Search for a Fraud Cure : Federal Task Force Is Looking Into Abuse in Managed-Care Field

As millions more Americans are steered into managed health care programs each year, regulators and law enforcement officials are examining whether the rapid evolution of the nation’s medical marketplace is spawning new strains of medical fraud and abuse.

Some health industry officials warn that the rapid pace of change may be outstripping the ability of state and federal regulators to adequately protect consumers’ rights. And the Justice Department--which under President Clinton has made prosecution of health care fraud a top priority--recently formed a special task force exclusively to probe issues related to wrongdoing in the managed-care industry.

“As we get more into managed care, it has become clear to us that the traditional techniques for investigating and prosecuting fraud will have to be different,” said Debra Cohn, the Justice Department’s deputy special counsel forhealth care fraud issues.

These concerns come as enrollment soars in health maintenance organizations and similar health plans, which promise cost savings in exchange for limits on patients’ choice of doctors and hospitals. Enrollment in HMOs rose to an estimated 50 million last year, from 36.5 million in 1990.

“The regulatory community is trying to stay current with the market,” says one official at the federal Health Care Financing Administration.

Justice Department officials say the task force was formed to help federal investigators get a better handle on the changes taking place as the medical insurance market shifts away from traditional fee-for-service programs to managed-care plans. While federal investigators have lots of experience in probing fee-for-service abuses, the types of problems that can arise in managed care are quite different.

There has been a growing chorus of criticism from legislators, patient advocates, consumer groups and doctors that HMOs are delaying or denying care to save money, for example. The critics contend that the same practices that enable HMOs to provide health care savings may also create financial incentives for providers to skimp on care so they can maximize profits.

“There is a reversal of the profit motive” in managed care compared to traditional fee-for-service medicine, says William J. Mahon, executive director of the Washington-based National Health Care Anti-Fraud Assn.

“In managed care, a provider agrees to treat patient Jones for a fixed payment, and if he is unscrupulous about it, he will try to do as little as possible for patient Jones to maximize profit,” Mahon said. “Where you have the provider assuming greater financial risk, you have a good starting point for susceptibility to fraud.”

Most HMOs operate under a payment system intended to discourage doctors from “over-treating” patients by performing unnecessary services or ordering costly tests. Under these “capitation” systems, a doctor typically receives a fixed monthly fee per patient, based on a group average, regardless of how few or how many services are performed. If the patient needs less care than the group average, the doctor makes more profit. If the patient requires more care than average, the doctor can lose money.

“Under a capitated system, the whole concept of what a false bill is has a different meaning,” said the Justice Department’s Cohn. “In fee-for-service medicine, most of the problems have been over-utilization of services.” But with managed care, the problems relate more to access to or denial of care, she said.

Marketing abuses in managed-care programs are another area of concern, Cohn said.

“We’ve heard about abuses in marketing where health plans said certain health services were covered but then the things are not covered,” she said.

Cohn asserted that the Justice Department task force was not formed as a response to any surge in complaints about managed care. The task force also includes representatives from the Department of Health and Human Services, the FBI and several U.S. attorney offices throughout the country.

Susan Pisano, a spokeswoman for the Group Health Assn. of America, a managed-care trade group, said concerns about HMOs are overblown by critics.

“HMOs are the one system where we have every incentive--medical, philosophical and financial--to make sure people get the appropriate treatment promptly,” she said.

Under the Clinton Administration, the Justice Department has beefed up control of health care fraud as part of a broader effort to reduce medical inflation. The federal government has estimated that health care fraud may cost taxpayers as much as $100 billion a year--or 10% of the nation’s total annual medical bill.

Earlier this month, Atty. Gen. Janet Reno reported that the FBI investigated 50% more health care fraud cases in the 12 months ended in October than the prior year.

“People who evidence such greed against the vulnerable only increase the cost of health care for all,” Reno said at the time.

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New Opportunities for Abuse?

Enrollment growth in managed health care plans raises new questions about the potential for fraud and abuse in these programs, Justice Department officials say. The Clinton Administration has stepped up efforts to combat abuse in managed care as part of a broader fight against medical fraud.

While membership in health maintenance organizations grows ...

U.S. ENROLLMENT

In millions:

1994 (estimate): 50.0

CALIFORNIA ENROLLMENT

In millions:

1994 (estimate): 11.7

... so does the federal effort to crack down on all forms of medical fraud.

FBI INVESTIGATIONS

1994: 1,066 Source: Group Health Assn. of America, California Assn. of Health Maintenance Organizations, Justice Department