SmartLight Analytics

Reducing healthcare costs for self-funded employers

Asha George

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Mitigating costs and avoiding fraud, waste & abuse in a pandemic

There is no question employers across the nation with self-funded healthcare plans will see increases in the cost of covering sick employees during the COVID-19 pandemic. What they want to avoid is increases due to fraud, waste and abuse. Existing areas of vulnerability in our healthcare system could be ripe for additional fraud and abuse when the country is in crisis mode. 

With reduced oversight to improve accessibility to treatment during the pandemic, fraudulent billing could slip through easier than ever. Bad actors – those already committing fraud within the system – see every tragedy as an opportunity. We have seen evidence of the high prevalence of suspect billing long before the pandemic. As reported by D Magazine in December 2019, the City of Fort Worth took immediate action after identifying nearly $9 million in unnecessary spend over a 2-year period in its employee health claims. Even without a global health pandemic, fraud and abuse can be found in every employer’s healthcare claims.  

The only proven means for self-funded employers to ensure their plan costs are not padded with fraud, waste, and abuse is to increase oversight. The top three areas most susceptible to abuse during this pandemic are: out-of-network expenses, phantom billing and lab testing.  

Out-of-network expenses: With the intention of reducing travel time and unnecessary exposure to the public, most payers are waiving their out-of-network penalties. Expanded out-of-network payment coverage will allow members to receive treatment from the closest doctors and hospitals. However, with unregulated payment rates, there is a high potential for waste among out-of-network claims. Expect bad actors to take advantage. 

Phantom billing: Billing for services not rendered, called “phantom billing,” has been a well-recognized problem in claim payments long before coronavirus became a household name.  This fraudulent practice is seen when dishonest providers submit bills for services that were not provided, often by adding extra services to an existing patient visit. The increase in claim volume as a result of COVID-19 will make it even harder to weed out illegitimate  services. Employers will pay the price if such billing goes unchecked. 

Lab testing:  Testing for COVID-19 is in high demand resulting in a foreseeable spike in laboratory billing. It is also true that laboratory testing is a highly abused part of the US healthcare  system. When it comes to lab testing, medically unnecessary claims have been an expensive problem for all payers, insurance companies and self-funded employers.  Expect fraudulent laboratory billing to become even more attractive to those looking to dupe the system. 

The best defense against becoming a victim of healthcare fraud is to be vigilant about knowing how plan dollars are being spent. Analytic experts in mining healthcare population  data,  who understand the ins and outs of claims adjudication can become a useful resource in mitigating extra exposure to fraudulent billing during this health crisis.  

Unnecessary medical spend in the form of fraud and abuse impacts all employees via reduced coverage and higher premiums. Attacking wasteful spend in your employee health plan offers a huge cost savings opportunity for a relatively low investment. 

References and Further Reading

  1. Health Insurance Providers Respond to Coronavirus (COVID-19). AHIP. Mar 30, 2020
  2. Medicare Is Updating Coverage to Help in the Coronavirus Crisis. The New York Times. Mark Miller, Mar 24, 2020
  3. HealthCare Fraud. HealthCare Business & Technology. Catalyst Media Network: healthcarebusinesstech.com. 2019
  4. Bottlenecks in Coronavirus Testing Mean Excruciating Wait Times for the Sick. Los Angeles Times. Melody Petersen and Emily Baumgaertner, March 30, 2020
  5. Liquid Gold: Pain Doctors Soak Up Profits by Screening Urine for Drugs. Kaiser Health News. Schulte, Fred and Lucas, Elizabeth. November 6, 2017
  6. Key Facts about the Uninsured Population. Kaiser Family Foundation. Jennifer Tolbert, Kendal Orgera, Natalie Singer, and Anthony Damico. December 13, 2019
  7. COVID-19 Could Prompt Higher 2021 Insurance Premiums, Benefit Cuts. Modern Healthcare. Shelby Livingston, Mar 23, 2020

Asha George is the co-founder of SmartLight Analytics, a healthcare data analytics company. Prior to founding the company, she spent 17 years leading statistical analysis of healthcare data for multiple large payors and Healthcare IT companies. She has a master’s degree in public health and epidemiology. She founded SmartLight Analytics to help self-funded employers mitigate the rising cost of their employee health plan costs. 

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Pass through billing schemes

“Healthleaders Media” recently reported on a case involving pass-through billing in Florida which highlights how such schemes can grow if undetected during regular claims reviews.

The case involved the owner of a substance abuse treatment facility who sent his patients’ urine samples to a lab that returned 40% of the insurance reimbursements to the owner. He then arranged with the managers of two rural hospitals in Florida to have the testing billed to private insurers at a higher reimbursement under the hospitals’ in-network contracts.

The scheme expanded to include rural hospitals in Georgia, and more drug rehab centers, resulting in laundering more than $57 million in illicit reimbursements.

Rural hospitals, often due to declining revenue, have been repeatedly identified in fraudulent and abusive billing schemes intended to increase revenue. Vigilance by those processing claim payments is required to prevent wasted dollars from being spent. SmartLight has identified multiple schemes involving suspect patterns of urine drug tests and pass-through billing.

Rural hospitals involved in pass-through billing to maximize reimbursements from claims administrators is a growing problem. SmartLight has identified over 7 hospitals in Texas and neighboring states involved in this abusive billing scheme in 2019. Analysis of claims data using inferential methods can quickly identify these suspect claims in an employer’s healthcare claims population.

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CASE STUDY: Uncovering potential abusive billing

June 2019
 

During monthly monitoring of a client’s claims, the SmartLight Analytics’ team identified potential abusive billing by a licensed in-network physician who owns a family practice in Texas. The issue was identified due to an abnormal billing pattern in comparison to provider peers.  The suspicious claim pattern included repeated payments for injections without any associated drug codes stretching over a 9-month billing period.

The provider also reported an inconsistent diagnosis of chronic kidney disease for a patient, with no follow up service related to this diagnosis seen anywhere in the patient’s medical history. Additionally, this provider began billing allergy testing and antigen therapy preparation and injections for this same patient.

Records review of this provider’s billing showed references to numerous potentially excluded, unproven and non-medically necessary services including testosterone replacement therapy for male menopause, laser face lifts, laser hair and tattoo removal, laser-lipo body contouring, Botox and chemical peels. Claims not meeting medical necessity and coverage guidelines will be denied for this provider and credited back to the employer’s plan funds.

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Cosmetic Surgery Is Ripe for Fraud

Multiple healthcare fraud schemes have been investigated over the years involving providers who misrepresent cosmetic procedures as medically necessary ones to increase patients and their profit. Rhinoplasty is known to be the most common procedure that is inappropriately billed to health insurance. Surgeons charge for repair of a “deviated septum” and then perform cosmetic rhinoplasty. Tummy tucks have also been billed to insurance as hernia repair. Separation of the abdominal muscles is sometimes falsely called a hernia and billed to insurance.


Any effective wasteful spend analysis should routinely conduct review of a focused sample of medical records as an identification and prevention measure. We posted last week about one case.


An example can be seen from a selected visits review ($10,000 – $30,000/per procedure): A 26-year-old female was billed for reduction mammoplasty by a Beverly Hills plastic surgeon. Services that are typically seen prior to this procedure, i.e. physical therapy for back pain or related office visits, were not seen in this member’s medical history prior to surgery.