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BDO report - The Financial Cost of Healthcare Fraud 2014

FRAUD AND ERROR COSTS GLOBAL HEALTHCARE INDUSTRY $487 BILLION (£313 BILLION) PER YEAR

• Since 2008 global average fraud and error losses in healthcare have risen 25% from 5.59% of expenditure to 6.99%
• Reduction in fraud and error losses of up to 40% possible within one year - freeing up to $195bn (£125bn) globally
• Global average loss rates suggest loss within UK National Health Service to be £7bn

The world is losing some $487bn to fraud and error annually according to a new report “The Financial Cost of Healthcare Fraud 2014” from BDO LLP, the accountancy and business advisory firm in partnership with The Centre for Counter Fraud Studies at the University of Portsmouth.

The report, one of the most detailed in the world, collates data from a total of 92 loss measurement exercises covering 14 different types of healthcare expenditure totalling over $2.99 trillion (£1.93 trillion) over 15 years. The findings show that global average losses within the healthcare sector have, since 2008, risen 25% to 6.99%. When taken as a proportion of global healthcare expenditure of $6.97 trillion (£4.48 trillion) this equates to $487 billion (£313 billion) lost in a year equivalent to:

• More than three times the UK NHS budget for 2011/12;
• Two and a half times the total healthcare expenditure of Canada  for 2011;
• Almost one fifth of the United States total healthcare expenditure for 2011 and more than 27% of European Union countries total healthcare expenditure for the same period

Fortunately counter fraud exercises have shown that it is possible to significantly reduce the losses with a reduction of 40% within 12 months being considered a very reasonable expectation. This in itself would see global healthcare resources increased by as much as $195bn (£125bn).

Case Study

In the UK’s National Health Service (the second largest organisation in the world) between 1998 and 2006 losses were reduced by up to 60%. Since 2007 however, the NHS has not measured its cost of fraud due to budgetary constraints. Statistics from the UK’s National Fraud Authority Indicator 2013 suggest that fraud within the NHS was £229m in 2013 however, applying the global average percentage loss rate suggests, that if the NHS was in line with the rest of the world, a figure nearer £7bn would be more likely. To accept the figure of £229m would be to accept that the NHS is doing more than 30 times better than the rest of the world in preventing and detecting fraud and error.

Dr David Evans, the Director of Health Systems Financing for the World Health Organisation (WHO) describes the report’s conclusions as “convincing” in his Foreword, while Dr Simon Peck, a Founder of the Health Insurance Counter Fraud Group (HICFG), a UK industry group of 29 leading healthcare insurance companies, writes in his preface that those “who have the power to make a difference” should read the report.

Jim Gee, Director of Counter Fraud Services at BDO LLP added:
“The global financial crisis has had a significant impact on governments, corporates and individuals ability to meet the rising cost of their healthcare requirements. These budgetary constraints could be vastly improved however with a concerted effort to measure, manage and minimise the cost of fraud and error within the relevant organisations particularly if this was supported by legislative requirement. Our conservative estimate is that healthcare organisations could free up $195bn which is currently lost by tackling this problem seriously, making a material difference to the lives of millions of people around the world.”

The full BDO Financial Cost of Healthcare 2014 report can be found here.

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