Office of Statewide Prosecution

Statewide Grand Jury Report

Report on Health Care Claims Fraud
December 8, 1998

IN THE SUPREME COURT OF THE STATE OF FLORIDA -- CASE NUMBER 90,703
(This document has been re-formatted for the Internet)

I. INTRODUCTION

We, the members of the Fourteenth Statewide Grand Jury, are continuing the task of investigating fraudulent practices in the area of insurance in the State of Florida.

In this report, we turn our attention to fraudulent practices in the area of health care claims submitted to private insurance companies and self-insurance programs. According to the Florida Department of Insurance (DOI), fraudulent health insurance claims amount to $4.8 billion each year. As a result, every insurance consumer family in the state pays over $1,066 in additional health insurance premiums annually.

During the course of our investigation, we heard testimony from managers of DOI, managers and investigators with the Division of Insurance Fraud (DIF), managers and an attorney with the Agency for Health Care Administration (hereinafter AHCA), representatives of insurance and self-insurance companies, representatives of insurance company special investigations units, a representative from the Florida Insurance Council, citizens who have been victims of insurance fraud, and physicians and other individuals who have been employed or paid by individuals involved in submitting fraudulent insurance claims.

To date, we have issued three (3) indictments charging 16 individuals, and the Office of Statewide Prosecution has charged three (3) additional individuals by Information with crimes relating to health care fraud, such as racketeering, organized fraud, insurance fraud and grand theft. These individuals are alleged to have been involved with 195 real or fictitious health care providers who filed fraudulent claims exceeding $7.5 million with 56 insurance companies and self-insurance plans. More than $2 million was paid out by the companies before the fraud was discovered.

In summary, we find the following health care fraud scams are presently being perpetrated in Florida:
Phony Clinics
Operating from mail drops
Using real physicians' names to bill insurance companies
Using fictitious physicians' names to bill insurance companies
Using patients' information to bill insurance companies
Patient Brokering Operations
Recruiting patients from big corporate employers
Paying patients to visit storefront clinics
Billing insurance companies for unnecessary tests
Using runners to solicit accident victims to visit chiropractors

In addition, we have determined these scams are perpetrated in Florida due to the existence of a "fraud friendly" climate created by:
Lack of regulation of certain health care providers
Lack of front-end controls in claims processing by insurers
Lack of requirement for Explanation of Benefits Forms
Lack of requirement for Anti-Fraud Programs for Self-Insurance Plans & HMOs
Lack of public awareness regarding health care fraud
Ineffective anti-fraud efforts by some insurance companies
In conclusion, we make the following recommendations:
Clinic Regulation
Mandatory Provider Verification prior to payment of claims
Mandatory Explanation of Benefits Forms
Mandatory Anti-Fraud Programs for Self-Insurance Plans & HMOs
Increased Education to Promote Public Awareness of Health Care Fraud
Providing Incentives in the Rate-Making Process for Insurers to Combat Fraud
Increased Penalties for Insurance Fraud and Patient Brokering

II. BACKGROUND

Many Floridians receive health care benefits through private insurance companies, self-insurance plans provided by their employers or health maintenance organizations (HMOs). Insurance companies and self-insurance plans are governed by Chapters 624 through 632, 634, 635, 638, 642, 648 and 651 ("Florida Insurance Code") of the Florida Statutes. HMOs are governed by Sections 641.17 through 641.3922 of the Florida Statutes and are exempt from the Florida Insurance Code. Insurance companies must be licensed by DOI to do business in Florida. Self-insurance plans and HMOs are not licensed by DOI.

There are more than 2,500 insurance companies licensed to provide insurance in Florida as of the date of this report. These companies collect approximately $31 billion in premium each year. Approximately 700 of those companies provide life and health insurance. According to DOI, health insurance companies collected $10.2 billion in premium and paid $8.5 billion in health care claims in 1996.

Both insurance companies and self-insurance plans reimburse medical providers, such as physicians, hospitals, outpatient clinics and laboratories through the claims process. The patient visits the provider, provides proof of insurance, which is usually an insurance card containing their name and insurance policy number, and the provider submits claims for the services to the patient's insurance company or self-insurance plan. The provider and the insurance companies utilize claim forms and codes to describe the date of service, type of service, the name of the licensed practitioner who provided the service, the name of the facility, and the charges for the service. These claims are transmitted by the provider or the provider's billing service via mail or electronic transmission to the insurer, processed and either denied or paid directly to the provider.

Some insurance companies and self-insurance plans require their participants to visit a pre-approved list of providers. However, many plans allow participants to be treated by a provider of their choice.

By law (§627.613 F.S.), Florida insurance companies must process and pay health insurance claims within 45 days of receipt of a completed claim. If a claim or portion of a claim is contested by the insurance company, they must notify the insured in writing of the reason the claim is contested or denied within the 45 days. Once the insurance company has received any additional information requested relating to the contested claim, they must pay or deny the claim within 60 days. Failure to pay a completed claim subjects the insurance company to "bad faith" civil suits which often result in costly and protracted litigation.

III. INVESTIGATIVE FINDINGS

During the last several months, our investigations have revealed several types of health care claims fraud being perpetrated by unscrupulous individuals:

1. Phony Clinics Using Real or Fictitious Doctor Information - Individuals create fictitious medical clinics by incorporating or creating fictitious names, opening bank accounts, and using mail box rental facilities as their addresses. They obtain insurance information on real individuals, provider information on real doctors or make up physicians' names, and submit bills to insurance companies for medical services that were never provided. The claim forms most commonly used do not require a patient or physician signature, nor do they require the address where the services were allegedly provided, only a mailing address. The unwitting insurance companies process the bills, send the checks to the post office box of the phony clinic, and the individuals involved deposit or cash the checks.

Many insureds never realize their information is being utilized by criminals. Some learn about the fraud if their insurance company sends them an explanation of benefits form (EOB) and they carefully review and understand it. The physicians whose information is used by the perpetrators may never become aware of the fraud because the checks are sent to the phony address provided by the scam artists.

One group of individuals indicted by this grand jury used the above method to submit millions of dollars in phony claims to 20 insurance companies under 33 different phony provider names all operating out of the same post office box. Another individual created at least seven (7) phony provider names and rented mail boxes using stolen identification cards. This individual then submitted over $700,000 in claims to more than thirty (30) insurance companies using the names of real insureds, some deceased, and the names of nonexistent doctors.

We heard testimony from a Florida citizen who discovered after reviewing her EOB that someone was billing her employer's self-insurance plan for thousands of dollars worth of medical services she never received by providers she never visited. This citizen investigated and learned the doctor's name and billing company that appeared on the claim forms did not exist. Even though this citizen advised her employer and self-insurance plan that the claims appeared to be fraudulent, the self-insurance plan continued to process the phony claims until she insisted that they notify her before paying any further claims. She became increasingly concerned that her insurance benefits would be exhausted, and the fictitious medical history that was being created by unknown persons would impair her future ability to get health and life insurance.

2. Patient Brokering - Clinics, usually storefront operations which are open one day a week and have the barest of medical equipment, use runners to recruit patients who work for large corporations and who have insurance coverage. The runners are often employees of the large companies who recruit their fellow workers. The patients are often paid to go for a routine physical at these clinics. In some cases, the clinics are in another city hundreds of miles from the patients' residence or workplace, and the runners actually transport the patients to the clinic. Doctors are recruited to work in these clinics, often for only one day at a time.

We heard from one patient recruiter that she initially believed the clinics were legitimate and did not know it was unlawful to be paid for bringing in patients. She was told that the individuals did not have to be sick but only had to have insurance to come in for a routine checkup. She eventually became suspicious, but continued to recruit people and even visited the clinic herself because she needed the money.

These clinics then bill the insurance company for all types of tests, many of which are either unnecessary or never performed. Clinic employees tell the recruited patients exactly what to put down on the patient history forms. We heard testimony that no matter what complaints or symptoms the patients reported, the same battery of tests were performed on them. One man stated he went to such a clinic because he was suffering from depression, insomnia, and a skin rash. Despite his protests, blood was drawn, and x-rays and a sonogram were performed on him. Other patients described having to submit to painful nerve conduction tests.

We have also heard from doctors who were hired to work at these clinics, usually for only one day or a few hours a week. The doctors stated that when they arrived at work, the patients were already there or were brought in groups. They also noticed that many of the patients had similar or identical complaints. These doctors were paid by the hour no matter how many or how few patients they saw. They were not involved in the billing process and did not know what types of claims were submitted by the clinics to the insurance companies. It should be noted that two of these physicians were previously employed by clinics that were closed down due to their owners' involvement in Medicaid fraud.

Individuals often open several different clinics under different names (sometimes at the same address), then continue to use the patients' information to bill for services at clinics the patients never visited. In some instances, the clinics use billing companies to submit claims to insurance companies, making it even more difficult to trace the targets.

One woman testified that after her first visit to one of these clinics, she was repeatedly contacted by clinic employees to return. When she refused, they still submitted bills to her employer's insurance plan.

We also took testimony regarding kickback schemes in which chiropractors refer patients, usually car accident victims, to diagnostic clinics for tests. The clinics bill the patients' insurance companies for these tests and pay a kickback, usually in cash, to the chiropractor for each patient. Investigators believe these clinics build the cost of the kickback into the amount billed to the insurance company.

It is a third degree felony to accept, solicit or pay a kickback for patient referrals involving Medicaid or Medicare patients. However, under section 817.505, Florida Statutes, patient brokering involving private insurance companies or programs is only a first degree misdemeanor for the first offense.

IV. PROCEDURAL FINDINGS

A. Facility Licensure and Regulation

The Agency for Health Care Administration's (AHCA) mission is to ensure quality medical care to all Floridians and protect consumers from poor practice, malpractice, and fraud. AHCA licenses some of the facilities (hospitals, laboratories, ambulatory surgical centers, abortion clinics, home health agencies, nursing homes) that provide and submit insurance claims for health care services. These licensed entities are also bound by statutes and regulations to protect patient confidentiality, including patient insurance information.

Additionally, in order to submit and receive payment for claims from the Florida Medicaid Program administered by AHCA, all providers, even non-licensed ones, must submit an application, and meet the requirements of that program.

If any of the licensed entities or Medicaid-enrolled providers are suspected of substandard care, breaching patient confidentiality laws or rules, or fraudulent practices, consumers, insurance companies and investigators can contact AHCA for information or assistance, and ultimately AHCA has the authority to take action against the licenses or Medicaid provider status of these facilities.

However, the types of clinics involved in our investigations, namely non-physician owned "neighborhood" clinics that are not enrolled in Medicaid or Medicare, are not licensed, registered or regulated in any way by AHCA. There is no requirement that these clinics be owned or operated by licensed health care practitioners, such as physicians or nurses. Thus, we have no idea how many clinics are operating in Florida or the quality of medical care provided at those clinics. We heard from a manager of AHCA that in the past when they have received complaints about substandard care at such facilities, they had to depend on other governmental agencies, such as local health departments, to close them down.

B. Physician Licensing, Regulation and Public Information

The Florida Department of Health (DOH) licenses health care practitioners, e.g., physicians, chiropractors, dentists, nurses, etc. AHCA's Division of Consumer Services is under contract with DOH to perform the function of providing consumer services, such as handling complaints against and providing information regarding health care practitioners. AHCA is also under contract with DOH to handle the investigation and administrative prosecution of these licensees.

The public can obtain information on whether an individual is licensed to practice medicine, dentistry, chiropractic medicine or nursing in Florida from AHCA or DOH by calling or writing those agencies or accessing their web sites on the Internet. AHCA also published the Florida Report on Physician Discipline and Malpractice in April 1997 which contained comprehensive information regarding the disciplinary actions and multiple malpractice claims involving licensed physicians, chiropractors, dentists and podiatrists in Florida.

Beginning July 1, 1999, pursuant to Section 455.5651, Florida Statutes, DOH must compile certain information on physicians, osteopaths, chiropractors and podiatrists and make these "practitioner profiles" available to the public on the World Wide Web. In addition to biographical and educational information on the practitioner, the profiles must include criminal and disciplinary history.

Information regarding physician discipline and license status for out-of-state doctors is available to state licensing boards through the American Medical Association (AMA). The AMA has contracted with a private entity to maintain the National Practitioners Data Bank (NPDB). All state licensing boards are required under federal law to submit licensing information on physicians to the NPDB. However, members of the public, including insurance company investigators, cannot obtain information directly from NPDB and must go through state licensing boards.

C. Insurance Company Claims Processing

Insurance companies and self-insurance plans must process health care claims as quickly as possible in order to operate effectively and efficiently. Delays in paying completed claims, even if fraud is suspected, may result in "bad faith" lawsuits being filed by insureds or providers against their insurance companies. By statute, insurance companies must pay claims within 45 days of receipt of a completed health care claim or notify the claimant in writing of the reasons for non-payment. If the claim is incomplete, the insurance company may request more information from the provider, such as the actual medical records related to the claim. Once the claimant provides the additional requested information, the insurance company must pay or deny the claim within 60 days.

We heard testimony that the thousands of insurance companies and self-insurance plans that operate in Florida receive claims from thousands of providers each year. Some companies take steps to verify the existence and legitimacy of new providers (ones that have not previously billed them before), such as requesting a tax identification number, checking public records to determine if an address exists or determining if the physician's license is active. However, such verification is not required by Florida law. Many companies simply pay the claims.

Explanation of benefits (EOBs) are forms sent to insureds listing charges that have been billed to the insurance company on the insureds' behalf. Health insurance EOBs usually list the date of service, the service provider, the procedure code, the charge billed and the amount paid by the insurance company. EOBs are not mandatory in Florida. EOBs utilized by insurance companies often contain cryptic codes making it difficult for consumers to understand them. We learned that some insurance companies print "This is not a bill" on the EOB envelopes causing many consumers to discard them. Although some insurance companies have an anti-fraud hotline number and message printed on the outside of the envelope or on the EOB form itself, this is a voluntary practice and not mandated by statute or rule.

We heard testimony that in some instances, even when a consumer contacts their insurance carrier to advise them of suspected fraud, the company may still pay the claim and may not investigate or refer the case for investigation to DIF. For example, a woman who called her insurance company to report that claims for kidney dialysis were false was told she must be mistaken as the claim form contained all the correct information, i.e., her name and policy number.

D. Insurance Company Anti-Fraud Programs

In 1995, Section 626.9891, Florida Statutes, was enacted requiring insurance companies doing business in Florida which have $10 million or more in direct premiums annually to establish and maintain a unit within their company or contract with an outside entity to investigate possible fraudulent claims. These units are commonly referred to as special investigative units or "SIUs". The cost of staffing and running a SIU is considered an administrative expense for rate-making purposes under the Florida Insurance Code.

This same statute mandates that insurance companies which had less than $10 million in direct premiums written in the previous calendar year do not have to establish an SIU but must adopt and file an anti-fraud plan with DIF. All insurance companies doing business in Florida must report suspected fraud to DIF. Again, self-insurance plans and health maintenance organizations (HMOs) are not required to have SIUs or anti-fraud plans, nor are they required to report suspected fraud to DIF.

Section 626.989(4)(d), also enacted in 1995, enabled designated SIU employees to share information with their counterparts at other insurance companies regarding suspected fraud by providing them with immunity from civil liability. Prior to that time, SIU investigators could not share this information, even if they knew fraud was being perpetrated against other insurance companies as well as their own company.

The statute provides immunity from civil suit to designated SIU employees for referring suspected fraud to DIF. This immunity also applies when SIUs refer suspected fraud to the National Insurance Crime Bureau. However, it does not cover referrals to other state or federal law enforcement or prosecuting agencies.

DIF investigators must rely on insurance companies as well as consumers to detect and report fraud. We heard that some insurance company SIUs are very effective, staffed with well-trained personnel, and are aggressive and proactive. In those instances, they often put a stop to fraudulent claims early on and work with DIF to apprehend and prosecute the perpetrators. However, some SIUs are inadequately staffed and poorly trained and are mostly reactive. Presently, there are no educational, job experience or training requirements for SIU or anti-fraud personnel. The same disparity exists in the quality and effectiveness of insurance companies' anti-fraud plans.

We heard from managers of SIUs for two large insurance companies who stated their companies' investigators are individuals with either law enforcement, arson investigation or auditing backgrounds. Their SIU employees receive extensive fraud detection and investigation training on a regular basis. Additionally, the companies' customer service and claims processing employees receive training in fraud detection. The efforts of these SIUs save their companies, and ultimately the policyholders, millions of dollars each year by preventing the payment of fraudulent claims, assisting law enforcement and prosecutors in apprehending fraud perpetrators, and deterring fraud against their companies by sending a message that they will aggressively pursue those who commit fraud. Unfortunately, dishonest individuals then target those insurance companies with less aggressive anti-fraud programs.

To further combat health claims fraud, some insurance companies have begun consumer education campaigns, such as printing a fraud hotline number and anti-fraud message on the outside of the envelopes used to send EOBs to their insureds. One SIU manager testified this practice resulted in a 50% increase in the number of calls to their company anti-fraud hotline.

E. Law Enforcement Resources

DIF is the only state law enforcement agency in Florida whose primary function is to investigate fraudulent insurance acts perpetrated against insurance companies, self-insurance plans and health maintenance organizations. We heard from the director of DIF that his division received over 7,000 fraud referrals in fiscal year 1997-98. With a staff of 105 sworn investigators, they were able to actively investigate approximately 2,000 of these referrals resulting in 599 arrests. This represented a 32% increase in arrests over the prior fiscal year.

Due to the epidemic of health care fraud, the Professional and Organized Fraud Investigative team or PROFIT Squad was created within DIF in September 1996. We heard from the supervisor of this squad that she has seven (7) investigators located in South Florida who focus on health care claims fraud. Since PROFIT's inception, they have received more than 2,200 complaints or tips regarding health care claims fraud. The resulting investigations are often complex, involve obtaining and reviewing thousands of documents, interviewing numerous witnesses, conducting surveillance at various clinics and mail box rental facilities, and can take months to complete.

F. Anti-Fraud Reforms in the Florida Medicaid Program

The Florida Medicaid Program (Medicaid) provides approximately $7 billion in medical benefits to 1.5 million indigent and elderly citizens on an annual basis. Medicaid provides these benefits to eligible recipients by contracting with medical services providers, including hospitals, physicians, non-physician owned group practices, home health agencies, durable medical equipment companies, pharmacies and medical transportation services. At the present time, there are approximately 58,000 providers enrolled in Medicaid.

We heard from an official with the Florida Medicaid program that many of the same fraudulent schemes discussed earlier have been perpetrated against the Medicaid program, such as phony providers using physicians' names and provider numbers without the physician's knowledge, and submitting claims for patients who never visited their facility or for patients recruited by patient brokers.

In 1996 and 1997, the Thirteenth Statewide Grand Jury investigated Medicaid fraud, indicted numerous individuals, and issued several reports recommending anti-fraud reforms. As a result, the Florida Medicaid Program instituted policies and procedures aimed at verifying the existence and legitimacy of existing providers and providers seeking enrollment. Medicaid now requires all providers to meet several criteria in order to enroll in Medicaid. All individuals having a 5% or more ownership interest in a provider must undergo a complete criminal and financial background check. These providers must also post a $50,000 surety bond. Additionally, they must submit to a site inspection prior to admission to the program. Medicaid has also instituted a procedure to verify that physicians listed by a prospective provider actually work at the clinic or group practice. As a result of these and other anti-fraud and abuse initiatives instituted by Medicaid in 1996 and 1997, the number of providers enrolled in Medicaid dropped from 86,000 to 58,000, and Medicaid estimates $200 million in savings during fiscal years 1996-97 and 1997-98. For every $1 spent by Medicaid implementing the anti-fraud initiatives, they saved $13 by avoiding payment of fraudulent claims. It should be noted that despite the decrease in provider numbers and expenditures, there are still a sufficient number of providers delivering services to Florida's Medicaid recipients. It should also be noted that following Florida's lead, surety bonds are now required by the federal government in all state Medicaid programs.
G. Prior Legislative Proposals

We heard from officials at DOI that legislation was introduced in the 1997 legislative session substantially rewording Section 626.9891, Florida Statutes, relating to SIUs and anti-fraud plans. The proposed legislation called for insurance companies to submit more detailed information regarding SIUs or anti-fraud plans, including a statement of actual or estimated losses due to fraud and increases or decreases in such losses compared to previous calendar years. The proposed legislation also contained a provision permitting DOI to recommend changes or amendments to an insurance company's anti-fraud plan.

Additionally, the proposed legislation would have explicitly permitted DOI to consider whether an insurance company was allocating sufficient resources to identify and eliminate fraud during the rate-making process. The purpose behind this proposal was to provide further incentive to insurance companies to detect and combat fraud and to increase the quality of their SIUs and anti-fraud programs.

At the present time, when a health insurance company submits a request to DOI for a rate increase, DOI determines if the company's loss ratio over a specified period of time is equal to or exceeds the applicable minimum loss ratio. This criteria is utilized by DOI to determine if the company's benefits are reasonable in relation to premiums. Minimum loss ratios are established through administrative regulations. The minimum loss ratio for health insurance carriers generally varies between 50-65%, depending on several factors, e.g., the type of insurance product, the size of the group insured, and the date the policy was issued.

During the rate-making process, a company's loss ratio is calculated by dividing the dollar amount of the insurance company's claims by the dollar amount of premiums collected. For example, if an insurance company collected $1 million in premiums in a calendar year and paid $600,000 in claims, the loss ratio for that calendar year is 60%. We heard testimony from a number of witnesses that insurance companies pass on losses due to fraud to the consumer by including them in the loss ratio calculation, resulting in higher insurance rates for all Florida citizens.

We also heard from a representative of the Florida Insurance Council (FIC), a non-profit lobbying group and trade association that represents more than 250 insurance companies doing business in Florida. FIC's members collect in excess of $12 billion in premiums in Florida annually for all lines of insurance. Although FIC supported many of the provisions of the proposed legislation discussed in this report, their members felt that several of the provisions were unworkable and therefore did not join DOI in urging passage of the bill by the legislature.

Specifically, although FIC members agreed that some companies' anti-fraud
programs or SIUs are inadequate, they felt it would be impractical for DOI to dictate how each company's SIU is set up and the qualifications for SIU employees as all insurance companies are not identical, and one company's formula for a successful SIU may not be appropriate for another company.

FIC members also believe there is no reliable method to estimate the dollar amount of fraud. The association's members believed coming up with such an estimate would be expensive, and methods of estimating fraud would vary greatly among companies. This could result in some companies being penalized for reporting more fraud than other companies. However, FIC has not suggested an alternative method for determining the effectiveness of anti-fraud programs or SIUs.

Finally, the majority of FIC members were adamantly opposed to tying rate increases to compliance with SIU/anti-fraud laws. They were very concerned that the determination of whether a company was allocating sufficient resources to detecting and preventing fraud would be a highly subjective process. FIC took the position that the rate-making process already has mechanisms such as market conduct studies, to determine whether an insurance company is doing an adequate job in minimizing losses, including those due to fraud. We find the other facts presented to us contradict FIC's position.

We heard that FIC and DIF are continuing to work on legislative proposals for the upcoming year, and that there is agreement on certain issues. Both parties have agreed that the statute of limitations for insurance fraud should be extended from three years to five years and that a reward program for reporting insurance fraud should be established. There is also agreement that the penalties for insurance fraud should be increased according to the amount of the fraud as follows: under $20,000 would be a third degree felony, over $20,000 and under $100,000 a second degree felony, and over $100,000 a first degree felony.

Additionally, there are ongoing discussions regarding a requirement for insurance companies to report the names, education and training of their SIU personnel. There are further discussions regarding requiring insurance companies to include an approximate dollar amount of suspected fraud on all fraud referrals they make to DIF to assist DIF in prioritizing investigations according to the level of the suspected crime.
H. Multi-Agency Health Insurance Fraud Task Force

Both DOI and FIC representatives testified they were committed to continuing to work together to combat fraud through public awareness campaigns and seminars. DOI and FIC officials plan to continue working on legislative proposals that would be supported by DOI and the industry. This spirit of cooperation is evidenced by the creation and implementation of the Multi-Agency Health Insurance Fraud Task Force (MHIFT), formed by Insurance Commissioner Bill Nelson and adopted by the Florida Cabinet in a resolution on June 24, 1998.

MHIFT participants include representatives from state and federal law enforcement, prosecuting and regulatory agencies, insurance industry representatives, and representatives from the National Health Care Anti-Fraud Association. In addition to studying and formulating anti-fraud legislation and regulations, MHIFT members will work on improving information and resource sharing between state and federal government agencies, and between the government and the private sector. It is believed this public-private partnership will be a powerful weapon against health insurance fraud.

V. CONCLUSIONS

Due to the large number of health care providers doing business in Florida, the absence of licensing requirements for certain health care facilities, and the tremendous volume of health care claims transmitted to the thousands of health insurance carriers providing health insurance to Florida residents, unscrupulous individuals can easily submit and receive payment for fraudulent claims. Although some insurance companies have effective and aggressive anti-fraud programs, many do not, further creating a "fraud friendly" climate in Florida.

We commend those insurance companies that have acted responsibly in this area by implementing aggressive anti-fraud plans and SIUs. And we are encouraged by the cooperative attitude of the Florida Insurance Council in working with DOI on anti-fraud legislation and public information campaigns. However, there is still much work to be done.

The State cannot allow health care fraud to jeopardize the health and welfare of Florida's citizens. Nor is it acceptable to allow insurance companies to pass on to consumers losses due to fraud. We believe the health insurance industry and the government agencies which regulate health care and health care insurers must enact tighter controls in this area from the licensing and regulation stage through the claims process to stem the tide of health care fraud in Florida.

VI. RECOMMENDATIONS

1. Clinic Regulation - We urge the legislature to pass legislation requiring all medical facilities, including non-physician owned clinics, to be licensed by the State of Florida. Owners and operators of these facilities should be required as part of the licensing process to meet the same criteria required for enrollment in Medicaid prior to being permitted to provide any type of medical service to Floridians.

2. Mandatory Provider Verification - We strongly recommend the legislature enact laws, and the Department of Insurance enact rules, requiring any insurance company, self-insurance plan or HMO doing business in Florida to verify the existence of a medical facility and of the treating physicians affiliated with that facility prior to paying the claims. Some of the methods instituted by Medicaid, e.g., site inspections and verifying physician employment at the facilities, could be utilized in the private sector. Insurance company claims processors can readily access information through the Internet regarding physicians and chiropractors whose names appear on claim forms through the Department of Health practitioner profile. If all facilities, including clinics, were regulated by AHCA, insurance companies could verify this information in a similar manner.

3. Mandatory Explanation of Benefits Forms - We strongly suggest the legislature enact laws, and the Department of Insurance enact rules, requiring any insurance company, self-insurance plan or HMO doing business in Florida to send EOBs to their insureds. Furthermore, these EOBs should be written in easily understandable language rather than in codes and abbreviations. In addition, an anti-fraud message and the company or DIF's fraud hotline number should be printed on the outside of the EOB envelope, in English and in Spanish.

If an insurance company is paying out benefits on behalf of an insured, the insured should be informed. The insured is the best source of verification. Although consumers do not always read them, we heard about many instances where fraud was detected and reported by the consumer after reviewing their EOB.

4. Self-Insurance Plan and HMO Anti-Fraud Programs, Mandatory Fraud Reporting - We urge the legislature to enact laws mandating that self-insurance plans and HMOs establish SIUs or fraud plans and report all suspected fraud to DIF. There is no logical reason to differentiate between insurance companies, self-insurance plans and HMOs when it comes to preventing and detecting health care fraud. Much of the fraud we heard about was perpetrated against self-insurance funds, and we heard that HMOs are targeted by fraud perpetrators as well.

5. Public Education to Increase Fraud Awareness - We recommend the legislature pass legislation establishing a reward program as an incentive for consumers to be aware of and report suspected fraud. We strongly encourage the insurance industry and DIF to continue their public awareness campaigns to educate consumers about insurance fraud. We believe the public is the first line of defense against insurance fraud.

The DOI and the health insurance industry must educate consumers through public awareness campaigns: 1.) that it is unlawful for any person to offer or pay to another person or accept from another person any type of remuneration for referring patients to a health care facility; 2.) that everyone must carefully guard their insurance information; 3.) that insureds should carefully read and examine their EOBs and report any questionable charges to the company or DIF.

6. Providing Incentives in the Rate-Making Process to Insurers to Combat Fraud - We feel the minimum loss ratio standards for health insurance companies established by regulation in Florida and utilized in the rate-making process are extremely generous, especially when insurance companies are not required to demonstrate the effectiveness of their anti-fraud efforts as a prerequisite for a rate increase. Therefore, as an incentive for health insurers to aggressively prevent and detect fraud, we believe insurance rate increases should be contingent upon an insurance company's demonstration that they have allocated sufficient resources, and implemented policies and procedures to identify and eliminate fraud. We urge the legislature and DOI to adopt this posture and to develop other incentives for insurance companies to combat fraud. Otherwise, perpetrators of fraud will continue to target companies that are lax in their anti-fraud programs, and the cost of fraud will continue to be passed on to the consumers.

7. Increased Penalties for Insurance Fraud and Patient Brokering - Insurance fraud is a serious crime. Therefore, we strongly urge the legislature to increase penalties for violations of Section 817.234, Florida Statutes, to make them consistent with the theft statute, 812.014, Florida Statutes. If the amount of the fraud is over $20,000 but under $100,000 it should be a second degree felony, and if the amount is over $100,000 it should be a first degree felony.

We also urge the legislature extend the statute of limitations for insurance fraud to five (5) years as with grand theft.

Furthermore, we recommend the legislature increase the penalty for patient brokering by making it a third degree felony to violate Section 817.505, Florida Statutes. This makes it consistent with Section 409.920(2)(e), Florida Statutes which makes patient brokering in connection with the Florida Medicaid program a third degree felony. There is no reason to make it less serious to commit the same crime against a private insurance company.

THIS REPORT IS RESPECTFULLY SUBMITTED to the Honorable N. Sanders Sauls, Presiding Judge of the Fourteenth Statewide Grand Jury of Florida, this ____ day of November, 1998.

_________________________________
EDWARD D'ARCY ADAMS, III
Foreperson
Fourteenth Statewide Grand Jury of Florida

I, MELANIE ANN HINES, Statewide Prosecutor and Legal Adviser, Fourteenth Statewide Grand Jury of Florida, hereby certify that I, as authorized and required by law, have advised the Grand Jury which returned this report this ___ day of November, 1998.

___________________________________
MELANIE ANN HINES
Statewide Prosecutor
Legal Adviser
Fourteenth Statewide Grand Jury of Florida

I, OSCAR R. GELPI, Chief Assistant Statewide Prosecutor and Assistant Legal Adviser, Fourteenth Statewide Grand Jury of Florida, hereby certify that I, as authorized and required by law, have advised the Grand Jury which returned this report this ___ day of November, 1998.

___________________________________
OSCAR R. GELPI
Chief Assistant Statewide Prosecutor
Assistant Legal Adviser
Fourteenth Statewide Grand Jury of Florida

I, GINA G. SMITH, Deputy Chief Assistant Statewide Prosecutor and Assistant Legal Adviser, Fourteenth Statewide Grand Jury of Florida, hereby certify that I, as authorized and required by law, have advised the Grand Jury which returned this report this ___ day of November, 1998.

___________________________________
GINA G. SMITH
Deputy Chief Assistant Statewide Prosecutor
Assistant Legal Adviser
Fourteenth Statewide Grand Jury of Florida

The foregoing interim report was returned before me this ____ day of November, 1998, and is hereby sealed until further order of this court, upon proper motion of the Legal Adviser.

Further, upon the Legal Adviser's oral motion for the disclosure for the purpose of furthering justice of the interim report, the Legal Adviser is ordered to disclose the testimony and proceedings recounted in the foregoing document in furtherance of the criminal investigative and civil administrative responsibilities of the Fourteenth Statewide Grand Jury.

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N. SANDERS SAULS
Presiding Judge
Fourteenth Statewide Grand Jury of Florida