Digging for Fraud Can Help Discover Lost Revenue for Nonprofit Healthcare Providers

By Patrick Pilch and Bill Bithoney

The combination of healthcare reform, weak demand for inpatient services and the shift to value-based payments is tightening the squeeze on revenue and margins for nonprofit healthcare facilities. But institutions on the hunt for revenue must also be on the lookout for a more insidious threat to their margins: the cost of healthcare fraud.

Billions of dollars are lost every year due to criminal activities hidden in the complexities of the healthcare system. Hospitals—which make up the largest contingent of nonprofit institutions in the healthcare world—often take the brunt of this loss. Bill Bithoney’s post last month focused on the most costly form of fraud—improper payments—and the aggressive steps the U.S. government and nonprofit healthcare facilities are taking to reduce them.

However, fraud can crop up in a number of additional places. Here are two other notable areas where fraud tends to surface and corresponding best practices for nonprofit healthcare facilities to consider as they work to reduce the overall costs of fraud:

Electronic Health Records (EHR)

EHRs—a foundational part of the Affordable Care Act—can help improve care coordination and reduce medical errors. However, inaccurate or incomplete records that aren’t carefully vetted can result in false patient, clinical or physician information. It is important to address the issue of employees at nonprofit hospitals and health systems entering fraudulent data, a practice which can be inadvertently incentivized through bonuses based on quality metrics, waiting times and adherence to clinical guidelines (one of the triggers behind the recent Veterans Affairs health system issues). Centers for Medicare & Medicaid Services (CMS) is increasing its focus in this area, and though the overall budget for fraud investigation has been trimmed recently, we anticipate that there will be heightened surveillance and scrutiny of EHRs moving forward.
  • Best practice: Create an effective internal control process to ensure that medical records entered into the EHR are accurate and audit-proof. Deploy data analytics around processes and control mechanisms that can monitor effectively for billing patterns. Nonprofit healthcare facilities should weigh the risks and benefits of performing a self-audit versus hiring an external organization to verify statistically significant samples of quality metrics.

Upcoding of evaluation and management (E/M) services involves fraudulent billings by physicians. A study performed by the Office of Inspector General of the U.S. Department of Health & Human Services reported that Medicare paid $32.3 billion for E/M services in 2010, of which a projected 21 percent—or $6.7 billion—were incorrectly coded or lacked documentation that year.
  • Best practice: Upcoding is difficult to detect through Medicare audits and is therefore more commonly identified through whistleblowers. However, one approach nonprofit healthcare facilities can implement is to scan billing code levels and compare them to expected outcomes. For example, if a clinician routinely bills the highest code (a five) to generate the highest possible payment, a statistical analysis would quickly flag this as a possible fraud.
Fraud can be devastating to any healthcare organization, but given their tight margins and current outlook, the damages can be magnified for nonprofit healthcare providers. While it would be unrealistic to say that fraud in the sector can be fully eliminated, there are certainly additional steps that nonprofit healthcare providers can take to reduce fraud through improved monitoring and diligence. Sophisticated software tools are being developed to identify fraud and uncover questionable activities, many of which your organization may otherwise be unaware of. While strengthening internal control processes requires additional time and resources in the short term, it can improve financials in the long term at a time when every dollar counts.

Digging for Fraud Can Help Discover Lost Revenue for Nonprofit Healthcare Providers,” originally appeared on The Nonprofit Standard, the blog of BDO’s Nonprofit & Education practice, that offers thought leadership on the accounting, tax, and management challenges faced by nonprofit organizations, along with commentary on sector trends and developments.