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Surplus Medicare fraud insurance

By Roccy DeFrancesco

Most physicians have no idea the dangers that lurk when it comes to the problem of Medicare fraud. Every physician knows it is wrong to upcode Medicare bills (intentionally or not). Most physicians know that each upcode could result in a $10,000 fine, but most physicians do not think the problem will ever come to their door.

I can state with confidence that the topic of Medicare fraud is one that physicians need to start addressing due to the fact that the federal government has a task force specifically created to hunt down physicians that bill incorrectly. I have attended seminars given by other attorneys that have defended physicians after being “busted” for unintentionally upcoding.

These federal task forces are a significant income generator for the federal government. Why? Because when a Medicare auditor comes to a medical practice and finds billing problems (that they always can), the auditor will threaten the physician with significant criminal penalties. In an effort to get out of the criminal penalties, physicians agree very quickly to pay sizable (several hundred thousand dollars per doctor) civil penalties in order to have the auditor not push the criminal case.

It’s actually much worse than it sounds.

Do you trust your employees?

While we all think our employees making between $20,000 and $75,000 a year are going to look out for our best interest, when a big reward is on the table, you would be surprised at how quickly an employee can turn against you.

I found the following on a website titled “Taxpayers against fraud,” where on the site they were discussing how every day citizens can benefit by turning in physicians that commit Medicare fraud.

“If the case (the Medicare Fraud case) results in a financial recovery by the government, the whistleblower receives a share, generally 16 to 17 percent, as a reward for revealing the fraud which otherwise might have gone undetected. Since 1986, more than $10 billion has been recovered for taxpayers under the federal FCA. Eleven states and the District of Columbia have enacted their own FCA’s to protect state funded government programs.”

The above paragraph lays out the classic way a physician loses a Medicare fraud case. The insurance and billing clerk is questioned/threatened by the federal agent investigating your upcoding. The employee does not want to get in trouble and is told by the investigator that if the employee helps the investigation, the employee can receive a reward equaling approximately 17 percent of whatever the fines ends up being.

The employee starts doing the math and figures out that the bigger the fine the better. Then after fully cooperating with the federal agent, the fine ends up being $1,000,000. The physician does not have $1 million and has no insurance, and therefore has to cash in his/her brokerage account or 401k plan to pay the fine (which is not tax deductible). The employee is black balled in town, but doesn’t really care because she ended up with a reward of $170,000.

If the above scenario doesn’t scare you, nothing will.

With all the potential problems of Medicare fraud, where does that leave physicians? Unfortunately like an ostrich with their heads in the sand or with the “It’s not going to happen to me” syndrome.

How can a physician protect him/herself? The simple answer is to not take Medicare patients. Since most physicians do take Medicare patients, how do they protect themselves?

My answer is to have each physician create an asset protected sinking fund through the use of supplemental insurance coverage. This is the only way I know to create a tax deductible resource to pay any potential fines. If you never have a Medicare audit, via the return of premium, you can get your premiums back plus investment growth on the premium (assuming a good claims history).

If a physician does not have insurance to cover the fines from Medicare, the physician will have to pay for the fines out of post tax investment dollar or go borrow money which will have to be paid back with after tax money.

Therefore, if you would like to protect yourself from the ever increasing number of Medicare audits and fines, I strongly recommend that you look into purchasing supplemental Medicare fraud insurance.

Supplemental Insurance

Supplemental coverage is in addition to a physician’s current insurance coverage. So, if a physician has $200,000 coverage with a traditional carrier for Medicare fraud, supplemental coverage would be above that amount.

For example, if a physician had a Medicare audit where the medical office owed $1,000,000 in fines and his/her coverage was only $200,000, the supplemental coverage would kick in to pay for the other $800,000. Without the insurance, the physician would have to pay for the fine out of other assets in a non-deductible manner. With supplemental coverage a physician can fund that overage in a tax deductible manner.

If you are saying to yourself the last thing you need is more insurance premiums, I would agree with you. However, there is a supplemental Medicare fraud insurance program available where the client not only can get a return of their premium on their supplemental insurance, but also the growth on the premium (assuming good claims experience).

For example, if a 40-year old physician paid $100,000 in supplemental Medicare fraud insurance coverage each year for ten years (and if there was good claims experience) the refund numbers would look as follows. Supplemental premium cost each year would be $100,000, and the account value available for refund at age 60 would be $2,578,627 – a net number after expenses and with an assumed growth rate of eight percent on the premium paid.

Many physicians are looking for ways to reduce their taxes. With the supplemental insurance program, the physician receives current income tax reduction by paying deductible premiums for insurance coverage. Further, with good claims experience and the refund option the physician can get back not only the premiums paid, but also all the investment growth on those premiums. When the premium and their growth are returned, the money will be distributed to the physician where he will pay taxes on the money.

If you like the idea of supplemental Medicare coverage while building a large supplemental benefit, then this program is one you should consider.

Roccy DeFrancesco, Esq., is President of The Wealth Preservation Group, LLC and author of The Doctor’s Wealth Preservation Guide.

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