Fraud Forecast Summer 2003

Fraud Forecast Summer 2003

Healthcare Fraud Control Articles

I predict that in the next year we’re going to see a lot more cases involving growth hormones, stolen provider identities, counterfeit drugs, and excessive surgeries. These kinds of cases show that both fraud and fraud control are getting more sophisticated.

Provider Identity Theft

In some regions, 25% to 50% of payments for durable medical equipment and transportation services turned out to be fraudulent. It makes sense that those areas would be the first health care targets for organized crime, since becoming a supplier or transportation provider don’t require special medical training or licensing. Now organized crime has figured out how to circumvent licensing issues and break into new areas of healthcare fraud.

California, New York and Florida have found unlicensed providers billing Medicaid for dental services by using information stolen or purchased from licensed dentists. It is only a matter of time before we see cases of stolen physician identities. By purchasing or stealing provider identities and beneficiary identification numbers criminals can setup shop to perpetrate billing scams indefinitely. They can spread the illicit income over several different provider identities and launder money through these identities. Read about California’s case against 8 people involved in four Southern California dental clinics. California dental fraud

Growth in Growth Hormones

Several states have busted large Serostim fraud rings. Serostim is a growth hormone used in the treatment of AIDS related wasting disease. It is also used by body builders to bulk up their muscle mass. Medicaid programs typically pay $6,000-$7,000 for a one-month supply of Serostim. The street value of these drugs is at least $3,000. Dealers use various methods to get Medicaid to pay for drugs that are resold to body builders.

The losses to these frauds are enormous. For example, in March 2003, Albany County Court in New York sentenced a former hospital employee to prison for forging $1.7 million of Serostim claims. In California, 9 people were indicted in a $3.5 millon Medi-Cal scam. These represent just a fraction of total Serostim fraud.

Growth hormones are so popular among body builders, that fraud is bound to spread across the country. As Medicaid programs crack down on the availability of Serostim and other growth hormones, the fraud will move to plans that don’t have strong controls. We’ll see Serostim fraud spreading to smaller states and HMOs that have fewer protections against Serostim fraud. Growth hormone dealers will find loopholes in the prior authorization requirements that allow them to get the drugs approved for payment.

Spending on growth hormones other than Serostim will increase rapidly. The FDA just approved use of growth hormones for short stature youth who don’t have growth hormone deficiency. The result will be fast growth in spending on growth hormones. It will become more difficult to determine how much of the spending growth is due to fraud and how much is due to questionable medicine that is legal.

Counterfeit Drugs

In July 2003, the FDA announced a new initiative to fight drug counterfeiting. The initiative is a response to growing awareness that counterfeit drugs are entering mainstream drug supplies. Although people should not be surprised to find that cheap drugs bought over the Internet may be fakes, it is shocking to find that drugs bought from your local pharmacist are phony. As a payer, you should be concerned that you may be paying for drugs that harm your members, and you should be aware that counterfeiting is an indicator that there is a secondary market for a drug.

Counterfeit drugs are entering the system through wholesalers. Many local pharmacists have been duped into buying counterfeit drugs, which they then sell to their customers.

Like other frauds, counterfeiting is difficult to detect and difficult to measure. Counterfeiting is an international problem. The World Health Organization estimates that 10% of pharmaceuticals worldwide are counterfeit, with counterfeit drugs in some countries accounting for up to 50% of pharmaceuticals manufactured.

The fact that a drug is being counterfeited indicates that there is money to be made through diversion of the same drug. Counterfeit Lipitor, Serostim and Procrit have been found in the United States. I expect diversion of these drugs to be at least as popular as counterfeiting.

Counterfeiting may be a substitute for diversion or an assistant to diversion. For example, wholesalers have sold counterfeit Lipitor to pharmacies. The wholesaler is unscrupulous and will buy as much Lipitor as they can at the lowest possible price. The lowest price will come from counterfeiting or diversion. See Lipitor Fraud and Waste

Counterfeit Serostim contained no active ingredient. The highest profit for a crooked pharmacist comes from selling counterfeit Serostim to the legitimate patient and selling the real thing to a street dealer. You may pay for a patient with AIDS wasting to receive Serostim, but the pharmacist dispenses the counterfeit drug, and sells the real drug to a street dealer. The same thing could happen with other counterfeit drugs.

Unnecessary Surgery

In August 2003, Tenet Healthcare paid $54 million to settle charges that cardiologists at Redding Medical Center performed hundreds of unnecessary heart surgeries. The Dartmouth Atlas shows variations in the rate of discretionary surgery for Medicare patients. Redding was the top provider of Coronary Artery Bypass Grafting (CABG) in California, but there were four other regions in the country with similarly high CABG rates. And other surgeries had similar outliers. I’d expect there to be investigations of all these outliers. If you’re a hospital system, better check out how your surgery rates compare to the norm. If you’re an insurer, use this information to help you find over-utilization. Rates of Discretionary Surgery

Because I realize that fraud perpetrators read this site, I only report ideas that I think are already well-known among fraudsters. I only include information that is already available on the Web.