Covid-19 Testing ‘Free With Insurance’ – A New Form Of Health Care Fraud

• “It’s clear fraudsters see the COVID-19 pandemic as a money-making opportunity.” – Deputy Inspector General for Investigations of Health & Human Service (May 26)
• “Estimates of fraudulent billings to health care programs, both public and private, are estimated between 3 and 10 percent of total health care expenditures.” – FBI Report
• “Prosecutions indicate that healthcare fraud often involves complicit healthcare professionals submitting fraudulent bills to insurers.” – Report by U.S Government Task Force

Healthcare fraud is enormous, and Covid-related measures – in particular, poorly regulated Covid-testing – have made it even bigger by opening a gap for insurance fraud that has gone largely undetected. Here we’ll review some of the numbers, and I will also relate the personal story that opened my eyes to the problem and inspired this piece.

The Leaky Healthcare Colossus 

Total healthcare expenditures in the U.S. are approximately $4 Trillion today. This vast figure encompasses a vast amount of fraud. The problem is so big that it is hard to pin down. (After all, it refers to behavior which is clandestine by nature.) Here are several informed guesses. 

• 2018: Healthcare fraud alone generates proceeds of approximately $100 billion annually – (Treasury Dept).
• 2018: In 2018, $3.6 trillion was spent on health care in the United States… Some government and law enforcement agencies place the loss due to fraud as high as 10% our annual health outlay, which could mean more than $300 billion – (National Healthcare Anti-Fraud Association)
• 2019: “What is lost on health care fraud is more than half of the 2019 Department of Defense’s discretionary budget of $686.1 billion.” – (Verisys)

Choose whichever number you like. By dollar value, healthcare fraud is the largest category of criminal behavior in the United States today.

Comparisons 

With Other Types of Criminal Activity 

Estimates of losses from other types of fraud help put this in perspective. (There are wide ranges for most of these numbers. The higher estimates are cited here.) 

• Traditional Organized Crime: Vehicle theft ($2-5Bn), Cargo theft ($30 Bn), organized retail theft ($30 Bn) – FBI Figures
• Securities Fraud: “$10–$40 billion annually”
• Credit card fraud losses to banks, businesses and consumers are $16.9 Bn (2019) – the Wall Street Journal  
• Fraud related to the Paycheck Protection Program (PPP), part of the CARES Act $4.6 Bn (2020)
• The cost of ransomware attacks in the U.S. – as high as $8.5 Bn (2019) 

Comparison With Classic Financial Scandals 

Healthcare fraud dwarfs even the most prominent financial scandals. 

• The Enron Scandal: $74 Bn
• The Madoff Scandal $65 Bn
• The Lehman Collapse: “we estimate value destruction to be on the order of $46 billion to $63 billion” – the NY Federal Reserve Bank estimate
• The AIG Bailout – $180 Bn (fully repaid to the U.S government later, with a $23 Bn profit to taxpayers)
• The Savings and Loan Crisis of the early 1990’s: “The most significant bank collapse since the Great Depression… more than 1,000 of the nation’s savings and loans failed. The crisis cost $160 Bn…”

Moreover, these were one-time events. Healthcare fraud recurs ever year.

Other Interesting Comparisons

Lost U.S. tax revenue due to multinationals shifting profits to low-tax countries – a highly controversial practice and a target of the Biden tax plans – is estimated at anywhere from $40-120 Bn. Healthcare fraud is likely at least three times larger. 

Losses from healthcare fraud are on a par with the total federal income tax gap – also much in the news lately as a possible source – if it could be closed – for funding the Biden deficits. The tax gap refers to “lost revenue from intentional evasion and unintentional errors” and is estimated at “about $400 billion per year.” (Source: The IRS and the GAO.) Of this number, it is estimated that $182 Bn in tax revenue is lost due to tax evasion by private citizens. 

Healthcare fraud is several times larger than the annual budget of New York City (~$98 Bn). It is three times the size of the entire annual budget of the state of Texas. In fact, the amount of money lost every year to healthcare fraud is significantly larger than the annual operating budget of any single state. 

The Latest Healthcare Indictments: Focus on Covid-19 Testing

The Covid pandemic, and the policy responses to it, have opened a gaping new hole in the side of the Healthcare Titanic: Covid-19 testing fraud. 

This week, the Dept of Justice last week broke a series of indictments: 

• “The Department of Justice today announced criminal charges against 14 defendants, including 11 newly-charged defendants and three who were charged in superseding indictments, in seven federal districts across the United States for their alleged participation in various health care fraud schemes that exploited the COVID-19 pandemic and resulted in over $143 million in false billings.”

Much of this fraud focuses on Covid testing, which seems to be an especially easy scam to work.  

• “Defendants offered COVID-19 tests at senior living facilities, drive-through COVID-19 testing sites, and medical offices … [and] submitted claims to [insurers, such as Medicare] for unrelated, medically unnecessary, and far more expensive laboratory tests… In some cases the COVID-19 test results were not reliable, risking the further spread of the disease… The proceeds of the fraudulent schemes were allegedly laundered through shell corporations and used to purchase exotic automobiles and luxury real estate.” 

The most common crime cited is: “Fraudulent billing schemes (for example, billing for services that were never rendered).” 

The phenomenon is so recent that I have been unable to find general statistics. But I can report my personal experience. 

My Story – Being Scammed

Earlier this year, in preparation for foreign travel, I had to obtain a Covid-19 test (the so-called PCR test) on short notice, and within a 48-hour travel window before boarding my flight. I registered online for an appointment at a local, upscale-looking “same day” test facility, where I got a nasal swab from a young woman (not a doctor). In and out in 2 minutes. The test was advertised as “free with insurance.” (I did pay a surcharge of $75 to expedite the test within the required time window.) 

I got my results the next day, and was able to travel. 

Back home, a few weeks later, I got a note from my health insurance provider (Aetna, as it happens) indicating that they had been billed by the testing service for $600 – for the test, and for a physician’s “consultation.” Aetna was willing to cover $150 for the test, but told me I was obligated for the remainder – $450. 

There had been no such “consultation” – in fact, I had no contact with a doctor at all, nor did I need any. I assumed the bill was an error. (Strange charges from the insurance carrier are nothing new.) I started the process of straightening this out with Aetna. 

More recently, I had to get another test for the same reason, with the same short travel window. I went back to the same testing service (it is a two-minute walk from my home, and I guess I am lazy, and it hadn’t quite dawned on me yet what was going on). This time, the procedure had changed. First of all, the online reservation process now required me to click-agree to accept a doctor’s consultation – but only if I was using my insurance for the test. I could also chose to pay for it myself ($100, excluding any expediting charges), in which case there would be no consultation. Strange, I thought. The same test, only the means of payment differed. One would think the value of a doctor’s consultation would not depend on whether the insurance company was involved. Anyway, I pay a lot each month for my health insurance. I figured I should use the insurance option so that the test would be “free” to me. 

About an hour after taking the second test, I got a call from the testing service. Someone who claimed to be a doctor. She wanted to ask two questions to “complete the consultation.” “Do you have any symptoms?” and “Have you been exposed to Covid?” She did not have my results, so there was really nothing to consult about. I pointed this out, and said that it didn’t seem like much of a consultation since she knew nothing about me or my results. The “doctor” then said, “Oh, it’s just an option we offer, because people have so many questions.” I told her that it was presented on the website not as an option, but as a requirement — though only if I used my insurance coverage. And I asked how they could charge $600 for two stock questions, with no way to opt out.

The “doctor” stammered and got off the phone quickly. 

(I could have also pointed out that I had already answered both questions by checking boxes on the form I filled out when I registered for the test. But she ended the call so quickly I didn’t have time to think of that.)

What Does It Mean?

The Covid test is the worm on the hook, and the “catch” is the insurance company, which is billed not just for the test but for phony doctor’s consultation (which in the first instance did not take place at all, and in the second instance comprised two pro forma and meaningless questions). It’s an insurance scam, not a consumer scam. 

My guess is that often the insurance company simply pays the $600, because they are more or less forced to by the terms of the CARES Act. And how would they know whether there was a consultation or not, or what it amounted to? If insurance pays the whole bill, the consumer will never put two and two together either. It was only because Aetna balked, and billed me for the $450 balance that I became aware of this fraud.

Why does this happen? Well, with regard to healthcare fraud in general, the FBI warns specifically against “phantom billing” – defined as “billing for services the patient never received” (FBI). It is in fact the first “red flag” item listed on several consumer-alert websites I looked at. 

But why is Covid-19 testing such an easy opening for fraud?

Part of the answer is that “there is no federal regulation of the price of Covid-19 diagnostic tests.” The published prices for Covid tests at the two largest hospitals in each of the 50 states, plus the District of Columbia, were surveyed – 

• “The prices ranged between $20 – $1,419 per diagnostic test, with a median of $148. Nearly half of test charges (47%) were priced between $100 – $199, and one in five (20%) were priced above $300.”

Here is the distribution of those prices:  

The wide variation in prices for such a simple test — from $20 to over $1400 – is shocking. (The Medicare price for a Covid Test is $35-50.) Yet private insurers don’t have a lot of leeway to question these charges. The CARES act requires them to accept the “list price” of testing providers.

• “Insurers must pay the provider’s cash price – sometimes called the list price – for COVID-19 testing and related services. The CARES Act requires providers to post the cash price on their public website for insurer use. These CARES Act payment requirements apply during the duration of the public health emergency.” 

Still, the fact that testing centers must publish their prices does introduce an element of market discipline. One must suspect that the testing centers charging $1400 attract fewer customers than those charging $20. 

That is where the hook is baited. A low published test price — even “free with insurance” – is what brings the customers in. The business problem for the test providers is that lower prices also mean lower profits. So, how to make it into a more lucrative business? The testing service I used found a simple answer: add in a bogus “doctor’s consultation” for another $450 — and it becomes a very attractive business model. Especially if there is no real doctor to be paid for each “consultation” (I truly doubt the woman who called me for the consultation was a doctor) — or in fact, if there is no consultation at all. 

  My case is not unique. Padded bills are the bread-and-butter of healthcare fraud in general. The survey cited here concludes, laconically, that “the prices of medical care have been notoriously opaque.” Another article published in March by an online publication called Healthcare Finance, entitled “Free COVID-19 testing opens up potential for fraud” – summarized the situation in terms that describe almost exactly what happened to me.

• “One area ripe for fraud is in COVID-19 testing. Fraudulent testing providers are taking advantage of the emergency rule that says COVID-19 tests are covered… The federal government requires plans to pay for testing without charging for cost sharing during the public health emergency. A COVID-19 test is free to patients and health plan members. It costs the insurer or government about $100. But in some cases, $500 in extra fees is added to the test for doctor visit charges.”

Caveat Emptor Doesn’t Work When Insurance Just Pays

The pandemic has driven a lot of half-thought-through policy responses. Maybe this was appropriate in the early stages of the crisis. But we are settling in now for the long-haul. Covid-testing is going to be a part of public life for the foreseeable future. I have been vaccinated – two shots. I don’t expect to need further vaccination for a while. But I have now been tested at least 7 times. And I am sure there will be more tests to come. There are many circumstances where a test is required. The current regulatory arrangement creates the opportunity for repeatable, industrial-grade fraud. 

I advise anyone responding to a testing offer that bills itself as “Free with Insurance” to be wary. As a Public service, I end with the DOJ’s invitation to the public:

• “The Department of Justice needs the public’s assistance in remaining vigilant and reporting suspected fraudulent activity. To report suspected fraud, contact the National Center for Disaster Fraud (NCDF) at (866) 720-5721 or file an online complaint at: https://www.justice.gov/disaster-fraud/webform/ncdf-disaster-complaint-form.”