Challenge facing payers is to reduce prevalence of healthcare fraud

July 1, 2007

Experts say that 5% of all claims are fraudulent or abusive. If the total spent on U.S. healthcare annually is approaching $2 trillion, that 5% would add up to nearly $100 billion a year in fraudulent or abusive claims. And the percentage may be higher, perhaps as high as 10% of claims.

Of the 4 billion-plus healthcare claims processed each year in the United States, representing nearly $2 trillion spent annually on U.S. healthcare, experts say that perhaps 5% of all claims are fraudulent or abusive. This means that providers have filed claims for work that was never performed, was performed solely to obtain reimbursement, or that they inappropriately coded claims or used services. If the total spent on U.S. healthcare annually is approaching $2 trillion, that 5% would add up to nearly $100 billion a year in fraudulent or abusive claims. Some experts believe the percentage may be higher, perhaps as high as 10% of claims.

What does this quantity of fraudulent and abusive billing mean for the healthcare system and for society? Ultimately, it means that, in a world of finite resources, there is less money available to take care of patients. It means that health insurers and health plan members have fewer dollars to work with. Many health plan members have lifetime limits on their healthcare coverage-an individual may have a $1 million limit, so if one dollar is lost, that dollar will not be available later.

Ongoing challenge and possible solutions

Still, real fraud does occur. In one highly publicized recent case, many patients were flown from across the country to clinics in southern California, where they were given tests and diagnostic procedures they did not need. In another case, millions of dollars were spent in Harris County, Texas on powered operated vehicles for patients who never saw a clinician and who did not meet the medical necessity criteria to qualify for the equipment. In fact, since the inception of the Medicare and Medicaid programs, over 37,000 providers and individuals have been sanctioned by or excluded from those programs.

Given the desire on the part of the vast majority of providers to submit legitimate, clean claims and receive rapid reimbursement in return, and the desire on the part of insurers to pay legitimate claims promptly and in a streamlined way, what can be done to solve these challenges facing the industry? The good news is that the percentage of managed care organizations adopting proactive strategies is increasing. Those organizations are making use of new or evolving tools in the struggle to master the fraud and abuse challenge. In fact, the managed care industry is moving in accelerating numbers toward automated solutions that will help to identify and curb fraudulent and abusive claims.

Although the implementation of automated claims adjudication systems has drastically improved upon the use of older, manual claims review processes, these systems have not proven effective in identifying unclean claims, code exceptions, outliers and abusive billing practices. Among the elements that will be needed will be the augmentation of existing claims adjudication systems with enhanced editing software that monitors the internal claims process, as well as allowing payers to customize edits by provider and line of business. Solutions to contain cost will also need to be able to evaluate claims for third-party liability/coordination of benefit recoveries, case management opportunities and physician billing education needs. In fact, the augmentation of existing claims adjudication systems with cost containment solutions can act as an effective anti-fraud and recovery program that directly affects health insurance and employer/employee costs.

The identification of bad billing practices is the responsibility of all stakeholders involved in the claims process – not just the provider's. Health insurers will need to move forward decisively to take advantage of the new automated solutions available to them, solutions that are evolving.

Andria Jacobs, RN, MS, CEN, CPHQ, CCP is chief operating officer of PCG Software, a Malibu, Calif.-based provider of comprehensive software tools that contain cost through more accurate and efficient claims adjudication and code review for national and regional health plans, independent physician associations and third-party administrators.