Trust me, I'm a doctor ..

Medical insurance fraud tends to be committed by practitioners rather than patients. Despite the incidence being lower than fraud in other industry sectors, insurers are still taking a healthy attitude towards stamping it out. Sam Barrett investigates

Like any other insurance cover, medical insurance attracts fraud.

But while the size of the market and the way claims are paid means it does not lose billions of pounds a year as a result of fraud, insurers are getting serious about stamping it out.

It is difficult to get an idea of the extent of fraud in medical insurance as it can so easily go undetected. However, based on an audit of customer data, Dr David Costain, medical director at Axa PPP, says that fraud probably accounts for 5% of claims. "This is substantially lower than for other types of insurance, for instance travel insurance, and also lower than in the US, where estimates suggest that fraudulent claims make up around 15% of the market," he says. "But it is an issue we are taking very seriously."

Cost of crime

Steve Moody, technical claims manager at Norwich Union Healthcare, agrees.

"Fraud increases the cost of claims, which feeds through to higher premiums for medical insurance customers. The majority of the medical community are giving an excellent service but we can't afford to let fraud go unchecked."

Several types of fraud exist within medical insurance, with customer fraud believed to represent a much smaller percentage of fraudulent claims than provider fraud. This is because many insurers arrange for the cost of treatment to be billed direct from the hospital - rather than the customer paying for it and then claiming it back. Customer fraud problems usually begin to occur when this is not the case.

Joan Elliot, head of finance (benefits) at Bupa, says: "It is more difficult for a customer to commit fraud on medical insurance than for other products, but we still get instances where they'll send in a scanned invoice that they have altered to inflate the size of the claim."

Other types of customer fraud that have been identified by insurers include claiming on multiple policies and, where there is no direct settlement arrangement in place, falsifying the claim. Mr Moody adds: "We do have a small number of claims where the customer is seeking to be reimbursed for treatment they have paid for themselves but we are always careful to analyse the details of these claims to make sure the amounts and frequency are in line with the treatment delivered."

Provider fraud typically takes three different forms: exaggeration of the nature of the treatment or up-coding, such as where a specialist claims for a more complicated form of treatment than the type delivered, or for a more expensive, therapeutic procedure rather than the diagnostic one that took place; unbundling, where, by claiming for every element of a procedure separately, the total claim is higher than if they had charged the inclusive rate for the procedure; and claiming for treatment that simply has not been delivered, either because it is not eligible for benefits or because they want to make some extra money.

Insurers are already using a number of techniques to identify fraud.

Data modelling and mining are becoming more commonplace, especially among the larger insurers where there is adequate volume of data to be able to spot patterns.

These techniques can help to assist in identifying inconsistencies, for example, where the tests being performed do not correspond with the diagnosis given.

Fertile ground

For instance, although infertility treatment is excluded on most medical insurance policies, in a small number of claims treatment can be disguised as an eligible gynaecological procedure. However, modelling software, which will look at the detail of these claims, will highlight the ones that are potentially fraudulent.

It can also pinpoint specialists whose pattern of procedures differs from the norm. This is one of the techniques used by Axa PPP to tackle fraud. It recently ran an audit in which it found that all of the claims made by one specialist were at the high end of the complexity scale. Further investigation revealed that some of the claims had been exaggerated and because this had happened on a regular basis it removed the specialist from its list of recognised providers. "With some cases you have to decide how heavily you should come down on the specialist as it can just be a mistake or misunderstanding," says Dr Costain. To illustrate this he points to the US where a phenomenon called 'diagnosis-related group creep' has been identified. With this, claims costs rise as specialists become more familiar with the system and understand the ways claims are classified.

Common sense and experience can also help to identify fraudulent claims.

Mandy Blanks, spokeswoman for Standard Life Healthcare, says: "Our staff are aware the problem exists and monitor the claims they process with this in mind. If they see something they think doesn't look right they follow it up."

Subsequently, many of the insurers are now implementing fraud training programmes to help claims staff recognise instances of fraud, as well as putting more formal reporting processes in place to deal with it.

Getting active

In addition to taking a more proactive approach to identifying fraud, insurers are looking at formalising the way they deal with fraudulent claims. When Bupa uncovers a customer who has made a fraudulent claim it recovers any money that has been paid under false pretences and cancels the customer's cover. For specialists it will also recover any money they have received fraudulently and remove them from its list of recognised practitioners. "We haven't yet involved the police," Ms Elliot says, "but it's not something we have ruled out."

Insurers can also turn to the medical profession's licensing authority, the General Medical Council, when they suspect foul play. This is what happened when - independently - Axa PPP and NU Healthcare unearthed a gynaecologist who had been submitting fraudulent claims. Mr Moody explains: "We contacted the GMC with a detailed report on the case and it instigated a formal enquiry. Following its investigation he was found guilty of serious professional misconduct and struck off."

With both insurers working independently on this case, it soon became apparent that a more united approach to tackling fraud would be beneficial and, in 2002, a cross-industry working party, the Health Insurers Counter Fraud Group, was set up. "We realised that there was a need to tackle fraud on an industry-wide basis, otherwise it would just be passed from one insurer to the next," says Mr Moody, who is the current chair of the group.

Health market

The HICFG has support from all the main players in the health insurance market and includes representatives from Axa PPP, BCWA, Bupa, Cigna Healthcare, Exeter Friendly Society, First Assist, Legal and General, NU Healthcare, Standard Life Healthcare, WPA and the Association of Medical Expenses Insurers.

Its remit includes establishing best practice for claims processes by looking at different ways to counter customer and provider fraud. This encompasses looking at different methods of data modelling and mining and reviewing the types of software available.

Additionally, the members of the group share information about potential incidences of fraud. "This is usually about practitioners rather than customers," says Ms Blanks, adding that it is useful to learn about the experiences of other insurers. And, as some insurers are more advanced at tackling fraud, sharing experiences across the industry helps to ensure fraud is stamped out as effectively as possible.

Customer information is also shared through the group, although the insurers are keen to stress they always observe customer confidentiality. Dr Costain adds: "Customer confidentiality is important but there is an exemption from the data protection rules in cases where we suspect malpractice."

As well as working with other medical insurance industry professionals, the HICFG has forged a link with the NHS's Counter Fraud and Security Management Service, signing a Memorandum of Understanding at the end of July (see box).

Dr Costain welcomes the move but believes that although there will be some commonality in the types of fraud experienced in both sectors, there will also be differences between the types affecting the NHS and the medical insurance industry. "Because staff in the NHS are salaried, it's more likely to be patient fraud that causes problems; for example, prescription and procurement fraud. But we can definitely reduce fraud in both the NHS and the medical insurance sector by sharing information."

The CFSMS has been very successful in its own right at stopping fraud.

Since 1998 it has saved the NHS almost £478m, cutting patient fraud by 50% and representing a 13:1 return on the investment in this area. Its actions have also resulted in 216 prosecutions and 275 civil legal and disciplinary cases.

Proposals unveiled by health minister Lord Warner at the end of October will give it even more power. These would give it the right to access documents and information held by NHS bodies, and the ability to prosecute anyone refusing to co-operate with it.

Looking around

The HICFG is also looking at other initiatives, such as industry-wide data sharing that could benefit the medical insurance industry's battle to beat fraud. Presently there are sector specific databases such as the Motor Insurance Anti-Fraud and Theft Register and the Claims and Underwriting Exchange for household, but the Association of British Insurers' proposals to create a cross-product database are still at consultation stage.

Mr Moody says that the proposals have looked more towards the general insurance products, and while he hopes the medical insurance industry will be included at some stage, he does not expect this for at least a few years.

But this does not worry him. "Fraud is a serious and significant problem but we have to keep it in perspective. We could easily throw money at stamping it out, by building expensive databases or recruiting hundreds of claims investigators, but this could end up costing more than we are losing as a result of fraud in the first place."

COUNTERING FRAUD IN UK HEALTHCARE - Memorandum of Understanding

The Memorandum of Understanding between the NHS Counter Fraud Service and the Health Insurers Counter Fraud Group sets out the aims and objectives of the two bodies and how they will work together. It states that the joint aims are:

- To reduce fraud and corruption thereby freeing up resources;

- To maintain public confidence in the UK healthcare sector.

To achieve these aims it says that, where reasonably practicable, the two groups will:

- Share information to ensure cases of suspected fraud can be identified and dealt with;

- Develop an anti-fraud culture so that fraud is regarded as unacceptable;

- Define and distinguish a common understanding of deliberate fraud and unintentional error and publish guidance;

- Monitor, record and measure trends in relation to the prevalence of fraud;

- Consider changes to internal operational policies, procedures and systems that may assist in minimising the risk of fraud.

No formal structure is in place regarding how often the two bodies will meet, as this is likely to be determined by any specific issues or incidences of fraud they uncover.

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