Prescription Fraud Costs Insurers $72.5 Billion Annually

May 18, 2008

Insurance fraud is the leading method of drug diversion and the illegal use of legal drugs and costs health insurers up to $72.5 billion a year, according to a study from the Coalition Against Insurance Fraud. “Insurance fraud is the main financier and enabler of drug diversion,” the report states.

The illegal possession and resale of highly addictive painkillers such as OxyContin and Vicodin and other prescription drugs obtained through fraudulent insurance claims for bogus prescriptions, phantom injuries and other deceptions account for the toll. There is also a hidden cost of treating patients who develop medical conditions from abusing the drugs, the study said.

Private insurers alone lose up to $24.9 billion annually as a result. The remaining cost is borne by taxpayer-funded programs and nonprofits, according to the coalition.

Charles Focarino, director of the BlueCross BlueShield Association’s Federal Employee Program Special Investigations Unit, estimates about half of all losses are due to mistakes, rather that fraud. His office receives just 80 to 150 referrals a year for fraud, as opposed to overmedication and overutilization, Focarino said.

While this is still a problem, “The ones that turn out to be pure fraud are a small number,” said Focarino, who participated in the study. The drug diversion issue is not so much growing as it is becoming easier to identify with computer software and better technology and procedures, he said. “The tools and the systems we have are better,” he said.

WellPoint, the largest U.S. commercial health insurer and a BlueCross BlueShield Association licensee, had a program in place since 2002 to help prevent potential abuse or overmedication with narcotic prescriptions, said Jim Gavin, corporate communications director. Among other steps, WellPoint uses a “rule of three” pattern for analysis: three or more narcotic prescriptions written by three or more prescribers and filled at three or more pharmacies within a three-month period.

To combat the problem, the study offers several recommendations for insurers, including doing more to investigate suspicious activity, including using data-mining tools to identify fraud schemes and to implement protocols for comparing prescription and medical-claim data; tightening coverage for off-label prescriptions; and, raising profile in national campaigns to increase awareness of drug diversion.

Insurers are potentially vulnerable to liability lawsuits for failing to prevent fraudulent acts that result in deaths and health problems, as drug manufacturers and pharmacists already are. While some health insurers are responding to what is a growing issue, “far too many don’t know if they even have a drug-diversion problem, let alone how much it costs them annually,” the study said.

One reported cause of the rise in such fraud is the underwriting of prescription drug coverage by private and public insurers, according to the study. Consumers now pay less than 20% of the $230 billion the United States spends on prescription drugs; that figure was 56% in 1990. Another is the surge is the prescribing of legal narcotics and controlled medications; while the U.S. population grew 13% between 1992 and 2002, prescriptions for controlled drugs rose 154%.

The study also lays responsibility online, with “rogue” Internet providers selling OxyContin, Vicodin and other addictive painkillers “with few questions asked.”

Efforts to address fraud should be mindful of those in need, said Thom Stambaugh, chief pharmacy officer at Cigna HealthCare. “There are legitimate medical conditions that require patterns of medication utilizations that may look suspicious but actually are not,” he said in a statement. More than 20 million Americans abused prescription drugs in 2007.

“Prescription drug diversion is one of the defining drug crimes in America today. It has few equals for sheer size, speed of growth, resistance to deterrence, harm to people from so many strata of society, and large costs to insurers,” the report states.