The federal government faces overwhelming challenges in trying to stem the tide of fraud in the health care system.  The problem is massive, and even with the increase in resources, and adoption of new tools to fight fraud, the government’s ability to reduce fraud is intractable.

As the government’s role in healthcare continues to expand, fraudsters will continue to rip the system off.  Healthcare fraudsters are creative and are always looking to game the system with new schemes.  As the potential benefits from crime increase, more criminals will be incentivized to engage in fraud. 

The only way to reduce fraud is to increase proactive steps to prevent fraud and the risk of being caught if fraud occurs.  The government knows it has to improve its performance on both of these scores, and its strategy is coming to light.

The most important step the government has taken and will take in the future is to require health insurance companies to play a more active role in identifying, reporting and putting a stop to fraudulent schemes.  Cynics will label this as “outsourcing” fraud detection and enforcement to the private sector.  As a former prosecutor, I would label this as developing sources of information by requiring those closest to the market to develop more rigorous fraud detection and reporting programs.

Private health insurance companies already have fraud prevention and detection programs in place.   In addition, private insurance companies have established relationships with prosecutors and law enforcement agencies, and regularly share information with these agencies. 

In a July 26, 2012 announcement, the Attorney General, the HHS Secretary and private insurance representatives committed to increase these efforts.  That makes total sense and is a welcome development.

The federal government, however, wants more from private health insurers. Earlier this years, the Centers for Medicare & Medicaid Services released its Final Compliance Program Guidelines for compliance programs for private insurance sponsors of prescription drug services under Medicare Parts C and D (copy here).  In general, the guidance did not include any surprises in terms of compliance program requirements, with the exception of the expansion of insurers’ responsibilities to include not only their own (and their agents) compliance efforts but to health care providers who provide services to beneficiaries under the Medicare program. 

In other words, the government is requiring private insurance companies to prevent and identify fraudulent activities by health care providers, as part of its overall compliance program.  Private insurers are now required to conduct anti-fraud investigations involving providers participating in the Medicare C and D programs.  It is reasonable to assume this same requirement will be imposed later next year when additional guidance is issued by HHS applicable to other federal healthcare programs.

As mentioned above, private health insurers have established Special Investigation Units dedicated to rooting out fraud against the insurer.  SIUs will have to expand their operations and coordinate with Chief Compliance Officers to enhance anti-fraud programs.  By requiring SIUs to operate as part of a company’s compliance program, the challenge will be in designing the most effective means for coordinating these operations.  If a company fails to address this issue, it can face regulatory and potential litigation risks, possibly including potential False Claims Act exposure.

Private health insurance companies need to anticipate new and more robust anti-fraud requirements as part of their overall compliance programs.  Even though the government has not imposed these requirements outside of Medicare C and D sponsors, the industry should expect the government to impose these requirements in upcoming compliance program guidance in the coming year.