Watch any episode of TV show ER, and it is clear that more drama in a US hospital takes place away from the operating table than on it. But thrilling though the adventures of George Clooney and his colleagues are, real life fraud can provide tales that make TV drama seem pedestrian. The numbers are mind boggling. Fraudulent claims on health insurance – both public and private schemes – are estimated to have cost almost $60bn in 1995. This translates to $710.90 (£445) in extra premiums and taxes for each US family.
While there are significant differences between the workings of US health insurance and private medical cover in the UK, the American experience provides a stark warning of what can happen when cash is king in healthcare. And some of the failings in the US market suggest useful lessons for UK insurers and Government.
Perhaps the most frightening aspect of the US experience is that the majority of fraud is committed by trusted professionals: doctors, surgeons, physiotherapists and hospital administrators.
The Health Insurance Association of America (HIAA) is the main US trade body representing private medical insurers. It reported that 75% of detected frauds had been carried out by medical professionals, and or hospitals, around 13% by facilities – such as laboratories testing medical samples – and only 5% by policyholders themselves.
Some of the most common types of fraud include hospitals and doctors billing for services not rendered, doctors making fraudulent diagnoses or altering the dates of a diagnosis to ensure that treatment is covered by insurance. Insurers may also be billed for brand name drugs when only generic drugs are used. Consumer fraud tends to be the straightforward falsifying of claims.
Occasionally, the policyholders and medical practitioners are in league with each other. US campaigning association, The Coalition Against Insurance Fraud, compiles a top 10 list of detected US insurance frauds each year. Its most recent list covers 1996. The most spectacular fraud that year involved an organised network of more than 800 people based in and around Passaic County, New Jersey.
More than $10m was stolen by staging bogus road accidents and then claiming for medical costs and damages. Almost 100 chiropractors, diagnostic labs and treatment centres were indicted.
Publicly-funded medical insurance programmes like Medicaid and Medicare lose billions each year. It is estimated that 10% of claims costs on federal insurance schemes are fraudulent.
Over the last decade US insurers have started to fight back. They have tightened up general claims and accounting procedures. And more specifically, they have set up dedicated anti-fraud teams.
Meanwhile the FBI has been ordered to take up the fight on behalf of publicly-funded insurance schemes. It now has more than 250 agents dedicated full-time to reducing healthcare fraud, its second largest department after its anti-drugs unit.
These initiatives are making an impact. Insurers reckon to be saving on average $7 in claims for each $1 they spend on their special investigative units. HIAA figures point to total savings across the industry of close to $1bn.
UK insurers do not suffer from fraud on anything like the scale in the US. Mike Williams, director of operations at Guardian Health, says the GP’s role as impartial guardian of patient records helps to ensure this.
But changing patterns of medical provision in the UK may make fraud more likely. Under new private finance initiative strategies, NHS hospitals are increasingly being run as for profit concerns. The government is pressing A&E departments to pursue insurers for the treatment costs of accident victims. And A&E departments may now ask if patients have medical insurance and want to be treated privately.
In such a climate, the temptations will exist for medical professionals to start bumping up the bills. After all, who in casualty has time to fill in forms detailing exactly how many dressings were used on each patient?
Meanwhile insurers are looking to extend the services they offer to include treatments such as homeopathy, and they want to ensure these are value for money.
Certainly, UK medical insurers can sleep easy for now. But the experience of the US shows the potential for fraud losses as we move to a more profit-driven healthcare system.
Stephen Womack writes for
Financial Mail on Sunday and is the author of
Global Insurance Fraud.