HEALTH INSURANCE FRAUD

Health Insurance Fraud

The insurance industry continues to struggle with the issue of fraud and abuse. There is a growing concern among the Health underwriters about the increasing incidence of abuse and fraud in health insurance. There are no valid estimates of loss to industry due to fraud & abuse but on a fair estimate these frauds range from 5% to 15%.

Fraudulent and dishonest claims are a major morale and a moral hazard that insurers have to tackle & handle with due principles and procedures in place and practices to follow same. The health insurance business is complex in its nature and insurers have a little control over the external environment in which it operates. Due to the absence of standard medical protocols, no oversight of a regulator, the provider induced fraud and abuse in hospitalization claims, the job of underwriters turn out to be more challenging as they need to contain costs to keep their prices competitive.

It is a matter of concern that 'insurance fraud' is not defined under the Indian Insurance Act. The Indian Penal Code (IPC) & Indian Contract Act, also do not offer specific laws to control Health Insurance Frauds. Sections of the IPC which deal with issues of fraudulent act, forgery, cheating etc. do not specifically target at insurance fraud and are inadequate for purpose of acting as an effective deterrent. IRDA recently quoted the definition provided by the International Association of Insurance Supervisors (IAIS) which defines fraud as "an act or omission intended to gain dishonest or unlawful advantage for a party committing the fraud or for other related parties." IRDA has also made it mandatory for the Insurers to have a Board approved policy on Fraud Management so that outgo due to such claims can be checked. It will surely benefit the policy holders to whom the cost burden is transferred by hiking premium charges.

In absence of specific laws and harsh punishments, prosecution will rarely be successful and if successful, the penalty inadequate to deter others. Frauds by Healthcare Provider or its employees make the situation difficult for underwriters. No Regulatory vigil on such providers makes the task more difficult for the health insurers as they have little control over the medical care providers.

Fraud is willful and deliberate, involves financial gain, done under false pretense and is illegal. Abuse generally fails to meet one or more of these criteria, hence the subtle difference. IRDA guidelines classify various insurance frauds as under:

1.      Policyholder Fraud and /or Claims Fraud - Fraud against the insurer in the purchase and/or execution of an insurance product, including fraud at the time of making a claim.

2.      Intermediary Fraud - Fraud perpetuated by an intermediary against the insurer and/or policyholders.

3.      Internal Fraud - Fraud / mis-appropriation against the insurer by a staff member.

Common Fraud & Abuses in Health Insurance:

As relevant to health insurance, the type of fraud committed by customer, intermediaries like agents, brokers, healthcare providers either individually or jointly or in connivance with internal staff of insurance company/TPA vary in nature and modus operandi.Commonly committed fraud by a customer of health insurance relate to:

1.      Concealing pre-existing disease (PED) / chronic ailment, manipulating pre-policy health check-up findings.

2.      Fake / fabricated documents to meet policy terms conditions,

3.      Duplicate and exaggerated or inflated bills,

4.      Impersonation,

5.      Overcharging, inflated billing, billing for services not provided

6.      Unwarranted procedures, excessive investigations, expensive medicines,

7.      Over utilization, extended length of stay

8.      Bogus claims by fake physicians, billing for products or services not rendered by them.

9.      Staged accidents and fake disability claims,

10. Channelizing customers to rouge providers

11. Fudging data in group health covers. Fudging records, patient history

12. Fraudulent claim or fake medical documents with connivance of treating doctor or hospital

 Triggers & Fraud Indicators

One of the ways to control fraud is to establish triggers / red alerts for early detection and corresponding action. These can be managed automatically through systems capabilities or manually detected through inspection of a physical file. It should be noted that the presence of a risk management trigger only warrants special attention and further investigation of the claim to collect evidence is required. The exercising of a trigger is not proof of fraudulent claim, only an indication of possible fraud. Some of the triggers are as under:

1.    Claims made shortly after the Policy inception;

2.   Serious underwriting lapses observed while processing a claim

3.    Insured overtly aggressive in pursuit of a quick settlement

4.    Willing to accept small settlement rather than documentation all losses

5.    Documents of doubtful nature

6.    Investigations not justifying stay and medical care or just to cover investigation cost.

7.    Upgrading that is billing for more expensive treatments than those actually provided

8.    Providing and subsequently billing for treatments that are not medically necessary

9.    Scheduling extra visits for patients

10. Referring patients to another physician when no further treatment is actually necessary

11.  Phantom billing or billing for services not rendered

12. Ganging or billing for services to family members or other individuals who are accompanying the patient, but who did not personally receive any services.

Over the last few years, health underwriters, claim managers and TPAs have evolved certain mechanisms for detection and prevention of fraud – mostly based on study of historical data, alerts built through rule based engines, trend analysis, outlier behaviour, black listing of providers, investigation of suspect cases etc but the abuses and frauds keep haunting the insurers in one or the other way. The Risk Management practices now need to be sharpened to keep the menace of health frauds under control. If you have any ideas and suggestions please mail it to vinayverma@orientalinsurance.co.in

                                                          

Vinay Verma

Dealing with Health Insurance Frauds:

The health insurance market, now a days, is very competitive and entry of one or the other player in Indian market makes the situation very unpredictable for insurers so far as pricing of group segment is concerned. Retail products are 'Manual rated' and are underwritten as per the filed product terms submitted to Regulator but the group products pricing is considered on volumes and the offers go less than 10 to 20% of the last claim outgo. Pricing of such products at rock bottom level makes the situation very difficult for the insurers who also want to make this product viable and sustainable.
How this is to be achieved is the biggest challenge before them. Is there any 'Mantra' to deal with this issue? Yes, there is solution to every problem and you need not to do any different thing. Viability needs check on outgo, if income is not within your full control. The highest variable for cost in health covers is hospitalization cost and if the insurers are able to control it by making their product, process and persons effective and efficient enough to control the leakages and frauds & abuses they surely can cut their costs by 10% and this margin is big enough to put them on a different level than the players who only target the sale and leave the processes and costs at the mercy and in hands of TPAs and Health care providers.

Health care providers will provide more than required care at the cost of insurers and won't mind offering even not required medicare , diagnosis or stay in hospitals. They sometimes offer advanced medical techniques like robotic surgeries just to meet their capital cost even when the acute illness can be cured by general and reasonable medical procedure. This is supply side morale hazard and need to be addressed by the insurers by making their processes effective and having efficient people at right place to keep vigil on such activities. Even patients do not mind using more care than required because the cost burden is on insurers. This demand side morale hazard. If these abuses (these are not frauds that should be kept in mind) go unnoticed the insurers will surely have high cost burden that they would like to pass on to the insuring population. They at present are not able to do it due to marketing conditions but this can not remain the situation for long. Insurers who can address these issues are the one who are not doing different things but are the one who are doing and managing the portfolio differently.

How they are addressing this issue ? One of the parameter is concurrent Health Audit. We will be discussing Health Audit in this blog. Keep reading and reviewing.