The Vulnerability of
the Health Insurance
System to Fraud and
Abuse

scheme that has troubled public and private payers in California over the past decade is alleged to have involved over $1 billion in fraudulent billings from as many as 200 physicians and other providers. The scheme centered around providers specializing in noninvasive tests such as heart and blood-pressure measurements.2

Schemes of this nature highlight several serious problems facing public and private payers. First, large financial losses to the health care system can occur as a result of even a single scheme. Second, fraudulent providers can bill insurers with relative ease. Third, efforts to prosecute and recover losses from those involved in the schemes are costly. Finally, schemes can be quickly replicated throughout the health care system.

Efforts to detect and prosecute health insurance improprieties are meeting
with limited success. Insurers have problems detecting and pursuing fraud
and abuse for several reasons. First, insurers have difficulty discerning
wrongful acts amidst the multiple activities that take place at the time of
processing claims. They also face privacy concerns that limit collaboration
among industry members that could help in fraud case development.
Third, there is a lack of consensus concerning the appropriate regulation
of new provider types and financial arrangements. Finally, the
considerable legal and administrative costs of pursuing fraud weigh
against the deterrent and financial benefits of doing so. Some of the key
vulnerabilities of the health care system are summarized in table 1.

2A separate GAO study is examining the extent of this scheme and its effect on the Medicare program.

Table 1: Vulnerability of Health
Insurance System to Fraud and Abuse

Obstacles to Detecting Fraud and Abuse

Over 1,000 payers process 4 billion claims a year to pay hundreds of thousands of providers using different payment methods and billing regulations. (See app. I, pp. 13-14.)

Providers' claims are paid by many insurers, making billing patterns hard to identify. Thus, a provider who bills for more than 24 hours of visits on a single day might not be discovered when claims are split among many insurers. (See app. I, p. 15.)

Collaboration among insurers to detect improper billing can be hindered by privacy concerns and incompatible claims data. (See app. I, pp. 15-16.)

Insurers must weigh the deterrent and financial benefits of their detection efforts against their legal and administrative costs as well as the administrative burden they may cause providers. (See app. I, pp. 20-21.)

Complications of Evolving Provider Ownership Arrangements

Increasingly, health providers are investing in medical facilities, allowing them to control the demand for and supply of services; this creates a potential conflict of interest. (See app. I, pp. 18-19.)

Insurers are limited in their ability to trace and hold accountable the source of fraudulent
billings in new, unregulated medical facilities. (See app. I, p. 17.)

Physicians frequently invest in medical facilities but are not always required to disclose
their investment in facilities to which they refer patients. (See app. I, p. 19.)
Anti-kickback statutes are not always applicable to providers profiting under private
insurance from their patient referrals. (See app. I, p. 19.)

Problems with Prosecuting Fraud and Abuse

Successful prosecutions may not result in insurers recovering their money. (See app. I, pp. 12 and 21.)

Federal prosecutors may not accept criminal health care cases involving less than $100,000 because of limited resources. (See app. I, p. 20.)

An insurer's efforts against unscrupulous providers can result in scams being shifted to other insurers. For example, when Medicare excluded providers who were cheating the program, the providers moved their unlawful operations to private insurers. (See app. I, p. 12.)

Collaborative
Approach Could Help
Address Fraud and
Abuse

Both public health insurance programs and private health insurers are vulnerable to fraud and abuse but separately appear unable to combat it successfully. Despite the commonality of fraud and abuse problems, diverse and autonomous insurers have few means of collaborating systematically to solve them. In our view, if the efforts of independent private payers, public payers, and state insurance and licensing agencies as well as state and federal law enforcement agencies were more coordinated, the attack on health care fraud and abuse would be more fruitful.

Matter for
Congressional
Consideration

A national commission composed of members representing diverse
viewpoints could provide a forum for addressing the efficient and effective
pursuit of health care fraud and abuse. Such a commission could be
responsible for analyzing the trade-offs and developing recommendations
to the Congress on such issues as: (1) greater standardization of claims
administration, (2) mechanisms to allow more freedom to exchange
information for coordinating case development and prosecution efforts,
(3) the need for regulation of provider types, and (4) criteria for physician
referrals to facilities where they have a financial interest.

The Congress should consider establishing a national commission to combat health insurance fraud and abuse with a membership balanced in terms of viewpoints represented. Such a commission could include public and private payers and personnel from federal and state investigative and prosecutorial agencies to develop strategies and evaluate legislative remedies for combatting health insurance fraud and abuse.

As arranged with your office, unless you publicly announce its contents earlier, we plan no further distribution of this report until 10 days after its issue date. At that time, we will send copies to interested congressional committees; the Secretary of Health and Human Services; and the Director, Office of Management and Budget. We will also make copies of this report available to others on request. This report was prepared under the direction of Janet L. Shikles, Director, Health Financing and Policy Issues. If you or your staff have any questions about this report, you may reach her at (202) 512-7119. Major contributors are listed in appendix V.

Sincerely yours,

Lawrence to Thompson

Lawrence H. Thompson
Assistant Comptroller General