How fraudulent claims hit insurers...and you

Credit: Ashish Asthana/Mint
Credit: Ashish Asthana/Mint


If what stakeholders say is true, the industry could be losing a billion dollars to health insurance fraud

In May, a Navi Mumbai resident’s family bought a personal accident policy in his name from Aditya Birla Health Insurance Company (ABHI). While that in itself is a perfectly routine transaction — hundreds of people do so every day — there was a catch. The man who was insured had died of natural causes a few days earlier. After a month or so, the family lodged a 50 lakh claim saying that he had died in an accident. But the elaborate scheme failed, says Mayank Bathwal, the insurer’s chief executive officer. “We got hold of the original death certificate and could figure out that the policy was issued on 17 May, while the death had occurred on 13 May."

In another case, in Udaipur, Rajasthan, also involving ABHI, the person insured died due to chronic kidney disease (CKD) whereas a claim was raised under a personal accident policy. The claimant, using local connections, had provided forged documents (such as a fake FIR and postmortem report) to make the death look accidental and take advantage of the insurance policy. After due diligence, the ABHI team found that the insured was suffering from CKD. Documents proving the death was due to a medical condition were sourced from the hospital and the claim was rejected.

While ABHI managed to spot the fraud in both cases, there are many instances where insurers fail to do so. Simply put, frauds are a constant threat for the health insurance industry. They can be perpetrated by individuals, as in the two cases above, or by hospitals themselves, in connivance with policyholders.

The industry categorizes these crimes into two categories: hard and soft fraud. Hard fraud involves shady hospitals trying to swindle insurers. Soft fraud, meanwhile, has two sub-categories, and even reputed hospitals have been known to indulge in it to drive up revenue.

While there is no publicly available consolidated data, industry stakeholders say fraud claims could easily make up 10-15% of overall claims paid in a year. If that is true, the total amount paid out by India’s five standalone health insurers and 24 general health insurers to settle such claims would be in the region of 7,000-10,000 crore. Data from the Insurance Regulatory and Development Authority of India (Irdai), the insurance regulator, shows that in 2021-22, general and health Insurers settled 21.9 million health insurance claims worth 69,498 crore.

Hard fraud

Uttam Nagar in New Delhi, has become infamous as a hotbed of hard fraud. Hospitals and nursing homes have mushroomed in the area and some have been found filing fraudulent claims often. These hospitals, located in the congested bylanes of Uttam Nagar, look more like the back-end offices of small enterprises. Typically, they feature a small pharmacy, a few chairs for visitors, and a crowded reception desk within a cramped, dimly lit space. One deserted hospital in the area had just five operational beds, though a 10-bed facility is the minimum to run a hospital certified by the National Accreditation Board for Hospitals & Healthcare Providers.

In some cases, ‘patients’ with health insurance policies do not even set foot in these hospitals, and yet, claims in their names, with medical reports, are submitted to health insurers. Consequently, hospitals in Uttam Nagar are viewed with a wary eye, at least by health insurers. Indeed, HDFC Ergo and ICICI Lombard have blacklisted about 10 hospitals from the locality in the last six months.

If an insurer blacklists a hospital, it means neither cashless nor reimbursement claims will be entertained from these hospitals. In all, more than 100 hospitals have been blacklisted in the national capital.

The spokesperson of a Gurugram-based healthcare firm narrated an alarming anecdote about an Uttam Nagar hospital to this writer. The hospital (which has not yet been blacklisted) managed to enrol with the healthcare firm, which helps patients fetch medical loans for in-patient hospitalization. “This hospital generated 12 loan requests of nearly 9 lakh in the first month itself. It surprised us. We went to visit the hospital physically. They did not even have a proper operating theatre. We figured those were fake loan requests," the spokesperson revealed. “Not only did they raise fake loan requests, but also insurance claims. Ten out of the 12 claims got cleared. Only two insurers detected their fraud."

Not surprisingly, insurers are suspicious of every claim that emanates from Uttam Nagar. Faridabad, Gurugram and Palwal in Haryana; Meerut, Kanpur, Lucknow and Unnao in Uttar Pradesh; Surat and Ahmedabad in Gujarat; Pune, Nashik, and Ahmednagar in Maharashtra; and Bengaluru in Karnataka are other regions where fraud cases are quite prominent.

“In the last two financial years, we have removed almost 300 hospitals from our network and blacklisted around 2,400 hospitals through investigation findings and industry coordination," says Bathwal. Star Health and Allied Insurance, another insurance company, blacklisted 1,765 such hospitals in 2022-23, of which 394 were network hospitals and 1,371 were non-network hospitals.

Soft fraud

Before you get admitted to a hospital, the helpdesk asks if you are covered by insurance or will be paying the treatment costs yourself. When patients are insured, it has been observed that some hospitals tend to overcharge, adding needless tests, unwarranted procedures or extending the patient’s stay. This is soft fraud.

While hospitals and doctors committing such frauds may believe the patient will be spared any payout because of his/her insurance policy, ultimately, these frauds play a role in forcing insurance companies to hike premiums. Consequently, every policy holder and every person seeking a health insurance policy is adversely affected.

In industry parlance, there are two types of soft fraud: waste and abuse. Take, for example, a cystoscopy with DJ stenting. This is a surgery that involves two steps, inserting a cystoscope and placing a DJ Stent (double J stent). Hospitals may show these two steps as two separate procedures. “You have to do one to get to another. It is essentially one surgery, but sometimes it will be billed as two or multiple surgeries," says the spokesperson of an insurance company, on condition of anonymity.

Some recent cases involve robotic or laparoscopic surgery. These are costlier than open surgeries. Hospitals may opt for such surgeries even though an open surgery would have worked. These are ‘waste’ frauds. Similarly, conducting multiple tests to diagnose an ailment is also a ‘waste’ fraud.

Abuse is more serious than waste. For example, if a patient is suffering from piles, and undergoes treatment, hospitals may add treatments for fissure and fistula, as well. In the case of stones, the doctor may state that additional stones were identified while operating.

Conducting stem cell transplants to treat autism is also an ‘abuse’ fraud. The Navi Mumbai Municipal Corporation had revoked the registration of NeuroGen Brain & Spine Institute earlier this year as the Indian Council of Medical Research does not recognize stem cell therapy as a treatment for autism. Star Health blacklisted the hospital later. NeuroGen Brain & Spine Institute did not respond to clarifications sought by Mint.

On their part, insurers have taken efforts to ink memorandums of understanding for package deals—pre-defined rates for various treatments. However, even in these cases, hospitals may add extra treatment to heal a comorbidity. “Every treatment will have a separate ICD (International Classification of Diseases) code. Hospitals tend to add multiple codes in one bill. For example, a hysterectomy may be packaged under a negotiated rate; but if a patient is diagnosed with hypertension, a separate line of treatment will get added and be charged," says Arindam Ghosh, director, India Insure Risk Management and Insurance Broking Services.

To be sure, such cases are complex. “No two doctors will treat one patient alike. The opinion of a treating doctor will take precedence in these cases," says Ghosh.

Preventive measures

In cases where waste and abuse frauds are identified, third-party administrators (TPAs) or insurers communicate with hospitals seeking clarity. “We have earmarked doctors and medical professionals to process such claims. We get into healthy dialogues with the hospitals and treating doctors. Usually, a dialogue sensitizing the service provider may suffice. But, if we identify a repetitive pattern in a particular hospital or the reasons are not convincing, we take disciplinary action," says Dr Madhumathi Ramakrishnan, executive vice president, Star Health and Allied Insurance.

The insurer has an in-house fraud-detection team that has assigned scores to all its network hospitals on different parameters. “If there is a suspected fraud case, we analyse the hospital in toto instead of sticking only to the ongoing case," she says.

Aditya Birla Health Insurance’s FWA (fraud, waste and abuse) team not only analyses the suspected fraud claims, but also audits the paid cases. In case a fraud claim has been paid, it initiates a process to recover the amount paid. “We file FIRs and carry out investigations against the advisor, employee and the entire nexus," says Bathwal.

Insurers also leverage artificial intelligence tools to mitigate frauds. They integrate these tools in the claims processing system to detect patterns or outliers based on past data and issue alerts for potential fraud. Analytics are run every time a new pattern of fraud is identified.

Today, insurers are also using automation, big data and various analytical tools to analyse individual and hospital claims patterns, as well as geography, billing details, and other data to trigger investigations into health claims. “Tools like the Google Timeline of the customer are also helpful today to corroborate the evidence collected during claims investigations. Different metrics like Cibil score, etc., are also being embedded in the investigation process to do better risk profiling of customers," says Vivek Chaturvedi, chief marketing officer and head of direct sales, Digit General Insurance. “This is not only helping bring the level of insurance frauds down but also aiding in driving down the turnaround time for claim settlement."

Further, the industry hopes to have all claims in cashless form because the chances of fraud are lower with cashless claims. “Globally, if a patient goes to a hospital outside of the network coverage, he or she will have to pay 30-40% of the bill by himself. This is called co-pay. Eventually, we shall have to do the same to prevent fraud and make the system more efficient," says Ghosh.

In 2021-22, 59% of the total number of claims were settled through cashless mode and another 38% through reimbursement mode.

Divided they stand

Despite fraud being an industry-wide menace, insurers have not come together to fight it. There is no common platform where insurers can interact with each other and share data to gauge frauds. Indeed, it was only recently that insurers de-empanelled suspicious hospitals together, putting more than 2,200 hospitals across India in the excluded list.

Secondly, discussions are on to create a platform called Bima Satark, a fraud prevention platform for health insurers, where policyholders’ health data can be shared. However, data confidentiality remains an issue. The government has made provisions for citizens to avail of a Ayushman Bharat Health Account (ABHA) ID. This is a 14-digit health ID that allows one to store and share one’s health records digitally with hospitals, clinics, insurance providers and others. While it is mandatory for those buying Ayushman Bharat health insurance, it is optional for others. “One needs to be very cautious when it comes to health records. There is a legal angle. Discussions are on to take the platform live, but there will be challenges unless data confidentiality issues are tackled," says Ghosh.

Ankur Gigras, CEO and co-founder, HexaHealth, believes that collating anonymous or masked data at the industry level may help. “The claims data can be segregated hospital-wise, condition-wise and location-wise to identify erratic trends," he says.

“The banking industry has a parallel to detect fraudulent loan applications without compromising data privacy. Rating agencies Cibil and Experion have come up with a score system to identify risky borrowers. A similar risk score can be associated with hospitals / doctors at an industry level," adds Gigras.

Hospitals are businesses, too

Hospitals need to maintain average revenue per operating bed to keep the business running. It has been seen that branded hospitals tend to get a better deal from insurers. “Hospital brands should not be given better tariff arrangements as they end up earning a premium from insurance companies whereas small hospitals bleed due to negotiated arrangements and difficult settlement cycles," says Gigras.

The General Insurance Public Sector Association (GIPSA), a group comprising New India Assurance Company, National Insurance Company, United India Insurance Company and Oriental Insurance Company, has a package with pre-negotiated rates for various treatments.

“Ayushman Bharat works exactly in the same way operationally and takes away any possibility of sudden surprises to the hospital / patient at the time of discharge," says HexaHealth’s Gigras.

A similar structure is needed for private insurers to ensure better utilization of the sum assured and avoid any shock in rates at discharge. Nationwide, more than 550 hospitals have enrolled with GIPSA for procedures such as kidney transplants, total knee replacement, liver transplants and dialysis, among others.

“While rates can be negotiated with insurers and could be the same across the industry, they shouldn’t be so low that they overstretch the balance sheets of hospitals," says Mohit Soni, director at Soni Hospitals in Jaipur.

As things stand, each health insurer is fighting a lone battle. A combined effort to share data and offer industry-wide package deals to hospitals would, however, go a long way to usher in transparency and minimize fraud.

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