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On fraud, medical schemes and the NHI

28 September 2011 Gareth Stokes
Gareth Stokes, FAnews Online Editor

Gareth Stokes, FAnews Online Editor

Any system where the beneficiary and payer are insulated from each other is open to abuse. I will illustrate my point with a couple of examples from the local financial services environment. The first is courtesy the short-term insurance industry and involves an everyday motor vehicle glass claim…

It is common knowledge the insured “buying” a windscreen from a glass fitment centre will pay multiples more than the uninsured cash purchaser. If you don’t believe me, put it to the test next time you crack your windshield. I tackled one of the insurance company executives on this issue once, and he said the premium charged was to compensate for the administrative function the repairer served as well as for the waiting period between invoice and eventual settlement. I nodded agreement, but somewhere back-of-mind commonsense kicked up a huge fuss! The “premium” referred to here was simply of too great a magnitude.

A bigger problem in the medical schemes space

My second example is from the medical schemes universe. Quite by chance I discovered that an ankle brace was charged out at triple the price to a private medical aid member versus an ordinary walk-in client. We’re talking here about R800 versus R2, 400 for the identical item, where the seller is undoubtedly making a reasonable mark-up at the lower price. In each of these cases the insured (you or I) don’t question the amount on the invoice, simply because we’re not paying. More often than not, we don’t see the invoice – merely showing up for a particular medical procedure – and allowing the “admin” to complete on auto pilot…

The first thought that crossed my mind when a press-release on medical scheme fraud landed on my desk was that the system opens itself to abuse. (At the outset I should probably mention that the examples I’ve just given – where suppliers simply overcharge for goods and services – don’t even technically constitute fraud. But they do drive up costs in a sector where costs are always under scrutiny! The fraud the release refers to is organised and large-scale fraud often perpetrated by syndicates who continually come up with new and baffling ways to scam insurers. Although a trifle melodramatic, the release kicks off with: “Medical aid fraud in South Africa has reached epic proportions and poses a serious threat to the industry’s wellbeing and, in the case of smaller schemes, their very survival.”

It emerges that healthcare insurers believe between 7% and 15% of their claims are tainted with fraud. How much are we talking about? The Board of Healthcare Funders (BHF) provides a rather wide estimate (or guess if you prefer) that the healthcare sector is defrauded of between R4 billion and R13 billion each year! Why? “Just as insurers devise clever ways to investigate and curb fraud, so new ideas and scams pop up,” says Lynette Swanepoel, coordinator of the BHF’s Forensic Management Unit. “All too often fingers are pointed at healthcare providers, but the fact of the matter is that fraud happens across the spectrum, from healthcare providers, to members, employees, and sometimes even brokers.” There are simply too few checks and balances in place to put a stop to unethical behaviours by claimants and stakeholders along the value chain...

Justified enrichment… and how to fight it!

Fraud happens on an individual basis too. There is plenty of anecdotal evidence that people feel justified in embellishing their claims to get their money’s worth at claims stage. Swanepoel points out that it is not unusual to find a spike in claims towards the end of the year, a kind of ‘grocery’ shop for prescriptions that, strictly speaking, are not medicinal. The argument goes – I’ve been paying for this cover – I know they’re going to try and short-change me – so I’m going to squeeze out every rand I can…

Chris Andrew, lead consultant of specialist credit risk solutions company, PIC Solutions, believes that part of South Africa’s failure to accurately define exposure to fraud can be attributed to unstructured and inconsistent internal insurer systems and controls, coupled with a lack of data sharing. “The SA Insurance Crime Bureau (SAICB) has made great strides into exposing fraud – but many incidents remain undetected or unreported,” he said. “We estimate that 10% to 15% of insurer gross premium income in South Africa is allocated to cover the undetected cost of insurance fraud.”

Swanepoel says it will be impossible to quantify medical aid fraud in South Africa until medical schemes pool and share their data. Andrew agrees, saying that greater synergy is needed between insurers. Simply put, organised crime syndicates tend to target the less-proficient insurers! “At the same time as working with their peers, each insurer must look internally at developing their own robust fraud mitigation and management capabilities – including understanding and defining the fraud risk posed,” he said. “Companies would also do well to further engage with industry bodies to gain a broader understanding of the fraud landscape.”

The role of technology

Insurers should consider using technology solutions such as predictive analytics, a model which has had enormous success in combating fraud and improving profitability. “Failure to take steps to mitigate insurance fraud will have far-reaching consequences, not only in terms of direct financial losses, but also investigative and legal costs, increased insurance premiums and, ultimately, damage to the industry’s reputation,” he concludes.

Tackling fraud in the medical schemes environment will go a long way to reducing costs in the run up to government’s National Healthcare Insurance implementation… Who knows – a system sans fraud and excessive profiteering could provide benefits for all at a 30% average premium reduction...

Editor’s thoughts: The medical schemes fraud estimate the BHF is throwing about is extremely wide… However, when one considers the range of abuses taking place in the private healthcare environment, their upper limit of R13 billion could be close to the mark. Do you think we lose as much as 15% of our healthcare insurance premium to fraud, or is the R13 billion a total thumb suck? Please add your comment below, or send it to gareth@fanews.co.za

Comments

Added by Derek Mayne, 29 Sep 2011
Yes i have also had the same experience with windscreen replacement.I was told if i paid cash instead of claiming through insurance i would pay only R780.00 instead of the insurance company paying R2000.00. I also found out from an operation i had and quered with the hospital why the medical aid had been charged so much.I was i hospital for 3 days but the fees charged where alot more.The answer i got was that the scheme and the hospital had an arrangment that if i needed to be hospitalized for say 1 week due to complications the medical aid would then NOT have to pay any more.SOME agreement!!!!The sooner i was discharged the more the hospital made!!!!These days if you dont completely understand your medical aid you may lose out.
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Added by Elsie, 29 Sep 2011
I have had many cases in short term claims that the assessor spikes the claim value with 20%. This I only found out when an insured opted to replace his losses himself and found the difference in value bought from the same suppliers. I will name this self enrichment. It is very clear in the industry that losses are to be replaced and the insured cannot enrich himself by buying cheaper. Seems to me it is only the insured that has to abide. As long as you are not the insured, you can enrich yourself by way of the loss of someone else.. What a joke! Premiumpayers must watch for this and not allow it to happen. There is no excuse. No wonder cost of insurance is hitting the roof.
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Added by Koos de Wit, 28 Sep 2011
Referring to the short term industry & glass replacements the same applies with Insurers "preferred suppliers" ie building contractors , panel beaters , jewellers etc. A lot of dodgy dealings increasing costs. In my view the problems start at the top & not at the bottom.
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Added by Grumpy, 28 Sep 2011
I agree with Koos and it's going to get even worse once NHI is functional with all the BEE companies being involved.
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Added by Daniel Boshoff, 28 Sep 2011
The peer review model is critical to ensure that your company compares favorably or better than the competition but I agree that less significant, or smaller, insurers have a tougher task of dealing with the matter. Not that it is down to poor or fraudulent management at the top or bottom of the company but instead that they have not kept up to date with the tools available to measure their activities. Only then will they be able to actively manage costs and prevent fraud.
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Added by Janet Harding, 28 Sep 2011
You are surely just touching the tip of the iceberg here. Fraud has become a part of our lives and any attempt to blot this out would be most welcome. How do we, as brokers, assist with this?
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Added by Rudi, 28 Sep 2011
I have an estimate of costs from a maxilo facial surgeon for dental procedures - an item for surgical gloves - in round figures his estimate is R 115, the medical aid tariff says R 15 - enough said
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