An unhealthy dose of fraud

Health care clinics are vulnerable to fraud on several fronts, according to Glenda Michael, vice president and health care industry leader at First Independent Bank. Employees, unfortunately, are the No. 1 perpetrators of fraud in this field.

Without proper checks and balances in place, an employee can wreak financial havoc without a physician being the wiser for some time.

A crafty front office staff person receiving $15 and $20 cash co-pays could pocket the cash and create an accounts receivable for the amount, which is nominal enough that it’s unlikely to get much attention.

Or, an employee could credit his or her own bank account when he or she swipes a customer card.

“In health care, doctors are focused on their patients and not on the business of what they do,” Michael said. “They put a lot of faith in their office staff, and nine times out of 10, that faith is deserved. The thing is, that oddball can cost a lot.”

Clinics are also susceptible to fraud from the outside.

A swindler could get a hold of somebody’s payroll account information to duplicate fraudulent checks.

“The most common problem we see is too much responsibility given to one person,” she said. “It’s not fair to that person, and it’s not fair to the clinic.”

A former employee at Cascade Dental Group took advantage of busy doctors to get their signatures on prescriptions for the employee’s own use.

When it came to light, safety measures were put into place, such as making notes in patient charts when a prescription is issued and phoning in prescriptions whenever possible, said Administrator Ann Taylor.

The dental group, which has about 80 employees, sees more instances of external fraud with patients who receive services and have no intention of paying. But Taylor said it is unlikely each case of nonpayment is intentionally fraudulent.

To cut down on outside fraud, the group requires payment at the time of service and at one office, takes a copy of patients’ driver’s licenses. Knowing your patients is helpful, she added.

Although it’s a smaller practice of about 16 people, Vancouver-based Urology Clinic of Southwest Washington uses electronic medical records, which come with significant firewalls and safety features that are monitored by an outside information technology service.

The clinic has systems in place to handle money as it comes in – one person opens the mail, another logs payments and another posts them. Then Administrator Susan Stahl receives and reviews the final financial reports.

When Stahl does payables, she doesn’t sign the checks – a physician does it, and Stahl rotates which physician has the job.

“I don’t even want to sign the checks,” she said. “It’s not that I’m not an honest person or that I don’t trust myself, but it’s a good safety valve and a way for the physicians to know what’s going on.”

Much fraud in the health care system goes unreported because clinicians are embarrassed to admit it happened to them, Michael said.

The size of a clinic may also affect its ability to safeguard against fraud.

“Staffing is sometimes an issue, but the financial cost of fraud is far greater than staffing costs,” she said.

Larger clinics typically have a full accounting staff, each who have separate responsibilities, and generally have checks and balances in place.

The smaller the clinic, the more vulnerable, Michael said.

They generally don’t hire chief financial officers and controllers because they can’t afford to pay that salary. They are staffed less so there are more demands on their staff to wear different hats.

“A clinic administrator may be the HR director, IT director and be responsible for the financial books,” Michael said. “

Stahl said that may be the case in “one-doc shops,” but if proper systems are in place, there shouldn’t be a problem.

“It all comes down to the people at the top,” she said. “The owners have to take a vested interest in what’s going on. When they don’t, things can fall apart quickly.

“We all want to trust people, and we can and do to a point. But you have to have things in place to keep people honest.”

Health care fraud: Symptoms

Delayed bank deposits

Holes in accounting records

Disappearance of petty cash

Staff making changes in office procedures without approval

Employees going out of their way to work overtime or skip vacations

Employees begin spending more lavishly than their salary might indicate

Health care fraud: Resources   

Medical Group Management Assoc., an advocacy group for medical group practice professionals:

Health care fraud: Prevention

Know your procedures. Screen employees carefully: Clinics that perform internal and external audits and employment background checks typically cut their fraud losses by half per scheme, according to Glenda Michael, vice president and health care industry leader at First Independent Bank.

Segregate office duties. Be sure that no single individual has access to cash, checks and the accounting system.

Make your banker your ally. “Make sure whoever you bank with is watching your account, whether it’s a monthly or quarterly review,” Michael said.

Have duplicate statements. “I know doctors don’t want to balance the office checkbook so they leave it to office staff,” she said. Have one statement mailed to office staff and the other mailed to the doctor to look over.

Positive Pay: Most banks carry this system that requires a clinic to transmit a file of issued checks to the bank each day checks are written. When those issued checks are presented for payment at the bank, they are compared electronically against the list of transmitted checks.

Be acutely aware of your merchant account, a specialized bank account issued by a merchant processing bank that allows businesses to accept credit cards, debit cards or other forms of payment cards.

Lockbox services: Patient and insurance company payments go to a lockbox that the bank opens daily and deposits are made directly to your account. Copies of checks and supporting data are mailed to you for your records.

Megan Patrick can be reached at