Set the prisoners free…and then what?
Fraud fighters funnel tremendous amounts of time and effort into detecting, investigating and helping to prosecute people who commit insurance crimes. That last step of the process — punishing people who defraud — is running up against a trend sweeping the nation: prison depopulation.
Grappling with crumbling budgets, state after state is facing the reality that they can no longer afford to incarcerate growing numbers of criminals, especially non-violent ones.
The number of prisoners in the U.S. is at an all-time high. The U.S. imprisons more people than even China, which has four times the number of citizens. Sooner or later, something has to give. That something, in part, is pressure to resist handing out prison sentences for white-collar crime, including insurance fraud.
Not only is there pressure on judges to resist incarcerating white-collar criminals, but sentences are becoming shorter. At least 19 states have taken action to cut their prison population by reducing sentences. Mississippi began allowing non-violent prisoners to be considered for parole 60% earlier than usual. New York, Rhode Island, Minnesota, Michigan, and New Jersey enacted similar sentence-cutting measures for low-risk inmates.
Budgets aren’t the only reason states are taking action. Overcrowding is another factor. California — under a Supreme Court order — will soon release at least 30,000 convicts to ease inhumane conditions. How many fraudsters currently locked up in California prisons will be let out to continue plying their trade?
This trend not only will put more white-collar criminals back on the streets, but likely will create a disincentive for prosecutors to take these cases in the first place. Plus, deterrence for committing fraud will diminish.
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Michigan prosecutor Kym Worthy recently expressed her disappointment in Michigan’s prison system, pointing out that arsonists are keenly aware of the state’s lenient policies, and knowingly perpetrate these crimes because they “know they can get away with it.”
Fraud fighters and prosecutors need to meet this trend head on and come up with creative ideas as alternatives to long prison terms. Â
Out of necessity, some jurisdictions already are employing such measures. In Texas, one district attorney has cut plea bargains with auto giveup scammers to require them to appear in video PSAs talking about how dumb their crimes are and the impact on their lives. A prosecutor in Florida recently cut a deal with convicted clinic owners to fund a public outreach campaign about the cost of such crime and to alert citizens to report shady clinics.
Public service spots and public speaking mandates by remorseful fraudsters would further put a face on this crime, creating a lasting impression in the consumers’ experience, in a more direct way than reading about a conviction.
Public embarrassment is good, but much more thought needs to go into alternative sentencing. Increased fines on professionals who defraud would be a good start. Perhaps medical professionals who defraud should be sent to third-world countries for a couple years to provide free care. Convicted lawyers might be sentenced to long-term jobs at nonprofit legal centers providing services to the poor. Whatever alternatives, they must be sure, swift and somewhat painful to serve as deterrents.
If our criminal justice system fails to hand out effective punishment, deterrence will continue to diminish and fraud will continue to flourish.
OK to commit insurance fraud in OK?
Oklahoma is not the first state to fire fraud investigators en masse during the current economic downtown.
It is the first, though, to do so with the explanation that investigating claims fraud is not the business of the state.
Six of nine investigators got the axe yesterday — all six dedicated to investigating claims fraud.
Randy Brogdon, the deputy commissioner of insurance who recommended the firings was quoted in the local newspaper:
“The companies need to handle their own claims. Investigating policyholders is not a function of the Insurance Department.â€
We respectfully disagree. The state law creating the fraud unit clearly says its function is to investigate any violation of Oklahoma’s insurance fraud statute, which includes claims fraud.
It’s a bit surprising that Mr. Brogdon doesn’t know this since up until a few weeks ago he was a state senator.
Following the firings, one of the soon-to-be displaced investigators was quoted as saying “If I were going to commit insurance fraud in Oklahoma, I would feel pretty confident I could get by with it.â€
That’s not a message you want to send to a public that’s already too tolerant of unethical behavior when it comes to insurance.
And at the same time, insurers are being told fraud doesn’t matter. There’s no government agency to take your cases, so just pay the claims and increase your rates.
Insurers in the state are required to pay an annual assessment of $750 to fund the unit. They also are required to report any suspected fraud to the DOI. So . . . why would this regulation be in place if they fraud unit was not created to investigate claims fraud?
Nearly every other state has an active fraud bureau that partners with insurers and others to keep fraud in check. We’ve seen insurers increase investment in anti-fraud in states that adopt good laws and create effective fraud units. This partnership not only helps to detect, investigate and prosecute insurance crime, but the data suggest it creates a deterrence as well.
Oklahomans will end up paying more for insurance, no doubt. We encourage the insurance department to reconsider this decision.
Broad new powers against medical scams
When the creation of Medicare was being debated back in the 1960s, medical groups voiced concern that the government was going to use its powers to deny payments and unfairly squeeze doctors. To appease the medical lobby, Congress severely limited the ability of the government to deny payments to doctors and others, and even to launch investigations.
In essence, Medicare merely became a claims processing system.
Over time as abuse and fraud grew, Congress was pressured to give HHS and the Department of Justice some leeway to go after fraud. But their method — pay and chase — was an inefficient model that never discouraged fraud or recaptured much of the treasury that was lost to scam artists.
The growth of organized fraud rings during the last ten years placed more strain on government resources to fight what some have estimated a $60-billion year drain.
HHS lacked the authority (and at times, the willingness) to deny providers entry into health programs or stop claims payments when fraud was suspected.
New rules announced today changes all of that. HHS now has the authority to shut out fraudulent providers before they have a chance to scam the government. Officials can also halt payments immediately when fraud is suspected.
An even more aggressive step, the HHS Secretary will have the authority to invoke a moratorium on accepting new applications from specific specialties to allow investigators to get ahead of emerging fraud trends.
HHS and DOJ have the three key elements to fight fraud that have been missing in the past — resources, authority and a commitment. These things in concert with new technology, consumer education and partnering with the private sector, should turn the corner on fraud against health programs — and save billions of dollars in the process.
UPDATE: Earlier today, the Coalition shared the stage with HHS Secretary Kathleen Sebelius as she announced the new anti-fraud procedures. The news conference can be viewed on the HHS website. The Coalition also issued a statement in support of the new rules.
Radio talker’s irresponsible advice
The Philadelphia area has its share of ethically challenged folks and surely doesn’t need anyone giving step-by-step instructions on how to commit insurance fraud . . . especially when that someone has a large megaphone and can reach thousands of people. That’s the scenario that played out last week on WYSP radio with talk show host (and former tv child star) Danny Bonaduce.
A caller sought advice on how to profit from a minor traffic accident and talker Bonaduce didn’t disappoint. Here’s a partial transcript:
Bonaduce: “Do you have any tingling or numbness in your foot?”
Caller: “[In] my knee.”
Bonaduce: “How about in the bottom or sole of your foot”
Caller: Nah.
Bonaduce: “Yes, you do. Let me ask you again. Do you have any numbness in the bottom of your foot?
Caller: Absolutely!
Bonaduce: “OK . . . So here’s what going to happen when you go to the hospital . . .”
The talk show host then goes into detail about how to fool the doctor into concluding the accident victim suffered nerve damage in his foot. Bonaduce admitted that the scam is illegal, and even boasted employing it himself in a workers comp claim that allowed him to sit home and collect for six months.
Bonaduce’s audience likely includes young and impressionable listeners who look up to this ‘shock jock.’ They now have another reason to think insurance fraud is cool, harmless and lucrative. His behavior is irresponsible.
The Coalition has filed a complaint with Bonaduce’s employer, WYSP, and its parent company, CBS Radio. Feel free to express your own outrage.
An audio clip of the show can be heard in the members-only section of the Coalition’s website (under Other Resources). We’re hesitant to upload it for public consumption and give it more play than it already has.
Thanks to the Pennsylvania Insurance Fraud Prevention Authority for alerting us to this story.
Loss ratio’s unintended consequences
State insurance commissioners voted today on proposed regulations governing medical loss ratios — the new requirements under health care reform to encourage insurers to spend less on overhead and more on patient care. If insurers don’t spend enough on patient care, they could be forced to rebate a portion of premiums back to policyholders.
The medical loss ratio concept is a fine idea, but when it comes to fraud, the requirement could very well result in perverse incentives. An insurer that is out of balance with the required loss ratios could find it more profitable to disinvest in fraud prevention and just pay suspect claims. Reducing or eliminating an anti-fraud program would help reduce overhead expenses (and leave more room for profit) while the extra payout for suspect claims would help the insurer get that side of the equation in balance.
Now, most health insurers are smart enough not to scuttle anti-fraud programs, and none I know would intentionally pay fraudulent claims. However, I could envision scenarios where insurers might take a pass on investigating borderline cases, especially if they are complex and costly investigations, which many are.
With this new requirement, there also will be little incentive for investing in new technology or enhanced training of fraud investigators or funding complex civil litigation to counter criminal fraud enterprises.
One unintended consequence of the medical loss ratio is that it may spur medical inflation. If insurers can only increase profits by increasing the size of the overall pie, there’s little incentive to keep medical costs in check through anti-fraud programs and by other means, especially in markets that aren’t highly competitive. That’s one reason the Coalition and others pressed regulators to consider anti-fraud activities not as overhead, but as programs that address health care quality and help reduce cost, so that more of the health care dollar goes for patient care — and not to the scam artists who seem to be multiplying by the week.
Health care reform contains unprecedented resources for the federal government to detect, investigate and prosecute medical providers who are ripping off Medicare and Medicaid. Results so far are quite impressive. Pressure is on unethical providers and organized crime rings to avoid defrauding the government. The chances of getting caught have never been greater and the penalties never as severe. So guess where many of these fraudsters will look to ply their trade? Private insurers likely will face increased pressure from criminal enterprises that have cut their teeth on scams against Medicare. The next few years will be the wrong time for the private sector to pull back from combating health care fraud. But with the medical loss ratios, the fear is that’s exactly what many will do.
We will invite policymakers to join us in the next few years in monitoring the level of health care fraud and the private sector’s investment in it. If fraud grows like we and others predict, we hope regulators and legislators will have the wisdom to take appropriate action. We’ll see.
Is the life payout scam really a scam?
Bloomberg Markets magazine published an investigative article this week accusing life insurers of duping beneficiaries by sending them a checkbook to access their insurance proceeds rather than just sending a check for the full amount of the life policy.
The magazine breathlessly reported that insurers are “secretly” investing the proceeds and making millions off the widows, orphans and fallen soldiers.
The news media have gone into a feeding frenzy, and the New York AG has launched an investigation. The news release AG Cuomo issued today has a telling headline:
ATTORNEY GENERAL CUOMO LAUNCHES INVESTIGATION OF LIFE INSURANCE INDUSTRY FOR DEFRAUDING MILITARY FAMILIES AND OTHERS OF MILLIONS IN CASH PAYOUTS
I thought investigations are conducted to determine if fraud had occurred, but in this case it appears the outcome is pre-determined — all based on one article.
And speaking of the article, Bloomberg has an unsavory record of trashing the insurance industry. We’ve dealt with their writers on fraud stories in the past, and frankly, their style of journalism is not for us. And that’s too bad because insurers sometimes do unsavory things to consumers that should be exposed. The life payout practice in this case, however, doesn’t appear to be one of them.
I just don’t see the fraud here. As long as insurers fully disclose that beneficiaries can write a check for the full amount of the death benefit and receive the cash quickly, there’s no foul. And as insurers claim, some beneficiaries probably like to earn a little interest while they decide what to do with the money.
Kudos to the National Association of Insurance Commissioners for quickly issuing a rational statement on the issue.
Martin Frankel for insurance commissioner!
Is this another sign that people think committing fraud is no big deal? The guy who headed a company that committed one of the largest health care scams ever is now the leading candidate to win the Republican nomination for governor of Florida. Are voters apathetic when it comes to fraud? Are they this forgiving of serious crime?
Rick Scott, as CEO of the hospital chain HCA/Columbia, oversaw a company that was accused of stealing billions of dollars through Medicare reimbursement. It was a systematic fraud scheme that ended with $1.7 billion in fines and the criminal convictions of HCA executives. Scott left the company soon after the feds launched their investigation, and that may have saved him from indictment. He was never directly tied to the fraud schemes, but it’s hard to believe that a CEO didn’t know, or at least wasn’t guilty of creating a business environment that allowed fraud to flourish.
His current lead in the polls could set up a matchup with Florida CFO Alex Sink, who oversees the state’s insurance fraud bureau. Might make for some interesting debates.
So, if Florida voters shrug at the prospects of having someone like Scott as the head of their government, what could be next? Master fraudster Martin Frankel will be out of prison in a few years. He has intimate knowledge of insurance regulation. (He avoided detection for several years while looting $200 million from insurance companies he controlled.) Perhaps he could get a commissioner’s gig somewhere?
Discouraging anti-fraud investment?
Could health care reform passed earlier this year unwittingly discourage insurers from tackling fraud? That’s a question that crossed our minds recently when we saw regulations being crafted that will dictate the percentage of premiums insurers must pay out for medical care.
Under a section of the new law, health insurers must pay out at least 80 to 85 percent of premiums on “reimbursement for clinical services” and “activities that improve health care quality.”
The remainder can be used for such things as overhead, administrative costs, marketing — and combating fraud. For some insurers, the margin of that 20 to 25 percent of the premium dollar is rather slim. Costs will be shaved, and you can bet that anti-fraud activities won’t be spared
We argue that combating fraud speaks to health care quality because it helps to keep insurance affordable, thus more people receive coverage. And just as important, It is through fraud investigations that it is often found that medical providers are cutting corners on health services, including performing treatment and services that are medically unnecessary and harmful to the patient. Anti-fraud efforts often are efficient ways to quickly identify and remove bad doctors and clinics from providing health services, whereas regulatory and licensing remedies sometimes take years.
The National Association of Insurance Commissioners (NAIC) is working with the federal government to draft the regulations for this provision. The Coalition and the National Insurance Crime Bureau has recommended that anti-fraud programs should be included in the definition of activities that improve health care quality. This way, health insurers won’t be pressured in cutting back on their anti-fraud programs — activities that address some of the core issues of health care reform.
Stealing health benefits no minor crime
Stealing health insurance benefits is a type of fraud that doesn’t get much attention. It seems innocent to a lot of people. So you list your boyfriend as your husband and get him covered by your employer’s policy. What’s the harm?
People who get divorced often don’t alert their employers that their now-ex isn’t really qualified for health benefits. And then there’s all the people who sign up for Medicaid that really don’t quality, like the doctor and school teacher in Connecticut.
All the same, it’s still cheating. Honest people pay extra for this dishonesty. And it’s dumb to steal insurance benefits because with vast data resources, insurers can easily learn about whether people are really married or whether their income is low enough to qualify for state programs.
The first public outreach effort on the theft of health benefits has been launched by the Insurance Fraud Prevention Authority (IFPA) in Pennsylvania. They’ve created a brochure, TV and radio spots, plus a website describing varied opportunistic frauds committed by consumers and warning people about the consequences. Another fine job by our colleagues in the Keystone State.
Question the company and their plan
Health care reform has helped produce a new wrinkle on an old scam. Crooks are taking advantage of consumer confusion over health care to peddle fake plans and worthless policies or insurance consumers don’t need. Health & Human Secretary Kathleen Sebelius is the latest to jump on the public awareness bandwagon to warn consumers about these scams. During a speech at the National Press Club earlier this week she said scam artists were going door to door telling people there was a limited open-enrollment period to buy coverage and they needed to buy now.
Sebelius, a former state insurance commissioner, said states need to investigate and prosecute these scams.
This new wrinkle comes atop a growing wave of bogus health plans and shady medical discount programs that are defrauding consumers by the thousands. Some states are taking action, such as the recent action in Tennessee where two sham health plans were taken over by regulators. Law enforcement also has ongoing criminal investigations in several states.
This is a good start. But more prevention is needed. That’s where alerts like the one issued by Sebelius and others come in. The best awareness campaign we’ve seen was just launched in Nevada. The campaign is a joint project of the state’s department of insurance, the Nevada Surplus Lines Association and the Nevada Independent Insurance Agents Association.
The campaign features tv and radio spots, a robust website and an interactive system to help consumers verify health insurers and discount plans. The website — NVInsuranceAlert.com — also contains red flags and useful tips on choosing a health plan.
The ads carry a double tagline — “Question the company and their plan” and “Check before you write a check.” Solid advice both.
State regulators have shown up a bit late for this party, partly because many budgets have been cut back for such things as consumer assistance. Perhaps if more took the lead from Nevada and partnered with industry groups, we might find a way to final get ahead of this crime spree.
