Perfect Storm of Emerging Fraud Risks Looming for Payers

Payment fraud can seem like an existential threat to payers. The reality is that healthcare payments are a constant target for payment fraud, and payers drive many of the transactions that are the most valuable to fraudsters, including claim payments to providers.

Payers must understand the emerging and intensifying risks and ensure their organizations are ready to navigate the storm.

According to the 2022 AFP Payments Fraud and Control Report, nearly 30% of all companies saw an uptick in fraud attempts in 2021. The current risk environment means that payers must shift the mindset from “if there is a fraud attempt” to “when there is an attempt and how much could be lost.”  Always remember that fraudsters only need to be right once to be successful. 

High-Cost Claims Are Becoming the New Norm

Healthcare in America is expensive. Costs are only projected to climb with an aging population, new medical advancements and delays in care due to the COVID-19 pandemic. For payers, this results in higher dollar claims being paid out at an increasing rate. Where million-dollar claims were once a rare occurrence, that large payout isn’t the unicorn it once was. Million-dollar claims have grown in the last half of the past decade with over 21% of employers having a member with over $1 million in claims from 2017 to 2020. 

Of course, the amount of the claim alone does not increase the risk of payment fraud. However, the amount does significantly increase the loss if fraud does take place. This problem is compounded for payers when you consider that the high dollar amount is likely lost to a fraudster and the claim to the provider still has to be made. Put another way, if a fraudster redirects a million-dollar claim, the payer will lose two million dollars. 

The Pandemic’s Impacts on Providers

Healthcare providers have been hit hard by the ongoing pandemic, especially when it comes to their bottom line. This could be why many providers reported getting paid by payers as a primary financial concern last year over other financial stressors like patient bad debt. About half of providers are increasing electronic connections with payers to adapt to the challenges of the last year, resulting in more ERA/EFT enrollments. 

Increasing electronic adoption among provider networks has been a consistent trend in healthcare payments. Now, the risk increases with the change among provider organizations due to mergers and acquisitions, closures and changes in employment. This could create chaos for current processes for payers, which fraudsters may try to exploit to their advantage. For example, a provider could enroll for ERA/EFT and then become part of a larger health system. If the payer isn’t aware of the change, fraudsters may find an opportunity to receive those misdirected payments. 

Drastic Shifts in Labor Trends

A company’s best defense against payment fraud is its people. A seasoned employee can easily spot an irregularity in payment information as a fraud attempt. The inverse is also true. A new employee could miss a step in the process to verify bank account information from a new provider. It’s even possible for a staff member to enter a personal bank account on a paper enrollment form to receive the funds. If the proper checks and balances aren’t in place, the payment fraud could go unnoticed and result in significant losses for the payer. 

The extreme fluctuations in labor trends over the last few years only add to possible breakdowns. The quick shift to remote work at the beginning of the pandemic means new, possibly unsafe environments to manage payment information. While some have returned to the office, the risks remain. The increase in job-hopping during the pandemic years means new employees learning new processes or roles being left unfilled. These risks are amplified when payers work with a vendor that has multiple downstream, third-party relationships where there is less control over the impacts of these labor trends.

How to Prepare for and Fight Against New Fraud Risks

This perfect storm of emerging risks is guaranteed to create new opportunities for fraudsters to gain an advantage over payers. The biggest downfall for any payer is to assume that their payments are safe. Fraud prevention must be top of mind for payers. It is critical to have a rigorous underwriting process, know-your-customer checks and ongoing monitoring for any bank accounts receiving funds. Whether working with in-house processes or through vendor relationships, payers must prioritize the fight against payment fraud and minimize their risks, because the threats appear to be on a trajectory to get worse as the trends converge in years to come.

Brendan Crotty is Head of Product Management at InstaMed, a J.P. Morgan company.

1 Sun Life, High-cost claims and injectable drug trends analysis, 2022

InstaMed Provider Healthcare Payments Survey 2021

The views and opinions expressed herein are those of the author and do not necessarily reflect the views of J.P. Morgan, its affiliates, or its employees. The information set forth herein has been obtained or derived from sources believed to be reliable. Neither the author nor J.P. Morgan makes any representations or warranties as to the information’s accuracy or completeness. The information contained herein has been provided solely for informational purposes and does not constitute an offer, solicitation, advice or recommendation, to make any investment decisions or purchase any financial instruments, and may not be construed as such.

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