Prosecutorial innovation
Prosecutorial innovation
Few aspects of insurance fraud are simple. Sophisticated techniques such as predictive modeling are used to detect it. Forensic science, often involving voluminous paper trails, is used to investigate it. Complex strategies are employed to prosecute it.
So when something simple comes along that’s effective, we take notice.
That’s a good description of the Fraud Interdiction Program established by the Los Angeles District Attorney’s office. It’s the kind of idea that leaves you scratching your head, wondering why no one thought of it before.
The idea arose when someone surmised that medical providers who steal from insurance companies probably cheat on their taxes, too. It was a theory easily validated: Just find out how much insurers have paid individual providers and compare that with the providers’ tax returns.
That’s what Asst. District Attorney Al MacKenzie began doing in 2004, launching a long line of successful prosecutions of crooked doctors and lawyers. Tax cases are a slam dunk compared to the many fraud cases that require proof of intent and documentation of medical procedures. Confronted with simple facts involving tax evasion, many defendants quickly cop a plea and go straight to jail. Plus, prosecutors don’t have to convince juries that insurance companies are victims and that doctors — often seen as pillars in the community — are criminals.
Al’s program earned him the first “Prosecutor of the Year” award conferred by the coalition this week.
His track record with this novel program is impressive. In the last year, he’s landed 15 convictions entailing more than $20 million in stolen money. What’s more, the program has identified some 200 suspects who may have defrauded as much as $300 million. So, expect similar cases rolling out of this pipeline for many years to come.
In accepting his award, Al explained that suspicion of tax evasion permits prosecutors to obtain search warrants more quickly, which helps them gather evidence of insurance fraud that they may not have discovered otherwise.
Al’s program is now being emulated elsewhere around the country. And, to his credit, he is enthusiastically assisting other jurisdiction in setting up their own fraud interdiction programs.
We’re thrilled to recognize such a deserving public servant.
And as a side note, Al’s boss, District Attorney Steve Cooley, deserves praise as well for backing a new program and supporting Al’s efforts. As an elected official, it takes courage to embrace unconventional ideas that potentially could backfire. Kudos to both.
P/C carriers, health insurers coming together
The big news in the world of insurance fraud this week is the announcement of the creation of the Consortium to Combat Medical Fraud.
The Consortium is a joint project of the coalition, the National Health Care Anti-Fraud Association and the National Insurance Crime Bureau. It’s the first time that property-casualty insurers and health carriers have come together in a meaningful way to better detect and investigate fraud by medical providers.
Activities underway include cross-matching data on suspected fraud cases, cross-training investigators, getting insurers comfortable with sharing information across industries and conducting research.
A joint education program last week drew more than 60 investigators from both sides. Many eyes were opened about the different approaches the two industries take to resisting bad claims, detecting fraud and dealing with fraudulent medical providers.
Case studies have made clear the advantages of sharing intelligence and developing joint investigative strategies. One obvious benefit is that prosecutors are more likely to take cases that cross industry lines.
A full story on this effort will soon be published in our quarterly newsletter, Fraud Focus, also available online.
In the meantime, there’s been a lot of good press this week about the announcement. But Sam Friedman, editor of the National Underwriter, writing in his blog, had one biting comment:
When we posted a news story yesterday reporting that “anti-fraud associations representing both the property-casualty and health insurance sectors will pool their resources to increase detection and prevention of health care fraud,” the first question that came to mind was, what took them so long?
He went on to answer his own question:
I suppose I should not be surprised that the p-c and health-disability insurance sectors were off on their own all this time in trying to prevent fraud. While the public perceives the “insurance industry” as two sides of the same coin, the p-c and life-health groups have long operated as if they were two different currencies altogether.
He’s correct that the two sides of the industry have acted as if each has its own set of bad guys. As we have found, these fraudsters are equal-opportunity crooks.
This new effort should take a few more out of action.
Getting an “A” in insurance fraud
Insurance fraud may be a dull, boring topic for some, but high school and college students increasingly choose it as a subject of research reports and term papers. At the coalition, we get a good deal of e-mail from students asking for assistance with papers, and we are always eager to help recruit young people into the fraud-fighting community.
A group of students at Centenary College has demonstrated exceptional leadership: They’ve created a website about insurance fraud and produced an anti-fraud public service message for radio.
These young fraud-fighters. enrolled in the “College Students in Free Enterprise” program, did an outstanding job of researching and writing about fraud and they’ve published useful information on their website. The radio spot is especially good, and hopefully it’s getting well-deserved airtime.
The students were aided by a few industry veterans who were delighted that kids are taking an interest in a topic dear to their hearts. Hopefully, this program will encourage other students and schools to examine the issue of insurance fraud.
And, if you ever have an opportunity to help students learn about fraud, do it.
Whether through a structured program like this one, speaking at your child’s school or just offering to be a source for a term paper, your interaction with young people may be your best chance to make a long-term impact on fraud.
Lie in Kentucky, go to jail
Applicants for insurance in Kentucky have been put on notice: Lie and you may lose your freedom.
A woman who applied for a homeowners policy has been charged with failing to fully disclose her claims history. She faces five years in prison and a $10,000 fine.
Sadly, such cases are rare across the U.S. Fraud bureaus and prosecutors usually don’t consider them a priority. If more did, they would send a stronger signal that honesty is important. Underwriting fraud is basically a fairness issue. The cheats cause honest policyholders to subsidize the premiums of the dishonest.
Hats off to the Kentucky fraud bureau for taking this case. Details are below.
CORBIN WOMAN INDICTED FOR INSURANCE FRAUD
Allegedly falsified claims history information on applicationFRANKFORT, Ky. (June 11, 2008) – A Corbin woman is in custody after being indicted on a felony count of insurance fraud. According to court documents, Christine V. Young filled out an application for homeowners insurance coverage with State Farm Insurance Company stating that she and other household members had no losses for the past three years. She also allegedly stated that no insurer had refused to issue or renew coverage during that time period.
An investigation by the Kentucky Office of Insurance (KOI) Fraud Investigation Division found that another insurer canceled Young’s homeowners policy due to misrepresentations on the application. In addition, Young was directly or indirectly involved in at least four fire losses and one major theft loss during the three-year period.
She was arrested by a KOI fraud investigator and the Corbin City Police and is being held in the Knox County Jail. If found guilty, she faces a maximum sentence of five years in prison and a $10,000 fine.
Is fighting fraud a priority for the feds?
The FBI and U.S. Department of Justice seem to be going to great lengths recently to tout their successes in combating insurance fraud.
In recent days, both the FBI and Justice Department have issued news releases citing results and claiming that economic crime and health care fraud remain a priority for the federal government. U.S. Attorney General Michael Mukasey even gave a speech yesterday to highlight the importance for the Justice Department to fight health care fraud aggressively.
Mukasey had a lot of good things to say in his speech. I especially like this:
“We cannot prosecute our way out of this problem. For every crooked durable medical equipment company we bust, there is another one to replace it before the ink on the indictment is dry. For every wayward provider we charge, there are others willing to engage in the same frauds. The money, and the temptation, are simply too big.
That’s why the deterrent effect is such an important part of your cases. These are highly deterrable offenses, and those who might otherwise be tempted to commit them do not want to do time . . . we must learn lessons from these prosecutions that will help us to devise ways of preventing a recurrence of these frauds. That is one reason why the cooperative efforts of agencies such as the Department of Health and Human Services are vital to our long-term success.”
Too bad he also didn’t promote cooperation with private insurers.
The speech and both news releases issued cited recent numbers of arrests, cases and recoveries, but mostly fail to provide year-to-year comparisons. A peak inside the FBI’s website reveals why the agency doesn’t wish to highlight year-to-year trends. Health care fraud cases are flat, at best, and insurance fraud cases have declined in each of the last four years.
After 9/11, more than 2,400 FBI agents were re-assigned to terrorism, and today the white-collar crimes units are still some 1,700 agents below pre-9/11 levels. And it doesn’t look like that is going to improve anytime soon, according to this recent article:
“Despite a powerful surge in bank robbery, mortgage fraud and white-collar crimes, the Bush administration’s 2009 budget leaves an already handicapped FBI criminal program without the agents it needs to respond — a shortcoming acknowledged by top FBI officials.”
The federal government plays an important role in not only investigating and prosecuting fraud, but also in helping to send a strong message that aggressively fighting fraud is important for government agencies, insurers and society in general. Weakening those efforts hurts us all.
The new Massachusetts miracle
Anyone who doubts that focused anti-fraud efforts can have impact — and put dollars back into the pockets of consumers — need only look at the latest numbers out of Massachusetts.
Since the state launched focused fraud-fighting efforts in 11 communities, claims have fallen $278 million, mostly because of lower medical provider billings — and that’s only for auto insurance. Workers compensation and health insurance probably benefited as well, as many rogue chiropractors and other providers closed up shop.
The most dramatic declines were in Lawrence, Mass., where staging car crashes has long been a way of life for many citizens. Injury claims per 100 accidents dropped from nearly 140 to about 50 over the last four years. Medical billings from auto accident injuries declined from $9 million to less than $1 million in the city.
This impressive news was announced at this week’s insurance fraud summit, cosponsored by the Massachusetts Insurance Fraud Bureau (IFB) and the state’s office of attorney general. I was honored to be the featured speaker at the event; I not only commended fraud fighters in the state, but also challenged them to build on their success.
For all the progress in Massachusetts, there remains great potential for even more success. Part of my optimism stems from the fact that the fraud-fighting community there is more cohesive than in many other states. That was evident at the summit, which drew a lot of local police officials, DAs, and representatives from the U.S. attorneys office, IRS, DMV, labor department, as well as many insurers operating in the state.
Good results can happen when people work together. Congratulations to everyone in Massachusetts.
Tragedy in North Carolina
Financial auditors in state insurance departments are the unheralded workers who help ensure that insurance companies remain solvent and that insurance agencies stay honest. The news out of North Carolina today is sad: A state auditor, Sallie Rohrbach, 44, is missing and an insurance agent has been charged with her murder.
Details are sketchy, and speculation about a motive would be premature at this point. More information probably will be released this afternoon when agent Michael Arthur Howell, of Charlotte, 40, is arraigned.
Update - May 21, 2008 - A body was recovered yesterday by police. Howell appeared in court, but few details were provided. The North Carolina Department of Insurance released this statement:
The news this evening that Sallie’s body was found brings conflicting emotions to those of us at the Department of Insurance. We are devastated that all hope is lost, but we also find a sense of closure in knowing that we can lay to rest our dear friend and colleague with the dignity and respect she deserves. Not knowing where to find her was torturous, so at least in that regard there is some relief.
We pray for peace for Sallie’s family and want them to know that we grieve with them.
Finally, we send our sincere thanks to the Charlotte Mecklenburg Police Department. Their response to this case was, in our minds, exceptional, and we commend them for their professionalism. Thank you, CMPD, for bringing closure to those who knew and loved Sallie.
Jerry Zappola, fraud fighter and friend
The fraud-fighting community lost a good member last Friday with the passing of Jerry Zappola. An SIU manager, Jerry had a great passion for combating fraud and for helping others.
I first met Jerry when we served together on the IASIU board — he a director and I an advisor. He always had a smile when he greeted you and often was the first to offer an idea on how to better serve the investigator community.
Jerry was one of the pioneers in building FIFEC, the annual joint conference between IASIU associations in Florida and the Florida Department of Financial Services. He was instrumental in making FIFEC one of the biggest and best fraud-education programs in the nation. You can read more about Jerry’s life here.
Jerry’s dedication and sense of humor will be missed.
Insurers must show how costly schemes are
I’ve never subscribed to the simplistic idea that people commit insurance fraud just to “get back” at their insurer for charging high premiums, denying an earlier claim, or some other unpopular decision.
People make moral choices for many reasons. Peer pressure, economic downturns, ease of committing the scam, and low chances of getting caught are some of the many reasons people bilk insurers.
Often we make an unethical choice and then find an intellectual reason to justify our actions, psychologists say. Our inner voice might say, “Well, I’m a good person but I inflated that burglary claim because my premiums are too high.” Or, “Everybody does it, so why not me?”
Whatever people’s diverse motives, their attitudes toward insurance fraud and insurers are growing worse. Each problem feeds the other, so both must be addressed forcefully. Left to fester, they could create a snowball effect that will be costly for both insurers and society.
More people tolerate insurance fraud today than 10 years ago, reveals the coalition’s recent national study of consumer attitudes.
Insurance fraud also can be acceptable if the dollar amount isn’t too high, nobody is hurt or the scheme itself is widespread, the coalition’s study also shows.
And fewer than one of four people think highly of insurers. Positive attitudes toward the insurance industry overall have dropped from 53 percent in 1997 to 37 percent today.
Toyota’s ill-advised TV commercials during the last holiday season reflected–and reinforced—many of those backsliding public attitudes. The widely viewed spots showed average Americans wrecking their cars so they could collect insurance money to buy a new Toyota. The ads treated fraud as a parlor game that’s fun for the whole family. The ads were successful, in part, because insurance is one business Americans love to trash.
With fraud being normalized as part of America’s popular culture, small wonder people find it increasingly easy to dredge up convenient rationales for bilking insurers.
Further fueling the moral climate, insurers often are targets of public ire simply because they have such power over people’s lives.
Deservedly or not, insurer credibility took a hit over controversies about the handling of Katrina claims. Withdrawals from territories, unreasonably high premiums, unfair claim denials and other actions inflame consumers as well. And the bid-rigging scandals may have tarnished all insurers, even though only a few were involved.
Larger moral fissures also are opening up in society. Enron-style corporate scandals, for example, may have eroded people’s trust in all corporations.
Insurers thus have little margin of error in this incendiary environment. But who says life is fair? So what are insurers doing about it? Not nearly enough.
At one time, property-casualty insurers worked harder to teach Americans about the value insurance brings to society. Insurers showed consumers how the insurance industry has make America safer by creating Underwriters Laboratories, promoting airbags and seatbelts, and funding training for firefighters.
Insurers of all lines have a credible story to tell. Life in America would be harder for nearly everyone without insurance protection.
Why aren’t insurers more aggressively telling this story? Why aren’t insurers trying harder to convince Americans that fraud is a corrosive crime?
Taking action will be expensive. But the cost of inaction is unthinkable.
Medical board disciplining fewer docs
The coalition has been critical of state medical boards for failing to take action against providers who commit fraud. Our 1998 study found that boards in many states either lacked the funding, authority or willingness to discipline providers who defraud insurance systems.
That study looked at 251 felony convictions in a dozen states and found that many medical boards weren’t even aware the professionals they are supposed to oversee were convicted felons.
Over the 10 ten years, medical boards seemed to be doing a better job in taking action against defrauders. New fraud laws have helped to bring convicted providers to the boards’ attention through mandatory referral requirements. There also is generally a sense that if a provider is cutting corners on the financial side of the practice, patient care may suffer as well.
Now comes a report from the Federation of State Medical Boards that actions against bad docs have declined in each of the last three years. Serious disciplinary actions — including license revocation and suspension — fell 17 percent between 2004 and 2007. No one is offering good explanations for the declines, especially since the number of medical providers increased during that period.
In recent years many states cut back regulatory efforts in an effort to spur business, so perhaps state boards have suffered as a result. And with the recession threatening state budgets, the next few years likely will not be flush times for state medical boards.
Medical boards provide one of the biggest deterrents against fraudulent providers – the loss of their livelihood. Without vigilant oversight, more medical providers will be tempted to cross the line and compromise their ethics. And that will make the job of combating fraud that much harder.