If you think that insurance fraud is a victimless crime then think again.
Recently, many news outlets issued coverage over an elaborate insurance fraud scheme carried out by employees of Baycrest Health Sciences that was uncovered. Following this most recent news headline and last year’s TTC employee benefits fraud scandal, there have been many questions raised about this type of fraud, exactly how it’s carried out, and what the implications may be.
While this may be just news, if you’re a benefits plan administrator or business owner it may affect you directly. Make sure that your employees are educated on the correct ways to submit claims, how to identify suspected fraud, and how employee benefits fraud can affect them, their colleagues, the organization, and even industries at large.
What constitutes employee insurance fraud
Insurance fraud is when an insurance plan holder intentionally or unintentionally misrepresents information regarding the claim of medical services provided or products purchased/sold. While benefits fraud comes in many forms, some examples are:
- The service or product was not purchased at all; plan member submits an insurance claim without receipt;
- The service or product was not purchased by the plan holder but instead by another individual (typically a friend or a family member not listed as a dependent) and receipt was issued in the plan holder’s name;
- The provider issues a fake receipt for products or services never purchased, clinic and plan holder then split the insurance payout;
- The provider artificially inflates the amount paid on the receipt;
- A provider that sells both medical products covered by insurance as well as non-medical products may issue a receipt for a medical product when a non-medical product was purchased. Examples of this include optical shops which sell both prescription lenses (covered) and sunglasses (not covered), or foot clinics which sell both custom-made orthotics (covered) and regular running shoes (not covered). The provider then pockets the difference in price between the prescribed medical device and what was actually sold.
- Providers issuing “paid-in-full” receipts for services and products that have not yet been paid for, with the patient agreeing to pay the provider upon their reimbursement.
How it happens
Some employees who engage in employee benefits fraud are genuinely unaware of the severity of their actions. This includes employees who have heard of others doing the same thing and may automatically assume it is simply “how it’s done,” or in some cases, newcomers to Canada who have limited knowledge of the proper systems put into place.
While it’s understandable that some people would explicitly trust their colleagues, family, etc. in these situations, the old adage, “if it’s too good to be true, it probably is” holds very true in these instances.
Oftentimes—as we are seeing in the Baycrest and TTC insurance fraud operations—both the plan holder and medical provider are knowingly complicit in these schemes. By issuing fraudulent receipts, providers are able to pocket money for services or products that were never provided or claim a higher cost than what was actually paid. By providing incentives like free shoes, a gift card, cash back, etc. with the purchase of medical devices, providers are not acting in accordance with the Regulated Health Professions Act nor are they abiding by their professional college’s professional conduct guidelines.
“When it comes to benefits fraud, there is no grey area: fraud is fraud. Healthcare practitioners are held to a higher standard than other types of businesses due to their nature. It’s hard to say what proportion of clinics commit benefits fraud, as the records are purposely and carefully crafted so they appear to be legitimate claims,” weighs in Mike Gaspar, Co-Founder and COO of HealthCasa, a mobile healthcare company providing Chiropody/Podiatry services at patients homes and offices as well as fully managed corporate health & wellness programs.
Any practitioners or plan holders committing fraud taint the reputation of medical service and product providers as a whole. At higher risk of fraud are the allied healthcare fields that work with medical products such as podiatry, vision, and those specializing in medical garments—clinics who tend to sell prescription medical products alongside non-prescription items (such as custom-made orthotics alongside off-the-shelf insoles/off-the-shelf shoes, or prescription glasses and non-prescription sunglasses).
The nature of these clinics mean that it is simply easier for these providers to issue receipts for items covered by insurance when in reality, a non-prescribed item was purchased, or was “thrown in” as a bonus. The reality is, if you’re at any sort of medical clinic and you see regular retail items available for purchase, you as a patient have to ask yourself the right questions.
Often, and as we’ve seen occur at Baycrest Hospital, a ring of employees who commit fraud can form in an organization. An employee may come across a provider who is willing to provide fraudulent receipts in return for a kick back. The single employee then shares knowledge of this fraudulent provider with his or her coworkers and word spreads.
Sometimes, it is the fraudulent provider who actively encourages their existing clients to spread the word to colleagues, family, and friends. In other cases, the provider seeks out employees who have generous health benefit plans, and then finds a way into that organization.
Who it affects
Many employees who commit employee benefits fraud believe that this type of behaviour affects only the insurance company, however, this is not true! Benefits fraud is not a victimless crime. When an employee commits employee benefits fraud, it causes a ripple effect which impacts their employer, their colleagues, and industries at large.
1. Their employer
The price of employee benefits that an employer must pay is largely based on past usage. When employees make fraudulent claims, this naturally causes benefits usage to go up. In the following year, when benefits are renewed by the insurance company, companies who have shown an increase in usage must pay more to maintain the same benefits coverage for their employees.
Ultimately, this means that when an employee steals from an insurance company, they’re actually indirectly stealing from their employer.
2. Their colleagues
All companies who offer employee benefits must pay into their employees’ health plans. Not all companies pay for their employees’ premiums in full (Canadian companies must pay a minimum of 50% of their employees’ insurance premiums), so often employees must pay for the monthly percentage not covered by their employer.
Just as an increase in claims affects employers, for companies who cover less than 100% of employee premiums, this increase will also affect coworkers who will see it reflected in their monthly insurance premium payments. Another way this may affect colleagues is if the employer, in an effort to reduce insurance costs, scales back on the products, services, and amounts covered.
3. Local above-board medical providers
Medical providers who are complicit in insurance fraud schemes tarnish the reputation of their respective industries as a whole. Orion Audit Ltd., the company that conducted the investigation at Baycrest Health Sciences, discovered that cases of benefits misuse were most prevalent in orthotics, orthopedic shoes, compression stockings and braces.
“It’s easier for clinics build business quicker by giving away ‘free’ things like shoes,”says Mike Gaspar of HealthCasa. “This perpetuates the belief among the general public that orthotics are supposed to come with free shoes, so it encourages people to flock to illegitimate clinics for deals.” For legitimate businesses, this can be very frustrating.
“It’s very hard for the honest, legitimate clinics to compete with other places giving out free things, especially when the public doesn’t understand the costs, risks, and other consequences associated with benefits fraud,” explains Gaspar. “People need to ask themselves, ‘is it worth a free pair of shoes?’”
4. The employee
Sadly, some of the employees who commit insurance fraud don’t fully understand the risks or don’t fully consider the possible short and long term consequences. Following the respective internal investigations at Baycrest and TTC, hundreds of employees who were concluded to have been involved in the schemes were immediately terminated, compromising their personal reputation, livelihood, pensions, and in some cases incurring serious legal penalties.
Internal company investigations aside, insurance fraud is a highly illegal offence which often results in legal fines and/or jail time and a permanent criminal record. In Canada, fraud over $5000 is an indictable offence with a maximum penalty of 14 years (FRAUD & FALSE PRETENCES s. 380 Criminal Code).
Though insurance companies and the Canadian Life and Health Insurance Association take steps to minimize and dissuade insurance fraud, employers should also make sure that their employees are aware of the repercussions of employee benefits fraud.
If you are a company founder or an HR Manager, make sure that your employees are well equipped with an understanding of what employee benefits fraud is and who it affects. You can also discourage fraud by taking the time to understand your employees and building a benefits program that will address their needs and wants.