Anti-Fraud Efforts Turn to Prevention

Insurers can block a lot of crime, but the ACA and ICD-10 promise to make the fight against dishonest doctors even tougher

Frank Diamond
Managing Editor

A lot has changed about managed care fraud since we looked at it back in 2002, but the motivation remains the same. Greed turns some physicians into crooks. “They feel it’s easy money,” says Ed Litchko, the senior director of corporate and financial investigations at Independence Blue Cross (IBC) in southeast Pennsylvania.

Ed Litchko

Crooks can set up pill mills pretty quickly, says Ed Litchko, the senior director of corporate and financial investigations at Independence Blue Cross. “And by the time they’re identified, they’ve moved on.” Millions of dollars are lost this way.

The persistence and ingenuity displayed by some fraudsters would be admirable in most endeavors, and there’s never a lack of stories. For instance:

Yes, the chase continues, but Litchko notes that the techniques used to thwart fraud have advanced. Ten years ago, the majority of claims were on paper. Not any more. Thanks to that, insurers can more easily spot irregularities.

Predictive modeling

“The software [identifies] what appears as an aberrant billing pattern compared with the provider’s known history,” says Litchko. “That helps insurance companies conduct more productive investigations and audits. In the past there was a higher percentage of false positives.”

Karen Ignagni, president and CEO of America’s Health Insurance Plans, told Congress in 2011, “Such predictive modeling is an important tool when state prompt-pay laws often require payments to providers to be made quickly, before a full investigation can be undertaken.”

Pay and chase

She referred to the pay-and-chase mode of crime fighting, which insurers and the government want to move away from. Now, it’s all about prevention.

“Plans are able to look for outliers that were nearly impossible to track before,” says Louis Saccoccio, JD, the CEO of the National Health Care Anti-Fraud Association (NHCAA). “It allows you to take a closer look at those questionable claims that might have gone undetected in the past.”

Ralph Carpenter is the director of Aetna’s special investigations unit (SIU), supervising about 100 people with a variety of skills. “A medical director works directly for me,” says Carpenter. “I have auditors to make sure that our work is accurate and that we’re complying with all the rules of the road. We actually have a staff right here — six people — who do the data mining and reporting for us.”

Ralph Carpenter

Fighting fraud is complicated, says Ralph Carpenter, who heads Aetna’s SIU, because health coverage can be complicated. The former law enforcement officer adds that it’s “all based on medical policies, CPT codes, medical necessity.”

This helps in two ways. First, it allows Aetna to flag fraudulent claims. “Historically, they went to the claims processors within the company, which worked fine, but their metric wasn’t fraud, waste, and abuse. It was, ‘Let’s make sure we process these claims as quickly as possible to keep our customers happy.’ So we asked to hire our own claims analysts. They work for the SIU and are trained to go after fraud.”

This also helps because it ensures that a judgment on the claim is made quickly, so that the claims that turn out to be OK can be paid on time.

Louis Saccoccio, JD

Health reform presents some challenges, says Louis Saccoccio, JD, the CEO of the National Health Care Anti-Fraud Association. More services provided to more people will “just in the normal course of things” create more problems.

The biggest area of fraud these days involves illegal use and distribution of pharmaceuticals — patients addicted to pain medication going from doctor to doctor, or physicians running pill mills. “Each year, the NHCAA presents the investigation-of-the-year award at our annual training conference,” says Saccoccio. “The last couple of years, it’s been given to investigations involving pill mills.”

On the move

Litchko says that the crooks can set up pill mills very quickly. They can send hundreds of claims, if not thousands of claims, to the insurance companies and to the federal government through the Medicare Part D pharmacy program.

“And by the time they’re identified, they’ve moved on. So they’ve been able to beat the federal, state, and private insurance companies out of millions of dollars.”

As this recent story in USA Today illustrates, it’s not a given that licensure processes will catch such frauds because state medical license boards often move too slowly.

Insurers should share information. “Payers for the most part see only the claims that they get, while any particular provider is billing multiple payers,” says Saccoccio. “One payer may be seeing something that a second payer may not be seeing. Being able to get that information is very helpful when you’re trying to focus limited resources.”

That’s one of the reasons the NHCAA was created in the first place, says Saccoccio. It provides a forum where health plans and the government can talk about trends.

“Fraudsters are opportunistic. They’re creative,” Carpenter points out. “They continue to change the way they’re doing their business. We need to do the same thing.”

Litchko belongs to a half-dozen organizations in which health plans share data, including a federal initiative launched last year called the Public-Private Partnership to Prevent Health Care Fraud, established by the Department of Health and Human Services and the Department of Justice.

“I know what’s affecting Pennsylvania,” says Litchko. “But are those schemes also being seen in Illinois or Indiana or California?” In addition, Blues plans across the nation share information. “When we find weaknesses or trends or patterns that need to be shored up, we communicate that information within IBC. Our overall goal is to provide our members and our groups with access to health care with the least cost. Part of reducing that cost is my department’s responsibility.”

Tough going

Do these technological advances mean that his job has gotten easier? Litchko laughs. If anything, it has gotten harder, he says, referring to major changes on the way, such as the implementation of ICD-10 codes by October 2014.

“That means many, many more codes that the providers can use when they submit claims,” says Litchko. “It’s making it a much more difficult time for companies and anti-fraud units like ours.”

It is not just providers that engage in fraud, of course. The Affordable Care Act might foster employer and individual application fraud and tempt some companies to falsify demographic data to obtain lower premium rates. In addition, the ACA “presents some funding challenges,” says Saccoccio.

MLR rule

That’s because the ACA categorizes anti-fraud activities undertaken by private insurers as administrative cost containment. The medical loss ratio (MLR) rule requires large group market insurers to expend at least 85% of premium revenue on a combination of payment for medical services and for activities that improve health care quality. For the individual and small group markets the percentage is 80%. HHS did not include anti-fraud efforts in the category “activities that improve health care quality.”

The NHCAA worries that labeling anti-fraud efforts as administrative tools will discourage plans from going all-out, especially when it comes to paying for anti-fraud technology. Submitting patients to unnecessary and sometimes dangerous procedures, diverting prescription drugs, giving non- or undercredentialed providers access to patients, and identity theft all undermine the system, says Saccoccio. “Fighting health care fraud isn’t just about recovering money lost to fraud; it’s about protecting patients.”

In addition, the ACA presents more challenges than just the MLR rule.

“There will be more services being provided to more people, which just in the normal course of things will be a potential for greater fraud,” says Saccoccio. “We might also see issues with exchanges themselves and ensuring that all the information being provided to consumers on the exchanges is accurate.”

Carpenter, a former lieutenant colonel in the Connecticut state police, says that fighting health care fraud can be complicated. “The big difference is the technicalities that are so much different from what I was used to,” says Carpenter. “You would know what piece of evidence you might need for a certain crime. But this is all based on medical policies, CPT codes, medical necessity. And it really is a very complex business.”


A never-ending battle, but worth it, says Litchko, who estimates that his department recovers about $62 million in overpaid claims a year. “We notify the doctor about what we found. We give the doctor an opportunity to explain or justify the claims submission. Our documentation, of course, we believe would be stronger than a doctor’s rationale.

“Then we tell the doctor we want the money back. If the doctor doesn’t pay, we can forcibly take it back because we have contracts with doctors that allow us to do that. We take dollars away from future claim remittances.”

Litchko, stationed in Philadelphia, at one point speaks above the sound of sirens in the background. This seems apropos.

Not a doctor? Shucks, prescribe anyway!

Uncle Sam wants insurance plans’ help in curtailing Medicare fraud. Prescription drug abuse has become a serious and growing problem, notes a study released in June by the Office of Inspector General (OIG) in the Department of Health and Human Services ( In 2010, approximately 7 million people misused prescription drugs, causing the government to label the problem an epidemic.

HHS looks at fraud in Medicare Part D, in which the Centers for Medicare & Medicaid Services (CMS) contracts with private insurers to distribute medications.

“Nationwide, Part D inappropriately paid for drugs ordered by individuals who clearly did not have the authority to prescribe, such as massage therapists, athletic trainers, home contractors, interpreters, and transportation companies,” the study states.

Schedule II drugs, including oxycodone and morphine, are likely to be the most troublesome. Part D inappropriately paid $25 million for such drugs in 2009 in 10 states that were the focus of part of the study. The states were chosen because they had the highest Part D payments that year.

“Notably, massage therapists ordered 12,082 prescriptions in 2009,” the study states. “Athletic trainers ordered another 8,795. Contractors ordered 2,872 prescriptions; these individuals complete home repairs or modifications to accommodate a health condition, such as wheelchair ramps.”

CMS deputizes insurance companies to help catch these thieves. Insurers should:

  • Verify that prescribers have the authority to prescribe drugs
  • Help increase the monitoring of prescribers
  • Ensure that Medicare does not pay for prescriptions from individuals without prescribing authority
  • Follow up on the individuals without prescribing authority who ordered prescriptions
What those without the authority to prescribe prescribed in 2009 in 10 states
Prescriber type Number of prescriptions Number who prescribed Total Medicare payments
Dietitian, nutritionist 20,044 713 $1,684,988
Audiologist or other hearing/speech-related provider 16,229 706 $1,085,699
Massage therapist 12,082 240 $798,991
Athletic trainer 8,795 398 $694,288
Optician 3,860 157 $261,285
Dental hygienist, dental assistant, denturist 3,085 223 $144,177
Contractor 2,827 117 $178,443
Home health aide or other personal care provider 1,781 117 $287,527
Interpreter 1,529 7 $68,225
Transportation or lodging company 890 26 $49,689
Speech-language assistant 549 23 $32,503
Music or art therapist 493 21 $61,678
Nursing technician 267 12 $21,058
Veterinarian 121 20 $6,080
Total 75,552 2,780 $5,374,632
Note: The prescriber list is not comprehensive.
Source: OIG analysis of Part D data, 2012

Ignorance of the law… could put docs in jail

The chronological gap between when “lawyer up” and “ignorance of the law is no excuse” entered the lexicon doesn’t matter. They are certainly complementary phrases now, and physicians need to keep both in mind.

Health care fraud, for the most part, is committed by providers, say law enforcement officials.

Ralph Carpenter, the director of Aetna’s special investigations unit, says that years ago, insurance fraud looked like a pretty safe bet for those inclined to steal. “The sentences used to be a lot less and the money, it was very lucrative. So why not?”

“Fraudsters are opportunistic. They’re creative,” Aetna’s Ralph Carpenter points out. “They continue to change the way they’re doing their business.”

Times have changed and the American Medical Association wants members to know just what the law says, and what the penalties for fraud might be.

For instance, physicians may not submit claims that they know or should know are fraudulent. The government doesn’t have to prove intentional fraud. Civil monetary claims can be up to $10,000 per claim.

Then there’s the Health Care Fraud and Scheme law that says a provider could face prison sentences of 10 to 20 years for schemes that cause bodily harm.

Just a few of the things the AMA wants members to consider.

Ignagni outlines obstacles to anti-fraud efforts

When it comes to preventing fraud, America’s Health Insurance Plans wants the government to show health plans a little love. Karen Ignagni, AHIP’s president and CEO, outlined for Congress in 2011 ways her organization’s members can work better with federal, state, and local law enforcement agencies.

For instance, she said, health plans should be included in settlements when law enforcement agencies obtain restitution in fraud cases. “Including the amounts lost by private plans, as well as public programs, in their prosecutions is likely to allow federal and state prosecutors to seek and obtain even larger penalties against those who commit fraud.”

There’s also the problem of going after fraud and bumping into HIPAA (the Health Insurance Portability and Accountability Act of 1996). HIPAA provides only qualified immunity for supplying health care information in a fraud case, Ignagni said.

“Thus the possibility exists that a health plan might be found civilly or criminally liable for providing what it believes to be accurate information on cases of suspected fraud and abuse to a government agency, even at the government agency’s request. There have been situations where unscrupulous providers have chosen to sue health plans for libel or other charges when under investigation for suspected fraud.”

Some states, recognizing the problem, have enacted limited immunity statues for health care fraud. Ignagni would like to see that in all states.


A blueprint for high-volume, high-quality lung cancer screening that is detecting cancer earlier—and helping to save lives

Clinical Brief

Multiple Sclerosis: New Perspectives on the Patient Journey–2019 Update
Summary of an Actuarial Analysis and Report