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Healthcare Fraud – It’s Everywhere

Healthcare Fraud In Your Backyard


Healthcare fraud it's everywhereMost Americans are unaware of the extent to which healthcare “fraud and abuse” permeates much of medical practice. This is particularly true in regions of the country with weak state regulation of physician ownership or investment in medical facilities to which they refer patients.

According to the Federal Bureau of Investigation (FBI) – the primary investigative agency in fighting healthcare fraud –

“Estimates of fraudulent billings, both public and private, are estimated between 3 and 10% of healthcare expenditures”.

This testimony by the lead FBI investigator, however, offers disturbing insights that transcend the dollars-and-cents of healthcare fraud:

“One of the most significant trends observed in recent health care fraud cases includes the willingness of medical professionals to risk patient harm in their schemes

“FBI investigations are focusing on…unnecessary surgeries, prescrib(ing) dangerous drugs without medical necessity, and engag(ing) in abusive or sub-standard care practices (emphasis added).”

It’s Not Just Medicare Fraud

Medicare fraud and abuse of the durable medical equipment and infusion clinic sort continues to be a major problem accounting for a conservatively estimated $60 billion a year lost to healthcare fraud in Medicare alone.

But the subtler problem of physician “self-referral” where doctors refer patients – often unnecessarily – to surgery, imaging, or radiation therapy centers in which they have a financial interest remains a major concern for patients looking to reduce their medical risks and expenses.

One study found that such “self-referring” physicians ordered tests and procedures 4 – 4.5 times more often than non-self-referring physicians. They also charged more per procedure, making the combination of higher volumes of patients and higher charges equate to up to 7.5 times the cost of non-self-referring doctors.

Paying 7½ times what you’d pay with a physician with no such financial incentive to over-utilize expensive tests and procedures in which they have an ownership interest surely qualifies as a “rip-off” by any standard. And yet this isn’t considered healthcare fraud – at least not legally.

Paying 7½ times what you should surely qualifies as a “rip-off”.

And while there are some restrictions on such self-referrals for non-hospital services, hospitals are exempt.  As a result, there are over 180 physician-owned hospitals – generally specialty hospitals without emergency rooms and other money-losing services that general hospitals are required to provide – now operating in 24 states.[1]

When you control the flow of patients, this translates into easy money. This kind of bogus “physician-entrepreneurship” works so well organized crime is moving in on the act. An article in The New England Journal of Medicine cited a “Recent increase of organized crime in the healthcare sector”. A Health & Human Services official testified that…

“Health care fraud is attractive to organized crime because the penalties are lower than those for other…offenses…there are low barriers to entry…and there is a perception of a low risk of detection.”[2]

Unfortunately, this article concludes on a discouraging note:

“In our freewheeling society driven by capitalism, there is a strong distaste in many quarters for overzealous investigators.”

Capitalism or Corruption?

There’s a difference, however, between capitalism and corruption.

And this growing problem isn’t limited to unnecessary referrals for expensive tests and procedures. A multibillion dollar lawsuit filed in 2009 by insurers produced documentation alleging one drug company paid the country’s largest pharmacy benefits manager (PBM) to promote its antipsychotic drug to physicians the PBM company knew to be prescribing similar drugs.

This occurred even though the PBM was representing insurers in containing – not promoting – prescription drug costs and inappropriate drug use. According to reports, “PBMs process about 75% of the retail prescriptions written annually in the U.S.” [3]

“Physician-entrepreneurship” works so well organized crime has moved in on the act.

This is an example of healthcare fraud exacerbated by alleged “ghost-writing” of clinical studies by the PBM company for submission to medical journals. The fact the drug involved was never FDA-approved for the promoted use (an “off-label” promotion) compounds the offense by increasing the odds of adverse effects.

The hidden costs of tolerating these corrupt practices go well beyond corporate healthcare fraud.

There’s solid evidence anti-psychotic drugs adversely affect older patients – including a 60% greater risk of being hospitalized for pneumonia.

This shows how far the industry has strayed from its original role of using medications to keep people out of hospitals,
not put them in them.

Subtle Fraud

While blatant examples of healthcare fraud in medicine get more media attention, it’s highly likely these more subtle and pervasive forms of everyday financial abuse account for far more wasteful medical spending.

Defensive medicine is a form of such abuse, as is excess discretionary testing going on in doctors’ offices when visits might be off due to cancellations.

Everyone knows it goes on, but because it’s so notoriously hard to document, it continues – because doctors have income targets they feel compelled to achieve. 

In this context of everyday healthcare fraud to “turn a buck” at patients’ expense, patients themselves must take precautions to ensure they’re not duped by such practices.

Medications are supposed to keep people OUT of hospitals, not put them in them.

This is no longer just a “few bad apples” – proving again that if you get enough bad apples, the whole barrel goes bad.

It’s important to recognize that the financial self-interest that drives so much of modern medical practice can be taken to such extremes because the votes of elected officials are bought and paid for by industry lobbyists.

A gullible and unsuspecting public, of course, makes executing these nefarious schemes possible.

This “dark underbelly” of American healthcare is responsible for much of our medical over-spending. This isn’t just unconscionable, it’s unsustainable. 

Isn’t it?


[1] Physician-owned specialty hospital: friend, foe – or (system) failure?, Healthcare Financial Management, 1/1/09. [2] Finding Money for Health Care Reform – Rooting Out Waste, Fraud, and Abuse, N Eng J Med, 6/10/09. [3] Zyprexa suit highlights CVS links to Lilly, The Boston Sunday Globe, 6/14/09.

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