This is how the fraud is committed, and this information is not provided in any reports provided by the hospital or insurance company so the hospital commits the fraud and the systems in place (Artificial Intelligence or lack thereof) is how the claims get through without touching a human hand……………….
By Michael Frank, President – Aquarius Capital
A lesson learned in the case of NYU-Langone vs. Michael Frank is that PPO discount rates are the thing of the past.
In the explanation of benefits reporting (claim report from the insurance company), the PPO discount received for my insurance claim for implantable devices is close to 60% off charges. However, the insurance company due to fraudulent and excessive billing of the healthcare provider paid more than 900% above the true cost of what the implantable devices and implantable supplies that the hospital paid for.
The insurance company approved for payment an amount of $28,600 for an implantable device that was billed at $70,456.48 (hence 60% discount). However, the hospital solely paid $1,500 (actually less due to hidden rebates) for the implantable device from Smith & Nephew.
The reason a hospital can be paid so much for such an inexpensive item is that they increase the number of units billed so not one unit (or two units, which is how Smith & Nephew bills), but instead 11 units. Each unit is reimbursed at $2,600.
So where does the units come from. How about 5 units of fiber wire, which cost probably $20 each. 5 units x $20 is $100. However, billing these items as implantable devices so that the $20 items are paid as $2,600 items, then these five items at paid $2,600 x 5 units = $13,000.
This is how the fraud is committed, and this information is not provided in any reports provided by the hospital or insurance company so the hospital commits the fraud and the systems in place (Artificial Intelligence or lack thereof) is how the claims get through without touching a human hand.
This is how the true cost of an item is paid at more than 900% the value of it. Unfortunately, this is reality in healthcare and drives the biggest increases in healthcare spending.
Most commercial HMOs, including the largest ones (e.g., my insurer for example) pay off a percentage of Medicare. If Medicare fee schedules increases 1-3% per year, then why are healthcare premium rates for the same plan option going up 20-25%, it is due to the process above.
The industry might call it Upcoding, Code Creep, Unbundling or some other nice word. Maybe it is arbitraging a contract with an HMO.
If you are a healthcare consultant, stop looking at network discounts, since they are meaningless. How about using a new measure, i.e., ratio to true cost? My implantable device was paid at 900% of true cost. A question for the insurance company is why would they pay under $2,600 for the surgeon, under $2,200 for the anesthesiologist and more than $28,000 for a device that cost $1,500?
This is why the PPO discount model has to change, and could be the end of the PPOs that we know it. The above is simple algebra and systemic fraud.
Michael Frank
Michael Frank is the founder and president of Aquarius Capital. He is a health, accident and life actuary with approximately thirty (30) years of experience, including executive management experience with insurance, reinsurance, employee benefits consulting and managed care entities. He provides financial and management consulting to various organizations including insurance companies, investment bankers, reinsurers, HMOs, managed care organizations, hospitals, disease management, insurance regulators, third-party administrators, accounting firms, private equity funds, Fortune 500 companies and other organizations servicing the insurance/reinsurance industry in the US and internationally.