Misconduct vs Crime in Health Insurance – what is the difference (…and does it matter?)

Dr Simon Peck

As part of our offering in 2022, our fraud and analytics experts at Kirontech will continue to publish regular articles for our customers and the wider healthcare community. We will focus mainly on managing fraud, waste and abuse (FWA) while also exploring other relevant and interesting topics along the way.

The subject today is the distinction between Fraud and other kinds of misconduct in insurance claims. We will first look at three real-life FWA case studies followed by a discussion around the differences.

Let’s define the terms first to make sure we’re on the same page:


Fraud (Criminal) – less than 10% of FWA

  • Fraud is the use of deception to obtain money – the deception can take many forms, such as false or withheld information or by abusing a position of trust. Healthcare fraud is sometimes linked with patient harm – the recent case of Ian Paterson is an example (Case Study 3).
  • Fraud is a criminal offence and carries a potential jail sentence.

Waste & Abuse (non-Criminal Misconduct) – more than 90% of FWA

  • Waste is unnecessary use or overuse of medical services where the choice of service is motivated by financial reasons instead of patient benefit. Waste is typically not linked to patient harm, but nonetheless has social costs and results in poor allocation of resources in healthcare. Waste is a very wide category and includes a range of things like providing treatment of limited or no benefit to the patient or providing expensive services where a more cost-effective alternative is available.
  • Abuse means other types of creative billing and over-charging, such as misusing billing codes or billing for services that are not billable (for example see Case Study 2 below)

These categories are not completely clear-cut. They sit on a spectrum of behaviours aimed at extracting extra payments from the healthcare system. From the perspective of the insurance company/taxpayer the effect is always the same: the provider/doctor benefits at the expense of the payer.

According to recent studies, FWA as a whole (Criminal and non-criminal) accounts for up to 25% of health care spending in the US [1].

Case Studies

Case Study 1: Laser-assisted in situ keratomileusis …aka LASIK

This case focused on a consultant who said his clinic was providing a type of keratoplasty. The claims assessors at the insurance company thought he was performing corneal grafts (penetrating keratoplasty / lamellar keratoplasty). In fact, he was performing routine LASIK procedures for short-sightedness. Typically, LASIK is not claimable on insurance because it is classified as a cosmetic operation.

To mislead the payor, the consultant decided not to use the usual acronym LASIK, instead spelling it out as “laser-assisted in situ keratomileusis” (lit. laser-assisted in place reshaping of the cornea). As it turns out, this is what the term LASIK stands for. However, the full description is almost never used, and the acronym LASIK is far more common. The consultant’s refusal to use the acronym however was consistent and many of his claims were settled by the insurer until our investigation.

When challenged by us, the consultant referred to the treatment as keratoplasty (lit. plastic operation on the cornea). Again, this was technically correct (LASIK is a form of keratoplasty), but the intention was to mislead and to make a routine non-claimable operation appear as something more exotic and expensive.

It is important to note that misleading information is different from false representation. If one performs a laryngoscopy and bills for open-heart surgery to obtain a financial benefit, that is fraud by false representation and a criminal office. However, the consultant performing “laser-assisted in situ keratomileusis” would not be committing a crime per se – he was playing it safe by being technically correct but intentionally misleading.


Case Study 2: Unbundling

Photo: Oleksandr Latkun

One of the most common ways of overcharging payors is by billing for one operation and then charging for the constituent parts of that operation as if they were extra. We call this unbundling. Without medical knowledge or an intelligent claims system healthcare payors rarely spot it.

As a non-medical world example, let us say somebody agrees to decorate your room for £2,000. At the end of the works, you receive a nasty surprise: the bill has doubled to £4,000. You are told that the cost is higher because of extra things that needed to be done, such as painting, putting up wallpaper, wiping dirty boot prints off your carpet and carrying tools back into the van.

Let’s now say a surgeon billed you for three operations:

  • functional endoscopic sinus surgery
  • nasal polypectomy
  • intranasal antrostomy

How many of us (without specialist medical knowledge), would know that the second and third procedures form a part of the first? The itemisation might as well be written in ancient Sumerian.

Most of us would probably argue with the decorator but settle the medical bill. The same, sadly, is true for many Claims Assessors at insurance companies – unbundling happens with such frequency that it is near-impossible to catch most cases as they happen.


Case Study 3: Ian Paterson

Photo: Michael Nesterov

Mr Ian Paterson is a surgeon who between 1997 and 2011 carried out thousands of breast surgeries on breast cancer patients using an unapproved surgery technique. The technique was marketed as “cleavage-sparing mastectomy”, which for cosmetic reasons removed less tissue than other techniques. However, the remaining tissue also increased the likelihood of recurrence of breast cancer. Mr Paterson did not inform his patients of the increased risk nor of the fact that he was using an unusual and controversial treatment procedure.

To make matters worse, Mr Paterson allegedly treated patients with no indications of cancer to begin with [3].

Mr Paterson was convicted in 2017 on 20 criminal counts (wounding with intent and unlawful wounding). Mr Paterson was sentenced to 15 years in prison (later increased to 20 years on appeal). Interestingly, Mr Paterson was not convicted of Fraud.


Is it Fraud or not?

Are the consultants in the above case studies guilty of fraud? The simple answer is “no.” Fraud can be quite difficult to prove. Even in the Paterson case, where the doctor received a 20-year jail sentence, the conviction was for wounding, not fraud.

The individuals in the case studies are of course guilty of fleecing the healthcare system by non-criminal means. Even though not criminal, this type of behaviour is harmful: making wasteful claims is not a victimless offence. Every pound wastefully spent on unnecessary or non-existent operations increases both taxes (to fund public healthcare) and private insurance premiums. If not an outright crime, this kind of behaviour is still morally unacceptable with tangible social and economic consequences.

From the perspective of justice, the distinction between criminal and non-criminal is significant. It matters both for public perception and public protection, as criminal behaviour often leads to tangible physical harm. An example is the Paterson case above where many of his victims died, and others were left with life-changing injuries.

From the perspective of insurance and recovery, it is however unwise to focus exclusively on the criminal element. That is because

  1. Fraud and crime accounts for less than 10% of total FWA
  2. Fraud and crime is much harder to prove than misconduct.
  3. Given that most FWA does not cross over to crime/Fraud, it is not usually practical to rely on the legal system to recover monies paid for wasteful claims.
  4. Furthermore, post-payment recovery is expensive and only makes sense for large claims or large groups of claims. Hence, it is better to focus on prevention of waste than recovery wherever possible.

In an upcoming article, we will focus on specialist techniques to tackle misconduct. However to answer the question of whether the difference in classification matters from healthcare payor’s perspective, we can make the following recommendations to guide claim management policy:

  1. Identify actual criminal fraud Put in place robust processes in place to identify real criminal fraud and dangerous misconduct. These cases are not common, but they do occur on a regular basis, and you need to identify them and have proper processes in place to investigate and refer to the regulators or to law enforcement.
  2. Do not focus on the definitions For the rest (non-Criminal Misconduct), concentrate on the money! Do not institutionalise the artificial distinctions between waste and abuse. Do not allow the definition (which, as discussed, is somewhat arbitrary) to decide where and how you manage the problem.

An effective investigation unit is one that identifies where money is being lost, finds the root cause, stops the leak, and puts in place measures to stop further losses. From an insurance company/taxpayer perspective, the distinction between fraud and non-fraud (abuse, waste) is ultimately less important than our ability to stop the behaviour.

In the end, it is usually best to focus on constructive ways to manage and stop the behaviour without worrying too much about whether the behaviour is criminal or misconduct.

About Kirontech Health Insurance Platform

There are software solutions that can help insurance companies manage crime and misconduct in health insurance. Kirontech Health Insurance Platform (HIP) can deal with many kinds of unwanted behaviour in medical claims. To deal with the examples in the case studies above, Kirontech HIP has a wide range of tools, including:

  1. Automatic encoding using Kirontech Medical NLP. In case study 1, both LASIK and Laser-assisted in situ keratomileusis would map to the same service code and therefore be detectable. Consistent coding also means that creative descriptions can no longer easily fool the system.
  2. Peer-comparison of Costs The costs of purported keratomileusis were consistently higher than expected of a standard LASIK. These would have been flagged and spotted by HIP before the claims where paid.
  3. Outlier analysis of Service Frequency LASIK operations are far more frequent that corneal transplants. Finding that a consultant provides corneal transplants at a much higher rates than their peers can be indicative of misconduct.
  4. Patient’s medical context HIP can detect whether a particular treatment is appropriate given the patient’s medical history. For example, prior to receiving a corneal graft, a patient would typically have received several referrals from specialists. This contrasts with LASIK, which can be performed without a referral. An inconsistent treatment history can indicate that a consultant’s billings should be looked at in more detail.

Kirontech HIP makes all the above tools available to the Claims Assessors and Special Investigators as part of their decision-making process. The focus is on early detection and on-going monitoring of incorrect claims, with an extremely low incidence of False Positives.

Kirontech track record

Our system is adopted by industry leaders in the UK and outside, with a proven track record of delivering value and helping identify complex cases. In addition to a comprehensive library of rule-based checks, Kirontech HIP can automatically flag claims that fit existing, wider patterns of fraud and misconduct. This allows claim assessors to instantly narrow down on the most relevant claims and makes sure no time is wasted.

Get in touch

If you would like to find out how Kirontech can help you and your insurance business tackle Fraud, Waste and Abuse, please get in touch with us on LinkedIn or at https://www.kirontech.com/contact.


[1] Waste in the US Health Care System (Shrank, Rogstad, Parekh, 2019)


[2] The UK government inquiry into the surgeon Ian Paterson who was jailed for malicious wounding for performing unnecessary breast surgery on numerous women https://www.gov.uk/government/publications/paterson-inquiry-report

[3] Surgeon Ian Paterson ‘provided false diagnosis’ to insurers: https://www.bbc.co.uk/news/uk-england-birmingham-39129970

[4] Kirontech: Fraud – it’s obvious if you know where to look


[5] Report of High Court determination in Saverymuttu vs General Medical Council https://www.casemine.com/judgement/uk/5a8ff7c960d03e7f57eb21dc

Dr Simon Peck, Chief medical Advisor, Kirontech UK Ltd