Healthcare fraud 101

By Dr. David Botsko
Veteran Program Integrity Director

Before we examine healthcare fraud, we should understand basic definitions of the types of criminal and administrative acts commonly associated with healthcare fraud.


Fraud, waste, and abuse. Many individuals use these terms as if they were one word or one act. There are differences. Here are generally accepted definitions of each:

Fraud: Generally accepted government auditing standards describe fraud as a type of illegal act involving the obtaining of something of value through willful misrepresentation.

Waste: Involves the taxpayers not receiving reasonable value for money in connection with any government-funded activities due to an inappropriate act or omission by persons with control over or access to government resources. Importantly, waste goes beyond fraud and abuse and most waste does not involve a violation of law. Rather, waste relates primarily to mismanagement, inappropriate actions, and inadequate oversight. Specifically related to healthcare, waste is overutilization of services or other practices that, directly or indirectly, result in unnecessary costs to the healthcare system, including federal healthcare programs.

Abuse: Involves behavior that is deficient or improper when compared with behavior that a prudent person would consider reasonable and necessary business practice given the facts and circumstances. Abuse also includes misuse of authority or position for personal financial interests or those of an immediate or close family member or business associate. Abuse does not necessarily involve fraud or violation of laws, regulations, or provisions of a contract or grant agreement, although in some instances it may involve an illegal act. Abuse relating to healthcare programs means provider practices that are inconsistent with sound fiscal, business, or medical practices, and result in an unnecessary cost to the healthcare program, or in reimbursement for services that are not medically necessary or that fail to meet professionally recognized standards for healthcare.

We recognize that no precise measure of healthcare fraud exists. Those intent on abusing federal healthcare programs can cost taxpayers billions of dollars while putting beneficiaries’ health and welfare at risk. The numbers are enormous. In September 2016, the U.S. Department of Health and Human Services sent out a warning that improper payments under Medicaid have become so common that they will account for almost 12 percent of total Medicaid spending during 2016, just shy of $140 billion. (Total improper payments across federal programs will come to about $139 billion in 2016.)1

The problem – fraud prevention

During my years as the Medicaid Inspector General, responsible for fighting healthcare fraud for the state of Arizona, I saw the enormity of the challenges firsthand. The challenges are big, but not impossible to defeat. The approach must be one of preventing fraud from occurring in the first place, or detecting and stopping it in the initial stages. "Pay and chase" relies on a deep-seated enforcement infrastructure built to carry out investigations and develop cases for prosecution. Prevention and early detection requires the use of advanced technology to spot and cut off fraudsters before they are paid. This model can occur only if prevention and early detection receive high-level commitment, support, and recognition. This is the challenge: Arresting and prosecuting people who have stolen hundreds of millions of dollars generates headlines, but it's difficult to garner much credit, and therefore support, for stopping a would-be thief from stealing before he steals. One of the methods utilized to accurately measure savings obtained during an audit or investigation is cost avoidance.

Measuring cost avoidance

There are a variety of methodologies utilized to measure cost savings. These include:

  • Assessing the amount saved when claims are denied (e.g., improper billing or when third-party insurance should have been billed) 

  • "Shutting down" a Current Procedural Terminology (CPT) code that has previously been payable, but based upon investigation, proves to be a code subject to misuse and abuse
  • Associating the costs of a service before and after a cost-savings control is implemented 

  • Estimating cost savings for a specific time period, such as six months or one year, based on average monthly claims values 

  • Using the Medicaid Management Information System's (MMIS) processing and payment system edits to identify and prevent payment of fraudulent, wasteful, or abusive claims 

Trends in healthcare fraud

Pain management fraud

  • A Farmington Hills, Michigan, doctor was sentenced on May 18, 2017, to 19 years in prison for participating in a conspiracy to distribute prescription pills and conspiracy to commit healthcare fraud, Acting U.S. Attorney Daniel Lemisch announced. Adelfo Pamatmat was sentenced by U.S. District Judge Robert H. Cleland. Dr. Pamatmat was personally responsible for illegally prescribing over 200,000 dosage units of oxycodone (including Oxycontin) and opana, powerful Schedule II opiates. He illegally prescribed over 1 million dosage units of another opiate, hydrocodone (Vicodin, Lortab), and over 3 million dosage units of controlled substances of all kinds. He was responsible for over $4 million in healthcare fraud.2
  • Dr. Albert Szu Sun Yeh ran a one-day-a-week pain management practice outside Kingman, Arizona. The Arizona attorney general alleged Yeh collected $3.5 million in fraudulent insurance claims, including $2.5 million from the state of Arizona. As part of the investigation, approximately $3.9 million in real estate holdings and bank and investment accounts were seized from Yeh. The Attorney General filed 14 felony counts against Yeh, including conspiracy, assisting a criminal syndicate, money laundering, and administering narcotic drugs. In a separate indictment, seven felony counts were filed against Yeh's physician assistant, Bryan V. Espinoza, 54, of Henderson. It only took 58 seconds for an undercover investigator posing as a patient to obtain a prescription for the narcotic painkiller Percocet from Dr. Yeh.

Overdose deaths involving prescription opioids have quadrupled since 1999, and so have sales of these prescription drugs. From 1999 to 2015, more than 183,000 people have died in the U.S. from overdoses related to prescription opioids.3

Kickbacks and unnecessary treatments

  • Philip Esformes, Odette Barcha, and Arnaldo Carmouze, residents of Miami-Dade County, Florida, were charged in an indictment claiming that Esformes operated a network of more than 30 skilled nursing homes and assisted living facilities doing business as the Esformes Network. They owned more than 30 Miami-area skilled nursing and assisted living facilities. Many of these beneficiaries did not qualify for skilled nursing home care or for placement in an assisted living facility, but Esformes and his coconspirators admitted them to the Esformes Network facilities where the beneficiaries allegedly received medically unnecessary services that were billed to Medicare and Medicaid.
  • The U.S. Department of Justice (DOJ) said Esformes and his coconspirators are also alleged to have received kickbacks in order to steer these beneficiaries to other healthcare providers, including community mental health centers and home healthcare providers. The indictment says Esformes, Carmouze, "and others caused Medicare to pay approximately $464 million for services that were medically unnecessary, never provided, and procured through the payment of kickbacks and bribes." They also are accused of taking kickbacks to refer patients to other shady facilities that submitted their own bills to Medicare. In order to hide the kickbacks from law enforcement, they were often paid in cash, or payments were disguised as charitable donations, payments for services, and sham lease payments. They were charged with conspiracy, obstruction, money laundering, and healthcare fraud in connection with the $1 billion scheme.4

Provider registration

  • The creation of a uniform, rigorous registration process for Medicare and Medicaid providers is one of the utmost opportunities for fraud prevention. The Centers for Medicare & Medicaid Services (CMS) has implemented the Automated Provider Screening (APS) system in an effort to identify high-risk providers. However, despite the best efforts of CMS, each state has established its own independent system for registering providers. This independent system creates an opportunity for providers who may not be trustworthy to obtain access to the medical system, and once a provider is enrolled in the system, there is an implied supposition of validity.
  • Unreliable and insufficient data entry requirements have permitted high-risk providers to successfully register and obtain provider registration numbers. This includes providers who were excluded for fraudulent billing in other states. Some states attempt to control abuse with required updates, but the time lag between updates can hinder efforts to identify changes in the operating condition, ownership, or billing patterns of providers, which increases fraud exposure and puts the system at risk.
  • A provider might obtain a National Provider Identifier (NPI) number, bill for falsified services, and move or change ownership several times before its home state requires an update on activities and whereabouts. Fraudulent providers often report existing addresses, for instance, but without third-party data enrichment, payers will not uncover in a timely manner that those addresses belong to restaurants, hotels, or other nonmedical businesses.
  • Recognizing suspicious persons and entities such as shell companies, physicians, and practices that move from state to state and patients who patronize out-of-town drugstores can make a dramatic difference in detecting abuse. People commit fraud, and knowing their relationships to each other and to healthcare businesses allows the investigator to understand who might be involved in any given scheme and when and where it's likely to take place.        

The importance of using CLEAR®

  • CLEAR is able to locate people, assets, businesses, affiliations, and other critical facts of importance to any investigation. Of critical importance is the ability to make connections between individuals, incidents, activities, and locations. As of September 2016, more than 74 million individuals were enrolled in Medicaid, and the total Medicaid spending for fiscal year (FY) 2016 was $574 billion.5 Of key importance in any transaction is to know who you are doing business with. Concerns have been raised for several years about the varying standards regarding provider enrollment from state to state; in some cases minimal vetting takes place. These actions not only place the program at financial risk but also leave patients vulnerable to abuse and neglect.
  • In testimony before the U.S. House Committee on Energy and Commerce Subcommittee on Oversight and Investigations on January 21, 2017, Ann Maxwell, Assistant Inspector General for Evaluation and Inspections for the Office of Inspector General (OIG), U.S. Department of Health and Human Services, stated, "States also are not collecting and maintaining accurate ownership information about the providers they are paying."
  • While I was serving as the Arizona Medicaid Inspector General, the Provider and Recipient fraud units, together with the Provider Registration unit, utilized CLEAR. Because of its ability to search multiple databases at one time and reveal the underlying source documents associated with the search, our results were achieved in a timely manner and resulted in accurate and complete reports.
  • Knowing the background and associations among providers is key to keeping the healthcare programs free from fraud and abuse and keeping bad providers from entering the system. The problem is so pervasive, it makes no sense to embark on a campaign to eliminate fraud, waste, and abuse without the proper tools.

1Kevin D. Williamson, National Review, September 11, 2016.

2 News Release, U.S. Attorney's Office, Eastern District of Michigan, May 19, 2017.

3 Rudd RA, Seth P, David F, Scholl L. Increases in Drug and Opioid-Involved Overdose Deaths — United States, 2010–2015.
MMWR Morb Mortal Wkly Rep. ePub: 16 December 2016.

4 US Department of Justice, press release 16-856, July 22, 2016.

5 U.S. House Committee on Energy and Commerce Subcommittee on Oversight and Investigations Hearing, January 31, 2017.      

About the author

Dr. Botsko has served as the Program Integrity Director for Partners Behavioral Health, managing a staff of professional clinical licensed investigators, analysts, and auditors. He also serves as an ad hoc instructor for the U.S. Department of Justice, Medicaid Integrity Institute (MII).

Dr. Botsko was the Inspector General for the State of Arizona Medicaid Program and has more than 27 years experience as a Federal Law Enforcement Officer, where his last assignment was the Deputy Director for Training
for the Inspector General Academy. Prior to that, he served with the U.S. Department of Defense, Criminal Investigative Service headquarters, as a supervisory special agent. David has been a special agent with the U.S. Department of State, Diplomatic Security Service, where he conducted investigations relating to major fraud schemes, violations of the strategic arms Limitation Agreements, and mismanagement or misappropriation of funds affecting operations of U.S. embassies worldwide.

Dr. Botsko has a Ph.D. in Psychology and undergraduate degrees in Sociology and Police Science.

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