April 2011

The Pampered Patient

Edited by Dennis McGuffie
A chief audit executive questions the motives of a network physician who offers generous incentives to his patients.

All of the managers at Gigantica Corp., a multibillion-dollar industrial bucket manufacturer, have been participating in budget reviews for the past week. Costs are expected to increase in nearly every expense category next year, wreaking havoc on the company’s overall projections. Gigantica’s chief audit executive, John Q, has been asked to help determine how to manage these increasing costs through his audit process. “You’re out there visiting the operating units and you see where the money’s going,” the chief financial officer (CFO) said to John at one of the budget sessions. “Can’t you help provide some insight on this situation?”

As John left the meeting and began thinking of ways to address the CFO’s question, he ran into one of his audit managers, Don, who had just returned from a doctor’s appointment. When John asked how the appointment went, Don replied that it was, “just great,” as always. “He never makes me pay a co-pay, and he has me sign blank insurance forms so he can take care of the filing for me after each visit,” he said. “He even offers a Pampered Patient Program. See, with this punch card I can get a gift certificate to the restaurant of my choice after five visits.” Don was extremely pleased with the service he received and suggested that John may want to consider using the same doctor.

John is momentarily dazed by all the dollar signs flashing in front of his eyes. Is it appropriate for Don’s doctor to forgo the co-payment required under Gigantica’s insurance program? Someone has to pay for that, and John is pretty sure Gigantica is at least partially self-insured. How can Don’s doctor afford to provide perks like the Pampered Patient Program, and why would he need extra blank forms signed by the insured?

John remembers the old saying that nothing in life is free and wonders who is paying for these services and whether the doctor is engaging in deceptive practices. How should he approach this situation?


Ron Skillens, CPA, CHC
Vice President, Compliance and Internal Audit and Chief Compliance Officer
Children’s Medical Center Dallas
John’s concern over the physician’s practices appears to be warranted. Based on what Don told him, there are significant red flags of health-care fraud that would correlate to increasing medical claims expenses for the company.

John should organize a fraud investigation of this network physician immediately. If his team doesn’t have the necessary skills, he should engage a consultant with experience in auditing health-care coding and billing practices to join the investigation. He should also ensure that members of the team have met the U.S. Health Insurance Portability and Accountability Act privacy requirements to view patient data.

The investigation team should begin by taking a statistical sample of employees who are patients of the physician. Using this data, the team should then determine whether co-payments have been made and whether the company has been billed for co-payments inappropriately through additional claims submitted by the doctor on blank insurance forms. The investigation should also include interviews with other employees who use this physician to verify whether they actually received the services that were billed to the company. Moreover, the team should examine whether the services billed by the physician were coded and documented accurately to support the services provided. Before the review is concluded, the team should determine if this practice is a widespread problem with other network physicians — if so, this could be driving the company’s overall expense increases.

If the investigation reveals that Gigantica has overpaid for health-care benefits due to fraud, the company should seek to recover the overpayment amount from the network physician(s) responsible. The company may also seek to report the physician(s) to the appropriate regulatory agencies. Lastly, the investigation and resulting recovery should be reported under attorney-client privilege to the CEO, the chief financial officer, and the audit committee.


Monica Frazer, CPA
Vice President, Internal Audit
Baylor Health Care Systems
John should set up a meeting with Don to obtain further information about this doctor, beginning with his name and location. He should then schedule a meeting with Gigantica’s employee benefits director to discuss the company’s health benefits policies and request a meeting with the claims administrator.

When meeting with the administrator, John should spell out his concerns and request an investigation of each one:

  • Failure to enforce co-payments could be a violation of the insurance or benefit plan agreement.
  • Pre-signed blank forms may indicate the company is being billed for fictitious visits.
  • The doctor’s loyalty program could encourage over-utilization of services, especially if the patient doesn’t have to pay anything up front.
  • The doctor could be up-coding services to cover his additional administrative costs.


If the investigation reveals that John is justified in his concern over the physician’s practices, a broader scope review of the health plan’s physician network may be considered.

How would you handle this scenario? Share your comments below.


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