What Is The Cost Of Fraud Prevention In Healthcare?

Among other things, credit card companies prevent enormous volumes of fraud. In exchange for their services, credit card companies typically charge about 2.5% of merchant revenue. The cost of fraud prevention for most merchants is no more than 2.5% of revenues.

But healthcare is rarely paid for by credit card. The vast majority of payments are directly transferred from payers to providers.

So what is the cost of fraud prevention in healthcare?

If providers were angels and never frauded payers, then the entire claims system would have no reason to exist. In this utopian world, providers would simply bill payers accurately and payers would gladly pay knowing that the claims were honest.

But that’s unrealistic. Payers are extremely skeptical of providers. There is an enormous amount of friction between payers and providers to ensure that providers aren’t overpaid: the technology vendors at every layer of the stack (provider, clearing house, payer), the billers, coders, claims departments, prior authorization departments, insurance agents, AR departments, etc. All of these people, processes, and technologies exist to ensure that providers aren’t overpaid.

Although I cannot find any explicit numbers, it’s not unreasonable that the sheer administrative costs of the claim system is greater than 10% of all healthcare costs.

In addition to compliance costs, actual Medicare Fraud is estimated at about $50B, which is about 9% of all Medicare payments.

The takeaway of the story is that providers can’t seem to stop frauding Medicare. The irony is that physicians – who are generally respected by the public – are those whom the system works most diligently to ensure aren’t overpaid.

About the author

Kyle Samani

Kyle Samani

Kyle is CoFounder and CEO of Pristine, a VC backed company based in Austin, TX that builds software for Google Glass for healthcare, life sciences, and industrial environments. Pristine has over 30 healthcare customers. Kyle blogs regularly about business, entrepreneurship, technology, and healthcare at kylesamani.com.


  • This was a strange post. The title could also have been, “Doctors are dirtbags.” First, no one wants to define “fraud,” and it is important not to do so. Most fraud I see is the lack of silly requirements by the payors. i.e. technicalities. Malicious deceit certainly exists in medicine, but this post does not seem to acknowledge the difference between the two. Second, there is an assumption that payors are wonderfully honest, and doctors are always wrong. I don’t agree that that is a good assumption, but it is certainly one sided. Third, there is a continuing comment about how important it is for doctors to not be overpaid. The assumption is that there is no underpayment ever. I have never seen the balance sheet of how underpaid doctors are on claims compared to overpayment. Empirically, the underpayment is vastly more. Look (said is a condescending manner), if you want to just say “doctors should be paid less,” then I am okay with that. It’s too bad people have to play dumb in order to get their point across, or otherwise demonize a group of people.

  • Kyle,
    I’ve seen what you’re saying in the credit card industry. If it weren’t for fraud, credit card processing would be basically free. Healthcare would be a lot cheaper if there weren’t fraud as well. Although RK brings up a good point. There’s plenty of “fraud” from payers as much as doctors. It just takes different forms.

  • RK, this post isn’t meant to be a euphimism for “doctors should be paid less.” Rather, it’s a about a broader look at how we actually pay for care in this country. Far too often, we get lost in the details of the system and forget why teh system exists at all. This post is meant to expose a broader context.

  • Hi Kyle. I reread this multiple times. I cannot find any evidence of a “broader context.” In fact, the post is so biased, that I was looking for irony and sarcasm in it. Still, I could not find it. The idea that fraud exists is not new. There is no where, including your company, where fraud does not exist, so that is not particularly insightful. Notice I am not defining “fraud” here either. The topic sentence, “The takeaway of the story is that providers can’t seem to stop frauding Medicare” is very insightful. It implies that it is so prevalent that doctors in general are stereotypically crooked people, trying to steal from innocent insurance providers. Being the topic sentence, it is consistent with the broader picture of that same message. That is not the same as saying, “healthcare payment in this country is so confusing, and therefore especially vulnerable to fraud.” If you would have said that, then I would have understood the “broader context.” But you didn’t, and that is why I called the post strange, and suggested you rename it. I still stand by those comments of mine.

  • Frankly, we have to spend most of our time being sure we are getting paid, and getting paid enough — payers deny claims for things they have published they will pay, and an array of other excuses, and this is all on clean claims.

    Ironically, we just had a sit down meeting with the heads (five in total) of one of the Medicaid payers in our state to inform them their system was screwed up — including that they were over paying us on a whole set of claims. We had been informing them of this in good faith for several weeks. Why? We know RAC audits will come and take this back, maybe 5 years hence (yup, they can do that).

    I suggest a significant part of the problem is in the coding and billing department — they don’t check their posting and don’t know their contracted amounts – what fee they should be getting – so they (and by extension, their doctors) commit “fraud.”

    Your article shows you don’t really know how the business system works behind scenes.

Click here to post a comment