University of Wollongong

1. Financial fraud in the
private health insurance
sector in Australia:
Perspectives from the
industry
Health Insurance Summit
27 July 2017
Dr Kathryn Flynn
Faculty of Law, Humanities & the Arts
University of Wollongong

2. Health insurance summit 2017
 What is fraud?
 Dishonestly obtaining a benefit, or
causing a loss, by deception or other
means.
 Health care fraud does not often come
before the courts

3. Health insurance summit 2017
 The advantage of using the term ‘claims
leakage’.
 You don’t have to prove a defrauder’s
intent.
 The problem with the word ‘overservicing’.

4.  Some examples of claims leakage:
 Charging for services that were not
provided;
 Upcoding;
 Unbundling;
 Falsifying a patient’s diagnosis;
 Ordering excessive pathology or radiology;
 Referrals induced by kickbacks;
 Padding of accounts;
 Identity fraud.

5.  Who is defrauding the health funds?
 Hospitals;
 Doctors;
 Dentists;
 Pharmacists;
 Practice managers;
 Allied health practitioners;
 Receptionists;
 Patients;
 Staff in the PHI funds;
 Computer hackers;
 Organised crime gangs.

6. Health insurance summit 2017
 The extent of fraud –
 One guess – half of a percent per annum
and upwards.
 British criminologists, Jim Gee and Mark
Button, say average losses are around
6.2%

7. Health insurance summit 2017
 Australia is well positioned to manage the
challenges of fraud, waste and abuse
 This is due to the level of government
regulation and fund information
technology system controls.
 BUT

8. Health insurance summit 27 July 2017
 There is plenty of scope for fraud under a
fee-for-service system and electronic
claims processing.
 The funds don’t know what they don’t
know, especially as new and emerging
fraud schemes are an occurrence.

9. Health insurance summit 2017
 Assessing the risk
 The opportunities for fraud in the area of
corporate medicine

10. Health insurance summit 2017
 Fraudsters at work
 Identity fraud
 The problem of on-line claiming platforms.

11. Health insurance summit 2017
 Preventing leakage -
 There are two ways to manage leakage:
 Prospectively through mainframe IT
business rules and system controls;
 Retrospectively through analytics and
chasing debt.

12.  Proactive controls are more effective and cover:
 Developing business and clinical rules & embedding them in the
mainframe computer system
 Fund rules for services, providers, members, staff in the IT
system
 Product rules applying to member entitlements and benefit
payments
 Provider registration
 Systems analysis and testing
 Communicating what is acceptable to providers
 Segregation of employee duties

13. Health insurance summit 2017
 Retrospective controls:
 Upcoding (hospital, medical, ancillary) targeted audits on site;
 Targeted provider, member and fund employee audits;
 High cost drug reviews/approvals;
 Data mining and pattern analysis;
 Targeted statistical analysis;
 Profiling of providers, service items, members and fund employees;
 High dollar claim reviews;
 Member surveys to validate services, billing.

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 Recovery action:
 The use of rules and analytics;
 Police action;
 Derecognition from the health fund;
 Use of debt recovery agencies.

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 Rate of recovery
 Claims leakage in PHI - $200 million to
$300 million per annum.
 Recovery - $100 million.
 Medicare recovery - $10 million.

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 The Privacy Act
 “If an APP (Australian privacy Principle) entity
holds personal information about an
individual that was collected for a particular
purpose (the primary purpose), the entity
must not use or disclose the information for
another purpose (the secondary purpose)
unless: subclause 6.2 or 6.3 applies in
relation to the use or disclosure of the
information”.

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 Conclusion
 The strengths of the Australian health
insurance system.
 Some weaknesses.