George's Corner: September/October 2013

Fraud Exposed

My definition of fraud: when someone does something so that they will get more (usually money) than they are supposed to get. Fraud is more likely when:

Factoid: “Fraud accounts for 10% of the money spent on medical care” is a factoid. My dictionary’s definition of the word factoid: “an item of unreliable information that is repeated so often that it becomes accepted as fact.” Or “something that looks like a fact, could be a fact, but in fact is not a fact.”

      • There is a lot of money around.
      • The systems around that money are complicated.
      • Record systems are not tight and/or are highly variable.
      • The activity is not closely monitored.
      • There are people who want more than their fair share.

Why is it alleged that there is a lot of fraud in the healthcare world? It is because all of the above conditions are found throughout our healthcare system.

How much fraud is there? Back in the 1960s someone wrote an academic paper that said that fraud accounted for 10% of the money spent on medical care. That number stuck. Just about every fraud cost estimate that you will see is about 10% of the total dollars spent on that service. Most of the time the cost estimate just says the number of fraud dollars without stating the total dollars spent. Check them out, and you will most likely see 10%.

Of course, nobody knows how much fraud there is. To find out we would have to compile a list of all of the frauds, the fraudulent people, and the amount they defrauded. That is obviously an impossible task, especially since “fraudsters” are always thinking up new ways to get more than their fair share. And many have an inflated estimate of what their fair share is.

When we were putting the California Medicaid program together in the 1960s, there were no computers. The program was already spending many millions of dollars, and fraudulent people began to take notice because of the five reasons listed above.

One of them set up a printing press in the room above his garage. He printed out hundreds of claims that were identical. He mailed them in small groups so they would not stand out. Many (I don’t know how many) were paid, until someone pushing papers around realized that she had seen the same claim several times. That’s when we decided to outlaw duplicate claims. As the case was being gathered, the fraudster realized that he was being found out and moved to Brazil.

Another time a paper-pushing auditor came to my office and said that a pharmacy was billing too many times each month for the same drug for the same patient. He had a huge (paper) spreadsheet on which he had listed all of the claims. I knew the pharmacist and called him to ask about “Mrs. Jones.” He told me she was on a suicide watch and that he could only give her one week’s supply of her sleeping pills at a time. I sent the auditor back to his desk.

Those two old examples demonstrate that there are some audacious people who need to be stopped and some out-of-the-norm people who need to be allowed to continue.

Of course, as the payment programs have grown in size the number of both types has also grown in size, and the bad guys have grown in cleverness. They now use computers to confuse the payers’ computers. But they also use up-coding (changing the billed code to a similar one with a higher fee) and other schemes to defraud the programs.

In many cases a licensed professional is so afraid of losing his or her license that fraud is not as prevalent as it would otherwise be. Many of the biggest fraudulent groups consist of providers who have addresses that are not those of real businesses and who disappear when the enforcers start getting close.

When I was selling pharmacy computer systems, there were a couple of times when people I had never seen before came to our booth and started asking questions. It soon became clear to me that they wanted the computer to do things that would be fraudulent and/or unethical. I was amazed at their audacity as I told them, “No, it doesn’t do that, and it never will.”

It is notable that the larger organizations such as chains of providers are the least likely to be fraudulent because they have the most to lose. The publicity would be devastating to their business. Once in a while local managers will try to impress management with how the business has grown (through fraudulent claims) — only to get fired and probably lose their license as well.

So while we don’t know the size of the problem, we do know that it is huge. It is huge because the five principles at the top of this column are still with us.

A Few Solutions 

Do I have any answers? I was once told of an ancient culture that paid its healers a handsome amount as long as the population was healthy. When people got sick the payment was reduced. So far I cannot figure out how to do that in our current society. So we have to settle for some miscellaneous short-term and midterm things and some big thoughts that will take years to be carried out.

Short term: Make computers better at identifying potential fraud, along with getting more people in the field spending time in provider offices. One of the most basic principles of policing is police force visibility. The cop sitting in his car on the corner slows people down. The one in the office does not. I am not talking about nit-picking auditors. They are like cops who ticket you for going 36 miles per hour in a 35-miles-per-hour zone.

Midterm: Get rid of the fiscal and data silos — hospitals in one, physicians in another, pharmacies in another. They never tell each other what is going on. A patient getting insulin without ever being diagnosed with diabetes is never identified.

Long term: Single payer. Hopefully one that is collecting all of the data and making connections.

Very long term: Pay for health, not sickness events. (See ancient culture, above.)

Fraud is a problem that is not being addressed well. Until it is, we will send lots of money to bad people. CT 

George Pennebaker, Pharm.D., is a consultant and past president of the California Pharmacists Association. The author can be reached at george.pennebaker@sbcglobal.net; 916/501-6541; and PO Box 25, Esparto, CA 95627.


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