Insurance Fraud, Abuse and Waste Could Be Reduced With High Deductible Policies

There is huge amount of money expended in the American health care delivery system – 17% of the GDP. Some of it is diverted through fraud, some is garnered via abuses and a lot is due to waste.

Fraud, abuse and waste are words used by politicians frequently. How much of each is there? Are there straight forward ways to reduce them? Among the best approaches is to enlist the patient as the first line of defense – with high deductible policies.

Not surprisingly fraud is relatively common in healthcare given the huge amount of dollars involved. As Willie Sutton once said when asked why he robbed banks – “That’s were the money is.” A Dallas-area physician stands accused of systematically defrauding Medicare of $350 million largely by excessive or grossly inappropriate referrals to home health agencies. Given all of the rules and regulations, how is it possible that such a gigantic fraud could be perpetrated over a five year period with no one noticing until recently?

The extent of medical fraud is uncertain. Commercial insurers estimate about $60 billion and Medicare/Medicaid estimates about $72 billion or more per year. In 2010 the US government was able to reclaim about $4 billion and convict more than 700 individuals of Medicare fraud and abuse.

What is fraud? In essence it is billing for a service not provided or billing in a fashion that inappropriately garners a higher payment than appropriate. Perhaps most of the time the latter is done inadvertently when a billing clerk enters an incorrect code. But the more egregious fraud is to bill for a service not performed or performed when there was no acceptable reason to do so.

If a urologist checks every patient’s bladder for residual urine with an ultrasound machine regardless of the reason for their visit, that is simply inappropriate medicine. But if he then bills for it when it was not indicated, it is certainly abuse and probably is fraud. If a podiatrist has a contract with a nursing home to clip toenails and bills every resident when he only clipped a few, that is gross fraud. It is likewise fraud if a doctor sees a patient regularly for a chronic condition but then bills for extra office visits that never occurred.

Abuse is different from fraud. This is when, for example, a cardiologist does an angioplasty and inserts a stent in a patient who has some evidence of coronary artery disease but not enough to truly justify the procedures. Of course the cardiologist will argue that he was being proactive and may indeed believe that the procedure was in the patient’s best interest although his peers would disagree.

Waste is another matter altogether and really should not be lumped with fraud and abuse. Waste is when a test, an X-ray or a specialist referral is made when not really necessary. The primary care physician may suggest one or more of these when in truth the problem could have been figured out through more time spent with the patient’s history and physical exam. But PCPs are pressed for time in a non-sustainable business model and so are quick to look for the test, X-ray or referral to solve their dilemma. Waste is very common in medicine and represents far more of a financial drain on the delivery system than does fraud or abuse.

It turns out that our insurance system aids and abets fraud, abuse and waste. In our system today, most everything is covered by insurance. It is no longer insurance for the catastrophic; it is prepaid medical care. This means that the patient has little or no incentive to challenge the physician when he or she suggests a test, procedure or referral. But when the patient has is financially liable for these then a different mindset operates. A deductible of $1000-2000 or more is enough to lead most individuals to wonder if the MRI at $800 out of pocket is necessary. It also prompts one to question if a generic or off-patent medication would do just as well as the branded $97/month drug prescribed. Of course if a patient in the midst of a coronary artery angiogram is told that he needs an angioplasty and stent inserted, he is unlikely to feel empowered just then to challenge that recommendation. But if he receives a bill for a procedure never done or a visit that never occurred he is very likely to challenge the bill.

Unfortunately insurance statements are lengthy, complicated and confusing. So most people just file them away after at best a cursory look. But not so if they have a high deductible. They check to see if the bill is correct and if it is not, they initiate a query, at the least.

Consumer-driven control mechanisms can be very effective but our prepaid system of medical care detracts. The homeless people in Texas referred for home health would not have reported the fraud. But the typical insured individual with a high deductible policy who never got home health or who did not need it but who was billed would certainly have blown the whistle. The Texas fraud could have been detected years earlier. It is different when it is your money being spent.

Stephen C Schimpff, MD is an internist, professor of medicine and public policy, former CEO of the University of Maryland Medical Center. He is the author of The Future of Medicine – Megatrends in Healthcare and The Future of Health Care Delivery – Why It Must Change and How It Will Affect You from which this post is adapted.