Federal prosecutors recently indicted the owner of a California medical clinic and a delivery service driver for allegedly bilking employer-sponsored healthcare plans for millions of dollars in claims for sleep study expenses. The case is another illustration of the importance of prudent oversight of healthcare plans by the plans’ fiduciaries.
The Employee Benefits Security Administration (EBSA) – the division of the Department of Labor that enforces ERISA – alleges the owner of Atlas Diagnostic Services Inc. (Atlas), a sleep study center in Studio City, California, and a driver for United Parcel Service teamed up to fraudulently file more than $11 million in claims for benefits from multiple healthcare plans.
According to the DOL, the two ringleaders and others recruited “patients” by offering cash to employees in exchange for participation in sleep studies and offering cash bonuses for referring dependents and co-workers who would then also participate in a sleep study. In some instances, the sleep studies were never actually conducted. The alleged ringleaders then filed insurance claims with the healthcare plans in which the study “participants” were enrolled and pocketed the plans’ payments.
Lockton comment: During the investigation, the clinic owner was apparently unable to produce sleep study results, scoring or interpretations for many of the patients on whose behalf claims were filed. The owner was also unable to show that any of the studies conducted were medically necessary.
The indictment also alleges the clinic billed healthcare plans for two sleep studies for a number of patients, even though the patients were only at the clinic for a single night.
Both the sleep clinic owner and the UPS driver are charged with 11 counts of healthcare fraud. Each faces a statutory maximum sentence of 10 years in jail for each count, for a total of up to 110 years in federal prison.
Lessons for plan sponsors
Although this situation seems particularly egregious, it underscores the need for plan fiduciaries to periodically take steps to ensure healthcare claims are being paid or denied appropriately as part of the fiduciaries’ ongoing efforts to ensure due diligence. Nobody would suggest plan fiduciaries have a duty to prevent every fraudulent claim against the plan, but there is an obligation on the fiduciaries to have a decent understanding of how the plan functions.
Over the past several years, EBSA has dedicated a significant amount of resources to healthcare fraud and other issues affecting health and welfare benefit plans, including whether plan sponsors are meeting their fiduciary obligations to the plan. We expect that focus to continue into 2018 and beyond.
Lockton comment: Plan fiduciaries will be best protected during an EBSA investigation if they can show they took affirmative steps to understand how their plans function and, where appropriate, directed remedial action. When the author was an EBSA investigator, he and his colleagues tended to be forgiving of mistakes by plan fiduciaries as long as it was clear the fiduciaries had established and followed prudent processes and procedures.
Plan sponsors should be asking questions about how its administrator processes claim requests and whether the administrator requires supporting documentation to substantiate the claim. Sponsors may also want to periodically consider a claims audit to identify suspiciously claims or educate their participant population regarding red flags to watch for related to fraudulent schemes.
If you have questions about establishing appropriate processes and procedures related to health plan governance, please contact your Lockton account service team.