Preventing Medical Practice Fraud

1. Preventing Medical Practice Fraud Jacque James, MBA, MAFM President Asset Recovery Associates, LLC September 13, 2012

2. Overview of Presentation • Discussion topics: • Overview of Occupational Fraud • 3 Primary Healthcare Fraud Schemes • Billing • Corruption • Expense Reimbursement • Red Flags • Fraud Prevention Best Practices • Q&A

3. It won’t happen to me! Is This You?

4. Fraud In The News July 27, 2012 Office Manager Sentenced for Theft July 25, 2012 Employee Indicted on Federal Healthcare Fraud Charges • Fraud involved stealing cash payments, depositing funds into a ghost employees’ bank account, and made personal purchases on physicians credit card. • Fraud loss was $703,263 • A Chesterfield chiropractor billing clerk indicted for billing insurance companies for services that were never provided to their patients. • Fraud occurred between 2006 – 2011

5. Fraud In The News July 20, 2012 Podiatrist indicated for medical billing fraud March 1, 2012 St. Louis medical executive indicted for fraud • Doctor billed for services allegedly rendered while he was on vacation. • Fraud started in 2006 • CEO of a St. Louis Urological center charged with embezzlement • Fraud occurred between 2006 – 2012 • Fraud losses over $3 million

6. What is Occupational Fraud?

7. Occupational Fraud The use of one’s occupation for personal enrichment through the deliberate misuse or misapplication of the employing organization’s resources or assets.

8. Classifications of Fraud

9. Fraud Schemes & Classification

10. What Is The Cost of Fraud? • The average organization loses 5% of its revenues to fraud annually • Practice with revenues of $5 million = Loss of $250,00 • Practice with revenues of $10 million = Loss of $500,00 • The median loss caused by occupational fraud cases in Healthcare is $200,000 *Source: 2012 Report of the Nation - Association of Certified Fraud Examiners

11. Fraud Statistics In Medical Practices • 83% of medical practices had losses associated with employee theft (MGMA Survey 2011) • Most frauds last an average of 18 months before being detected (ACFE 2012 - Report of the Nations)

12. Healthcare Fraud Schemes

13. Why Fraud Occurs Three Criteria Needed For FraudTo Occur:

14. Why Fraud Occurs • Opportunity • Knowledge of weak internal controls • Accounting anomalies are not monitored • Lack of supervision • Poor company culture • Employees believe they will not get caught • Motive • Pressure to perform • High personal debt • Family or peer pressure • Alcohol or drug problems • Gambling habits

15. Why Fraud Occurs • Ability to Rationalize Behavior • Employee believes he/she is not being adequately compensated • Employee believes the organization OWES him/her • Feeling of insufficient recognition for job performance • Personal need for money • Have the intent to repay the money

16. Who Commits the Fraud? • 65% of men commit acts of fraud compared to 35% of women. • Average median loss caused by males is $200,000 vs $91,000 caused by females.

17. Top 10 Behavioral Red Flags • Employees living beyond their means • Financial difficulties • Control issues, unwillingness to share duties • Unusually close vendor/customer relationship • Wheeler dealer attitude • Divorce, family pressures • Irritability, suspiciousness or defensiveness • Addiction problems • Refusal to take vacations • Past employment related issues

18. Medical Billing Fraud

19. Billing Fraud Schemes There are many common types of medical billing fraud: • Upcoding - assigns a diagnosis or procedure that costs more or has a higher rate of reimbursement than is medically necessary. • Phantom Billing – services billed that were not actually performed. • Unbundling – multiple procedures meant to be billed in a package are billed separately. • Self Referrals -  physicians referring patients to facilities where they have a financial interest and receives compensation. • Double Billing – billing for the same procedure or treatment more than once.

20. Non Medical Billing Schemes • Shell Companies – A/P person sets up a fictitious company and generates bogus invoices for payment. • Non Accomplice Vendor – Over payments are intentionally made to a vendor and when funds are returned, they are deposited into the employees account. • Personal Purchases – Employee makes personal purchases using Company funds.

21. Preventing and Detecting Billing Fraud Schemes • Implement an EMR software program • Assign administrative rights to the software programs • Balance bank deposits to your medical billing software • Purchases must have management approval • Maintain a current approved vendor list • Vendor purchases should be reviewed for abnormal levels • Control methods should be implemented for duplicate invoices / purchase orders • Invoices, purchase orders and receiving reports must be matched before payment issued

22. Expense Fraud

23. Types of Expense Fraud Schemes

24. Preventing and Detecting Expense Fraud • Look for: • High dollar items that were paid in cash • Expenses that are consistently rounded off, ending with “0” or “5” • Expenses that are consistently for the same amount • Reimbursement requests that consistently fall at or just below the reimbursement limit • Receipts that are submitted over an extended time that are consecutively numbered • Receipts that do not look professional or that lack information about the vendor

25. Preventing and Detecting Expense Fraud • Establish a policy that clearly states what will and will not be reimbursed • Establish and adhereto a system of controls • Require detailed expense reports with original support documentation – Do not allow copies! • Require direct supervisory review of all travel and entertainment expenses • Spot check expense reimbursements

26. Corruption

27. Types of Corruption Schemes

28. Preventing and Detecting Corruption Schemes • Specifically address conflict of interest illegalities in company ethics policy • Communicate with employees regarding their business interests • Establish anonymous reporting mechanisms to receive tips & complaints • Run reports between vendors and employees addresses and phone numbers

29. Creating a Fraud Free Culture

30. Fraud Prevention - 4 Step Process • Hire ethical candidates • Perform assessments and/or conduct integrity interviews • Conduct Background Screenings on key personnel • Pre-employment statement analysis (LSAT) • Create a positive company culture • People won’t steal when they have a sense of ownership and loyalty to the organization • Implement and assess internal controls • Implement and enforce anti fraud policies and procedures • Instill a system of checks and balances • Conduct Fraud Risk Assessments • Instill mechanism for reporting fraud • Implement a hotline and reward system • Hotline will reduce the time to detection from 24 months to 12 months

31. Fraud Prevention Best Practices • Create a “Perception of Control” • Educate employees on fraud • Have a Conflict of Interest & Code of Conduct Policy • Conduct surprise audits • Reconcile bank statements on a monthly basis • Separation of duties • “Inspect what you expect” • Insure for loss • “Crime Policy” or Fidelity Bond • “Cybercrime Insurance”

32. Why Are Controls Important?

33. Test Your Fraud IQ 1. What is the average loss of fraud in medical practices? $200,000 2. What percentage of revenue is lost to employee theft and occupational fraud each year? 5% 3. Most employee theft is committed by 1st time offenders. True 4. What percentage of your employees is likely to steal? 83% 5. If there is little cash coming in to the organization, the risk of theft is low. False 6. Trusted employees are less likely to steal. False

34. “Trust But Verify” • Please leave your business card if interested in receiving: • Elements of Fraud • Fraud Prevention Checklist

35. Contact Information: Jacque James - President Asset Recovery Associates, LLC 2464 Taylor Rd, #115 Wildwood, MO 63011 Ph: 636-346-9273 Email: jjames@assetrecoverystl.com Website: www.assetrecoverystl.com Services Offered: Fraud Risk Assessment Fraud & HR Investigations Fraud Training & Awareness Programs Asset Investigations Pre-employment Integrity interviews Loss Prevention Consulting Judgment Enforcement Due Diligence Investigations Background Screenings