Healthcare Systems Need to Inoculate Themselves Against Fraud

Healthcare professionals around the world sing the praises of immunizations and preventive care. Clearly, their view is the best way to beat disease and promote positive health outcomes is to beat the bad guys to the punch by prevention. So, why won’t healthcare systems take their own advice and inoculate themselves against fraud?

The Center for Medicare and Medicaid Services (CMS) reported 2018 expenditures on healthcare in the U.S. was $3.6 trillion dollars. The conservative estimate of healthcare fraud costs in the U.S. is 3 percent. The result is the U.S. healthcare system lost about $108 billion to fraud. This doesn’t include waste and abuse in healthcare which likely increases the loss by 3 to 5 times. 

What could we be getting for $108 billion per year?

• Cover the total cost of all U.S. college student loans taken in the 2018-2019 school year ($106 billion).
• Cover federal Child Care Development Grant expenditures ($6.4 billion) in 2017 by over 16 times to reduce the costs for working families with children and increase adults in the workplace. 
• Funding the entire cost of the Supplemental Nutritional Assistance Program (SNAP) benefit for the entire country twice (about $54 billion in 2019 per the USDA). 

The historical model for fighting fraud in healthcare care is known as “pay and chase”. In other words, health insurers pay fraudulent costs and hope to recover as much of these costs as possible later. This usually doesn’t happen which is why healthcare costs continue to increase year over year. 

With Medicare and Medicaid in the U.S., providers lobby the legislature for higher rates. This is not to infer that providers are currently overpaid. Government healthcare programs often pay lower rates than private insurers. The point is the legislative process often designs burdensome administrative processes that make it more difficult to claw back payments from providers including those for fraud. The same is true for commercial payers where providers have administrative appeal rights and often bargain down overpayment recoveries for a fraction of the amounts paid to them. 

In the case of criminal fraud prosecuted in a court, the recoveries are known as restitution. Unfortunately, a healthcare provider convicted of healthcare fraud will lose their license to practice. They have often spent most of the money on a nice lifestyle and the remainder on their legal defense. So, there is often little to recover immediately. Without a license, their earning potential is reduced, and a convicted fraudster is unable to pay restitution. If the provider was set up as a limited liability corporation (LLC), the court may not be able to pierce the corporate veil to attach restitution to personal wealth. Thus, the healthcare provider may be able to keep personal wealth without paying the debt attributed to the LLC. 

With new and emerging technologies and payment systems like preventive analytics, smart-cards, blockchain, etc., healthcare systems should be looking for ways to prevent fraud lossess rather than throwing good money after bad under pay-and-chase. Medicare and Medicaid should be the first to adopt these new and emerging technologies. Some would say better technology has already existed, but there has been a lack of will within the healthcare community and regulators to adopt such technology. 

So, I will ask again – if healthcare systems understand the value of prevention, why won’t they inoculate themselves against fraud? Since we know that people only continue behaviors that they find rewarding, it seems safe to assume people within the healthcare systems and its regulatory systems get some benefit (reward), or wish to avoid some penalty, from allowing these healthcare fraud losses. Thus, they take little action to stop them. 

For patients and consumers, how long are you willing to feed the healthcare fraud monster? Are you aware of the healthcare providers that have killed and harmed patients by giving them unnecessary treatments in order to commit fraud? Do you understand the opportunity costs of what you are not getting because you are paying for healthcare fraud costs?

The thing that bothers me the most about healthcare fraud is how poor quality of care is often the side effect of healthcare fraud. With doctors killing patients to get more money through fraudulent schemes, a movement toward real fraud prevention in healthcare seems to be a necessity.