Medical Billing Fraud and Abuse... How to Stop It.

This video provides an in-depth exploration of medical billing fraud and abuse, highlighting its significant financial impact on healthcare spending and offering actionable strategies for employers to mitigate these issues. The speaker begins by establishing the sheer scale of the problem, citing FBI estimates that 3-10% of all healthcare spending is attributed to fraud and abuse, affecting both Medicare/Medicaid and commercial insurance. To illustrate, a company with 1,000 employees spending $10 million annually on healthcare could be losing between $300,000 and $1 million each year to fraudulent or abusive billing practices. The core mechanism of abusive billing is identified as "upcoding," where healthcare providers strategically apply diagnosis (ICD-10), procedural (CPT), inpatient (DRG), and other codes (Hicks picks) to maximize reimbursement, often operating in a gray area between legitimate and abusive coding.

The presentation then critically analyzes the common industry responses to overbilling, specifically insurance denials and prior authorizations. The speaker argues that these tools are largely ineffective and act as "blunt instruments" that often miss fraudulent claims while simultaneously denying legitimate ones. A visual framework is used to demonstrate this misalignment: a rectangle representing all submitted claims, with a segment for fraud and abuse, and another overlapping rectangle for denied/prior authorized claims. The key insight is that these two rectangles do not sufficiently overlap; payers deny many valid claims while still paying out a substantial portion of fraudulent ones. This creates a dual problem where providers feel underpaid by insurers, and insurers feel overbilled by providers, with both perspectives holding some truth.

The video progresses to offer practical, employer-centric solutions, emphasizing that the power to address this issue lies with the employers themselves. The financial impact is quantified at $25 to $83 per employee per month (PEPPM), an amount often equivalent to an employer's entire ASO (Administrative Services Only) or TPA (Third-Party Administrator) administrative fees. The speaker challenges employers to apply the same level of scrutiny to fraud and abuse as they do to negotiating these admin fees. Key strategies include becoming self-funded to gain direct control over claims review, rigorously evaluating the effectiveness of carriers' fraud, waste, and abuse programs, and shifting away from traditional fee-for-service models towards non-claims-based healthcare services like on-site clinics or direct contracting. The video concludes by stressing that this is a long-standing problem (over 25 years) that will persist unless employers actively intervene, empowering them to take decisive action.

Key Takeaways:

• Significant Financial Drain: Medical billing fraud and abuse account for an estimated 3-10% of all healthcare spending, translating to substantial financial losses for employers (e.g., $300K-$1M annually for a 1,000-employee company).
• Understanding Upcoding: "Upcoding" is the primary form of abusive billing, involving the strategic application of medical codes (ICD-10, CPT, DRG, Hicks picks) to maximize reimbursement, often existing in a gray area between correct and abusive practices.
• Ineffectiveness of Traditional Controls: Insurance denials and prior authorizations are largely ineffective at catching fraudulent claims; they often deny legitimate claims while still paying out a significant portion of fraudulent ones.
• Misaligned Payer Efforts: The current system results in payers denying "good" claims that should be paid, while simultaneously failing to catch "bad" (fraudulent/abusive) claims, leading to a lose-lose scenario for both providers and payers.
• Substantial Employer Cost: Billing fraud and abuse cost plans approximately $25 to $83 per employee per month (PEPPM), an amount comparable to an entire ASO or TPA administrative fee, an area typically subject to intense scrutiny.
• Employer Empowerment: Employers have the power to address this issue and should assume they are paying fraudulent claims until proven otherwise, as the problem often occurs unbeknownst to them.
• Strategy 1: Become Self-Funded: Moving to a self-funded model allows employers to directly review their own claims, gaining greater control and insight into billing practices.
• Strategy 2: Scrutinize Carrier Effectiveness: Employers should actively double-check the effectiveness of their insurance carriers' fraud, waste, and abuse detection programs, as current processes are often inadequate.
• Strategy 3: Utilize Lower-Threshold TPAs: Consider working with Third-Party Administrators (TPAs) that have a lower threshold for reviewing claims (e.g., $3,000-$5,000) compared to major carriers ($10,000-$15,000), increasing the likelihood of identifying smaller fraudulent claims.
• Strategy 4: Shift from Fee-for-Service: Transitioning away from traditional fee-for-service models towards non-claims-based healthcare services, such as on-site or near-site clinics and direct contracting, can reduce opportunities for billing abuse.
• Historical Persistence: Medical billing fraud and abuse is a long-standing problem, having persisted for over 25 years, indicating that it will continue unless active and deliberate measures are taken to combat it.

Key Concepts:

• Upcoding: The practice of assigning a higher-paying diagnostic or procedural code than the service actually rendered, to increase reimbursement.
• ICD-10 Codes: International Classification of Diseases, 10th Revision, used for diagnosis coding.
• CPT Codes: Current Procedural Terminology, used for procedural coding.
• DRG Codes: Diagnosis-Related Group, used for inpatient services only to classify hospital cases into groups expected to have similar hospital resource use.
• Hicks picks codes: Healthcare Common Procedure Coding System, used for services, procedures, and equipment not covered by CPT codes.
• Fee-for-service: A payment model where services are unbundled and paid for separately, incentivizing volume over value.
• Self-funded plans: Health insurance plans where the employer assumes the financial risk for providing healthcare benefits to its employees.
• ASO/TPA Admin Fees: Administrative Services Only (ASO) or Third-Party Administrator (TPA) fees are charges for managing health plan administration without assuming financial risk.
• Prior Authorization: A requirement from a health insurance company that a healthcare provider obtain approval before providing a specific service or medication.
• Denials: The refusal by an insurance company to pay for a healthcare service or claim.