Scamming the system: The rising cost of health care fraud

As insurance fraud prosecutions go, this one was a textbook case.

Thirty-one-year-old Las Vegas resident Shanita Flax pleaded guilty to two counts of felony theft in August 2012 for a scheme in which she received money from women undergoing cosmetic breast implant procedures but ordered their implants as though they were part of breast cancer treatments.

Flax, a civilian contractor at O’Callaghan Federal Hospital at Nellis Air Force Base, pocketed the cash she collected from the women, then billed Air Force insurers for the implants.

Health care fraud investigators say the deceit is common. Fraudulent billings are a lucrative tactic for scammers.

In 2009, when Flax was committing her scheme, health care fraud, including bogus Medicare claims and kickbacks for worthless treatments, reached upward of $175 billion. Today, the problem is even worse.

During the first eight months of 2011, the Justice Department prosecuted 903 cases of health care fraud — more than for all of 2010.

Because Nevada’s population is so small, the number of local prosecutions is relatively low. Industry sources say there were fewer than 100 health care fraud cases here in 2012.

Despite the low numbers, the percentage of successful prosecutions is high, mainly because the state’s health insurance industry, law enforcement and prosecutors are organized and on the same page about the cases to pursue and the approaches to take.

“One of the things Nevada has going for it is that it has a very active U.S. Attorney’s Office that is concerned about health care issues,” said Gary Auer, director of the Special Investigations Unit for health insurer Anthem Blue Cross.

Prosecutors are smart to take the fraud seriously. Health insurers say they save $11 in costs for every dollar they spend fighting fraud.


Health care fraud comes in a variety of flavors. Most involve bogus claims, such as the Flax case. Others include physician overbilling, identity theft, staged traffic accidents, fake slip-and-fall injuries and drug abuse.

Many scammers justify their behavior by slamming insurance companies and their desire for profits.

Often, there is a cavalier attitude about fraud and insurance companies, the Coalition Against Insurance Fraud reported. Accenture, a management consulting company, conducted a study that found 1 in 4 Americans believe it’s acceptable to defraud insurers. One in 10 said it is acceptable to submit claims for personal injuries that never occurred, and 2 in 5 said they were unlikely to report someone who ripped off an insurer.

Doctors aren’t above sticking it to insurance companies, either. The Journal of the American Medical Association reported that almost 1 in 3 physicians said it is necessary to game the health care system to provide high-quality medical care. One in 10 doctors reported medical signs or symptoms a patient didn’t really have to help the person secure coverage for treatment or services.

Insurance investigators hunt for fraud. They use computer systems to detect unusual payment patterns and collect tips from whistleblowers.


Law enforcement officials, on the other hand, focus on prescription drug abuse.

“We’ve got a huge, huge public health problem, and it’s not just here in Clark County,” said Paul Rozario, assistant special agent in charge of Nevada’s Drug Enforcement Administration. “This problem is, by far, one of the worst things we’re facing as a country. If you look at it, there are safeguards in place, but obviously there appears to be some serious deficiencies in the way we’re going about it.”

Seven million people, or 2.7 percent of the U.S. population, used psychotherapeutic drugs nonmedically in 2010, according to the National Institute on Drug Abuse. About 5.1 million people abused painkillers, with 1 in 12 high school seniors using Vicodin and 1 in 20 using OxyContin.

Nevada has one of the worst rates of nonmedical use of prescription pain relievers, according to the Substance Abuse and Mental Health Services Administration.

“What we do is we investigate doctors and pharmacists who are involved with the illegal diversion of prescription drug medication,” Rozario said. “When I talk about illegal diversion, I’m talking about the filling of prescriptions without any legitimate medical purposes.”

Leads come from whistleblowers and doctors concerned about dishonest colleagues. The DEA maintains a database of registered dispensing pharmacists, and the agency performs periodic audits.

“We also work with state medical boards and pharmaceutical boards for potential leads to see if they have any concerns relative to anybody they feel is not in compliance with their policies and may not be in compliance with DEA regulations,” Rozario said. “We do what we can do by holding doctors and pharmacists and people who work with them in their offices accountable if they are abusing the system. It’s a very small minority, but that small minority can adversely affect not only what’s going on in Clark County but other parts of the country.”


The third leg in Nevada’s effort to combat medical fraud is prosecution. The Nevada Attorney General’s insurance fraud unit prosecutes cases involving scams against insurance companies.

Deputy Attorney General Brian Williams oversees two attorneys, seven investigators and a small support staff. The operation is funded by the insurance industry through assessments paid on premiums collected.

Insurance investigators do most of the initial work.

“Because we’re so limited in our resources, we tell them that if they want their case prosecuted, the best way to do that is to do most of the work themselves,” Williams said. “The onus is on the insurance companies to use their resources.”

Court cases are conducted before a jury, like any trial. Williams said fraud cases can be challenging because jurors have preconceived biases against insurance companies.

“We always try to go into court with pretty good evidence because, unfortunately, one of the things we deal with when we go before juries is that they start out with a negative view of insurance companies,” he said. “In the end, insurance companies are out to make money.”

Williams’ office gets about 1,200 complaints a year for all types of insurance fraud, including health insurance fraud. The unit opens between 50 and 100 cases annually. Each investigator typically works one a month.

Among them was the Flax case, which Williams handled. Flax was sentenced to 12 to 30 months in prison and five years probation. She also agreed to repay the Air Force $17,400 for the fraudulent billings and the Nevada Attorney General’s Office $10,000 for prosecution costs.

Williams said he likes the work.

“When you stop somebody who has been caught in a fraud, it is fulfilling,” he said. “Some of these cases aren’t as exciting as the cases the DAs do on a daily basis. But I’m protecting Nevada consumers. People’s money means as much to them as anything, especially in an economy like we’ve had recently.”

During the 2015 or 2017 legislative session, Williams hopes to approach lawmakers about increasing assessments on insurance companies so that his office can hire more attorneys. Legislation to increase the assessments the companies pay was approved several years ago, but Gov. Kenny Guinn vetoed it because he saw it as a tax increase.

“There’s definitely an appetite in the industry to increase our unit, and one of the things they talked about is health care fraud and how they would like us to hit health care fraud harder,” Williams said. “It’s something that we’d certainly be willing to do.”

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