Fighting fraud

Benefits fraud is costly business for all stakeholders, but there are several ways to fight back, according to a roundtable of experts
By Sarah Dobson
|Canadian HR Reporter|Last Updated: 11/01/2018
Benefits, employee benefits, payroll, health care
From left: Shannon DeLenardo, CLHIA; Mary Madigan-Lee, St. Michael's St. Joseph's Providence Healthcare; Ted Schendera, OPP; Gary Askin, Sun Life Financial. CREDIT: John Hryniuk

Just over a year ago, St. Michael’s hospital in Toronto dismissed 70 employees for alleged benefit plan abuse after a routine audit discovered $200,000 in irregularities.

A few months later, the Toronto Transit Commission announced 170 employees had been dismissed — or resigned or retired to avoid dismissal — while 10 former employees were facing criminal charges over their part in alleged benefits fraud.

The stories, of course, made headlines. But they also put a much-needed spotlight on the costly issue of benefits fraud.

While it’s a problem many plan sponsors and insurance companies contend with on a daily basis, it’s still under the radar for many employees and the general public.

The what and why of fraud

So, what exactly is benefits fraud?

Basically, it involves anybody who takes advantage of or abuses or uses deception to exploit a company benefit plan, according to Gary Askin, assistant vice-president of fraud and risk management at Sun Life Financial in Toronto, which sponsored a roundtable in February on benefits fraud, in partnership with Canadian HR Reporter (see videos below).

“There’s abuse where somebody’s just exploiting benefits within the parameters of the plan and it may not be illegal, and then there’s other cases where… you may have members attending clinics that don’t even exist, yet submitting receipts for it. So that would be a fraudulent benefit.”

Fraud is when a person purposely misrepresents something and does it for financial gain, according to Shannon DeLenardo, director of anti-fraud and electronic claims at the Canadian Life and Health Insurance Association (CLHIA).

“Generally, for fraud, it needs to be proven in a court of law, whereas abuse would be like you were saying someone who’s really just exploiting their plan, using all their benefit coverage for a calendar year, regardless of whether or not they actually need the service medically.”

As an example, St. Michael’s saw people who had a prescription for a particular benefit, such as orthotics, but came away with a designer purse from the provider, said Mary Madigan-Lee, vice-president of HR, corporate health and legal at St. Joseph’s St. Michael’s Providence Healthcare. “Those are really hard to catch.”

There are also companies that don’t exist or have a business number, or might front as a sort of company but a visitor needs a certain person’s name to get in the door. St. Michael’s also saw prescription pads stolen from the hospital, she said.

The other challenge, in Ontario for example, is clinics aren’t regulated, said DeLenardo.

“Anybody could open a clinic. You may be dealing with someone who’s not even a health professional at the front.”

Using analytics, Sun Life may see a spike in claims at one clinic and when it goes to investigate, find there are just four curtains and a table — with no business going on at all, said Askin.

“The fraudsters are evolving to the point where it’s easier for them to get into a legitimate clinic and then submit fake claims within that because they can hide it…. So anything that’s hidden within multidisciplinary clinics.”

Sun Life has also seen fake associations and fake providers, with fake schools and diplomas, he said.

“All this fraud was designed to submit fake claims. And the extent that they went to to carry this out is pretty staggering.”

But why would employees decide to get involved?

“It’s happening because somebody out there has rationalized it to them that it’s not theft, that it’s part of your plan,” said Askin.

“(They say) ‘It’s budgeted for, don’t worry about it. You didn’t get a raise, so you can exploit the plan by doing this.’”

When St. Michael’s did its investigation, some people said they knew their behaviour was wrong, but “not that wrong,” said Madigan-Lee.

“People can rationalize it in their own minds. I mean, they paid the ultimate price in losing their jobs. That’s the ultimate price,” she said. “From our housekeeping staff to nursing, it was right across the board.”

Detecting the fraud

So, how exactly is the fraud being detected? For one, analytics. The deeper you go, the better you can start to see trending, said Madigan-Lee.

“It’s a lot of work, though, to get in and really get underneath all of this kind of thing. And then be able to… bring it forward and start to talk to employees.”

As an example, the hospital started looking at employees’ home addresses and where they were making purchases, and often they were very far apart, which made no sense.

There were also ringleaders throughout the hospital, with clusters around them, she said.

“I don’t think we actually believed we needed to do this before in such rigour. There’s a bit of naivety, I think, on our part that things are legitimate,” said Madigan-Lee.

“I remember the first person that we came across, that’s what started the whole thing was in December 2016. She had $22,000… for her whole family getting compression hose and orthotics — and anything else she could max out, she did. And that was telling, we were sort of all of a sudden not innocent on this front anymore. And so we began the investigation of all of that.”

But the investigation should be holistic, she said.

“I don’t think it’s fair to just rely on the insurance carrier either. We’ve always done an audit but much more deeply in the last while. And then when we started to do this, we started to really partner with Sun Life. So I think, at a minimum… we will be auditing on an annual basis… in partnership with Sun Life doing their audits on a regular basis.”

Sun Life has several data scientists working specifically with fraud to create alerts and red flags that pick up on these things, said Askin.

“Years ago, insurance carriers had business rules and they would operate their analytics around that. Now, the move is towards machine learning and algorithm(s). So we’re picking up on fraud from that perspective.”

The company also has analytical reports that potentially can pick up on collusion-based schemes, he said.

“We’re looking at the geography as well, all the time, to see if it makes sense that they’re going to the right place. It’s a huge investment but it’s absolutely necessary and if you’re not doing that, from an insurance carrier perspective, then you’re getting hit very hard, or your clients are getting hit very hard as a result of that.”

The Ontario Provincial Police (OPP) has always had an anti-rackets branch that specifically investigates things such as corruption and economic and health-care fraud, said Ted Schendera, detective sergeant in the anti-rackets branch at the OPP.

“We have a detachment base, so if there’s something on the lower side, then they would go through the detachment. But if it’s something that’s going to be multi-jurisdictional, then that’s when they come to the anti-rackets branch.”

And each investigator is trained with basic courses as far as the fraud and search warrant production order and major case management, he said, “so there is that consistency.”

Within law enforcement, they try to share as much information as possible, said Schendera.

“But we find that insurance companies, being the private industry, it’s so difficult sometimes where you get one insurance agent or insurance company that wants to share, like ‘I need help,’” he said.

“We don’t have to look too far at this table and it’s like we’ve got these things happening, and sending the alarms out (but) the other people are choosing to ignore it.”

The 2016 Supreme Court of Canada case of R. v Jordan — which put time limits on criminal trials — has also caused headaches for policing agencies, said Schendera, because the justice system is trying to deal with serious matters such as assaults and murders.

“We’re seeing those cases being prioritized over fraud. And it’s so unfortunate that we go in and we’ve had frauds that we would take to a Crown attorney (but) they look at it and say, ‘I don’t know how we’re going to do it. We don’t know whether we’re going to come up with the court time, we don’t know how we’re going to be able to represent this case efficiently.’ And when I say efficiently, that’s… the time period you have in major courts for stuff like that — you have up to 30 months to get that through the courts.”

The R. v. Jordan decision has seriously impacted the ability to get fraud cases in front of the courts to stop these people and create a deterrent, said Askin.

“While we wait for that, while we push for that, we have to look at all kinds of other strategies. That will include civil actions against these people or potentially laying our own criminal charges with our own dedicated prosecutors, or engaging Canada Revenue Agency or provider networks… so we’re pushing for that, we need that — but it really comes down to a capacity issue.”

Proactive solutions

As a result of the challenges, and costly consequences, plan sponsors, insurance companies, industry associations and law enforcement are working on several strategies to try and prevent benefits fraud from happening.

One of the things Providence Healthcare is working on, with Sun Life, is an approved provider network, said Madigan-Lee.

“We’ll vet all the firms that we will do business with…. and we will check on these companies on a regular basis to ensure they’re viable businesses that we want to actually do business with. It’s an extra effort on our part… and I’m sure they’ll try to find a way around that, but we’ll try to keep ahead of it as much as possible.”

The basic core of crime prevention is creating that risk, so people are less tempted, said Schendera.

“If you create that risk, you’re going to decrease whatever it is, whatever type of crime it is.”

As to whether employers should do more when it comes to plan design and policy, it’s not necessarily the rules that are the problem, said Madigan-Lee.

“The problem is the people who find loops around the rules… I don’t want to penalize the people who it would never ever occur to them to misuse a plan because (the benefits are) there for a reason — they’re there to keep people healthy and their families healthy. So our point is to get at the risk, the people who are putting us at risk.”

Education is also needed when it comes to physicians as St. Michael’s had physicians who really didn’t know they were accomplices to the crime, she said.

“We’ve had to go out and do some education with doctors who, in good faith, just thought they’d write a script for somebody.”

The CLHIA also has a tip line housed on its website, said DeLenardo.

“It does allow plan members to either go in and send a tip to one insurer, or they can do it to all insurers at one time through an email,” she said, adding even providers that suspect fraud at their clinics can use the tip line.

And instead of having each insurer running an education awareness campaign they share with employers and plan members, the association is hoping to build an industry-wide education campaign, said DeLenardo.

“It’ll be a situation where it’s not for one insurer, it’s going to be for the whole industry — everybody can use the information with their own programs, but it’s more overarching,” she said.

“It’s bringing to light some interesting information. So we’re excited about the direction that it’s going to go.”

The CLHIA is also advocating for greater regulation in the industry, said DeLenardo.

“We’re talking about clinics not being regulated, (so) pushing for regulation in that area, or there’s different providers in different provinces, that they’re regulated and other provinces are not.”

Massage therapy is a classic example, she said, as it’s not regulated the same way in all the provinces.

“That would be one of the things in terms of a regulation or regulatory standpoint that could help. Colleges… can’t stop it altogether, but it does put that extra layer on providers.”

The association is also working with the Canadian Pharmacy Association to create an agreed-
upon audit best practices document, said DeLenardo.

“It’s frustrating for a pharmacist or a provider or anyone when you have a multitude of insurance companies looking to do audits, coming in and doing audits at the same time, (in a) different format. It’s a burden on their business sometimes. So trying to get an understanding of why the audits are taking place and what they’d be looking for in a communication hopefully will help in that process as well.”

A Serious Fraud Office set to debut in Ontario will also be a welcome initiative, said Askin.

“Although it was initially created for staged car accidents and the property and casualty business and that type of insurance, it does fit within our mandate as well to get benefits fraud on the forefront. So we’re hoping that will assist us.”

There are other strategies as well, he said, such as dedicated Crown attorneys or sponsorship of the OPP dedicated to the Serious Fraud Office.

“We’re open to all the discussions — we’re open to pretty much anything.”


Looking into the future of fraud with predictive analytics

Joint Venture with Sun Life Financial

Group benefits fraud occurs when the plan is exploited for the purpose of financial gain, and as fraudsters become more sophisticated, so does the need for more sophisticated methods for combatting it. Big data is fundamental in the fight against fraud. Data mining, reporting and asking the right questions offer extensive capabilities in fraud detection  ̶  and it starts with predictive analytics.

Predictive analytics brings together data science and business analytics. It is a proactive approach that uses various algorithms to review data from claims submitted by plan members, activity from providers, plan member demographics, and much more. The algorithms are based on criteria that look for outliers against normal claiming patterns. The process takes a wide range of factors simultaneously into account to calculate the likelihood of fraud so we can predict where and when new fraud may occur.

Sun Life’s team of experts, who have a wide range of backgrounds and experience, including working with service providers like pharmacies and dental offices, take this raw data and identify patterns that appear suspicious. They are able to review alerts and give feedback to the system, which is a vital component of predictive modelling that allows the system to gather more data and get a better understanding of what is suspicious behavior. The system grows “smarter” – a form of machine learning. If suspicious activity is confirmed, the formal investigation process begins.

Fraud can be committed by a service provider, one or more plan members, or a combination of both. Depending on the fraud scheme, investigators will choose from an inventory of investigative strategies that may include surveillance or interviews to gather more information. Many of these cases are complex and require many resources, thus a holistic approach is ideal. This means that all stakeholders – the group benefits provider, plan sponsors, law enforcement, regulatory bodies, etc. should work together to assist in the investigation.

The outcomes of these investigations vary based on the situation. If a service provider is involved, Sun Life delists the provider to stop claims from being reimbursed. If suspicious activity by a plan member is detected, Sun Life collaborates with the plan sponsor to demonstrate evidence and work through the recovery process. In some cases, Sun Life may assist the plan sponsor with interviews, speaking notes, and other ways to help reduce potential reputational risk.

As fraud schemes become more complex, predictive analytics will continue to be a powerful tool in the detection of fraud. Sun Life’s team is constantly implementing new techniques including neural networks, linear regression and random forest algorithms to analyze vast amounts of data and find the outliers who may be more than just a red flag.

Find out more on how to prevent group benefits fraud and how to protect yourself by visiting sunlife.ca/fraudmanagement.


Videos from the roundtable


Part 1: Defining benefits fraud


Part 2: Detecting benefits fraud


Part 3: Solutions to benefits fraud

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