Fraud, Waste and Abuse: The Basics

In this election season, there has been a lot of talk about getting rid of “fraud, waste and abuse.” In the health care system, fraud, waste and abuse occur at all levels, from doctors charging health plans for services that are not provided, to government employees misappropriating funds.

All this talk is backed up by some real, sobering statistics. In the Home Health industry alone, it is estimated that the majority of the money paid out by the government may have been misspent. According to the Health and Human Services Office of the Inspector General (HHS OIG), of the $18.4 billion paid to home health agencies in 2015, $10 billion may have been spent improperly.

What happened to that $10 billion? Most likely it was improperly allocated, as opposed to absent-mindedly left in a drawer somewhere. We suspect further that the money might have disappeared because of fraud, waste and abuse. But what exactly do we mean by those terms? According to the federal government, fraud, waste and abuse have particular meanings when it comes to the mammoth federal health care programs, Medicare and Medicaid.

What is Fraud? 

The common understanding of fraud is the act of taking money for a product or service that never gets delivered, or can’t possibly be delivered, like George Parker selling the Brooklyn Bridge (twice a week for 30 years.) An example of fraud would be a doctor who bills a health plan for a service she did not provide. But according to the feds, fraud is an even broadercategory. They define fraud as

“[a] false representation of a material fact, whether by words or by conduct, by false or misleading allegations, or by concealment of that which should have been disclosed, which deceives another so that he/she acts, or fails, to act to his/her detriment.”

By this definition, a health care provider might commit fraud without being as brash as trying to sell a bridge in New York. For example, a health care facility signs a contract with a health plan obligating them to provide services X, Y and Z. If the facility only provides services Y and Z, but also bills and receives reimbursement for service X, they’ve committed fraud.

Waste Not

What about waste? A common definition of waste in health care is delivery of services that are not medically necessary, or that have no effect on a patient’s health. The concept of over-treatment fits into this category. According to the Government Accountability Office (GAO), however, waste…

“involves the taxpayers not receiving reasonable value for money in connection with any government funded activities due to an inappropriate act or omission by actors with control over or access to government resources… [W]aste relates primarily to mismanagement, inappropriate actions, and inadequate oversight.”

The “actors” in this definition are government employees, care providers and agencies. The “waste” involves misappropriation of resources toward projects that do not benefit patients. Whereas measuring benefit is fairly straightforward using benchmarks and other metrics, “reasonable value” is in the eye of the beholder. For this reason, it is tricky to determine whether individuals, health plans and taxpayers actually receive reasonable value for their money. The same room in a rehabilitation facility may feel like the lap of luxury to one patient, but unbearable torture for another.

Abuse of Terminology

Fraud and waste have commonly understood definitions, even if the government broadens them a bit. Abuse, however, in the context of health care expenditures, is a more difficult concept to define. The GAO states that abuse…

“[i]nvolves behavior that is deficient or improper when compared with behavior that a prudent person would consider reasonable and necessary business practice given the facts and circumstances.  Abuse also includes misuse of authority or position for personal financial interests or those of an immediate or close family member or business associate.  Abuse does not necessarily involve fraud, violation of laws, regulations, or provisions of a contract or grant agreement.”

Note that this definition of abuse encompasses both illegal and legal activity. Clearly, a provider cannot dip her hand in the till, which is theft. But the abuse standard prevents her from using her position to secure a job for her spouse, which is merely unethical. The abuse standard can be thought of as a wall built around your money, designed to prevent any possibility of patients being shorted-changed.

What is to be Done?

It is one thing to announce publically that you plan to eliminate fraud, waste and abuse. But as the problem is so pervasive and yet difficult to define, it makes no sense to embark on a campaign to eliminate all fraud, waste and abuse in one fell swoop. Indeed, the problem may never be completely eliminated. It makes more sense to do as the HHS OIG has done, and focus first on the statistical outliers, including both physicians and home health agencies whose spending behavior sends up red flags to regulators. Once the worst of the bad actors are brought under scrutiny and punished, the hope is that the rest of the industry will fall in line, bringing fraud, waste and abuse down to “tolerable” levels.

Another approach utilizes technologies already in place. Existing digital platforms and interfaces can be integrated to ensure that money is spent efficiently and wisely. Engaging technology to reduce fraud, waste and abuse requires only the will to do it.