Types of Health Insurance Frauds and How to Identify Them

Touseef Riaz

August 23, 2022

Types of Health Insurance Frauds

Anything that falls around the word “fraud” is straight up an illegal act. Simply put, all types of health insurance frauds are against the law and deprive victims of their rights. Not only does fraud affect the victim, but it also impacts the practice and results in a loss for the entire healthcare industry. According to an estimation, nearly 60 billion dollars are lost due to health care fraud and abuse practices. 

Before diving into types of health insurance fraud, let’s have a detailed discussion on what insurance fraud is.

What is health insurance fraud?

Millions and millions of healthcare insurance claims have been submitted over the course of many years. Therefore, making advanced and quality healthcare services available for everyone.

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Several fraudulent practices are also associated with these health insurance claims. These acts directly impact the benefits and revenues being generated. Moreover, they also increase the expenses, costing insurers, industry, taxpayers, etc., millions/billions of dollars. types of health insurance frauds aren’t just the service providers’ fraudulent practices but can also be because of the subscriber(s) (patient). According to CMS, the following are defined as Medicare fraud:

 Knowingly submitting a false claim to receive the revenues

 Knowingly causing the submission of a false claim for receiving the revenues

Knowingly offering, receiving, or paying remuneration to reward or induce referrals for services reimbursed by the Federal healthcare programs

Billing the Medicare for appointments patients couldn’t keep 

Medicare Fraud & Abuse Laws:

Federal laws governing Medicare fraud and abuse include the following:

Federal Civil False Claims Act (FCA)

Anti-Kickback Statute (AKS)

Physician Self-Referral Law (Stark Law)

Social Security Act, which includes the Exclusion Statute and the Civil Monetary Penalties Law (CMPL) 

The United States Criminal Code 

Impact of different types of health insurance frauds:

Healthcare insurance fraud leads to an increase in revenues and a decrease in the benefits/coverage. Any healthcare practice or physician should focus more on providing quality patient care rather than worrying about lawsuits or revenues. The patient’s health is more important for the smooth functioning of the healthcare system.

Fraudulent healthcare insurance practices can overwhelm the healthcare system. Insurance fraud not only can be committed by healthcare providers but also by patients. They intentionally perform such acts to receive the highest benefits/revenues, otherwise unlawful. There are several types of healthcare insurance fraud, including:

Getting/receiving healthcare services off of someone else’s insurance

Phantom claims for the medical procedures, services, or supplies that were never performed or received

Incorrect or falsified information, medical records, or signature to support the claim

Errors in medical coding like unbundling to increase the revenues and reimbursements

Inaccurate place of service

Submitting duplicate claims

Providing healthcare services without a license.

These insurance frauds can be categorized into two types of medical fraud. These two types are based on the entity committing it, i.e., the patient/other individual and the provider. Below is the detail of both kinds of healthcare fraud and the practices categorized as such.

Types of healthcare insurance fraud:

The kind of healthcare fraud varies among the medical providers and patients or any other entity. Following are the four types of healthcare insurance fraud:

Healthcare frauds related to/committed by patients/other individuals:

These healthcare insurance frauds include:

Medical identity theft

Filling healthcare insurance claims/using coverage for services/medications not received.

Permitting someone else to use your insurance

Healthcare frauds related to/committed by the medical providers:

Fraudulent practices performed by providers in healthcare are a crime. Healthcare insurance fraud by providers includes submitting misleading or false information about services provided for revenue generation. Several healthcare providers perform fraudulent practices, including:

Billing for services not performed:

Billing the patient for services or procedures that weren’t performed.

False patient information:

Forging the patient’s medical information or diagnosis to form a medical necessity for the procedures performed. Falsifying the medical report to receive reimbursements for services/procedures that weren’t rendered.

Waiving patient’s deductibles:

Reducing patients’ co-payments, eventually billing the insurance carrier for more.

Medical equipment fraud:

Medical equipment includes providing services like a wheelchair. 

For instance, a patient who’s provided with a manual wheelchair, however, is charged for a power wheelchair. In a case like this, the patient and the carrier are paying for the equipment that was never received or provided. 

Providing unnecessary services:

Billing or submitting insurance claims for the services that are not medically necessary for treating that particular condition. Performing unnecessary medical procedures intentionally to increase reimbursements or revenues is a fraudulent practice.

Other medical billing errors/practices like:

Other healthcare insurance frauds include the following:

Phantom billing:

Phantom billing is when the provider bills the patient for service visits or medical supplies that were never performed/provided.

Double billing:

Billing or submitting health insurance claims for the same service multiple times. This act results in higher reimbursements for the providers/physicians. The provider might change the information like date of service, name of the patient, etc., to avoid detection. Moreover, providers may also bill different parties (e.g., private insurance carriers or the Government) for the same service.  

Upcoding:

Upcoding is another healthcare insurance fraud. In this provider may intentionally bill for a more expensive/comprehensive procedure than the one performed. Billing a higher-level medical code results in higher reimbursements for the provider. For instance, if a physician saw the patient for a 15-minute session but bills for 45-60 minutes. Another example of upcoding can be a provider billing for an individual session, although it was a group session intentionally.

Performing such acts eventually illegally increases the revenues and reimbursements of the provider.

Unbundling:

Using separate/individual codes for a single procedure when a comprehensive code exists is known as unbundling. These comprehensive codes contain the group of services/procedures performed together commonly. And reporting them separately also increases the revenues/profits illegally.

For example, using separate codes for cleaning, stitching, and dressing of the wound. Reporting them separately is illegal and known as unbundling.

Healthcare fraud involving prescriptions:

Prescription medication fraud is also quite common. According to the FBI’s standard healthcare fraud list, there can be three kinds of fraud/abuse related to prescriptions, including:

Forgery:

Using or creating forged prescriptions is a crime. Prescription fraud/abuse costs huge amounts to the taxpayers, insurers, and healthcare providers. Not just money, but the greatest cost is the lost human lives; tens and thousands of people lose their lives each year due to addiction.

Diversion:

It includes selling your prescription medication. Diversion means selling your legal prescription medication for illegal uses.

Physician Shopping:

Physician or doctor shopping includes purchasing prescription medication (controlled substances) from multiple providers. It could also mean getting the legal/prescribed medications from medical practices engaged in illegal acts.

Difference between fraud & mistakes in health insurance:

In healthcare insurance, it is pretty crucial to distinguish between a fraudulent practice and an error. Fraud or scam in healthcare insurance merely depends on the entity knowingly performing the act. The intention being increasing the revenues for financial gain.

If the healthcare provider intentionally bills for a higher procedure or service that was not needed or performed without a medical necessity. In this scenario, the provider is billing the insurance carrier falsely, therefore, committing crime/fraud.

Mistakes/errors in medical billing are common, and they could be a reason behind the increase in revenues as well. Common errors/mistakes in medical billing include the following:

Incorrect documentation

Use of inaccurate modifier

 Billing an incorrect/outdated code

Late submissions

All of these errors may lead to insurance claims being denied or rejected by the payers.

Penalties for different types of health insurance frauds:

According to CMS, the following is the health insurance fraud punishments/penalties list. The insurance fraud examples and their penalties are based on the Medicare fraud & abuse laws, respectively, including:

Federal Civil False Claims Act (FCA):

This law protects the Federal Government from being overcharged or sold substandard goods or services.

· Example of fraudulent practice includes:

Provider knowingly/intentionally submitting a claim for service not performed or for a higher-level service to Medicare (compared to the one performed).

· Penalty:

Civil penalties for violating the civil FCA may include:

  1. Recovery up to three times the amount of damages sustained by the Government.
  2. Plus financial penalties on submission of per false claim.

Anti-Kickback Statute (AKS):

This law makes it a crime to knowingly and willfully offer, pay, solicit, or receive any remuneration directly or indirectly to induce or reward patient referrals.

It also includes the generation of business involving any item or service reimbursable by a federal health care program.

· Example:

A medical office receives rent at a low-market value or cash in exchange for patient referrals.

· Penalty:

Violating the AKS may include the following criminal penalties and administrative sanctions:

  1.       Fines
  2.     Imprisonment

iii.   Exclusion from participation in the Federal Healthcare program

  1.   Under the CMPL, penalties for violating the AKS may include three times the amount of the kickback.

Physician Self-Referral Law (Stark Law):

This law prohibits a physician from referring patients to receive “designated health services” payable by Medicare or Medicaid to:

  1.       An entity with which the physician has a financial relationship unless an exception applies.
  2.     An entity with which a physician’s immediate family member has a financial relationship unless an exception applies.

· Example:

A beneficiary is referred for a designated health service to a clinic by the provider who has financial interests in that clinic.

· Penalty:

Penalties for violating the Stark Law may include:

  1.       Fines
  2.     CMPs for each service

iii. Repayment of claims

  1. Potential exclusion from participation in the Federal health care programs.

 How to report healthcare insurance fraud? 

If you suspect healthcare fraud, waste, or abuse, CMS provides you with a way to do it.

What do to if you think there is a problem?

Stop submitting such problematic insurance claims

Seek legal counsel

 Figure out the amount of money collected from these problematic claims (from patients and the federal healthcare programs). Overpayments should be reported and returned.

Tips for avoiding healthcare fraud (for patients):

Following are some tips to avoid any kind of healthcare fraud (discussed above).

1. Protect your healthcare insurance information

Your insurance information should be treated as a credit card. Ensure protecting the information and be careful when using it at a medical office.

2. Look out for any “free” services.

As mentioned earlier, don’t just share your insurance information with anyone. In case someone asks for your insurance info for some “free” services, don’t share it. As there is a probability that these services aren’t free in the first place and could be charged to your payer illegally/fraudulently.

3.  Check your EOB (Explanation of Benefits) regularly.

Explanation of Benefits (EOB) contains all the information regarding the costs being covered by the payer for services you received. This is why, on receiving the medical bill, cross-check it with your EOB. Review the dates, locations, and the medical procedures/services you are being billed for. Ensure/review whether the services you are being billed for were actually performed. In case of any discrepancies, contact your insurance carrier.

4. Learn more about the service being received

Ask your physician more about the procedures being performed, their purpose, and the cost.

5. Check in for your co-payments/deductibles.

Some services may not be fully covered under the insurance, out of which the patient pays the rest of the amount. Confirm your co-payments beforehand; in case of an increased amount in the claim, contact your insurance carrier.

Frequently Asked Questions (FAQs)

1.     What does cheating mean in insurance?

Insurance fraud includes submitting a falsified claim to the insurance carrier for financial gain. According to CMS, the following are defined as Medicare fraud:

Knowingly submitting a false claim to receive the revenues

 Knowingly offering, receiving, or paying remuneration to reward referrals for services reimbursed by the Federal healthcare programs

 Billing the Medicare for appointments patients couldn’t keep

2. How do insurance companies try to trick you?

Following are some of the types of health insurance frauds with how insurance companies try to trick you:

 Delaying the claim process

Offering a simple settlement

Discourage you from having/contacting a lawyer

3. How do health insurance companies verify claims?

Insurance companies may verify the claim by opting for any of the following:

Drop an email or by post

 Via phone call carried out by the medical billing/claim processing department

4. What do health frauds have in common?

The most common types of health insurance frauds include billing for services that were never rendered or billing a higher-level service. All insurance frauds lead to illegally increasing the revenues of the practice.

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