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Private healthcare fraud - a growing risk

by Mark Button:

A new report from the Centre for Health & the Public Interest highlights how the increased use of private healthcare providers in the NHS opens up considerable opportunities for fraud. The government must act to protect us, the authors suggest.

Last week, new independent think tank the Centre for Health and the Public Interest (CHPI) released a report showing that the reforms to the NHS in England introduced by the current government will lead to significant implications for the level of fraud, which have not been adequately mitigated against by the government.

The introduction of markets, with large companies preoccupied with profits, combined with greater complexity will make fraud (and error) a much greater risk.

One can look to the experience of the USA to illustrate this risk. In the USA large for-profit health companies delivering healthcare through contracts with state and private insurers is the mode of delivery. There is much evidence of private companies delivering these contracts of ‘upcoding’ or invoicing for higher levels of treatment and for services not delivered.

In 2009 it was estimated there were $98 billion of improper payments (fraud and error) of which $54 came from Medicare and Medicaid.

Closer to home, the recent Public Accounts Committee inquiry into the provision of out of hours care by the private company Serco found that it had wilfully falsified data on 252 occasions to misrepresent its performance under the contract that it had with Cornwall Primary Care Trust.

The Committee found that the company had “fiddled the figures”to present a “false, much rosier picture of its performance” particularly in relation to emergency care. Unlike the US, where there is an effective set of sanctions for deceiving or defrauding the state in this way, no action has been taken against Serco for its behaviour. This is perhaps because politicians have yet to wake up to the increased potential for fraudulent behaviour as a result of the new NHS market.

The main body countering NHS fraud is NHS Protect, which has a counter fraud service within it. This capacity has reduced from 200 to 165 staff in recent years and traditionally most of the investigative work has focussed upon fraud by individuals, typically nurses working for agencies while supposed to be off sick, midwives submitting false overtime claims, dentists exaggerating treatments administered and consultants abusing their entitlements for private work.

The NHS Counter Fraud Service (CFS) has had some success in the past taking on major corporate entities engaged in fraud as ‘Operation Holbein’ illustrated.

In 2008 the criminal case brought by the SFO against the pharmaceutical companies involved collapsed after an 8 year investigation. The case centred around an alleged £120 million of fraud by pharmaceutical companies fixing prices. The CFS, however, did receive some success through civil actions and out of court settlements with cases brought in parallel between 2002 and 2007 with around £46 million paid by five pharmaceutical companies in compensation.

This case was pursued at the height of the CFS’s resources and influence and since 2007 there has been a substantial decline in the capacity of this body.

The lessons from this investigation illustrate a number of issues. First and foremost there needs to be an appropriately dedicated unit within NHS Protect dedicated to this type of fraud. Such a unit should also be equipped to utilise the civil route and other sanctions too. The reality is that criminal prosecutions in complex cases involving large sums of money against opponents with resources for high quality lawyer are very expensive and high risk for failure on legal technicalities or bewildered juries.

It is for this reason that other tools utilised in the USA should also be considered.

The passage of the Crime and Courts Act 2013 provides the legislation for the implementation of Deferred Prosecution Agreements in England and Wales. Deferred Prosecution Agreements (DPA) and Non-Prosecution Agreements (NPA) have been commonly used in the USA to deal with major corporate wrongdoing.

In return for non-prosecution the corporate body agrees to co-operate with the authorities, undergo additional compliance scrutiny and pay penalties/compensation. These have been frequently used in healthcare in the USA.

For example in 2011, the pharmaceutical giant Merck and Co (and related subsidiaries) in relation to the inappropriate marketing of a painkiller called Vioxx in 2004 entered into a corporate integrity agreement with the US Department of Health and Human Services, paid a fine of $321m, settled a civil case for $628 million and pleaded guilty to a misdemeanour criminal charge.

This ended an investigation which had been ongoing for many years. These will be initially tools for the SFO and CPS but should also be extended to NHS Protect.

In the USA another tool is the False Claims Act. This essentially gives whistleblowers a financial incentive to report fraud and wrongdoing (15 to 30% of funds recovered). Cases of merit are usually joined by federal and/or state prosecutors who also have a financial incentive to become involved. It therefore puts corporate organisations at greater risk of exposure of wrongdoing.

The new landscape of the NHS with the greater risk of fraud therefore requires the following action to meet this challenge:

(1) An appropriately resourced unit dedicated to corporate fraud should be created within NHS Protect, with appropriate staff capable of pursuing all possible sanctions and with experience of successfully doing so.

(2) Deferred Prosecution Agreements, which are to be introduced in the UK, should also become a major tool for dealing with the likely problems, based on a recognition that criminal prosecution – although desirable – is not always the most viable option.

(3) Consideration should also be given to passing a UK equivalent of the False Claims Act to encourage the exposure of fraud and malpractice by private corporate bodies in receipt of public funds, and to legislation to ban the award of a contract by any NHS body to any company, or subsidiary of a company, which has been convicted of, or settled, a criminal charge.

(4) Consideration should also be given to preventing companies or subsidiaries of companies found guilty of healthcare fraud in the UK from providing NHS services in the future, and to providing for the imposition of punitive fines on the scale necessary to provide a deterrent to multi-billion pound enterprises.

Interestingly the government has just introduced a provision within the Care Bill to make it a criminal offence for providers of NHS funded care – including private providers – to deliberately supply false information to regulators or commissioners of services. Whilst the intention behind this is to prevent providers from concealing ‘poor quality care’ – a key recommendation of the Francis Report Inquiry – the impact assessment makes no mention of the fraud issue at all, but does acknowledge that “there are incentives for providers to supply false or misleading information”. The debate on these provisions, therefore, perhaps provides an opportunity for Parliament to take seriously the risk of healthcare fraud.

Read CHPI’s new report, ‘Healthcare Fraud in the new NHS market – a threat to patient care‘ by Professor Mark Button and Colin Leys.

Crossposted from Open Democracy - our NHS and the British Politics and Policy at the LSE blog

Professor Mark Button is Director of the Centre for Counter Fraud Studies at the Institute of Criminal Justice Studies, University of Portsmouth. Mark has written extensively on counter fraud and private policing issues, publishing many articles, chapters and completing five books with two forthcoming.

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