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
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Added by Derek Mayne, 29 Sep 2011