Health Insurance Fraud

The nation's bill for health care fraud was estimated to total $85 billion in 2003 by the Blue Cross and Blue Shield Association and the U.S. Government Accountability Office, or 5 percent of U.S. health care spending. For Medicare, $1 out of every $7 was lost on fraud and abuse.

Fraud and abuse take place at many points in the health care system. Doctors, hospitals, nursing homes, diagnostic facilities and attorneys have been cited in scams to defraud the system. One huge area of fraud is the Medicare and Medicaid systems. Health care is especially susceptible to electronic data interchange (EDI) fraud. EDI is direct filing of claims - computer to computer - and is widely used for Medicare claims. According to the Health Insurance Association of America, at least a quarter of health insurers' claims are sent electronically. Most insurers that use EDI implemented a fraud screening device.

In 1999, the Government Accounting Office released a study of the Medicare, Medicaid and private health insurance sectors that confirmed that organized crime is heavily involved in health care fraud. The investigation found that in seven cases of health care fraud studied, about 160 health related groups - medical clinics, physician groups, labs or medical suppliers - had submitted fraudulent claims. The criminals identified in the report were not health care workers but criminals already prosecuted for securities fraud, forgery and auto theft. Apparently, these criminals had moved to health care because fraud was relatively easy to accomplish. Offenders were extremely mobile, moving from New Jersey to California, for example, before authorities in the first state could arrest them. The criminals illegally obtained beneficiary names and medical provider numbers.

The detection and prosecution of health care abuse received a boost from a provision included in the Health Insurance Portability and Accountability Act of 1996 (see Federal Legislation section), which was responsible for recovering more than $1 billion for the Medicare Trust Fund. The money went into a fund designed to bolster law enforcement efforts by paying for computers, consultants and training sessions, according to a former deputy chief of the Health Care Fraud Task Force. The Department of Justice called health care fraud and abuse its number two law enforcement priority, after violent crime.