When it comes to health insurance fraud, Carl Sagan’s obsession with the words – billions and billions — are particularly accurate.

As the government’s role in health care increases, it is inevitable that fraud against the government will increase as well.  The False Claims Act is the primary weapon the government uses to chase fraudsters.  While the government has aggressively ramped up its anti-fraud fight, it is hard to determine whether or not there has been a real dent in the fraud problem in the healthcare industry.

Private health insurance companies are starting to play a bigger role in attacking this problem – it is a no-brainer as they say.  Fraudsters are just as likely to commit fraud against a private health insurance company as they are against Medicare and Medicaid.

The government and the private insurance companies have started to coordinate and share information about the people who are reimbursed – that is a very welcome development. For years, private insurance information was not shared with government insurance programs.  Last year, the public-private information sharing initiative was announced and significant steps have been taken to increase sharing of information.

Private health insurance companies need to take a more proactive approach to solving the problem.  The fight against fraud suffers from a significant reactive problem – it is difficult to chase fraudulent payments after the fact, or after a suspicious pattern turns into a confirmed fraud.  This is called the pay-and-chase model.  On average, law enforcement recovers only 20 cents on every dollar fraudulently obtained.

A proactive model for private insurance companies requires the following steps:

1. Hiring of additional SIU resources – former prosecutors or law enforcement investigators
2. Proactive policies for conducting due diligence on new providers so that bogus or suspicious providers are identified
3. Data analysis of payment patterns for high-risk services and products (e.g. DME, long-term care, nursing facilities, laboratory services)
4. Outreach and ongoing communications and coordination with local law enforcement agencies (HEAT, FBI, state investigators, etc).
5. Integration of fraud intelligence and lessons learned into payment policies and analytics

Private health insurance fraud can be prosecuted using a variety of legal tools, including wire fraud, mail fraud and the healthcare fraud statute.  The penalties are tough and the legal requirements are easily satisfied in any fraud scheme against private health insurance companies.

Private health insurance companies recognize that they need to play a more active role in the fight against fraud.  They have welcomed collaboration with the government.  At the same time, private health insurance companies need to adopt proactive best practices and other strategies which leverage their own resources.

The first and most significant place is in the SIU offices – every dollar spent on SIU resources earns an average return of 10 times the amount invested.  That is a much better rate of return that 20 cents on every dollar paid to a fraudster.