Preventing Fraud Prevention

Regulations limit amount that health insurance companies can spend on fraud prevention, testimony reveals

February 27, 2013

The Department of Health and Human Services is limiting the amount that private insurance companies can invest in fraud prevention, according to testimony at a House subcommittee hearing on Wednesday.

Chairman Joe Pitts (R., Penn.) brought up the Obamacare restrictions on private insurance companies during a hearing of the House Committee on Energy and Commerce’s Subcommittee on Health.

Obamacare 'contains perverse incentives for private insurance companies to ignore waste and fraud, which drives up premiums and copayments for consumers," Pitts said in his opening statement.

Obamacare requires health insurance companies to spend 80 or 85 percent (depending on the size of the company) of their premium revenue on either medical costs or 'activities that improve health care quality." This requirement is known as the 'medical loss ratio," or MLR.

Under the regulations created for the MLR, the money that an insurance company invests in preventing fraud does not count toward the 80 or 85 percent.

'Plans struggling to make the 80 or 85 percent threshold for medical costs often can’t risk these activities—which could save consumers money and provide them with a higher quality of care—for fear of being penalized and having to pay rebates," Pitts said.

However, money recovered after the fraud has occurred does count toward the 80 or 85 percent, which encourages companies not to prevent fraud but rather to pay and then chase fraud after the fact, according to testimony at the hearing.

'Recovery processes are the old way of doing things," said Darrell Langlois, vice president of compliance, privacy, and fraud at BlueCross BlueShield of Louisiana.

He noted that the federal government is trying to move away from a 'pay and chase" model of fighting fraud.

'It makes an organization think twice: I’m going to spend this dollar but it’s going to hurt me twice," Langlois said after the hearing. 'One, it hurts me that I’m going to spend it, but two, it works against me in the MLR."

The MLR 'is limiting us and every other private payer in the country," he said.

Robert Zirkelbach, vice president for strategic communications for America’s Health Insurance Plans, said in an interview with the Washington Free Beacon that the health insurance industry as a whole is prioritizing fraud prevention but the MLR requirement is working against the industry.

'It provides the wrong incentive," he said.

Langlois testified to the committee that fraud can hurt more than a health insurance company’s bottom line. Fraud can hurt and even kill people.

He gave the example of a cardiologist who was implanting stints in patients who did not need them. The doctor is now in jail, but patients have been irreparably harmed physically.

Zirkelbach said the Department of Health and Human Services decided not to allow expenses for fraud prevention to count toward a company’s 80 or 85 percent. Changing the regulation would change the rule; it does not require a change in the law, he said.

The Department of Health and Human Services did not return a request for comment.

The subcommittee spent the majority of the hearing discussing fraud, waste, and abuse in Medicare and Medicaid. Officials from the Centers for Medicare and Medicaid Services (CMS) and the Government Accountability Office (GAO) testified before the committee.

Rep. Michael Burgess (R., Texas) questioned the CMS official on which fraud prevention measures contained in Obamacare have been implemented. Of the seven he asked about, only one had been fully implemented.

The GAO estimated that improper Medicare and Medicaid payments cost the government $44 billion in 2012.

Medicare and Medicaid were again on the GAO’s 2013 High-Risk List, which was released earlier this year.