More administrative fraud
Health Care Financing Fraud Trial Nears
By Andrew Welsh-Huggins
Associated Press
January 31, 2008
Six years after the collapse of the country’s biggest health care finance company (National Century Financial Enterprises), a trial is nearing for five executives accused of a $1.9 billion fraud that helped bring the company down.
The case involves one of the largest alleged white-collar crimes after Enron or WorldCom, yet it is largely unknown to the public.
National Century had been the nation’s largest source of financing to health care providers. Doctors, hospitals and other providers received money from the company rather than waiting for insurance payments, usually getting 80 or 90 cents on the dollar. National Century was then to collect and keep the full amount of the payments owed by insurance companies.
The government alleges National Century executives routinely overpaid some health care providers, many of them entities the executives had a financial interest in.
National Century raised the money to fund its business by selling bonds to investors, who received interest payments followed by a lump-sum payment.
Federal prosecutors say the officials conspired to defraud investors by diverting money from investors’ funds for improper uses, fabricating data in investor reports, and moving money back and forth between accounts to conceal investor fund shortfalls.
http://ap.google.com/article/ALeqM5gkdc2GUMaHK0IngdvbVHeZuQs0fgD8UGFDRG1
Comment:
By Don McCanne, MD
Accepting accounts receivable as security for short term loans is a process know as factoring. Based on this report, it appears that National Century was yet another administrative intermediary that used a variation of factoring to divert 10 to 20 percent of health care dollars to its own interests. As if we didn’t have enough administrative excesses in our system already, this is an atrocious waste of resources.
Why does this industry even exist? Well, it does meet a need. If payment for health care services already delivered is delayed, funds required to pay overhead expenses are tied up in the accounts receivable. Factoring increases cash flow, allowing the bills to be paid, though at a very high cost.
If we had a single national health program with one set of rules, billing for services would be much more efficient and timely, and there would be no need to depend on factoring to increase cash flow.
So what is different about our current system that would create delays in cash flow? A major contributor to the problem is our multi-payer system, which creates administrative barriers to payment though the complexities of coverage and payment rules by the different insurers. Errors are inevitable, which result in payment delays or denials.
There is also a nefarious element in the delays. Private insurers can and do use relatively minor technicalities to delay payments often for months, especially for larger claims. Why would they do this? It is because it allows them to work the float. This past year, 43 percent of private insurers’ profits were from investment income from their reserves. That is a motivation unique to private insurers that would not exist in a public financing program.
Of course, National Century was involved not only in the “legitimate” business of factoring, but it also engaged in fraudulent acts involving investors, crossing the line into criminal activity.
But aren’t factoring, programed delays in claims payment, and selling innovative bond products all pretty much from the same mindset? How much longer are we going to leave the market element in charge?