Financial fraud in the private health insurance sector in Australia. Perspectives from the industry
| Pages | 143-158 |
| Date | 04 January 2016 |
| Published date | 04 January 2016 |
| DOI | https://doi.org/10.1108/JFC-06-2014-0032 |
| Author | Kathryn Flynn |
| Subject Matter | Accounting & Finance,Financial risk/company failure,Financial crime |
Financial fraud in the private
health insurance sector in
Australia
Perspectives from the industry
Kathryn Flynn
Faculty of Law, Humanities and the Arts, University of Wollongong,
Wollongong, Australia
Abstract
Purpose – The purpose of this article is to explore nancial fraud in the private health insurance sector
in Australia. Fraud in this sector has commonalities to other countries with similar health systems but
in Australia it has garnered some unique characteristics. This article sheds light on these features,
especially the fraught relationship between the private health funds and the public health insurance
agency, Medicare and the problematic impact of the Privacy Act on fraud detection and nancial
recovery.
Design/methodology/approach – A qualitative methodological approach was used, and interviews
were conducted with fraud managers from Australia’s largest private health insurance funds and
experts in elds connected to health fraud detection.
Findings – All funds reported a need for more technological resources and higher stafng levels to
manage fraud. Inadequate resourcing has the predictable outcome of a low detection and recovery rate.
The fund managers had differing approaches to recovery action and this ranged from police action, the
use of debt recovery agencies, to derecognition from the health fund. As for present and future harm to
the industry, the funds found on-line claiming platforms a major threat to the integrity of their insurance
system. In addition, they all viewed the Privacy Act as an impediment to managing fraud against their
organizations and they desired that there be greater information sharing between themselves and
Medicare.
Originality/value – This paper contributes to the knowledge of nancial fraud in the private health
insurance sector in Australia.
Keywords Australia, Fraud, Medicare, Financial crime, Claims leakage, Private health insurance
Paper type Research paper
Introduction
The private health insurance sector in Australia faces challenges in managing fraud and
overservicing; nancial losses are large, fraud hard to detect and resources insufcient.
Staff and technological resources are aligned to the low rate of fraud that is discovered
not to the amounts that remain invisible. A salient feature of health-care fraud in
Australia is the culture of denial in the sphere of federal politics and government
administration and the lack of awareness of the issue in the wider community. This
makes it hard for fraud managers in the private health funds to make the case for
Partial funding for this article was from The Institute of Public Administration Australia,
University of Canberra, Public Administration Research Trust Fund.
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1359-0790.htm
Private health
insurance
sector in
Australia
143
Journalof Financial Crime
Vol.23 No. 1, 2016
pp.143-158
©Emerald Group Publishing Limited
1359-0790
DOI 10.1108/JFC-06-2014-0032
improved detection technologies and staff resources. There is a notion that the health
insurance system itself has buffeted against fraud due to strict provider registration and
the lack of coverage for high-cost items like home health-care and durable medical
equipment, while ignoring the scope for fraud under a fee-for-service system and
electronic claims processing. It is an area of white-collar crime where most fraud goes
undetected. In other words, the funds do not know what they do not know, especially as
new and emerging fraud schemes are a common occurrence.
Private health insurance
Australia has 34 health funds with a total revenue of $19.5 billion and total benets of
$16.7 billion (PHIAC Quarterly Statistics, 2014: 12). Private health insurance in
Australia is complimentary to Medicare; the country’s publicly funded health insurance
system. Under Medicare, residents are entitled to subsidized treatment from medical
practitioners and other health professionals who have been issued with a Medicare
provider number. Private health insurance covers those services not covered by
Medicare, for example, private hospital care, dentistry, physiotherapy chiropractic,
optometry, remedial massage and natural therapies, i.e. aromatherapy, iridology,
homeopathy, kinesiology, herbalism, yoga, Pilates and naturopathy. Those who opt for
private health insurance are entitled to a government-funded rebate of 30 per cent on
their insurance premiums. It increases to 35 per cent for those older than 65 years and
40 per cent for those older than 70 years. Private health insurance covers over 50 per cent
of the Australian population with some form of health insurance.
Denition of fraud
Of all crimes committed in Australia, fraud has been judged as the most expensive.
According to the Australian Bureau of Statistics (ABS, 2011), fraud and fraud-related
offences are the largest category of all federal offences from all levels in Australian
courts (Lindsay et al., 2012: 6).
The Australian government denes fraud as “dishonestly obtaining a benet, or
causing a loss, by deception or other means” (Commonwealth Fraud Control Guidelines,
2011: 4). For fraud to occur, there has to be a proven intention to defraud. For it to be
judged as a criminal offence, the behavior in question must demonstrate intention to
defraud, recklessness or negligence (Commonwealth Fraud Control Guidelines, 2011:
16), and in the health sphere proving this can be arduous. Health-care fraud often does
not come before the courts because it mostly involves high-volume low-level instances of
fraud, and the sheer volume of claims makes fraud conviction a challenge, as Dr Tony
Webber, former director of the Professional Services Review, outlines:
Because fraud is a criminal offence you have to prove beyond reasonable doubt, each and every
instance of fraud and that’s extremely difcult […] You have to have patients willing to testify
in court, you have to have a huge document trail […] and then you might prove ten instances,
fteen instances of fraud that might amount to ve hundred dollars’ worth when someone who
has been ripping off the system for many tens of thousands of dollars – so that is all you get
back (Webber, personal communication, 2012).
For many fraud managers in the private health insurance sector, the solution to the
denitional issue is to avoid the term fraud and use “claims leakage”. That way they do
not have to prove a defrauder’s intent and then go through the court process and its
unsatisfactory outcomes. Adding to the denitional ambiguity, the term “claims
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