Insurance Fraud Gets You Three Squares and a Cot

Post 5041

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Insurance Fraud is a Crime

Every insurer is required by its shareholders, members, state statutes and state regulations to do everything possible to deter and defeat attempts at insurance fraud. Most insurers, therefore, have a staff of fraud investigators working under their Special Investigative Unit (SIU) and the SIU works to train the claims handlers to recognize the indicators or red flags of fraud.

Insurance Fraud is a Crime

Much to the surprise of the public, lawyers, and even some judges, defrauding an insurance company is a crime. In most states, insurance fraud is a felony that could subject the perpetrator to as much as five years in state prison plus serious fines. If the fraud is attempted by use of the mail or telephone, internet, e-mail or against a federal insurance program like Medicare, Medicaid and the National Flood Insurance Program (NFPA) it can also be a federal felony.

Insurance fraud is a crime that should be easy for a prosecutor to prove since all that is required is to prove the insurance criminal knowingly presented a claim for the payment of insurance contract benefits to which the perpetrator is not entitled or the submission of a single false document or oral statement in support of the crime. However, state prosecutors are reluctant to prosecute the crime, regardless of the state where it is committed, because they believe it is their duty to prosecute violent crimes. Financial crimes, like insurance fraud, they believe only hurt rich insurance companies and are not worthy of their efforts.

Because of the lack of aggressive prosecution insurance fraud attempts succeed more often than not. No one knows how much money insurance fraud takes from the insurance industry because only a small percentage of insurance fraud attempts are discovered. The best estimates of insurance fraud professionals about the cost of insurance fraud conclude that fraud takes $308 billion every year but presume it is double or triple that amount.

Even those few who are arrested, tried and convicted are usually ordered to make restitution of less than the amount they probably stole, are given probation or a short time in jail. Those who are imprisoned will still have part of their ill-gotten gains left to live well when they are released. Many, after arrest or conviction work to run more fraudulent claims to pay the ordered restitution.

A Change in Those Who Commit Fraud

In early part of my 58 years in the insurance claims business most insurance fraud perpetrators were young, and some were middle-aged. It seemed that none were of retirement age or elderly. Claims presented by the elderly were paid with little or no investigation.

Today, as people in the pre-Baby Boom generation and the Baby Boom generation (those born after the end of World War II in 1945) move toward retirement they find that they have spent everything they earned in their youth to support their children and elderly parents and a comfortable life style. When they decide it is time to stop working, they are shocked to find that they have nothing left to support the lifestyle with which they became comfortable. Since they are quickly becoming physically unable to continue to work their moral compass has spun out of control.

A person 65-years-old and older can’t afford to live on Social Security benefits in this age of rampaging inflation. Because the felony of insurance fraud is seldom prosecuted before a crime against an insurer that lost nothing more than money. I have been writing Zalma’s Insurance Fraud Letter (ZIFL) twice a month for more than 29 years and have seen that more and more people who are convicted of insurance fraud are above the age where they can collect Social Security. Many are professionals: Doctors, Chiropractors, Nurse Practitioners, and lawyers.

Those who determine the only way they can gather sufficient funds to support a comfortable retirement is to engage in insurance fraud. However, they have not read the criminal statutes making insurance fraud a crime or the federal statutes making it a crime to take advantage of government created quasi-insurers like Medicaid and Medicare. As a result, investigators from the FBI, Homeland Security or HHS catch a few, prosecute and convict some of insurance fraud, wire fraud, or health care fraud. Most succeed.
The Insurance Claims & SIU Investigators Must Consider the Elderly as a Potential Fraud Perpetrator

Most of the elderly professionals, by definition, are high earners who had income sufficient to invest and save for their retirement. There seems to be no logical reason that such a professional would even think about insurance fraud. However, many of the people in my age cohort – those born after the onset of World War II – had it too good. They earned a lot and spent everything they earned and borrowed money allowing them to spend more than they earned.

Insurers must train their claims and SIU personnel to disabuse them of the prejudice that brings about the belief that an elder will not consider defrauding the insurer. Even little old lady widows have jumped into insurance fraud to fund their retirement.

Any one or more of the fraudulent claims events that fit within the definition of insurance fraud must be discovered by every insurer and reported to the state’s Department of Insurance or prosecutors.

Medical Professional Fraud

Most health insurance fraud perpetrators should be easy to catch if the insurance company SIU, the DOJ, the FBI and HHS investigators had the funds to properly and effectively investigate the crimes.

The methods used by health care providers to defraud insurers and Medicare, Medicaid or other government programs include any possible means to bill an insurer or government based organization.

Because the government medical assistance programs are bleeding cash the DOJ is becoming more aggressive in its efforts to stop fraud. They are limited, by lack of sufficient funding, to investigate cases in major metropolitan areas. As a result, most health insurance crimes are not prosecuted.

Property Insurance Fraud

Insurance companies, bound by the implied covenant of good faith and fair dealing and state insurance department regulations, are required to believe those who seek insurance, about the value of the property the risk of loss of which the insurer agreed to insure. A Professional would not be questioned if he or she presented a request to insure jewelry, furs, sculptures, paintings, or antiques with high valuations.

The scheduled personal property insurance policy called the Personal Articles Floater (PAF) is an all risk of loss policy with few conditions or exclusions. If an insured has a schedule of $2 million in jewelry based upon a fictitious appraisal, the policy can be turned to cash by advising the insurer that the jewelry was lost.

A few years ago, I represented an insurer who was faced with an unusual theft claim presented by an 85-year-old grandmother who claimed her major schedule of antiques, silver, china and fine arts were stolen by a cleaning person she had hired from a notice on her grocery store bulletin board. She claimed the cleaning solution fumes had caused her to faint and when she came back to her senses the cleaning person – “Juanita” whose last name was unknown – was gone and all the grandmother’s property left with Juanita.

The claim was for more than $1,750,000 and was supported by an appraisal with detailed descriptions, hand drawn images of each item appraised and signed by the appraiser. It took my investigator three months to locate the appraiser. The appraiser, regardless of the date stated on the appraisal, had died in the attack on Pearl Harbor and was buried in Oahu in December 1941. The claim was denied. The grandmother contacted multiple lawyers who would call every three months or so threatening to sue the insurer but gave up when I advised the lawyer of how the fraud was detected. Eventually she gave up because no lawyer was interested in her case.

Zalma’s Insurance Fraud Letter reports every month about dozens of doctors more than 70 years old who were caught cheating Medicare and Medicade for millions of dollars. Some are just ordered to make restitution the the government, others plead guilty and are given probation, and some are convicted and are sentenced to jail and their ill-gotten assets are forfeited to the government.

Recommendations

Insurance claims adjusters, special investigation unit investigators, claims management, Fraud Division investigators, FBI Agents, HHS agents must all understand that because a person is elderly is not a reason to conclude a claim is honest. The professional claims person should never believe it is impossible that an old man or woman would commit fraud. Rather, the insurance claims professional should understand that there is a higher probability that a major claim presented by an elderly person is an attempt at fraud than a claim presented by Millennial.

Regardless of the age or profession of the person making a claim, if three or more red flags of fraud appear in the claims investigation, a detailed and extensive insurance fraud investigation is required and if it establishes that a fraud is being attempted the claim must be rejected and any lawsuit that follows from the insurance fraud perpetrator settlement should be refused and trial required.

Doctor Sentenced for Health Care Fraud and Money Laundering

WENDELL LEWIS RANDALL, age 72, a doctor from Mt. Airy, North Carolina was sentenced to 30 months of imprisonment and ordered to pay restitution totaling $2,049,747.47 after pleading guilty to one count of health care fraud and one count of money laundering, announced Acting United States Attorney Randall S. Galyon of the Middle District of North Carolina (MDNC).

RANDALL was sentenced to a 30-month term of imprisonment plus 2 years supervised release by the Honorable Catherine C. Eagles, Senior United States District Judge in the United States District Court for the MDNC. This sentence is ordered to run consecutively to the 18-month sentence RANDALL is currently serving for a conviction in the Western District of Virginia.

According to court records, RANDALL was the sole physician and owner of the National Institute of Toxicology, PLLC (NIT), located in Mt. Airy, NC. At NIT, RANDALL typically prescribed opioids or other controlled substances to his patients without regard to whether such prescriptions were medically indicated. RANDALL then required his patients to submit to definitive urine drug tests (UDT) on every office visit without regard to the medical necessity of such tests. NIT had an in-house laboratory to run the UDT. From August 2018 through December 2021, RANDALL, through NIT, billed Medicare and North Carolina Medicaid for the UDT that reimbursed nearly all of his patients on Medicare and Medicaid. RANDALL obtained $753,446.70 from Medicare and $1,296,300.77 from Medicaid for these fraudulently billed UDT.

RANDALL used the fraudulently obtained proceeds to make several large purchases, including a building on property near his home in 2019 for a total of $97,000.

All arrests and convictions reported by the US Department of Justice can be found here.

(c) 2025 Barry Zalma & ClaimSchool, Inc.

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