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Health Insurance Crimes in the United States

The U.S. has a number of private insurance coverage based primarily on employment, along with public insurance coverage for the elderly (Medicare), the military, veterans, and the poor and disabled. Medicare is an enormously popular and effective insurance program for older Americans. Recently the increasing costs of Medicare threaten to be a huge drain on the federal budget while at the same time the program is facing widespread criticism of reports of waste and fraud.

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The Centers for Medicare and Medicaid Services estimates that by the year 2015, health care spending will reach $4.0 trillion and will account for 20.0% of the Gross Domestic Product (McGuire and Schneider, 2007). The Medicare and Medicaid programs comprise the largest single purchaser of health care in the world, and hence, criminals view healthcare fraud as an ideal field to operate, swindle and make money. The National Health Care Anti-Fraud Association (“NHCAA”) estimates that such fraud accounts for 3-10% of total health care expenditures (McGuire and Schneider, 2007).

Law enforcement officials say that there are many widespread, organized and lucrative schemes to cheat Medicare out of an estimated $60 billion dollars a year, a staggering cost borne by American taxpayers (Potter, 2007). As a result of this fraud, money that is allotted for caring for the nation’s seniors and the disabled is being siphoned away. Federal and state agencies are focusing on detecting and preventing healthcare fraud activities.

In 2004, the federal government won or negotiated more than $605 million in judgments, settlements, and administrative impositions in health care fraud cases and proceedings and more and more healthcare fraud cases are being referred for criminal prosecution.

One of the most common schemes in the sphere of health insurance is the illicit billing for DME, or durable medical equipment, such as oxygen generators, breathing machines, air mattresses, walkers, orthopedic braces, and wheelchairs (Editorial, 2008). This scheme involves billions of dollars a year in illegal claims. The scope of the medical equipment crime has been exposed by Charles Duhigg in The Times and is based on a confidential draft report by the inspector general of the Health and Human Services Department (Editorial: NYT, 2008).

According to the report, it is the responsibility of Medicare’s auditing program to check whether payments made to suppliers were justified and medically necessary by comparing documents and medical information submitted by the suppliers to the medical records provided by the physicians. But, the report says, that Medicare auditors were asked to study only the documents submitted by the companies. This provided a lot of space for unscrupulous companies to fraud. Medicare had bought a power wheelchair for a beneficiary who neither needed nor used the device.

The beneficiary denied knowing the ordering physician or supplier and the supposed ordering physician denied knowing the patient or placing the order. The report holds that the rate of improper payments for medical equipment is 31.5 percent, implying a fraud of the range of $2.8 billion, four times what Medicare had claimed (Editorial: NYT, 2008). It is the need of the hour for Congressional committees to investigate how much of the fraud is due to careless documentation and how much of it reflects payment for medical services that were unwarranted or not provided.

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Raul Lopez, the president of the Florida Association of Medical Equipment and Services and the director of a legitimate medical supply company, said the fraud affects many valid DME companies, which are struggling to survive in a competitive environment. While such valid companies have showrooms, warehouses, public offices, trained staff, and professional record-keeping, the fraudulent companies are usually shell companies with shadowy business practices, hidden owners, and tiny, locked offices which are only there to create the illusion of legitimacy. They rarely have any medical products for actual sale or delivery (Potter, 2007).

Many different kinds of fraud are happening in the area of healthcare insurance. Federal authorities have frozen the bank accounts of a Hyattsville pain doctor, Dr. Martin R. McLaren as they investigate whether his office has more than $6.5 million dollars in fraudulent claims to Medicare and other health insurance programs (The Washington Times, 2007). Washington D. C. was pushed into $22.5 million dollars in 2006 due to Medicaid waste and fraud. It has been found that the city spent more on transportation for Medicaid recipients than it did on actual physician visits for Medicaid recipients (The Washington Times, 2006).

This was attributed to a “serious breach of basic internal controls”, lacking even the most basic documentation for the vast majority of non-emergency Medicaid transportation claims (Riczo, 2006). This was the finding of the Department of Health and Human Services, authorized with the task of fighting Medicaid waste, fraud, and abuse by the Deficit Reduction Act of 2005.

Further, a federal affidavit for one firm, Mash Transportation Inc. in Maryland, found that the company “has filed dozens of Medicaid claims for transporting patients who were dead” reported Jim McElhatton in The Washington Times (Riczo, 2006). To demand federal funds on the basis of healthcare insurance all that a transport entrepreneur needs is a largesse license, inspected van, insurance, and a rate plan on file. Criminal background checks are nonexistent.

Another criminal activity is that many hospitals have been found to engage in “up-coding” of diagnostic related groups, which does not reflect accurately the diagnosis of the patient, in order to increase Medicare payment to those hospitals. In one recent five-year period, the 10 largest health care fraud settlements averaged $540.000,000. “There isn’t an aspect of medical care that isn’t scammed,” opines Modern Healthcare. (Riczo 2006).

Doctors and hospitals are not the only participants in this white-collar crime. Patients also sometimes take part in health insurance fraud. A patient came to a South Florida AIDS clinic, signed some papers, walked into an office, and was handed $150 in cash. She politely thanked the workers and left, her visit to the doctor finished without ever receiving any treatment. According to records seized by investigators, the office staff, assured of the patient’s cooperation, used her name to fraudulently bill Medicare for a list of expensive treatment and medications (Potter, 2007).

Medicare fraud has been found to be highest in urban areas such as Miami-Dade County, in the cities of Miami and Hialeah, often concentrated in parts of the Cuban immigrant community (Potter, 2007). Michael Leavitt, the U.S. Secretary of Health and Human Services, after seeing for first-hand, the extent of the fraud commented “In a decade and a half of public service, this was the most disheartening, disgusting day I have ever spent.

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We have to fix this.” A recent report by the inspector general for the Department of Health and Human Services noted that 72 percent of the Medicare claims submitted nationwide for HIV/AIDS treatment in 2005 came from South Florida alone, despite findings that only eight percent of the country’s HIV/AIDS Medicare beneficiaries actually live in South Florida (Potter, 2007). This clearly exposes a high level of fraud, officially described by an official as “off the charts.”

FBI agents Brian Waterman and Christopher Macrae, in the course of their investigations, found that offices of several purported medical supply companies were locked during business hours and there were no signs of any business activity. Federal officials in Miami pointed to a red electric wheelchair that would have cost about $5,000 but was billed at $5 million (Potter, 2007).

To reduce the health insurance crime in the area, the Justice Department set up a strike force at a remote office park near Miami, and in just six months prosecutors filed 74 cases charging 120 people with allegedly trying to steal $400 million from Medicare (Potter, 2007). Though officials claim that they have helped in saving $1.4 billion in Medicare billing in the area, they confess that much more needs to be done as there are many fraud schemes involving bogus clinics, fake medicines, and illegitimate medical supply companies (Potter, 2007).

The final impact of such fraud is felt by the poor patient coming in for treatment. Due to the siphoning of federal funds due to corrupt practices, federal regulations limit the reimbursement to hospitals, and physicians are asked to judge carefully the need for diagnostic studies and costly procedures for hospitalized patients. They are also under similar pressure from third-party payers such as insurance companies, HMOs, and managed care organizations that negotiate with physicians to supply care that costs less.

The third-party payers then provide incentives for clients to use these ‘preferred providers’. The incentives might include the waiver of all or part of copayments by the insured, or coverage of additional conditions or situations. Preferred provider organizations could be hospitals, nursing homes, or corporations with preferred care providers or groups of care providers under special contracts. The patient is deprived of suitable treatment if it is an expensive one, which is contrary to federal aims at providing healthcare for all.

Law enforcement officials say that Medicare fraud can be either short-term or long-term. During short-term frauds practitioners set up their companies, bill Medicare for a while, and then quit, usually within 90 to 120 days. The long term fraud is much more lucrative and complex. It needs the complicity of doctors and patients in order for the billing scheme to continue without the authorities being alerted (McGuire and Schneider, 2007).

On the legal side, the Medicaid False Claims Statute criminalizes false statements or representations in connection with any application for claim of benefits or payment, or the disposal of assets, under a federal health care program (McGuire and Schneider, 2007). Health Insurance Portability and Accountability Act of 1996 has created five new federal healthcare fraud crimes and has expanded existing money laundering, asset forfeiture, and fraud injunction statutes to cover federal health care offenses. What is most notable is that four of the five new criminal statutes created by the HIPAA 1996 apply to any health care benefit program including any private healthcare plan or contract thereby bringing private insurance plans and contracts within the provisions of the new health care criminal statutes (Crane et al, 2002).

Health care fraud is one that needs to be tackled immediately as it involves a huge portion of the taxpayer’s money. There need to be more stringent regulations in the way Medicare claims are filed and met. Moreover, there needs to be a concerted effort on the part of patients, physicians, insurers, and the government in order to curb this white-collar crime effectively.

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Crane et al (2002). Health Care Fraud and Abuse. BNA Books. 2002.

Medicare’s Claims. Editorial: New York Times. 2008. Web.

Riczo, Steve (2006). A System in Crisis. USA Today. Volume: 135. Issue: 2736.

McGuire, Dan and Schneider, Mac (2007). Health Care Fraud. American Criminal Law Review. Volume: 44. Issue: 2.

Blinding Medicaid Waste and Fraud. The Washington Times. 2006. Page Number: A18.

Pain Doctor’s Bank Accounts Frozen in Fraud Probe; Investigators Question $6.5 Million in Claims. The Washington Times. 2007. Page Number: B01.

Potter, Mark (2007). Blatant Medicare fraud costs taxpayers billions. NBC News.

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