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Impact of Enforcement on Healthcare Billing Fraud: Evidence from the USA

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Abstract

Each state’s Medicaid Fraud Control Unit (MFCU) prosecutes billing fraud cases against individual healthcare providers who fraudulently bill Medicaid for services provided. Once an individual is convicted of billing fraud, the Office of Inspector General for the Department of Health and Human Services may exclude the individual from billing any federal government healthcare program, including Medicaid. Excluded individuals are added to a public list of exclusions, which restricts their ability to practice professionally. Prompted by criminology research into the impact of policing resources, we test whether these government enforcement initiatives against fraud serve as a deterrent to would-be fraudulent billers. We document that key enforcement proxies, the staffing level and budget of an MFCU, are positively associated with the yearly number of exclusions added at the state level. Our results are consistent with the exclusion list not being a deterrent but provide support for MFCUs’ fraud detection efforts. This paper provides industry-specific fraud insights for auditors and other individuals involved in public policy, specifically Medicaid, and introduces a novel dataset to the accounting fraud research literature.

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Notes

  1. These employers could include both public and private companies operating under different audit requirements.

  2. Actual convictions for healthcare billing fraud are understated within the program crimes classification, as we randomly traced several licensing violations to publicly available records. The licensing violations can contain an aspect of inappropriate billing practices with a variety of sanctions. For example, the licensing board may require billing oversight of the healthcare professional but allow him/her to continue to practice after a suspension period. Therefore, these individuals may be categorized in the license revocation or suspension category as opposed to a program crimes category, if it were an initial report to the licensing board that initiates the exclusion process.

  3. Tricare, the healthcare program covering members of the armed services, is also a federal government program. Besides the fact that the other two federal programs cover significantly more Americans, this program also has significant operations outside the USA, which is beyond the scope of this paper.

  4. The zone program integrity contractors are not responsible for Medicare Part C and D fraud investigations as these are handled by the Medicare drug integrity contractor.

  5. North Dakota is currently the only stated without a specific MFCU.

  6. The National Association of Medicaid Fraud Control Units describes the history and composition of MFCUs (http://www.namfcu.net/mfcu-information.php).

  7. The reporting requirements for MFCUs require communication of convictions to the OIG-HHS within 30 days. During on-site reviews, the OIG-HHS tests a sample of cases to determine if the information was communicated in a timely manner. Several individual unit reviews reflect issues with timely reporting (e.g., OIG-HHS 2015a, 2016b). Therefore, the exclusion list may under represent the actual number of individuals at any particular point in time.

  8. A Website listing the detailed provisions of the law is http://www.ssa.gov/OP_Home/ssact/title11/1128.htm.

  9. O’Dwyer and Madden (2006) argue that the combination of enforcement with punishment is important to holding individuals to a standard of practice and does not require legal action. Thus, we use the external punishment as an indicator of effectiveness of enforcement even though we do not have any data on the legal actions taken by the MFCU.

  10. The OIG updates the exclusion list monthly. A professional must request reinstatement and removal from the exclusion list, even if the initial time period for exclusion has elapsed. Most of the mandatory exclusions, including program crimes, usually have a minimal 5-year exclusionary period, which results in appropriate representation in our data since we focus on a limited timeframe.

  11. The survey administered by the Institute for Legal Reform focuses on businesses’ perceptions of state liability systems in multiple areas, including overall treatment of tort and contract litigation, enforcement of meaningful venue requirements, damages, timeliness of summary judgment or dismissal, discovery, scientific and technical evidence, judges’ impartiality and competence, and juries’ fairness (http://www.instituteforlegalreform.com/states).

  12. McInerney and Mellor (2012) find that increases in state unemployment rates are associated with higher Medicare spending per capita and increased hospital utilization by Medicare beneficiaries, who are mostly senior citizens.

  13. We use these proxies for healthcare provision volume because state Medicare and Medicaid program spending are highly correlated with MFCU Enforcement and other control variables in our regression model.

  14. We replicated these results using a model without weights and obtained similar results.

  15. According to Integrity Management Services, 45 out of the 49 states with MFCU programs reported higher Medicaid fraud recoveries in fiscal year 2014, showing efficacy in those programs (http://integritym.com/identifying-fraud-analyzing-state-medicaid-fraud-control-unit-reports/).

Abbreviations

GDP:

Gross domestic product

MFCU:

Medicaid Fraud Control Unit

OIG-HHS:

Office of Inspector General for the Department of Health and Human Services

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Acknowledgements

We gratefully acknowledge helpful comments and suggestions from reviewers and participants at 2015 American Accounting Association Midwest Region Meeting and the 2016 American Accounting Association Forensic Accounting Research Conference. We acknowledge the contribution of Jason Stanfield for his comments and suggestions for the paper.

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  1. Ball State University, 2000 W. University Ave. Whitinger Building, Room 339, Muncie, IN, 47306, USA

    Renee Flasher

  2. Iowa State University, 2330 Gerdin Business Building, 2167 Union Drive, Ames, IA, 50011-2027, USA

    Melvin A. Lamboy-Ruiz

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Correspondence to Melvin A. Lamboy-Ruiz.

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Appendix: Medicaid Program Crime Cases

Appendix: Medicaid Program Crime Cases

To provide context for provider billing fraud schemes, we detail some examples below. Specific billing infractions included in the dataset related to the situations:

  • A nurse bills the Medicaid entity in Massachusetts for providing services to three children while she was at horse competitions out of state, and on holidays when she was not working (AG MA 2012a).

  • A personal care individual charges Medicaid in Louisiana for services provided when the patient was not present in the state (LA DOJ 2016a).

  • Daycare operators enroll children into the daycare by offering free daycare, but then bill Medicaid for services (physical, occupational, and speech therapy) that were not provided (AG GA 2012).

  • Three individuals bill Medicaid through “a kickback scheme involving two straw companies that funneled monetary incentives to several sober houses and a medical office to illegally obtain urine drug screening business (AG MA 2012b).”

  • A personal care individual submits false timesheets that resulted in false billings to Medicaid (LA DOJ 2016b).

  • Unqualified and unlicensed individuals, including interns and administrative assistants, bill Medicaid under a doctor’s billing identification number, who is ultimately responsible for all charges billed under his number (AG MA 2013).

These examples reflect the wide scope of healthcare provider positions and range of scheme complexity that exist. As shown in Angst (2009), fraudulent billings in the healthcare system may or may not affect a specific individual, but they have a broad impact overall through taxes, healthcare expenditures, and insurance premiums.

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Flasher, R., Lamboy-Ruiz, M.A. Impact of Enforcement on Healthcare Billing Fraud: Evidence from the USA. J Bus Ethics 157, 217–229 (2019). https://doi.org/10.1007/s10551-017-3650-z

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