroic
physician makes an inadvertent mistake in billing for services and is hounded out of
practice by overzealous prosecutors at both the state and federal level of law
enforcement.
Fraud and Mythology
The mythology surrounding abused doctors give s permission to the profession to
ignore the 800 pound gorilla sitting in the room. Fraud is a serious problem that
adversely affects our patients.
Medicaid: The program is literally out of control. It cost $1 billion in 1967 and will run
about $280 billion this year. By 2012, estimates the Congressional Budget Office, outlays
will hit $578 billion.
Fraud and abuse represents a debilitating reality within all government entitlement
programs. According to the United States General Accounting Office and health
insurance industry sources, between 3 and 10 percent of any state's Medicaid budget is
lost due to fraud and abuse.
California taxpayers have the right to expect that every cent of Medi-Cal money is being
spent on deserving patients. Unfortunately, criminals have siphoned off billions of tax
dollars earmarked for health-care and have used these illegal payments to finance
luxurious lifestyles with mansions and expensive cars.
To put the magnitude of this problem into perspective, the total spending on Medi-Cal
in 2002 was $25 billion, approximately $9.2 billion of which came from the state's
general fund. That is more than one of every eight California tax dollars being invested
in the Medi-Cal program. The F.B.I. now conservatively estimates that 10 percent ($2.5
billion) of the annual Medi-Cal budget is stolen by doctors, dentists, pharmacists,
durable goods vendors and others.
The financial burden for health care fraud lands firmly on the shoulders of the tax
payers in California. By diverting health care funds, these unethical scams consume
limited public funding which has been budgeted for social programs upon which
vulnerable people rely.
Experience has shown that the most frequent occurrence of fraud can be found in the
following areas:
- Registered Medi-Cal providers who allow others to use their billing privileges, or
criminals who manage to tap into the billing privileges of registered providers.
- Registered providers who knowingly bill for unnecessary services, for services
not performed, or for more expensive services than they actually provide.
- Identity thieves who steal information from providers and patients, or
beneficiaries who accept payment for using a particular provider or for selling
their identities.
These criminals prey upon the poor, the uneducated, the unsophisticated, those lacking
English language skills. They use their ill begotten wealth to subvert the very
institutions whose mission centers upon protecting the poor – local government and
immigrant churches.
The Medi-Cal Pharmacy Benefit
The problems described above for the overall Medi-Cal program are even more
pronounced in the area of pharmaceutical services and durable goods. The incidence of
fraud in these areas may run two to three times the over all 10% fraud rates cited above.
The following is an example of the type of fraud that has been identified in the past. A
black market has developed among body builders for Serostim, a human growth
hormone used by AIDS sufferers. A one -month prescription costs almost $7,000. A San
Diego County Grand Jury indictment in 2001 alleged that Medi-Cal was bilked for $3.5
million by a statewide ring using stolen beneficiary numbers and physician identities to
create phony prescriptions, then peddling the drug at gyms and spas. Nine individuals
used more than 500 fraudulent prescriptions at more than 75 pharmacies to defraud the
Medi-Cal system.
Within this black market, AIDS victims are aggressively recruited, robed of life saving
medications and then bought and sold as commodities by the fraudsters.
The Medi-Cal Durable Goods Benefit
According to last year’s annual report by the California Bureau of Audits, the incidence
of fraud within the Medi-Cal durable goods program is estimated to be as high as 70
percent of billings. More than $356 million in state and federal money is spent annually
on Medi-Cal supplies (hearing aids, canes, crutches, wheelchairs, bandages, diabetic
tests, gloves and waterproof sheets) for Medi-Cal patients. The most frequently source
of abuse – disposable diapers for incontinent adult patients.
Current State Efforts to Control Fraud
The government’s ability and will to confront fraud has to this point been both
problematic and anemic. For elected officials the incentives to deal with fraud are few
and the disincentives are overwhelming.
- Fraud, particularly in health care, is exceedingly profitable and attracts criminals.
The cost vs. benefit involved in white collar fraud calls into question the
continued existence of street crime.
- Fraudsters contribute generously, particularly at the county level, to political
fund raising. The contributions buy access and influence that is used to limit the
effectiveness of fraud detection and prevention activities by government
agencies.
- White collar crime is difficult to investigate and prosecute – the fraudsters
budget for and hire the best lawyers.
- Much of the fraudulent activity tends to congregate within the recently arrived,
urban minority communities. Thus, attacking the problem exposes elected
officials to charges of racism.
- When fraudsters are caught and convicted, any recovery is generally low. The
fraudster, knowing months in advance that an indictment is coming, will have
moved his/her funds to off shore investors where it is virtually impossible to
reclaim.
The lone exception to this record of non-performance has been the California
Department of Health Services recently created Medi-Cal Fraud Prevention Bureau
which has developed and is using provider fraud risk assessment surveys to detect,
document, and refer fraud for criminal investigation and prosecution.
The efforts of the Medi-Cal Fraud Prevention Bureau has resulted in criminal charges
filed against more than 700 people and companies in the last few years, including
almost $100 million in restitution as a result of state and federal prosecutions.
Meet the Fraudster
In License to Steal,1 Malcolm K. Sparrow shows how the health care industry's defenses,
which focus mostly on finding and correcting billing errors, are no match for well
orchestrated fraudulent attacks. The maxim for thieves simply becomes "bill your lies
correctly."
Successful fraudsters with any degree of sophistication will steal millions of dollars
with impunity. They test their payment systems carefully and then spread their
fraudulent billings widely enough across patient and provider accounts to escape
detection.
The kinds of highly automated, quality controlled claims processing systems that
currently pervade the health care industry present fraud perpetrators with their favorite
kind of target: rich, fast paying, transparent, utterly predictable check printing systems,
with little threat of human intervention, and with the U.S. Treasury or all state
treasuries on the end of the electronic line.
So, who steals? An extraordinary range of individuals - from low-life hoods who sign
on as Medicare or Medicaid providers, to drug trafficking organizations, organized
crime syndicates, and even major hospital chains and international pharmaceutical
manufacturers.
It is not difficult to find the physician who participates in fraudulent activities. These
individuals generally demonstrate some or all the following characteristics:
- Their license to practice medicine is frequently under disciplinary review by the
Department of Consumer Affairs.
- They have recently relocated into California – specifically to an inner urban
ethnic community - from another state (anecdotally - many have come from the
South Florida, the chief exporting market for con artists and fraudsters).
- They do not have hospital privileges and do not participate in organized medical
associations (CMA, AMA, and Specialty Societies).
- Many lack board certification.
- Their names and license numbers appear as the predominant prescribers within
vendor records that are under investigation for fraudulent activity.
- As a direct result of these physicians association with fraudsters, they are
unusually vulnerable to identity theft.
The Health Care Industry’s Response to Fraud
Unfortunately, the health care industry's response to the government's efforts to control
fraud is frequently hostile. Physicians tend to “circle the wagon” thinking they are
protecting their own. It should be clear, even to the casual observer, that the above
profile does not fit the “hard working, honest, heroic, harassed mythological doctor
who makes an occasional inadvertent billing error that generates a raid by a S.W.A.T.
team.” Of course, mythology has never been confined by reality.
The various provider associations (organized medicine, hospitals, skilled nursing
facilities, laboratories, etc.) have used their influence to vociferously opposed almost
every recent governmental enforcement initiative, creating the unfortunate public
impression that the entire health care industry is against effective fraud control. The
fear of additional regulations and the mythology of the hassled honest provider lie at
the core of this phenomenon.
This leaves to the patient or their relatives the important task of reviewing their medical
bills. This review frequently demonstrates billing for non-delivered services. If patients
then complain, they discover that no one within the system seems to care, or that no one
has the resources to do anything about it.
The California Medical Association, The California Pharmacists Association and the
California Hospital Association should be at the forefront in confronting fraud in all of
its manifestations within the industry.
What Our Response Should Be
Fraud is an endemic problem that must be constantly confronted. It is not confined to
health care. For example, ten Wall Street firms recently acknowledged that they issued
tainted stock research. The settlement was $1.4 billion. Three of the firms — Citigroup's
Salomon Smith Barney, Merrill Lynch and Credit Suisse First Boston — were charged
with actually issuing "fraudulent" stock recommendations.
It is our responsibility to our patients to aggressively confront and eliminate fraud
within health care. Sitting around and complaining about mythology is no longer
acceptable. The legislature is now contemplating the elimination of over $300 million in
funding for Medi-Cal – when we have documented evidence of over eight times, or $2.5
billion, that amount being shunted off into fraudulent payments. These cuts will hurt
real people, the most vulnerable amongst us.
If the medical establishment does not step forward and lead the effort to control fraud,
California taxpayers will rightfully continue to lose confidence in publicly funded
medical assistance programs. The resulting pain will be borne by our weakest and most
vulnerable patients.
1 License To Steal - Second Edition; by Malcolm Sparrow, Harvard University, John F. Kennedy School of
Government; Westview Press; ISBN: 0-8133-6810-3
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