Each year, private plans lose large sums of money to benefits fraud, which also drives up plan costs. But there are steps that employers can take to protect themselves—and their plan members—from underhanded activities.
Plan sponsors are acutely aware of the rising costs of providing employee benefits—in particular, the cost of extended health and dental insurance. What many sponsors may not appreciate, however, is the extent to which fraudulent conduct on the part of patients and healthcare providers contributes to escalating premium levels.
While no firm figures are available, the Canadian Health Care Anti-fraud Association estimates that 2% to 10% of all healthcare dollars spent in North America are spent fraudulently. With healthcare spending in Canada estimated to have surpassed $160 billion in 2007, this suggests that the amount lost to healthcare-related fraud falls between $3.2 billion and $16 billion annually. Even if public healthcare spending is excluded, with private healthcare expenditures in 2007 estimated at close to $50 billion, between $1 billion and $5 billion is lost by insurers, plan sponsors and members each year. And, with healthcare inflation running in excess of 10% annually, these figures are increasing at an explosive rate.
Even if these losses are conservatively estimated toward the lower end of this spectrum, it’s a staggering sum—one that is ultimately passed on to employers and plan members in the form of higher benefits premiums. Moreover, incidences of fraud are not isolated. According to the 2004 Canadian Health Care Fraud Survey, 94.9% of plan sponsors have been victimized by at least one fraudulent claim.
Deception Points
Fraud comes in many forms, and the ingenuity of the perpetrator is often the only limit to the schemes employed. However, certain types of fraud are reported most often and inflict significant damage on insured plans.
The most common types of fraud engineered by plan members fall into the following categories: malingering (exaggerating illness or injury to collect additional disability benefits); doctor shopping (obtaining multiple drug prescriptions from various physicians); misrepresenting dependents (maintaining eligibility for individuals not qualified for benefits such as formerly dependent children who cease to qualify under the terms of the plan, or failing to coordinate benefits with an insured spouse); and submitting false claims.
Fraud committed by medical service providers generally takes the form of billing for services that are not medically necessary, not rendered or more expensive than those actually performed (upcoding), or billing for non-covered services disguised as medically necessary covered treatments for the purposes of obtaining reimbursement (in many cases, the patient would decline treatment but for the assurance that the treatment is covered by insurance). These fraudulent activities can occur with or without the assistance of the patient. In many instances, the patient is unaware of the service provider’s misconduct. In other cases, the parties are joint participants, with the patient receiving kickbacks or other benefits from the provider.
Discovery Channels
Attempts by plan sponsors, insurance carriers and law enforcement to reduce fraudulent benefits claims generally fall into one of four categories: prevention, detection, investigation and prosecution. Certain steps that plan sponsors can take in isolation are discussed below, but the success of any fraud reduction initiative will depend, in large measure, on the relationship between the plan sponsor and its benefits administrator, regardless of whether the plan is an insured or administrative services only arrangement.
Partnerships With Benefits Administrators – Plan sponsors’ reliance on third-party benefits administrators to detect fraudulent activity has increased significantly in recent years. The enactment of federal and provincial privacy legislation has significantly curtailed plan sponsors’ access to employee claims information. Consequently, they are less able to detect or investigate fraudulent activity and must depend, to a large degree, on the counter-fraud initiatives of their benefits administrators.
The insurance industry is devoting increasing resources to reducing benefits fraud and developing more sophisticated programs for identifying patterns of fraudulent behaviour to limit costs and increase the chances of recovery. As a result, when engaging in a search for a benefits administrator or evaluating the performance of an existing administrator, plan sponsors should obtain detailed information about the administrator’s counter-fraud measures. Sponsors should also extract a commitment—either orally or, preferably, as part of a written contract—from the benefits administrator that its counter-fraud initiatives will stay current and will meet or exceed industry best practices with respect to the prevention and detection of fraudulent activity.