Cutting fraud, waste, and abuse will lower health care costs

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The United States spends more than $4 trillion a year on health care services. We have the highest per-capita spending of any nation, about twice the average of other similarly developed nations by comparison. There are many reasons these costs are so high we’re exploring several in this series, but three that stand out are fraud, waste, and abuse. 

Estimates vary, and it’s difficult to get an exact number on how much fraud, waste, and abuse occur year to year, but it could be anywhere from 30% to 40% of all our health care spending.

Defining fraud, waste, and abuse in health care

Fraud, waste, and abuse are often lumped together in discussions about health care spending, but the three are different, and each requires a unique approach to combat.

Health care fraud

Health care fraud is committed by physicians or business professionals who intentionally file false claims with payers to make a profit. They collect illegal reimbursements from the Centers for Medicare and Medicaid Services (CMS) and private insurers.

There are many different schemes criminals use to turn a profit, including:
  • Billing for services a real patient never received.
  • Billing for services provided to a patient who doesn’t exist.
  • Billing non-covered services under alternate codes to get them covered.
  • Changing the dates or description of services.
  • Filing duplicate claims for actual health care services.
  • Issuing prescriptions for unneeded prescription pills that are later sold on a black market.
  • Providing or accepting illegal kickbacks or payments for referrals.
Patients can also commit medical fraud if they:
  • Forge prescriptions (to use or sell).
  • Intentionally include false information on an insurance application.
  • Use money specifically designated for health services on non-health-care related expenses.

The National Conference of State Legislatures estimated that health care fraud accounted for between 3% and 10% of total health care spending in 2017. However, that number has increased in recent years following the COVID-19 pandemic.

Health care waste

The most prevalent challenge for payers and providers is the issue of waste in health care. In a 2019 JAMA article, authors estimated that as much as 30% of health care spending is wasteful. That adds up to more than $1.2 trillion in potential waste each year from:

Administrative and operational waste

In a comparison of health care costs, a significant part of the variation between the U.S. and other nations comes from administrative costs. For example, U.S. hospitals spend about 25% of their total budget on billing. Cutting these costs and streamlining operations could significantly reduce total cost of care in the U.S.

Harm and safety events

Harm and safety events, especially in hospitals, account for a high volume of unnecessary health care spending. An analysis of hospital-acquired infections (HAIs) found that these infections drive up costs because they require extra care and longer hospital stays for the patient. Many hospitals are addressing this issue and have reduced rates of HAIs, but there is still room for improvement.

Other harm and safety concerns include medication interactions that send patients to the emergency room or require hospital admission, opioid abuse, and misdiagnosis that leads to unnecessary care.


Doctors want to provide the best treatment for every patient. But many providers (and patients) mistakenly believe that more care always means better care. Unnecessary tests, treatments, or procedures drive up total health care costs.

Value-based care initiatives are pushing providers to identify appropriate treatment based on outcomes rather than volume, which is helping to address this issue.

Emergency room visits

The emergency room is supposed to be a last resort for care, but millions of Americans go to the ER for routine care or because they don’t have insurance and cannot afford to go to a doctor’s office. Many of these costly visits could be avoided with:

  • Better access to preventive care with a primary care provider (PCP).
  • Education on when to go to the emergency room versus an urgent care clinic or your PCP’s office.
  • Ongoing care management for patients with chronic conditions.
High-cost medications

Prescription drug costs are rising at a rate much faster than overall health care costs. Providers and payers must evaluate whether new and expensive therapies provide enough benefit to their patients to justify the higher costs. For more established medications, substituting generic for brand-name medications can lower costs. Read our blog with more in-depth analysis of how prescription costs are affecting health care costs.

Health care abuse

While fraud and abuse in health care are similar, the key difference between the two is whether there was specific intent to defraud payers. As noted above, there are several ways dishonest people can collect money by intentionally misleading payers.

Health care abuse is sometimes more difficult to identify because it’s unintentional. In some cases, the person committing the abuse may not even realize they’re breaking the law. Some examples of health care abuse include:

  • Failing to maintain proper medical or financial records.
  • Filing claims for services that are not medically necessary.
  • Upcoding (billing for a higher level of services than what was provided) on claims.
  • Waiving deductibles or cost-sharing requirements for patients.

Combating fraud, waste, and abuse in health care

Highmark Inc. is always looking for ways to cut fraud, waste, and abuse in health care.

Data analytics and technology play a bigger role today than ever before in identifying and investigating these issues. Our team uses claims data and a wide variety of analytical tools developed in-house and with external partners to find potential instances of fraud, waste, and abuse in our system — such as an unusual spike in billing, or a high volume of certain claims from a single practice. Proprietary algorithms in these analytics tools help us review millions of claims quickly to find unusual patterns.

Patients can help spot these schemes and report them to Highmark Inc. Some red flags include:
  • Health care providers offering “free” services that you would normally have to pay for. 
  • Someone calling to ask for your insurance information over the phone, who will bill fraudulent durable medical equipment (DME) or other services to your insurance.
  • Explanation of benefits (EOBs) from your insurance that don’t match with the dates or services you received.
  • Getting information in the mail about a health care plan you are not enrolled in after giving out your insurance information.
  • Someone asking to use your insurance card for care when they are not on your policy.

Employers can also play a role in reducing fraud, waste, and abuse. They can regularly review beneficiary reports from Highmark Inc. to ensure services are in line with normal patterns of health care usage. They can educate beneficiaries on how to spot potential problems and make it easy to report when something isn’t right.

Employers can educate beneficiaries on avoiding unnecessary care by:
  • Getting recommended preventive screenings.
  • Avoiding the ER, except in life-threatening emergencies.
  • Seeing a primary care provider at least once a year.
  • Taking advantage of programs and services to manage chronic health conditions.

When people get away with fraud, waste, and abuse, costs increase for everyone.

How to lower health care costs

In addition to fraud, waste, and abuse, there are several other things that contribute to high health costs. We examine each one in detail in this series:

Overview: Why does health care cost so much?

Part 1: High utilization rates -  coming soon

Part 2: Prescription drug costs - coming soon

Part 3: Chronic health conditions

Part 4: Health care economics and market forces

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