Health Insurance Fraud: Crime Without Borders Common Denominators, Universal Challenges and

1. Health Insurance Fraud: Crime Without Borders Common Denominators, Universal Challenges and Perspective for CEOs William J. Mahon The Mahon Consulting Group, LLC International Federation of Health Plans Lisbon, June 27, 2018

2. What Is Health Care Fraud? • An intentional act • Intended to obtain a benefit, or a greater benefit, to which the perpetrator is not entitled • Often joined with “waste, abuse, inefficiency,” but those are not statutorily defined criminal acts • Can involve any party within the health care/health insurance system, and increasingly, professional criminals who target private and public payers.

6. USA: 30-Year History of Émigré Schemes • Brighton Beach (Brooklyn), NY • Russian criminal rings • Greater Los Angeles (Burbank/Glendale) • Russian actors, Armenian “Vors” • South Florida • Panamanian, other Central/South American actors • San Francisco / Bay Area • Filipino actors

11. Present Day: The Brothers Kabov • Berry Kabov, age mid-40s • Professional bodybuilder

12. The Brothers Kabov • Dalibor “Dabo” Kabov, age mid-30s • Former NBA free agent & D-League player

13. The Brothers Kabov • Owners: Global Compounding Pharmacy, Los Angeles

14. The Brothers Kabov • Indicted/Arrested 9/15 • 50 Counts • Conspiracy to Distribute & Distribution of Oxycodone/Other Narcotics • Conspiracy & Importation of Schedule III Controlled Substances from China & Mexico • Money Laundering & Conspiracy • False Tax Return Re: $1.5 million in Income Underreported • U.S. Attorney’s Office • Kabovs operated Global “for the purpose of concealing and growing their conspiracy to profit from black-market sales of narcotics” • 2014 CA Pharmacy Board inspection concluded Global was “front for a drug-trafficking operation” • Allegedly shipped thousands of concealed oxycodone tabs to buyers in Ohio. • Jury convicted on all counts 1/23/17—sentencing still pending • Each faces 300+ years in federal prison

15. The Brothers Kabov • Along the way, also billed for compounded prescription drugs • 1 TPA-administered health plan, 10-month period in 2014-15 • $2.6 million in compound scripts, 5 prescribers • 2 prescribers = $2.35 million • 1 of the 2 prescribers since pled guilty to other crime: • $11.1 million Medicare fraud • Use of marketers to recruit & deliver patients • Performed medically unnecessary diagnostic tests/other services • Falsely prescribed & certified eligibility for $10,000 power wheelchairs • Kabov brothers paid kickbacks to L.A. “medi-spa” owner in exchange for health-plan member names and ID; fabricated scrips in unwitting patients’ names

29. Universal Anti-Fraud Drivers • Impact on ever-increasing private and public costs • Inseparable link to quality of care/patient safety • Widespread media awareness and attention • Increased customer awareness and expectations • Increased Senior Management awareness and expectations

30. Greatest Exposure = Provider-Based Frauds • Providers (or purported providers) are the focus of 85% or more of U.S. payers’ fraud investigations • Provider-fraud tools: • Patient population to exploit • Possible conditions & treatments to bill • Wide 3rd-party billing authority • Patient/provider/payer information = the vital commodity

31. Most Common Forms of Provider Fraud • Billing for services not rendered • Misrepresentation of services provided • “Is upcoding fraud?” • Deliberate provision of medically unnecessary services, often linked to patient recruiters and inducements—kickbacks, “free” services

32. Common Denominators • Wide range of simultaneous targets • Multiple payers • Private & public plans • Multiple insurance lines • Elimination of patients financial interest, or actual financial inducements for patient • Often follows new/expanded benefits, new treatments & technologies • Occurs across entire provider spectrum

33. The Collateral Damage—Universal • Corruption of patients’ medical histories • Theft of patients’ finite health benefits • Physical risk/harm to patients • Medical identity theft

34. Worldwide Anti-Fraud Challenges • Inconsistency/diversity of medical standards, regulatory oversight and enforcement actions across regions and countries • Wide variances in procedure costs across regions and countries, with lack of centralized comparative cost data • Lack of “boots on ground” investigative resources in many regions or countries • Inevitable advent of fraud related to growth industry in medical tourism • Emergence of international marketing of health care services—e.g., adverts in U.S. in-flight magazines for South America cosmetic surgery clinics

35. External & Internal Challenges Nature of some frauds far less clear to critical audiences Many cases inherently more complex, harder to argue and to prove intent Some health insurers wary of alienating good providers Inherent tension between Fraud Investigation and other operating units with potentially conflicting priorities Claims Provider Relations Provider Network Management Lingering misconception that Managed Care eliminates incentives and opportunities for provider fraud Little or inconsistent coordination between private payer and government-plan anti-fraud activities 35

37. For Better or Worse, U.S. Leads the World in Fraud Losses • Estimated 3% to 10% of annual U.S. Health Expenditure* • $3.7 Trillion in 2018* • Translation: $111 billion to $370 billion in 2018 alone • > 30-year history = most mature & comprehensive anti-fraud infrastructure (statutory, regulatory, technological) • U.S. experience = opportunity for other insurance systems to progress more rapidly * SOURCES: U.S. Government Accountability Office; National Health Care Anti-Fraud Association; Centers for Medicare & Medicaid Services—National Health Expenditures data

38. The Crime—U.S. Federal Laws “Health Care Fraud”18USC, Ch. 63, Sec. 1347 Whoever knowingly and willfully executes, or attempts to execute, a scheme or artifice— 1. To defraud any health care benefit program; or 2. To obtain, by means of false or fraudulent pretenses, representations, or promises, any of the money or property owned by, or under the custody or control of, any health care benefit program, in connection with the delivery of or payment for health care services, shall be fined under this title or imprisoned not more than ten years, or both.

39. The Crime—U.S. State-Laws “Health Care Claims Fraud”New Jersey Annotated Code, 1997 Health Care Claims Fraud means making, or causing to be made, a false, fictitious, fraudulent, or misleading statement of material fact in, or omitting a material fact from, or causing a material fact to be omitted from, any record, bill, claim or other document, in writing, electronically, or in anyother form, that a person attempts to submit, submits, causes to be submitted, or attempts to cause to be submitted for payment or reimbursement for health care services.

40. The Crime—Other U.S. Laws • Federal False Claims Act • Treble Damages • Per-claimpenalty of $10,957 - $21,916 • Federal Anti-Kickback Statute • Prohibits offer, solicitation, provision or receipt of “anything of value” • Cash • “Ping-pong” referrals • Sham professional services agreements • Free office space/admin services • Violation taints any resulting claim • False Statements Related to Health Care • Obstruction of Health Care Investigation • State False Claims and Anti-Kickback statutes

41. Not An Option. . . • In U.S., most state insurance laws and regulations require substantive & effective anti-fraud functions as a condition of insurance / HMO licensure : • Formal fraud plans and annual activity reports • Special investigation units & staffing levels • Training—entry & ongoing • Fraud-Warning statements in claim, enrollment, other policy documents • Reporting of suspected fraud/referral of cases to authorities

42. U.S. Industry – Government Response • Nat’l Health Care Anti-Fraud Assn. • 1985 • Private-Public Non-Profit • Information-Sharing • Education & Training • Investigator Accreditation • Federal • FBI • Medicare/Medicaid Program Integrity • Centralized data analysis re: Detection & referral • Offices of Inspectors General • Health Care Fraud Prevention Partnership • State & Local • Medicaid Fraud Control Units • Medicaid Inspectors General • Recovery Audit Contractors • State & local police Drug Diversion Units

43. International Industry – Government Responses • E.U. • European Healthcare Fraud and Corruption Network • U.K. • Health Insurance Counter-Fraud Group • NHS Counter-Fraud Authority • Canada • CHCAA • CLHIA • Australia • DOH Provider Benefits Integrity Division • PHA Fraud Community of Interest Group • South Africa • Board of Healthcare Funders • Healthcare Forensic Management Unit

44. Recognize the Value • Health Insurers’ Anti-Fraud R.O.I. • Average anti-fraud budget: $2.04 mil. • Average savings & recoveries: $11.1 mil. • Average R.O.I.: 7.5 to 1 • Best operations’ ROI: 12 - 15 to 1 • Blues’ average PMPY return: $3.43 • Best operations’ PMPY return: $7.50 • Average insurer anti-fraud budget = $0.43 PMPY • Beyond the Dollars • Preservation of employee benefits • Member/patient protection

45. Key CEO Takeaways • Fraud risk is as inherent in health insurance as in any line—and perhaps more so re: Its complexity • There’s much more than money at stake • Private-public cooperation & industry information-sharing are a must • Detection/analysis technology is not a “magic bullet” but a necessary tool for greater efficiency & effectiveness • Pre-payment avoidance/prevention = “The Holy Grail” but. . . • Is easier said than done • Operational impact must be anticipated and accommodated • “Audit” & “Investigation” are not synonymous • Audit identifies the “What” • Investigation establishes the “Why” • The anti-fraud function cannot be siloed—it must be “woven into the fabric” • Your strong and visible support is vital to its effectiveness and success

46. And finally, a keen eye for the obvious never hurts . . .

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