First published in ITIJ 123, April 2011
Fraud and abuse in health insurance may become a very costly problem to the United Arab Emirates (UAE) and Gulf Co-operation Council (GCC) in the near future. Nabila Taha details the different types of health insurance fraud international insurers should be wary of
In more mature health insurance systems, such as the US, billions of dollars are lost to fraud and abuse each year. Currently, there is no reliable data on the extent of the problem in the Gulf region; however, some estimate fraud and abuse to be about 10 per cent of medical claims, while others estimate it as high as 30 per cent. With health insurance laws still in their infancy in the region and paper submission of claims still the norm, the problem might have devastating effects if no action is taken.
Definitions in context
What is the meaning of fraud and abuse in this context? What are the current and projected impacts? Who are the usual culprits? What can be done to thwart fraud and abuse at this stage and in the future? Is there hope for the UAE to apply prior knowledge to address the problem and enact laws that would help insurance companies prosecute the perpetrators? And finally, how can actuaries help in identifying fraud and abuse?
First, it is helpful to define the terms 'fraud' and 'abuse' in the context of health insurance. Fraud is an intentional deception that results in injury to another person; the key word here is ‘intentional’, meaning that the person committing fraud has full knowledge that they are committing fraud and that they intend to cause harm or injury to others. In this case, the injury is mostly monetary, although physical injury could also happen in some cases. Abuse, on the other hand, is the overuse or misuse of services and healthcare resources.
When a provider bills an insurance company for services that he or she did not perform, this is fraud. When a broker advises his client not to report that he has asthma, this is fraud. When an employer lists his cousin as an employee in order to include her in the group policy that he is buying, knowing that she is critically ill, he is committing fraud. When a physician runs more tests than are needed because even though she suspects what the problem is, she wants to protect herself from lawsuits, then she is committing abuse. In this case, she actually performed the services and billed for them, but they were unnecessary tests and still increased the cost of healthcare without benefiting the patient.
With health insurance laws still in their infancy in the region and paper submission of claims still the norm, the problem might have devastating effects if no action is taken
Private health insurance is new to the region and is still limited, for the most part, to high earners in most of the GCC countries. Only the Kingdom of Saudi Arabia and the Emirate of Abu Dhabi have introduced mandatory private health insurance. Other countries in the region, including the Emirate of Dubai, are on the cusp of introducing some model of mandatory health insurance. As it becomes widespread and includes people who are not accustomed to health insurance, the potential for fraud multiplies. Examining fraud and abuse in a developed private insurance market such as the United States may allow us to estimate future fraud and abuse in the UAE health insurance market and develop measures to tackle them.
According to the National Health Care Anti-Fraud Association in 2008, of the more than $2 trillion that the US spends on healthcare annually, at least three per cent of that spending – or $68 billion – is lost to fraud each year. Other estimates by government and law enforcement agencies in the US place the figure as high as 10 per cent of the nation's annual healthcare expenditure – or a staggering $226 billion – each year. Medicare and Medicaid made an estimated $23.7 billion in improper payments in 2007 (split almost evenly between Medicare with $10.8 billion and Medicaid with $12.9 billion). Medicare's fee-for-service reduced its error rate from 4.4 per cent to 3.9 per cent.
With the staggering amount at stake in the US health and insurance systems, considerable time and effort have been devoted to analysing the behavior of fraud and abuse perpetrators. Fraud and abuse can be attributed to one of five major categories of perpetrators:
- Providers and medical professionals,
- Hospitals and facilities,
- Consumers and the public,
- Insurance companies and Third Party Administrators (TPAs),
- Brokers, agents and employees.
In the US, providers and medical professionals account for the majority of fraud, or 72 per cent, while hospitals and facilities account for over eight per cent of all suspected fraud cases according to an America’s Health Insurance Plans (AHIP) survey. Consumers account for 10 per cent, and the final 10 per cent comes from all other sources, including brokers and agents, laboratories, pharmacies, and employees.
Some people would find it hard to believe that medical professionals would commit fraud to this extent; however, you have to consider that some physicians believe that they are in fact helping the patient, who is their main concern, by billing for services that are covered by insurance instead of the ones they are actually performing, or by billing for services that have a higher cost (up-coding) in order to waive the cost sharing for the patient. Whether the physician benefits personally is not the key issue in defining fraud, because the fact remains that he intended to defraud the insurance company, or the Federal government (in the case of Medicare and Medicaid).
Thus, billing for services not rendered constitutes the highest single category of suspected fraud by providers, at 34 per cent, followed by up-coding at 22 per cent, fraudulent diagnosis or dates at 18 per cent, and pharmacy provider fraud at 10 per cent.
When medical professionals are suspected of fraud, physicians are the most suspected at 59 per cent, with dentists and chiropractors each at four per cent.
On the other hand, of the total suspected fraud cases perpetrated by facilities, acute care hospitals account for the highest percentage at 59 per cent, while outpatient ambulatory care clinics account for nine per cent, and psychiatric hospitals for three per cent.
Of all suspected fraud and abuse by consumers, enrollees constitute the vast majority with 97 per cent.
It is incredible that some cases of fraud and abuse are overlooked. Medicare paid dead physicians 478,500 claims totaling up to $92 million from 2000 to 2007. These claims included between 16,548 and 18,240 deceased physicians. Nearly one in three claims (29 per cent) Medicare paid for durable medical equipment was erroneous in fiscal year 2006. Medicare and private health insurers pay up to $16 billion a year for needless imaging tests ordered by doctors.
some physicians believe that they are in fact helping the patient, who is their main concern, by billing for services that are covered by insurance instead of the ones they are actually performing
There are a multitude of laws in the United States that target fraud. Most states have codified or are in the process of codifying laws that pertain to fraud, with some specific to 'insurance fraud’. On the Federal level, Congress, through the Health Insurance Portability and Accountability Act of 1996 (HIPAA), established that healthcare fraud is a federal criminal offense. If a person is proven guilty of health insurance fraud, they could face up to 10 years in prison, as well as major financial penalties. In addition, both Medicare and Medicaid have laws and programmes that target health insurance fraud and abuse.
While there are no official figures on the scale of fraud and abuse in the UAE and GCC, there is little doubt that it exists, and it will grow unfettered unless laws are developed to limit it and systems to detect it. Abu Dhabi implemented electronic claims submission about two years ago, which should have improved service, but according to most research on the subject, it has actually exacerbated the problem. Fraud is easier to detect by vigilant claim examiners who see claims that look suspicious, than by systems of ‘pay first and investigate later’ that are used in order to meet stringent deadlines of quick payment.
If you add to that the fact that in the United States, the most vulnerable people to fraud and abuse are the old, the poor, and the uneducated, and that at least 65 per cent of the residents in the UAE, for example, are poor laborers from third world countries, it becomes very clear that extrapolating these factors to the region would have a devastating effect on the economy and the cost of health insurance. Additionally, some people in the region who are not accustomed to health insurance would think that they are performing a good deed by lending their health insurance card to their neighbor or their relative who are not insurance holders. Likewise, physicians would think that they are helping their patients by performing a service that is not covered and bill the insurance company for one that is covered. This happened to one of our employees while I was managing the health insurance programme for the employees of the Government of Dubai. The patient went for an eye exam for glasses. The doctor who examined him recommended Lasik surgery, which is not covered, and submitted the claim for a disease of the eye that is covered. Lucky for us, the patient is a physician and knows that this is fraud. He reported the culprit to us before the scheduled surgery.
Awareness of the propensity for fraud and abuse in this area and experience abroad are necessities for insurance companies, reinsurers and governments. Laws that target fraud in health insurance need to go hand-in-hand with laws that make health insurance compulsory.
Abu Dhabi implemented electronic claims submission about two years ago, which should have improved service, but according to most research on the subject, it has actually exacerbated the problem
Health insurance companies, however, do not need to wait for laws to be enacted in order to tackle the problem and reduce the cost of health insurance. They have resources through data mining, claim examination, provider profiling (seeing the red flags) and pattern algorithms. Actuaries can help to comb through data and identify patterns that signal the possibility of fraud or abuse. As the patterns of fraud change with time and as the perpetrators change their approach with time, it becomes more important that analyses must be vigilant.
In cases where companies or governments have established robust programmes of identifying and targeting fraud and abuse, the rewards were significant compared to the cost. By most accounts, return on investment (ROI) in fraud and abuse detection and investigation ranges from 1:1.5 to 1:7 which means that for every single dirham or dollar spent on fighting fraud, up to seven dirhams or dollars could be saved.