We are all aware that financial mismanagement is one of the primary root causes of financial distress. This is a challenge that many BRPs face daily. However, it is a relatively easy challenge to address, provided BRPs know who the offending parties are. In these situations, the likely suspects are high-level C-Suite executives or managers who have financial control capabilities within the company.
But what happens when this is an external threat instead of an internal one? Believe me, this is more plausible than it seems. At a recently held conference, medical schemes pointed out that they lose up to R30 billion/y to fraud (or R2.5 billion/m). If this is not a red flag regarding financial distress, I don’t know what is.
Fraud = 15% of revenue
The News24 article points out that Dr Katlego Mothudi, managing director of the Board of Healthcare Funders (BHF), said at the recently held Healthcare Fraud, Waste and Abuse Indaba that fraud, waste and abuse of medical aid schemes made up an estimated 15% of the schemes’ total revenue.
Mothudi said, “The actual fraud component is about R13 billion. One of the schemes told us a developer helped a person to purchase a house using funds from their medical aid.” To illustrate how fraud might occur, Mothudi gave the example of a clinical psychologist submitting a claim alleging that a patient had been submitted to a facility when in fact they had not been.
“They [would] then access your benefits and claims from different practitioners while the patient sits at home and watches TV. People also submit false claims every month to get a cashback,” he said.
The article adds that fraud, waste, and abuse are not only causing difficulties for medical schemes – but the implications can also be more wide-ranging. Speaking at the event, former Public Protector Professor Thuli Madonsela said fraud was contributing to making medical aids unaffordable for consumers.
“Exorbitant increases make it difficult for people to afford medical aid schemes. The majority of unethical conduct charged against doctors involve fraud,” she said.
The News24 article points out that, as of 2022, only 15.8% of the South African population belongs to a medical aid scheme.
Image By: Arek Socha via Pixabay
Multiple modus operandi
The News24 article points out that Madonsela said fraud was being committed by healthcare providers in multiple ways.
“The most common one is false claims, which involve irregular billing of quotes. For instance, in medical claims, a person will go for a minor procedure but will be billed higher. Also, generic medicine is billed as original ones,” Madonsela said.
She said that sometimes unnecessary services were provided as well. “You go to see a doctor for a certain sickness, but you also get billed for a different sickness. There are also sometimes duplicate claims where invoices are altered,” she said.
She also highlighted the issue of false claims. “Brokers might advise potential members to lie about their circumstances or make applications for members who don’t exist,” she said.
A massive year for fraud
These revelations come months after medical schemes launched an investigation into Mediclinic regarding fraud allegations.
A News24 article points out that earlier this year, a person who claimed to be a former Mediclinic employee sent an email to more than 50 principal officers of some of South Africa’s largest medical schemes.
It contained detailed information about what the person claimed to be their experience as a former clinical case manager at six Mediclinic hospitals in the Western Cape and Gauteng.
In addition, a former Mediclinic employee contacted News24 with similar claims at two hospitals.
The article points out that both painted a picture of widespread manipulation of patients’ clinical coding (which is used for medical scheme claims) to Mediclinic’s alleged financial benefit.
Separately, both claimed to have observed instances where the coding on accounts of patients who died in a hospital emergency room was changed to reflect an ICU death instead. This is because of the fixed fees associated with emergency room deaths, which are lower than ICU-related fees. In addition, both make serious allegations that Mediclinic employees manipulated accounts to prevent losses from alternative reimbursement model (ARM) cases.
Image By: Thobile Mathonsi
In reaction to the first whistleblower’s alert, Mediclinic appointed Steven Powell, head of law firm ENSafrica’s forensics practice, to lead an independent audit of the allegations.
“The investigation is still ongoing,” Mediclinic said in a statement. “We encourage anyone with any information they might consider necessary to the investigation to contact Steven Powell from ENSafrica directly.”
Mediclinic also confirmed to News24 that it is aware that medical schemes are conducting their own investigations, and that it “has been fully cooperative”.
Tightening controls
What a tangled web we weave indeed.
Plenty of literature points out that insurance fraud increases significantly in a tough economic environment where consumer savings and disposable income are under pressure.
There is a need for increased systems and controls to monitor the level of fraud that medical schemes have to deal with. Medical schemes have been negating this threat through significant premium increases. However, this may eventually become unsustainable, considering the economic pressure consumers are under and the looming impact that the National Health Insurance will have on medical schemes (which currently needs to be discovered). Technology may be the answer. However, this can be expensive and is not foolproof.
These companies are not in financial distress yet. However, as we have seen over the past three years, it takes one mass event to change everything. Perhaps BRPs and other turnaround professionals can be of significant assistance when it comes to addressing this in the future.
The Mystery Practitioner is an industry commentator focusing on the shifting dynamics and innovative thinking that BRPs and turnaround professionals must embrace to achieve business success.
