This is the last of three columns that discuss fraud in managed-care programs. The first, published Sept. 30, presented a general introduction and background; the second published on Dec. 3, discussed fraudulent practices by payors. This last installment will cover some of the many types of fraud committed by providers.
Provider fraud under traditional indemnity health insurance plans has been rampant practically since the advent of health insurance in the 1930s. The federal government's highly publicized war on Medicare and Medicaid fraud, coupled with more vigorous measures by private insurers to combat fraudulent claims, have barely begun to address this massive problem.
Like official corruption, price-fixing by milk distributors and defense industry scandals, fraud in the provision of health-care services will probably always be with us in one form or another. One of the great expectations of managed care has been that the screening and controls inherent in its systems would make fraud more difficult. By carefully choosing the doctors, hospitals and other approved providers in its network, and by constantly tracking use of treatments and procedures, a managed-care program in theory should be able to discover and prevent fraud more readily, keep questionable providers out of its network and jettison those in its network that attempt to defraud it.
New Varieties of Fraud
Health-maintenance organizations and managed-care plans initially assumed that they would not have to devote significant resources to combat the problem and, accordingly, maintained relatively small anti-fraud units within their organizations. While managed care has experienced a significantly lower percentage of losses attributable to fraud, new varieties of fraud have sprung up that attempt to circumvent managed care's controls and to game its system. In view of this, regulatory agencies such as New York's Department of Insurance have mandated that HMOs and managed-care organizations increase their anti-fraud staffing and resources accordingly.
One frequent scam cited by managed-care anti-fraud units is the situation where, for example, two physicians, Smith and Jones, practice together in a partnership or a professional corporation. Smith participates in an HMO's capitated payment plan, in which he gets paid a flat fee by a plan for taking care of any plan member who comes to see him. Jones does not participate in the plan and is, therefore, eligible to bill the plan on a fee-for-service basis. A plan member comes to see Smith. Smith sees the patient but bills the plan as though Jones had seen the patient, and therefore Smith and Jones have collected not only the capitated payment Smith agreed to accept, but also the separate fee paid to providers outside the network of capitated providers.
Another scheme finds Smith and Jones practicing together. Smith is an approved provider in a managed-care plan, and under his contract, he has agreed to accept the network fee-schedule set by the plan. His partner, Jones, is not a participating provider and is therefore eligible to bill the same plan for a higher out-of-network fee. The patient is seen and treated by Smith, but the claim is sent to the plan with a misrepresentation that Jones provided the service, and the plan pays the higher fee.
A variation on this is the situation where Smith and Jones are not practicing together but Smith refers the patient to Jones and Jones collects the higher fee from the plan and returns a portion of his fee as a kickback to Smith for referring the patient. This is not only a fraud on the managed-care plan but a violation of, among other things, the statutory prohibition on fee-splitting.1 Yet another variation finds Smith, the capitated doctor, performing a procedure that is within the capitated payment structure but falsely billing it under another code for a non-capitated procedure eligible to be separately reimbursed by the managed-care plan.
Cosmetic Surgery
A fraud that has been encountered with increasing frequency is billing for cosmetic surgery, which is generally not covered under most health Insurance, by describing it as something else. Louis Parisi, the chief of Empire Blue Cross and Blue Shield's anti-fraud division, has responsibility for scrutinizing fraudulent claims in Empire's vast network of providers. In an interview, he described a number of the scams his division has uncovered:
- A patient wants to have spider veins in her leg removed for purely cosmetic reasons. Her plastic surgeon refers her to a cooperative vascular surgeon who falsely certifies that the veins are varicose and should be removed for medical and not cosmetic reasons. The plastic surgeon gets HMO approval on the basis of the vascular surgeon's certification, performs the procedure, gets paid by the HMO and remits a portion of the proceeds to the vascular surgeon.
- Similarly, in a situation where a patient desires cosmetic surgery for his or her nose, which is not covered by the managed-care policy, the doctor will misrepresent the procedure as a medically needed procedure to correct a "deviated septum" causing sinus or breathing problems that do not exist.
- A dermatologist treating a male patient for prostate cancer? Most likely an improper effort to get reimbursement for Propecia (a drug for treating baldness) rather than Proscar (a drug for treating prostate cancer).
- A doctor orders a hospital bed for a patient being cared for at home. The equipment supplier delivers a used bed but bills the plan the higher charge as though the patient received a new bed.
- A psychiatrist bills for office medical visits claiming he is treating pain-related illnesses like migraines and back pain, when he is in reality conducting counseling sessions. He thereby attempts to circumvent both contract limitations for mental and nervous treatments, as well as the managed-care plan's treatment pre-authorization requirements.
Hospitals have been investigated for a number of improper practices. For example, for certain types of cancer, a full bone marrow transplant is medically recognized and reimbursable; a partial bone marrow transplant is still considered "experimental" and as such is not yet recognized for reimbursement purposes. Some hospitals and doctors performing only partial bone marrow transplants will represent that a full bone marrow transplant was performed in order to qualify for payment. Other hospitals have engaged in what is known as "upcoding," or deliberately misclassifying an illness or misrepresenting a procedure or treatment in order to be reimbursed at the higher rate assigned to the higher code. Still others have billed for an "intermediate" hospital stay when only a "short" stay occurred.
Medicaid Managed Care
The Office of the Inspector General of the Department of Health and Human Services (OIG) is also focusing its attention on a variety of abuses in Medicare managed care. These include improper relationships between plans and physicians that result in financial incentives to limit care, refusals to refer patients for specialist care or hospitalization and prematurely discharging patients from hospitals before they are medically ready.
Also included are improperly billing for experimental devices and procedures and improperly prescribing more expensive drugs that also entail additional follow-up and testing by the physician. Another problem that is of serious concern to the OIG is providers who seek to exploit the overlap between Medicare managed-care benefits and Medicaid coverage. Where a beneficiary is eligible for both coverages, but his/her physician participates in the risk-based or capitated Medicare managed-care plan to which the beneficiary belongs, Medicaid should not be billed nor payments made for services already covered under the Medicare managed-care plan.
Last year, the U.S. Department of Justice's Managed Care Working Group, working in conjunction with the Health Care Financing Administration, the OIG, and the FBI, began working on a comprehensive long-term managed-care enforcement strategy, including developing definitions of what does and does not constitute fraud in managed care.2 The working group was also charged with devising ways to improve "information sharing between federal and state agencies so that managed-care scams can be identified and referred to law enforcement as quickly as possible." The results of this working group's efforts will be closely watched, and in the future we are likely to see much closer cooperation not only among government agencies but also with affected parties in the private sector.
Francis J. Serbaroli is a partner in Cadwalader, Wickersham & Taft. He is the author of The Corporate Practice of Medicine Prohibition in the Modern Era of Health Care, published by BNA.
- Education Law &#curren;&#curren;6531, 6509-a, 6509(9); see also 8 NYCRR &#curren;29.1(b).
- BNA Health Care Fraud Report No. 20, Oct. 20, 1999, p. 900.
This article is reprinted with permission from the February 29th issue of the New York Law Journal © 1999 NLP IP Company.