Wall Street Journal - October 23, 1997
Robert Langreth; The Wall Street Journal's New York bureau.

The goal: to catch greedy doctors who submit fraudulent health-insurance claims.

A few years ago, New York state's largest health insurer wouldn't consider sending undercover agents to investigate doctors because it was understaffed and fraud wasn't a priority. But today, Empire is cracking down on health-care providers in a bid to recover at least some of the tens of millions of dollars of fraudulent claims that are submitted to the New York-based nonprofit company each year.

The mastermind behind Empire's aggressive antifraud effort is a former New Jersey state trooper, Louis Parisi. A burly 53-year-old Brooklyn native, Mr. Parisi aims to help keep premium costs down by keeping bad doctors from abusing the system. He doesn't confine his prey to doctors -- home-care providers, pathology labs and patients who cheat the system are also in his cross hairs.

Michael Stocker, Empire's chief executive officer, says: "He's taken a company that was beleaguered and didn't have the will [to fight fraud] and showed them how to do it."

In the past, "fraud was considered a cost of doing business" by insurers, Mr. Parisi says. Losses from fraud simply were passed on to policyholders, and if "it didn't affect the bottom line, there wasn't much interest in doing much about it."

That has changed in recent years, as companies -- and politicians -- have begun clamoring to keep rates down. Suddenly, passing on extra costs isn't so easy. New laws in 16 states, including Florida, New Jersey and New York, now require insurers to beef up their antifraud efforts. The result: While just seven years ago most health insurers didn't have antifraud departments, today, 90% of them do.

Mr. Parisi's philosophy is simple: use all means possible to ferret out and investigate possible bogus or exaggerated claims -- no matter how small. Once fraud or overbilling is established, make the perpetrators pay the money back -- plus interest and the cost of the investigation.

"The only way to deal with white-collar crime is to make it too costly to do it," says Mr. Parisi. With the criminal-justice system already overloaded with violent criminals, "you're not going to accomplish much with hollow threats of jail time."

His approach has reaped dividends. Blue Cross estimates it saved $36.1 million in 1996 through 12,400 fraud investigations, up 43% from $25.2 million in 1994. The more-recent figure is a little over 1% of the $3.16 billion of claims the insurer processed last year, suggesting that the fraud fighters have hardly exhausted their supply of targets. Government and industry estimates put the incidence of fraud at 3% to 10% of claims nationwide -- making Empire's share between $94 million and $316 million.

Still, with Mr. Parisi's budget at roughly $3 million, Empire claimed a whopping 12-to-1 return on its investment last year. And Mr. Parisi says this year's savings easily will exceed $40 million because of the efforts of his hard-working staff. Though few of his targets end up in jail, the financial penalty often exceeds restitution: Dishonest doctors face getting booted from Empire's managed-care networks, while any claims filed by those doctors for traditional fee-for-service care are red-flagged for extra scrutiny. Flagrant violators also risk losing their licenses.

Mr. Parisi's unit has uncovered many dubious operations, including a doctor who billed for $250,000 of ultrasound exams of the scrotum performed on women; a home-health-care agency that charged for services delivered to dead AIDS patients; a podiatrist who billed for removing all the toenails from several of his patients several times; and an internist who practiced under her maiden name, but used her married name to submit $9,000 of claims for treating herself, including self-mammography and rectal exams.

Critics contend that investigators like Mr. Parisi, in their zeal to catch fraud, sometimes push too far. Under the current system, "doctors are guilty until proven innocent," contends Debra Weissman, a White Plains, N. Y., consultant who advises doctors and hospitals on billing practices.

"The rules change all the time," she says, and are so full of gray areas that insurance companies' own advice lines for doctors often can't provide the right answers. Physicians may be left to guess at the correct billing code for a procedure, Ms. Weissman explains, and "then the next thing they know, they are being sued and have to refund all this money."

"That's nonsense," Mr. Parisi responds. The rules "have been around for decades. You don't bill for services you don't provide. You don't upcode [exaggerate the severity of a condition]. The only gray area is medical necessity, and that's dealt with by medical professionals" on Empire's staff.

He says he doesn't think all doctors are crooks. But "there are more than 70,000 doctors in New York state, and even 3% of 70,000 is enough to wreak havoc."

Mr. Parisi took up fraud fighting in 1987, well before it became a hot issue, leaving his state trooper job to head up New Jersey's insurance-fraud unit. There he was successful but also controversial. Some doctors under investigation by his department sued the state, accusing it of using threats of criminal prosecution to extort hefty fines for unproven offenses.

The state, without admitting wrongdoing, eventually settled out of court and agreed to pay a portion of the doctors' legal fees. Mr. Parisi scoffs at the allegations, saying he has been sued a number of times and personally never paid a penny.

Empire executives hired Mr. Parisi in 1995 to bolster its antifraud efforts after U.S. Senate investigators and state regulators had blasted the company for its inattention to the problem. He quickly hired six new investigators, added a toll-free antifraud hot line so patients could snitch on their doctors, started assigning undercover work and bought a high-tech software system that searches claims data for patterns indicative of potential fraud.

Leads come from many sources. One of Mr. Parisi's favorite techniques is to look into doctors whose advertisements hint at insurance reimbursement for cosmetic services, such as weight-loss treatments or chemical skin peels, which aren't covered. Often, investigation reveals these physicians are doctoring claims.

Mr. Parisi's team also keeps a watchful eye on claims from doctors or others who attend seminars on "revenue-enhancing" billing techniques. Some of these seminars, Mr. Parisi contends, teach upcoding and "unbundling," billing a single operation as many small procedures to increase reimbursement.

Many subtle frauds, however, may only reveal themselves in unusual billing patterns over months or years. Here's where Empire's software system, from International Business Machines Corp., comes into play. It scans as much as six years of claims data searching for hundreds of potential indicators of fraud, such as how often doctors perform various medical procedures, or whether they are charging much more per patient visit than their peers, or whether their huge number of office visits are suspiciously concentrated in a few patients.

The computer rates health-care providers according to how much they deviate from their peers in those categories; doctors who are way off the scale in one or more categories with no obvious explanation may be committing fraud. For example, doctors who file far more "back claims," those for office visits from months earlier, than any of their peers could be fabricating visits that never occurred.

In early 1996, Empire's computer operators discovered that a Manhattan internist had billed for an improbable 2,377 "comprehensive" office visits in a yearlong period -- or 46 a week -- far more than any other doctor in the company's network. Comprehensive exams are supposed to last at least 40 minutes and are generally reserved for cases where a doctor has discovered signs of a devastating illness such as cancer and must decide what to do next. "It's physically impossible" for a doctor to perform that many comprehensive visits a year, says Karen Rehne, who supervises Empire's computer-fraud unit.

A review of the doctor's records confirmed that, in fact, many of the visits were for colds, backaches and other everyday maladies, and that the doctor's staff routinely performed unnecessary diagnostic tests, such as electrocardiograms on teenagers with no signs of heart problems. The doctor recently agreed to pay back $1 million, Empire says.

Computer analysis also found that a certain dentist was responsible for half of all claims to Empire for a rare type of sinus surgery. Patients would come in to have their teeth pulled, a $200 procedure in the dentist's office, but he would also bill $1,600 or more for the sinus surgery. Amazingly, the dentist claimed to have performed this surgery -- a particularly bloody operation that usually requires hospitalization -- in his office, mostly on HIV-positive patients, which he specialized in treating.

Empire says it believes the surgeries were never performed. After the company confronted the dentist, he agreed to refund $141,000.

Nabbing dishonest health-care pro-viders usually involves interviewing current and former patients to see whether the doctor really performed the services claimed, and scrutinizing the doctor's medical records. But sometimes a little detective work is required. One internist came under suspicion because he submitted more claims for larynx exams than all but two throat specialists in Empire's system.

When Empire queried the doctor, he submitted meticulous records documenting every disputed procedure. On closer examination of the record sheets, however, an investigator found a small but revealing watermark that exposed the doctor's scheme. "The records were for 1992, but the paper wasn't manufactured until 1995 or 1996," says Norman Geller, medical director for Empire's fraud unit. The doctor paid back $200,000.

For other cases, investigators must go undercover. Typically, these occur when a doctor is falsifying diagnoses to get reimbursed for cosmetic procedures. Patients who want to keep getting the free treatments may be in cahoots with the doctor and unwilling to help out investigators, so "the only way to find out what the doctor is doing is to go in there yourselves," Mr. Parisi says. The typical ploy: Healthy investigators visit medical offices for cosmetic services, and then wait to see whether the doctors submit false claims.

In recent months, undercover investigators have caught diet clinics that provided weight-loss advice and then billed for treating asthma or hypertension; a gym that gave clients back massages and then sent in $200,000 of claims for fictitious chiropractic care and neuromuscular exams; and several dermatologists who gave patients facials or hair-replacement treatments and then claimed they had performed acne surgery or other covered procedures.

So how does investigating doctors compare with being a state trooper? Though it's time-consuming, Mr. Parisi says, medical fraud is easier and a lot safer than dealing with violent felons. "There's a paper trail, and you don't get shot at or beat up."

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