Your greatest assets could be liabilities

It’s true, experts say. A staff employee could have secret designs on what’s yours.

By Steven R. Robinson, FASOA, COE

If you’re concerned that running a background check on a prospective employee will generate legal action, don’t be: Save your concern, and energy, for the possibility that the new hire is a thief. In my experience, I have found at least 25% of the practices I deal with at any one time are either dealing with employee theft problems or have had recent losses. Not a big deal, you say? One national survey of all industries found that health care, in general, had a median loss of $446,000.¹ The biggest loss involved a female office manager who worked in a DC-based orthopedic office. Her take: $3.7 million.

There was a time when stealing from your employer or your fellow employees was unheard of. Today it is a common occurrence, among all job titles: a MGMA survey found that among the reported thefts, 19% were perpetrated by administrators, and 26% by receptionists.² We cannot change what has happened, but we can build systems that will make it extremely difficult for these individuals to succeed. I say difficult because it is impossible to preclude theft. Too many have developed ingenious schemes to pilfer your funds.

An example of ingenuity

The managing partners and practice administrator of a very large practice had a queasy feeling that their financial house was in disarray, but they couldn’t find the door, so to speak, to let them in to see what was wrong. So, they invited some consultants to conduct a financial assessment.

The assembled team began by looking at the report showing patient refunds. Team members noticed occasions in which the same patient had received multiple refunds. That, in and of itself, is not all that unusual. What was unusual were the multiple refunds being made to several different people who all listed this same address as their residence.

The door opens

Once the digging started, the team noticed patterns going back years. They investigated the practice’s refund process even more. Finally, that door started opening.

Year after year, multiple refunds had been made to the same people with different last names who lived at the same addresses. The team found many duplicitous entries. Looking deeper into the situation, members found what appeared to be frequent events that made them seriously question this practice’s entire refund system.

Here was the scenario. A Medicare patient is diagnosed with cataracts and is scheduled for surgery. The patient is told he or she must pay a $200 deductible to the physician, considered the patient’s surgical fee. Medicare will take care of the rest. The “rest” is broken down as follows: Surgical charge $2,500, Medicare adjustment $1,500. This $1,000 balance was broken down between patient and Medicare, $200 from the patient and $800 from Medicare. The patient doesn’t care how the numbers play out, only that he pays $200. As long as that figure does not change, he can remain oblivious to the rest.

A scheme in action

The $200 deductible is collected and the patient has surgery. The claim is filed and eventually Medicare sends an Explanation of Benefits (EOB) showing the breakdown as described. Now, the posting clerk should make the following entries to the patient account:

Patient payment . . . . . . . ($200.00)

Surgical Charge . . . . . . . . . ($2,500.00)

Adjustment . . . . . . . . . . . . ($1,500.00)

Medicare Payment . . . . . . ($800.00)

Balance . . . . . . . . . . . . . . . -0-

Instead, this particular posting clerk had made the following entries:

Patient payment . . . . . . . . ($200.00)

Surgical Charge . . . . . . . . . ($2,500.00)

Adjustment . . . . . . . . . . . . ($1,600.00)

Medicare Payment . . . . . . ($700.00)

Balance . . . . . . . . . . . . . . . -0-

A true tale of fiction

The account balance is the same, but the clerk has $100 over Medicare’s legal allotment. What to do? The clerk now creates an account with a fictitious name or one with the name of a dead patient (let us call that patient John Doe) and the clerk merely changes the address to one that is more suitable for the clerk’s needs. The clerk now gives John Doe’s account a $100 credit to offset the difference in the fraudulent posting. Now, everything is in complete balance. About 90 days go by and the clerk prepares a refund request for John Doe because of an overpayment. This is not an uncommon practice in the field of medicine as insurers and patients are constantly paying amounts that are sometimes inexplicable. In a large practice, it is a common occurrence to see a number of refund checks going out every month. The clerk simply goes to that address and retrieves the refund check.

The amounts have been rounded off here to make this scenario easy to follow. In the case of the real story, the clerk would always use differing amounts and keep them under $100 to avoid suspicion. Numbers like $89.23 and $91.08 would be used and the necessary adjustments to the rest of the numbers would be made to keep everything in balance.

If you’re wondering, “How could the clerk cash the check?” I would submit to you that in our electronically controlled world, you can deposit a check into your account made payable to Abraham Lincoln, and no one would question it. As long as the numbers are good, nobody cares whose name is on the document.

End of the story

The clerk had apparently been doing this for more than 20 years and stolen, at best estimate, in excess of one million dollars. None of this money was recoverable because the clerk was stone-broke. The practice did prosecute.

That could never happen in my practice, you might say. Really? That is what these physicians thought as well. After the shock wore off, the managing partners instituted numerous security systems.

Every practice should have an annual financial audit performed by an outside firm. This should be an unannounced audit visit and the auditors should have free and unfettered access to all financial information of the practice. Serious consideration should be given to using another accounting firm, other than your normal one, unless it has a forensic accounting division.

How can the physician protect him/herself from such practices?

A fair question

Let us begin with employee qualifications and background. Getting a background check on a person today is a simple Internet exercise that is very inexpensive. Have all prospective employees sign a permission slip allowing you to run a background check prior to employment. Also let them know that they will need to give you permission to run a comprehensive credit check. The background check can be run on anyone without permission, as the information is in the public information domain. The credit check, however, does require prospective employees to give you written permission.

Don’t be penny wise …

After you get the information, pay attention to it. A practice was once considering the conversion of a part-time employee to full-time status. The new full-time position would entail handling serious amounts of money. She had done a superb job in her part-time position and all the personnel just loved her. It turned out that her background check revealed two felony convictions for grand theft and several other arrests for lesser theft or misappropriations. Could it be that the practice’s decision to save money by only running background checks on full-time employees was an ill-conceived notion?

…. Or reluctant to prosecute

If a person is caught, prosecute. The shocking fact is that in my experience, most people who are caught stealing walk free because the practice either does not wish to suffer the public embarrassment of prosecution or the doctors are afraid that they will lose production time by having to go to court. Generally, neither of these suspicions is well founded. Once released, they move on to another medical practice where they ply their trades again. Isn’t that how you got them to begin with?

Lastly, have a qualified group assist you in the formation of systems that will seriously deter the practice of theft. There is no foolproof system, but you can make stealing money very difficult, and that is what you really want to accomplish. Also, make it known that audits will be conducted and theft will be prosecuted. It is not necessary to run the practice like a police state, but your policies regarding employee dishonesty need to be understood, like all your other rules. Be vigilant, be wise. OM

REFERENCES

About the Author

Steven R. Robinson, FASOA, COE is the principal consultant with S & R Consulting of Chattanooga Tennessee. He works with physicians’ offices, clinics and optical operations in the capacity of a business consultant for human resources, finance and operations management. He was previously vice president and chief operations officer of Professional Eye Associates of Dalton Georgia where he served in this capacity for 18 years. Mr. Robinson holds a Certified Ophthalmic Executive credential (C.O.E.). He is a past president of ASOA, and one of only eight fellows of that society. He is a contributing writer for numerous medical management periodicals and is a national speaker on current topics of interest to the medical management community.