Shady operators take the money and run, leaving doctors with millions in unpaid claims. Here's how to avoid getting scammed.

Think it's hard sometimes to get a health plan to pay you? Well, imagine what it's like when the plan is a scam operation. That's the situation facing Florida doctors—and others nationwide.

In May 2002, state regulators put Vanguarde out of business for selling insurance without a license. Suddenly, patients and doctors discovered the company's dirty little secret: During its brief operating life, Vanguarde had systematically ignored physicians' claims for all but the most routine office visits. That left doctors and patients like Lisa Huffstutler holding the bag. Huffstutler—who has fibromyalgia and was nine months pregnant when she learned of the Vanguarde shutdown—had racked up thousands of dollars in medical expenses during her two years with the bogus plan. After it folded, many of her doctors came to her rescue by discounting what she owed them, and then placing her on a payment schedule.

"My doctors were victims, too," Huffstutler says today.

The Vanguarde fiasco isn't unique. In fact, in states across the country, phony health plans come and go, leaving financial misery in their wake not only for patients, small businesses, and hospitals, but for many doctors, as well. According to a General Accounting Office report submitted to Congress in final form this March, unauthorized insurance scams accounted for $252 million in unpaid medical claims from 2000 through 2002. As of last year, only about 21 percent of that money had been recovered.

How can you avoid being duped? Here are some experts' tips, along with a detailed description of how the scammers operate.

A healthcare market ripe for the picking

Like many con artists, promoters of phony health plans do better when the economic news is bad.

"Combine a sour economy with double-digit premium hikes for small businesses, and you've created the perfect storm for scam operators," says James Quiggle, spokesman for the Coalition Against Insurance Fraud, in Washington, DC. During hard times, says Quiggle, business owners and individuals who don't have the leverage of the large healthcare purchasers are desperate to find a bargain. That desperation makes them an easy mark for scam artists, who offer below-market rates to lure their unsuspecting victims.

Since the mid-1970s, there have been three waves of such exploitation, according to a report prepared last year by Georgetown University's Health Policy Institute. The most recent, which began several years ago, is distinguished by both "the number and magnitude" of the bogus plans springing up nationwide. Among the biggest to date are two nationwide plans, which regulators have already pulled the plug on and placed in receivership: Texas-based American Benefit Plans and Employers Mutual LLC, headquartered in Nevada. Together, ABP and Employers Mutual left an estimated 70,000 victims (patients, doctors, and businesses) in their wake.

"We've had to deal with about 40,000 unpaid claims," says attorney Robert Loiseau, the special deputy receiver for American Benefit Plans. "That represents about $39 million in liabilities, before we cull out the duplicates." To date, Loiseau has not paid out any claims.

The all-important veneer of respectability

Phony plans work hard to make people think they're on the up and up. They do this, say experts, using a variety of tactics. These include:

• Adopting legitimate-sounding names. Vanguarde Asset Plan, for example, is deliberately reminiscent of The Vanguard Group, a well-respected investment management firm. Similarly, Employers Mutual LLC sounds a lot like Employers Mutual Casualty (now doing business as EMC Insurance Co.), the insurance group that's been in business since 1911.

• Paying out small claims, ignoring larger ones. By reimbursing doctors for routine office visits and other small claims, shady promoters hope to minimize—or at least defer—suspicions. This was precisely the tactic used by Florida's Vanguarde Asset Plan.

• Creating authentic-looking contracts and flashy (but deceptive) marketing materials.

• Promoting their products through licensed (as well as unlicensed) insurance agents.

• Partnering with established trade associations and professional employer organizations (which are similar to staffing companies).

• Contracting with established third-party administrators. Often, these entities are the ones actually conducting the necessary back-office and claims processing functions.

Phony plans also contract with existing and often well-known PPOs—the kind of PPOs that succeed financially by leasing their networks rather than by selling health insurance. These so-called network lessors not only confer legitimacy on the bogus plan, but also give it access to a network of practicing physicians.

"Unauthorized plans must have a recognized network of doctors in place before they can even get off the ground," says Douglas Danzeiser, staff attorney with the Texas Department of Insurance, which issued orders against more than 125 bogus plans in recent years.

Once off the ground, unauthorized plans direct members to existing network doctors, who are contractually obligated to see all comers. Although some of these members will present ID cards bearing both the network's logo and the health plan's, many will not, leaving doctors in the dark about who exactly the payer is. When the "payer" turns out to be an unauthorized plan, doctors are often blindsided, becoming financial losers in a deal they were never a party to in the first place.

That fact bothers organized medicine officials like Teresa Devine, who thinks PPOs aren't doing enough to protect their physician members.

"These network lessors don't care about the physicians," says Devine, director of healthcare financing at the Texas Medical Association. "All they really care about is developing networks, so that they can broker them to whomever it happens to be—a legitimate health plan, a self-funded benefit plan, or any other entity that might want to purchase access."

Robert Loiseau, special deputy receiver for American Benefit Plans, is even blunter: "I think it's the duty of these lessors to make sure they're not prostituting their ID cards and PPO networks to criminals," he says.

PPO industry officials sharply dispute these charges, insisting they're as concerned as anyone with preventing bogus plans from taking root. "Our members take due diligence seriously," says Karen Greenrose, president of the American Association of Preferred Provider Organizations, the leading industry trade group. If a PPO finds out that one of its customers isn't legitimate, she says, it severs its ties immediately and notifies the authorities.

Russ Moran, an executive vice president at Private Healthcare Systems, agrees, adding that his company takes a number of steps to assist physicians, including placing all relevant logo identifiers on insurance cards and notifying physicians by mail when new clients come on board.

Still, some critics are skeptical. They question whether an industry that charges its customers (health plans and other entities) a per member per month fee to lease their networks—and then an additional fee when those same customers sublease the network to one of their customers—has much of an economic incentive to alter its business practices radically. These critics also point to the fact that—up until now—network lessors haven't been made to shoulder any of the liability after a bogus plan dissolves and leaves a trail of unpaid bills.

That could be changing, however, if attorneys representing victimized doctors and patients have their way.

"We haven't gone to trial yet, but I've filed suits against all the network lessors for joint and several liability," says Loiseau. "And in Texas, if you take part in a health scam, you can be held jointly and severally liable for all damages. I don't think they'll turn a blind eye anymore if they get hit for a million dollars."

Boston healthcare attorney Lawrence W. Vernaglia makes much the same point. "A plan got in trouble here a few years ago, and one of my clients was left holding a huge unpaid bill," says Vernaglia. "I think the PPO that sold its network to the bogus plan should be held liable for failing to properly investigate the plan's background."

Attorneys have also targeted licensed agents who sell unauthorized insurance. Robert E. Hoskins, a partner with the Foster Law Firm, in Greenville, SC, is one of those attorneys. "In this state, you can't sell insurance for a company that isn't licensed to do business," Hoskins says. "And if you do, you can be sued under a state law prohibiting the sale of unlicensed insurance, and be held personally liable for all unpaid claims."

Tips to keep from getting snookered

Civil actions—whether private or through the state—may help some people recover some money, but to stop the wave of bogus plans, say experts, more shady promoters need to go to jail.

To date, that hasn't been easy. For one thing, only a few states—Florida is among them—have made it a felony to sell phony coverage. For another thing, even in states that do have the statutory muscle to go after promoters in criminal court, such cases are notoriously difficult to prosecute.

"Insurance fraud, with all its complicated financial transactions, is hard stuff for a jury to understand," says attorney Mila Kofman, one of the authors of the Health Policy Institute report. Add to that disputes over state vs federal jurisdiction—many phony operators claim they're shielded from state oversight because of ERISA (Employee Retirement Income Security Act of 1974)—and things really get complicated for the average jury member.

The best way to mitigate these problems, Kofman believes, is to "prosecute at the federal level." There are "lots of federal penalties available, including wire fraud, mail fraud, and healthcare fraud," she says. "If you stack all these things up, you might be able to send someone away for more than 100 years."

It's possible that federal remedies may become even tougher. Currently, the Senate Finance Committee is looking into phony health plans as well as other matters related to health insurance fraud. Among other things, it hopes "to examine the civil, criminal, and administrative remedies available to the Department of Labor."

Meanwhile, there are steps you can take to keep from falling victim:

• Be suspicious. If you suspect that a health plan you've contracted with directly (or indirectly through your PPO) may not be on the up and up, check with your state department of insurance to make sure it's licensed. Be especially suspicious of plans with names that mimic those of established companies, plans that take an inordinately long time to pay claims, or plans that pay smaller claims but let larger ones languish.

Also be on the alert for revolving third-party administrators, says Kofman. "Typically, bogus plans have to switch TPAs regularly because they don't put enough money into their accounts payable coffers. So if you see a constant stream of new third-party administrators, that should raise an alarm."

• Understand your PPO contract. Is your physician network contractually required to check out each new health plan? If not, register your concern. "I think providers need to be more demanding of the kind of due diligence these network lessors actually do," says Kofman.

Also, are you protected if one of your PPO's customers subleases the network to one of its own clients, who may or may not have been checked out by the PPO itself? To protect physicians in such cases, "we've been recommending contract language that either prohibits this practice altogether or, if it does occur, requires PPOs to notify doctors about who that new entity is," says the Teresa Devine of the Texas Medical Association. While network lessors like Private Healthcare Systems do just this, most won't permit physician members to opt-out of selective contract obligations. "That's cherry picking, which we don't allow," says PHCS' Russ Moran.

If you adopt these safeguards and still get taken—or if you've already been victimized by a phony plan—all may not be lost. Consider taking the following steps:

• File a complaint. You can do so with your state department of insurance, of course. But because so many of the phony plans claim to be ERISA plans, which are regulated federally, also think about filing a complaint with the US Department of Labor (for a list of state offices, go to www.dol.gov/esa/contacts/state_of.htm ).

• Work jointly with patients and court-appointed receivers. Although your first instinct may be to dun patients for your unpaid charges, the better route, experts say, is to work cooperatively with them. Sometimes you have no choice: Providers defrauded by Employers Mutual LLC must work through official channels, since a federal court injunction currently prevents them from suing enrollees. Florida regulators try to promote such cooperation by notifying both patients and providers of their mutual interests.

Some states also encourage joint patient-provider complaints against the licensed agent who sold the bogus insurance. In Texas last year, for instance, the state issued 100 orders against agents for selling unauthorized insurance, making them liable for the unpaid claims.

For plans in receivership, submit unpaid claims to the court-appointed receiver. His job, after all, is to identify, liquidate, and distribute any remaining plan assets as equitably as he can.

Admittedly, that isn't always an easy task. "Bogus operators like to spend lavishly on themselves until there's nothing left," says attorney Kofman. "They also place monetary assets in family members' names, or hide them in offshore accounts, which are hard to seize unless the IRS gets involved." Still, says Kofman, there's a good chance some assets will be found, and at least a portion of your claims will be paid.

• Notify your PPO. At the least, the organization needs to get the bogus plan off its roster of clients, if it hasn't already. Contact your state medical society if your physician network is unresponsive—or persists in partnering with dubious entities.

Phony plans aren't likely to go away anytime soon—not if premiums continue to rise and people are desperate to find a bargain. But with a sharp eye and the right strategies in place, you can avoid becoming one of their victims.

 

Wayne Guglielmo. How to spot a phony health plan. Medical Economics Apr. 23, 2004;81:62.