Healthcare Fraud and Abuse

There are few industries as large and complex as the healthcare industry in the United States. Accounting for more than $7 trillion in annual spending, the industry is expected to see significant growth in the coming years as the population continues to age. Unlike most industries where there is a direct line between customers and providers, the healthcare industry involves a round-robin relationship.

The relationship is simplified for illustrative purposes in the image above, but essentially a service provider (i.e., doctor, hospital, etc.) provides services to a patient. The service provider then receives payment from a payer, which is typically an insurance company but could also be the patient (often the insurance company and the patient both end up being the payer on the same service if a patient has a co-insurance plan). Payer’s receive funds from plan sponsors, which are typically a patient’s employer or the government if the patient’s healthcare is paid through a program like Medicare. Finally, the patient often funds a portion of their health insurance through premium payments made to the plan sponsor.

Healthcare fraud and abuse can occur at any or all stages of this cycle. Patients may exaggerate or falsify claims, sometimes even colluding with their provider for a financial gain. Providers may engage in all manner of suspicious billing practices in order to receive a higher payment from the payer. Payer’s may engage in schemes to avoid paying legitimate claims or may use suspicious methods for calculating premiums. Plan sponsors may also engage in fraud by misrepresenting information to insurance providers in order to get more favorable rates, or by causing patients covered by their plans to make healthcare decisions that financial benefit the plan sponsor at the expense of the patient’s health and well-being.

Because of the nature of the healthcare industry, there are also classes of healthcare fraud and abuse perpetrators who come from outside of the healthcare cycle. For instance, pharmaceutical companies and medical device suppliers may collude with providers to push their products on patients who may not need them or may be better served by other treatments. In other cases, organized crime infiltrates the healthcare industry. This could take the form of diverting prescription drugs to sell on the black market or setting up fake clinics to provide unnecessary treatments.