The Financial Cost of Healthcare Fraud

Full text

PKF Littlejohn LLP
The financial cost of healthcare fraud 2015
What data from around the world shows
How UK FTSE listed companies can reduce
the cost of fraud and maximise profitability
Jim Gee and Professor Mark Button
Foreword by Joseph Kutzin, Coordinator, Health Financing Policy at the World Health Organisation
Preface by Dr Simon Peck, Founder, Health Insurance Counter Fraud Group
Jim Gee and Professor Mark Button
FORENSIC
& COUNTER FRAUD
SERVICES

in order to develop
a solution, it is first
necessary to quantify
and understand the
nature of the problem

© PKF LITTLEJOHN LLP AND UNIVERSITY OF PORTSMOUTH 2015
THE FINANCIAL COST OF HEALTHCARE FRAUD 2015
Foreword 1
Preface 2
1// Introduction 3
2// Overview 4
3// The nature of the data which has been analysed 5
4// Healthcare fraud (and error) losses 6
5// What this means for the NHS 8
6// Conclusion 12
CONTENTS

© PKF LITTLEJOHN LLP AND UNIVERSITY OF PORTSMOUTH 2015
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Foreword
I am pleased to contribute a Foreword to this report. The World Health
Organisation (WHO) has cited fraud as one of the ten leading causes
of inefficiency in health systems, and it is good that this report provides
detailed information about its extent. In particular, the volume of the
health expenditure where losses have been measured, and the variety
of types of expenditure covered, make the report’s conclusions – that an
average of more than 6% of expenditure is lost - convincing.
Fraud is an important problem for health systems around the world. The
authors of the report are to be congratulated for their research – over 17
years – into this issue. WHO has previously recognised the importance
of countries improving the efficiency of their health systems, thereby
releasing resources that could be used to cover more people, with more
services of high quality. In short, fraud constrains progress towards
Universal Health Coverage (UHC).
However, having credible information about the problem of losses to
health systems is not a goal in itself. The most important reason to
know about the problem is to be better able to apply the right solutions
- informing the prioritisation of work to counter fraud, the level of
investment to be made and where best to focus action.
The data revealed by the report shows that one off, large scale frauds
are unusual, but widespread low value fraud is common. This makes
it harder to detect more than a small proportion and means that an
emphasis needs to be placed on pre-empting fraud, rather than reacting
to it after it has occurred. Fraud which is visible and which has been
detected is only a small element of the total cost.
Fraud in the health system has a direct negative impact on human life –
patient care is diminished in the quality and quantity which can be made
available. It also prevents appropriate forms of health promotion and
prevention that allows people to take control of their own health.
The report highlights examples where real gains have been made by
reducing the cost of fraud – with up to a 40% reduction possible within
12 months. This is obviously good news and with health systems under
financial pressure, cutting the cost of fraud can be a significant additional
source of progress towards UHC, for example by putting the “recovered”
resources towards increased coverage of services for health promotion,
disease prevention, treatment, rehabilitation and/or palliative care.
It is important that those leading health systems – wherever they are in
the world – read this report. They need to make sure that their systems
are properly protected against fraud rather than simply responding after
it does occur and losses have been incurred. As with the protection of
health more generally, proactive, pre-emptive action has an important
role to play.
JOSEPH KUTZIN
Coordinator, Health Financing Policy at the World Health Organisation.

THE FINANCIAL COST OF HEALTHCARE FRAUD 2015
© PKF LITTLEJOHN LLP AND UNIVERSITY OF PORTSMOUTH 2015 PAGE 2
Preface
“I was very pleased to be asked to contribute an updated preface to this
renewed version of the ‘Financial Cost of Healthcare Fraud’ report.
I have spent a significant part of my career looking at this particular
problem. For many years it was a problem which most people were
unwilling to discuss or acknowledge. The public perception has always
been that healthcare workers are dedicated individuals whose only
concern is patients’ welfare and that is, to a large extent, true. But hiding
among them is a small number who are involved in healthcare for entirely
the wrong reasons and, for them, the trust that society invests in them
and the confidentiality which rightly preserves patients’ privacy, also
provides a convenient smokescreen behind which to hide criminal activity.
Patients, of course, can also be responsible for fraud, although it is with
the providers and those working in the industry where the opportunity is
greatest.
I have studied the subject of healthcare fraud wastage and abuse for
something approaching two decades now and have seen huge changes.
Most people – or at least those I meet - now acknowledge that, just as in
every other area of human enterprise, there are those who could commit
fraud. What still surprises me is that, outside of the USA (which has both
a serious problem and some very well established and effective solutions),
there is so little published about the cost and nature of that fraud.
About 15 years ago, I was one of the founders of the Health Insurance
Counter Fraud Group - an initiative to tackle fraud and abuse in the
private healthcare market. Since then I have often been asked to give
advice or assistance by various organisations in setting up anti-fraud
programmes. I have always been happy to give such advice and
assistance as I can. Many of the people who ask me are considering
investing in expensive software or high tech solutions. These things work
well and have an important place but the most important thing is to start
with the basics. The first piece of advice I always give, which is echoed
in this report, is that, in order to develop a solution, it is first necessary to
quantify and understand the nature of the problem. Once the problem is
understood, only then is it possible to develop a framework of policies,
procedures, controls and solutions needed to minimise and design out
the risk.
Quantification has another important role too – in this day and age we
all have to justify our existence and, in the 21st century, it is very difficult,
if not impossible, to persuade organisations to invest in solutions to
a problem, the size and scope of which is unknown. It also makes it
extremely difficult to judge whether a solution is working or not, unless
the problem is understood.
I would like to end by suggesting that if there are any readers who still
have doubts, they should read the website for the US Government Office
of the Inspector General http://oig.hhs.gov/. It has a whole area devoted
to healthcare fraud and makes for some sobering reading and it speaks
for itself.
DR SIMON PECK
Dr Simon Peck is a founder and former chair of the Health Insurance
Counter Fraud Group. He works in the health insurance industry.

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1.1. This Report renews research first undertaken in 2009 and
repeated in 2011 and 2013, collating the latest, accurate,
statistically valid information from around the world about
the real financial cost of healthcare fraud (and error).
1.2 The measurement of losses to fraud (and error) is an
essential first step to successful action. Once the extent
of fraud losses is known then they can be treated like
any other business cost – something to be reduced and
minimised in the best interest of the financial health and
stability of the organisation concerned. It becomes possible
to go beyond reacting to unforeseen individual instances of
fraud and to develop business strategies to pre-empt and
minimise fraud losses.
1.3 The Report doesn’t just look at detected fraud or the
individual cases which have come to light and been
prosecuted. Because there is no crime which has a 100%
detection rate, adding together detected fraud significantly
underestimates the problem. It also raises the question as
to whether, if detected fraud losses go up, does that
mean that there has been more fraud or just a higher level
of detection? Equally, if detected fraud losses fall, does
that mean that there has been less fraud or a lower level
of detection?
1.4 The Report also doesn’t rely on survey-based information
where those involved are asked for their opinions about the
level of fraud. These tend to vary significantly according to
the perceived seriousness of the problem at the time by
those surveyed. While they sometimes represent a valid
survey of opinion, that is very different from a valid survey
of losses.
1.5 The financial and economic damage resulting from
healthcare fraud (and error) is surely the worst aspect of
the problem. Yes, fraud is unethical, immoral and unlawful;
yes, the individuals who are proven to have been involved
should be punished; yes, the sums lost to fraud need to be
traced and recovered. However, these are actions which
take place after the fraud losses have happened, after
the resources have been diverted from where they were
intended and after the damage to the quality of patient care
has occurred.
1.6 In almost every other area, healthcare organisations know
what their costs are – staffing costs, accommodation
costs, utility costs, procurement costs and many others.
For centuries, these costs have been assessed and
reviewed and measures have been developed to pre-empt
them and improve efficiency. This incremental process now
often delivers quite small additional improvements.
1.7 Fraud (and error) costs, on the other hand, have only very
rarely had the same focus. The common position has been
that organisations have either denied that they had any
fraud or planned only to react after fraud has taken place.
Because of this, fraud is now one of the great unreduced
healthcare costs.
1.8 However, a cost can only be reduced if it can be measured,
and a methodology to do this accurately has only been
developed and implemented over the last decade.
1.9 Now that we can measure fraud (and error) losses, we can
make proper judgements about the level of investment
to be made in reducing them. We can also measure the
financial benefits resulting from their reduction.
1.10 In the current macro-economic climate, reducing these
losses is one of the least painful ways of reducing costs.
Using global research, this Report identifies what the
financial cost of healthcare fraud (and error) has been found
to be and thus, the ‘size of the prize’ to be achieved from
reducing it.
1.11 Of course, there is always more research to be done and
any organisation should consider what its own fraud (and
error) costs are likely to be, however, the volume of data
which is already available from exercises now covering
more than £2.9 trillion of healthcare expenditure, points
clearly to losses usually being found in the range of 3-8%.
1.12 We will continue to monitor data as it becomes available
and publish further reports as appropriate.
1 //
Introduction

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2.1 Building on previous research, this 2015 Report takes
account of loss measurement data from 1997 to 2013
and reports on a total of 107 exercises. The research
published in this Report now covers 14 different types of
healthcare expenditure totalling over £2.91 trillion ($4.44
trillion), in 33 organisations from 7 countries. The value
of the expenditure examined has not been uprated to
2015 values. The losses referred to are expressed as a
percentage loss of expenditure.
2.2 The Report is based on extensive global research,
building on previously established direct knowledge, to
collate information about relevant exercises. The data has
then been analysed electronically. Exercises have been
collated from Europe, North America and Australia and
New Zealand. No data was available from Asia or Africa,
although the authors are aware of developments which
should lead to data being available in the near future.
2.3 The Report has excluded guesstimates, figures derived
from detected fraud losses, and figures resulting from
surveys of opinion. It has also excluded some loss
measurement exercises where it is clear that they have
not met the standards described below.
2.4 It has included exercises which have:
• considered a statistically valid sample of income or
expenditure;
• sought and examined information indicating the
presence of fraud, error or correctness in each case
within that sample;
• been completed and reported;
• been externally validated;
• a measurable level of statistical confidence; and
• a measurable level of accuracy.
2.5 There are a number of caveats:
• Some of the exercises have resulted either in estimates
of the fraud frequency rate, or the percentage of
expenditure lost to fraud, and some have measured
both;
• It is also the case that some exercises have separately
identified measured fraud (and error) and some have not;
• Sometimes, once such exercises have been completed,
the organisations concerned have, mistakenly in the
view of the Report’s authors, decided not to publish their
results. Transparency about the scale of the problem
is a key factor in its solution, because attention can
be focussed and a proportionate investment made to
reduce the level of loss;
• In some cases, those directly involved in countering fraud
have decided, confidentially, to provide information about
unpublished exercises for wider consideration. In those
cases, while the overall figures have been included in the
findings of this Report, no specific reference has been
made to the organisations concerned;
• The authors of this Report are also aware of a very small
number of other exercises which have been completed,
but which have not been published and where nothing is
known of the findings;
and
• Finally, it is important to emphasise that this research will
never be complete. More evidence becomes available
each year. However, much of the evidence does point
clearly in one direction, as is explained later.
2.6 While it is necessary to make these caveats clear, the
importance of the evidence collated in this Report should
not be underestimated. It shows that losses to fraud (and
error) in the healthcare sector represent a significant,
damaging and, crucially, unnecessary business cost.
2 //
Overview

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3.1 The seven countries in which the authors are aware that
healthcare loss analysis exercises have taken place are:
• the UK;
• the United States;
• France;
• Belgium;
• The Netherlands;
• Australia; and
• New Zealand.
3.2 By value of income or expenditure measured, the United
States has undertaken the greatest amount of work in this
area. This is a direct reflection of the Improper Payments
Information Act of 2002 (IPIA) (followed by the more recent
Improper Payments Elimination and Recovery Act of 2010)
which requires designated major U.S. public authorities
to estimate the annual amount of payments made where
fraud (and error) are present, and to report the estimates
to the President and Congress with a progress report on
actions to reduce them.
3.3 The guidance relating to the IPIA stated “The estimates
shall be based on the equivalent of a statistical random
sample with a precision requiring a sample of sufficient size
to yield an estimate with a 90% confidence interval of plus
or minus 2.5%”. Many U.S. agencies undertake work to
the higher standard often found in the U.K. and Europe –
95% statistical confidence and + or - 1%.
3.4 In other countries, while there has not hitherto been any
legal requirement, there is a growing understanding that
the key to successful loss reduction is to understand the
nature and scale of the problem. In Europe, as long ago
as 2004, the European Healthcare Fraud and Corruption
Declaration, agreed by organisations from 28 countries,
called for “The development of a European common
standard of risk measurement, with annual statistically valid
follow up exercises to measure progress in reducing losses
to fraud and corruption throughout the EU.”
3.5 The range of types of income and expenditure, where
losses have been measured, include fraud (and error)
involving patients, healthcare professionals, staff and
managers, and contractors.
3.6 The specific areas where losses have been measured
include:
• the fraudulent provision of sickness certificates;
• prescription fraud by pharmacists;
• prescription fraud by patients;
• fraud (and error) concerning capitation payments to
general practitioners;
• fraud (and error) concerning payments made to doctors
to manage a patient’s medical care;
• the evasion of dental charges by patients;
• fraud (and error) by opticians concerning the provision of
sight tests;
• fraud (and error) concerning employees of healthcare
organisations;
• fraud (and error) concerning payments for in-patient
hospital services;
• fraud (and error) concerning long term care;
• fraud (and error) concerning home and community based
services;
• fraud (and error) concerning the provision of services
and supplies;
• fraud (and error) concerning health insurance for children;
• fraud (and error) concerning foster care; and
• fraud (and error) concerning child care.
3 //
The nature of the data
which has been analysed

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4 //
Healthcare fraud (and error) losses
4.1 The range of percentage losses across all the exercises
reviewed between 1997 and 2013 was found to be between
0.6% and 15.4% with average losses of 6.19%.
0.00%
2.00%
4.00%
6.00%
8.00%
12.00%
10.00%
Lowest
percentage loss
Highest
percentage loss
Average
percentage loss
16.00%
14.00%
18.00%
0.60%
6.19%
15.40%
4.2 Over 88% of the loss measurement exercises showed losses
figures of more than 3%.
30.77%
11.54%
57.69%
Percentage loss <3%
Per
centage loss 3-8%
Percentage loss >8%
4.3 Average losses have increased by 10.7% since 2007.
5.20%
5.30%
5.40%
5.50%
5.60%
5.80%
5.70%
6.00%
5.90%
6.10%
6.20%
6.30%
Average percentage lost –
1997 - 2007
5.59%
Average percentage lost –
including post recession data
from 2008 - 2013
6.19%
4.4 It is clear that fraud remains a significant problem and
one which involves a larger cost than previously thought.
Where organisations have undertaken repeated exercises
to measure their losses in the same areas of expenditure,
then the evidence also shows that this has helped to
reduce them.
4.5 The current global average loss rate of 6.19% - a running
average taking account of 17 years of data - when
expressed as a proportion of global healthcare expenditure
for 2013 ($7.35 trillion, £4.83 trillion or €5.65 trillion),
equates to £299 billion ($455 billion or €350 billion).

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4.6 This sum equates to:
• more than three times the NHS’s total budget of
£109.7 billion1 for 2013-2014;
• more than twice the total healthcare expenditure of
Canada for 2013; and
• almost fifteen times the total healthcare expenditure of
South Africa for 2011.
4.7 It represents around a sixth of the United States total
healthcare expenditure for 2013 and more than a quarter of
European Union countries total healthcare expenditure for
the same period.
4.8 This is an enormous sum which is diverted from the
provision of patient care.
4.9 If healthcare organisations reduced these losses by 40% -
which individual organisations have achieved - it would free
up more than £120 billion ($182 billion or €140 billion).
4.10 On the basis of the evidence, it is clear that fraud (and
error) losses in any organisation should currently be
expected to be at least 3%, probably more than 5% and
possibly more than 10%. It would be wrong to go too
much further in terms of predicting where in this range
losses for an individual organisation will be, without some
organisation-specific information about the strength
of arrangements to protect it against fraud (its ‘fraud
resilience’).
4.11 PKF Littlejohn and the CCFS, in parallel research, have
developed Europe’s most comprehensive database of
fraud resilience information, with data recorded concerning
over 1100 organisations. By combining the data which
underpins this report and organisation-specific information
about fraud resilience, we are able, for the first time, to
• predict the likely scale of losses;
• the key improvements which would reduce them; and
• the related cost.
4.12 We can also accurately measure losses or train client
organisations to do this. The practical experience of PKF
Littlejohn specialists, combined with the academic rigour
of CCFS researchers, provides an unparalleled expert
resource.
1 The NHS Confederation

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5 //
What this means for the NHS
5.1 It should be emphasised that this report is the product of
global research to produce a global average percentage
figure for losses in healthcare. Whilst the data reviewed
includes outcomes from NHS loss measurement exercises,
it is much broader than that. An important question is what
do the global trends and averages tell us about likely levels
of loss in the NHS?
5.2 The NHS used to have a programme of measuring the cost
of fraud (and error). Between 1998 and 2006 fifteen loss
measurement exercises took place. A further six exercises
took place in 2007 – 2008. Only two exercises took place
between 2009 and 2014.
0
2
4
6
8
12
10
1998 - 2006:
Number of loss
measurement
exercises
2009 - 2014:
Number of loss
measurement
exercises
2007 - 2008:
Number of loss
measurement
exercises
16
14
15
6
2
5.3 There are two key questions:
• What did these NHS-specific exercises show the cost of
fraud (and error) in the NHS to be?
and
• Is there any evidence that losses in the NHS are likely to
be any different from those found globally?
What did these NHS-specific exercises show the cost
of fraud (and error) in the NHS to be?
5.4 Below it is possible to see the number of NHS loss
measurement exercises and what they found.
NHS loss measurement exercises Range
1998 - 2001: Ten loss measurement
exercises
5.1% - 6.72%
2002 - 2006: Five loss measurement
exercises
1.6% - 3.9%
2007 - 2008: Six loss measurement
exercises undertaken
2.0% - 9.3%
2009 - 2014: Two loss measurement
exercises undertaken
2.94% - 3.49%
Is there any evidence that fraud losses in the NHS are
likely to be any different from those found globally?
5.5 As discussed above, the current, running healthcare
global average loss rate (for fraud (and error)) is 6.19%.
Where healthcare loss measurement data is available to
distinguish between fraud (and error), the split averages
73.8% fraud / 26.2% error. Thus it would be expected that
the healthcare global average fraud loss rate would be
6.19% x 73.8% = 4.57% (‘the healthcare global average
fraud loss rate’).
5.6 If we compare the results from the NHS exercises with
the global running average, it can be seen that the latter is
directly comparable with what has been found in the NHS.
1998 -
2002
2002 -
2006
2007 -
2008
2009 -
2014
NHS loss rate
(highest) 6.72% 3.90% 9.30% 3.49%
NHS loss lowest
(lowest) 5.10% 1.60% 2.00% 2.94%
Global healthcare
average fraud
loss rate
4.57% 4.57% 4.57% 4.57%

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5.7 A line graph shows this point even more clearly.
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
1988 - 2002 2002 - 2006 2006 - 2008 2009 - 2014
NHS fraud loss rate (Highest)
NHS fraud loss lowest (Lowest)
Global Healthcare average fraud loss rate
5.8 What does this mean for the NHS? Rather than simply
looking at a global figure – the global average fraud loss
rate applied to NHS expenditure (£109.7 billion was spent
on the NHS in England in 2013/142) would mean that
£5.01 billion was lost annually – let us look at what the
component elements of these losses would look like.
5.9 As with all fraud, the greatest losses are usually to be found
where there is the greatest expenditure. The figures below
are for 2013 – 2014:
• Payroll expenditure £32.66 billion3
• Procurement expenditure £20.6 billion4
(2011-2012) = £21.9 billion
(2013-2014 after inflation5)
• General Practice £7.63 billion6
• General Dental Services £3.01 billion7
• Pharmaceutical Services £2.1 billion8
• General Optical Services £0.523 billion9
5.10 This expenditure represents a total of £67.8 billion or
61.8% of the total NHS expenditure for 2013-2014.
5.11 Fraud also affects the income which the NHS should
receive in patient charges. These are prescription, dental
and optical charges.
2 The NHS Confederation
3 The Health Foundation – January 2015
4 Better Procurement Better Value Better Care – Department of Health – August 2013
5 Bank of England inflation calculator applied
6 NHS Payments to General Practice – HSCIC – February 2015
7 NHS England Annual Report – 2013 - 2014
8 NHS England Annual Report – 2013 - 2014
9 NHS England Annual Report – 2013 - 2014
5.12 The next part of this Report examines each of these areas
to outline what types of fraud can occur and what losses
might be incurred in each area. All the figures quoted
represent the annual loss to the NHS.
Payroll expenditure
5.13 NHS payroll expenditure has been reported to be
£32.66 billion for 2013-2014. The NHS undertook a loss
measurement exercise examining payroll expenditure in
2003-2004 across the total payroll budget. Expenditure of
this type at that time was £26.8 billion. The exercise found
that the cost of fraud represented 1.7% of the expenditure
but that the fraud prevalence rate was 3.4%. This indicates
that most fraud of this type is high volume, low value.
5.14 While very few ghost employees were found, there were
significant loss rates in the following areas:
• incorrectly received allowances (3.2%);
• incorrectly claimed employment histories (6.8%); and
• incorrectly claimed qualifications (6.8%).
5.15 Applying the 1.7% figure to 2013 payroll expenditure would
equate to fraud losses of £555 million. If we apply the
healthcare global average fraud loss rate (4.57%) then the
figure would be £1.49 billion.
Procurement expenditure
5.16 NHS procurement expenditure has been reported to be
£21.9 billion for 2013-2014. As there has never been a
successful NHS loss measurement exercise looking at
procurement expenditure, there is no NHS-specific loss
percentage which can be applied. However, such exercises
have been completed successfully in other sectors and
have generally shown higher than usual loss rates in this
area of expenditure. The lowest percentage fraud loss
figure which has been found is 5.8%.
5.17 The nature of procurement fraud has mostly been found to
be where goods or services are under-provided in terms of
quality or quantity or over charged. Sometimes the goods
or services are not provided at all. Where procurement
fraud losses have been measured in other organisations,
a key weakness has been found to be the lack of
consistent data and communication between those
procuring goods or services, those receiving or benefitting
from them and those paying for them.

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5.18 Examples of procurement fraud range from that of two
NHS managers, John Leigh and Deborah Hancox, who
masterminded a 5-year procurement fraud worth £229,000
against a health authority in the North West, and who
were jailed for over five years in total, to the more common
high volume, low value fraud which can easily become
‘embedded’.
5.19 Applying the 5.8% percentage figure to 2013 procurement
expenditure would equate to fraud losses of £1.27 billion.
If we apply the healthcare global average fraud loss rate
then the figure would be £1 billion.
General Practice
5.20 According to the Health and Social Care Information
Centre in 2015, £7.63 billion was paid to general practice
service providers in 2013-2013. As there has never been
a successful NHS loss measurement exercise looking at
expenditure on general practice, there is no NHS-specific
loss percentage which can be applied.
5.21 Examples of fraud include that of Dr Thirumurugan
Sundaresan, a Rochdale doctor who stole over £62,000
from the NHS by falsifying 1,700 patient records. Fraud
also takes place in the following ways:
• Creating ghost patients;
• Claiming for services provided to ghost employees
including production of false prescriptions;
• Claiming for services not provided (enhanced services);
• Raising false prescriptions for self-medicating; and
• Accepting bribes to register overseas visitors.
5.22 The best estimate of the cost of fraud in this area therefore
has to be based on the healthcare global average fraud
loss rate. If we apply this figure then fraud losses would
equate to £348 million.
General Dental Services
5.23 According to the NHS England Annual Report for 2013-
2014, £3.01 billion was spent on General Dental Services
(GDS). There have been six NHS loss measurement
exercises considering the cost of fraud in GDS. The
average loss rate is 4.03%.
5.24 Examples include that of Joyce Trail, the Birmingham
dentist jailed for 7 years in 2012 for stealing £1.4 million
from the NHS and dentists have also been found to claim
for higher numbers of Units of Dental Activity than actually
provided.
5.25 If we apply this 4.03% percentage to GDS expenditure,
fraud losses would equate to £121 million. If we apply the
healthcare global average fraud loss rate, then this figure
would be £137 million.
Pharmaceutical Services
5.26 According to the NHS England Annual Report for 2013-
2014, £2.1 billion was spent on Pharmaceutical Services
(PhS). There have been six NHS loss measurement
exercises considering the cost of fraud in PhS. The average
loss rate is 3.97%.
5.27 Examples include a case where a pharmacist purported
to dispense a much greater volume of drugs than was
actually the case, thereby wrongfully obtaining over
£200,000. Fraud also takes place where pharmacists claim
for services not provided and fail to declare prescription
charges which have been collected.
5.28 If we apply this 3.97% percentage to PhS expenditure,
fraud losses would equate to £83 million. If we apply the
healthcare global average fraud loss rate, then this figure
would be £96 million.
General Optical Services
5.29 According to the NHS England Annual Report for 2013-
2014, £0.523 billion was spent on General Optical Services
(GOS). There have been nine NHS loss measurement
exercises considering the cost of fraud in GOS. The
average loss rate is 2.47%.
5.30 Examples include opticians claiming NHS allowances for
individuals who are not entitled, creating ghost patients and
claiming for the provision of phantom sight tests.
5.31 If we apply this 2.47% percentage to GOS expenditure,
fraud losses would equate to £12.9 million. If we apply the
healthcare global average fraud loss rate, then this figure
would be £23.9 million.
Patient charges – prescription charge fraud
5.32 The NHS last undertook a loss measurement exercise
concerning prescription charges in 2013-2014. The report
concerning this exercise has not been published but was
referred to in the media10 on 30 December 2014. The
media article states ‘The Department of Health estimates
29.4 million prescriptions were wrongly handed out for
free last year at a cost of £237million.’ and then goes on
to quote the health minister Dr Daniel Poulter. The figure of
£237 million compares to a figure of £47 million in 2003.
10 The Daily Mail – 30 December 2014

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5.33 It is not known how the Daily Mail obtained this information
but there is no record of it having been challenged by
the Department of Health. It would therefore not be
unreasonable to accept this figure of loss for 2013-2014.
Patient charges – dental charge fraud
5.34 The NHS has not undertaken a loss measurement exercise
concerning dental charge fraud since 2007-2008. The
report concerning this exercise reveals losses of £36.3
million and a loss rate to fraud of 3.8%.
5.35 If we use the Bank of England inflation calculator these
losses equate to £43.9 million in 2013-2014 (assuming that
no other factors have caused this figure to rise or fall).
Patient charges – optical charge fraud
5.36 The NHS has not undertaken a loss measurement exercise
concerning optical charge fraud since 2007-2008. The
report concerning this exercise reveals losses of £18.9
million and a loss rate to fraud of 3.0%.
5.37 If we use the Bank of England inflation calculator these
losses equate to £22.9 million in 2013-2014 (assuming that
no other factors have caused this figure to rise or fall).
NHS losses
5.38 If we take these figures together:
• Payroll expenditure £555 million - £1.49 billion
• Procurement expenditure £1 billion - £1.27 billion
• General Practice £348 million
• General Dental Services £121 million - £137 million
• Pharmaceutical Services £83 million - £96 million
• General Optical Services £12.9 million - £23.9 million
They represent losses in these areas of expenditure of
between £2.12 billion - £3.36 billion.
5.39 The areas of expenditure which have been studied
(above) represent 61.8% of NHS expenditure for 2013-
2014. If we extrapolate these figures across the totality of
NHS expenditure then the losses would be between £3.43
billion - £5.44 billion.
5.40 It is then necessary to add the figure for lost income from
patient charges:
• Prescription charge fraud £237 million
• Dental charge fraud £43.9 million
• Optical charge fraud £22.9 million
These three areas of fraud represent total losses
of £303.8 million.
5.41 If we add losses to expenditure and income then
total losses to the NHS would be between
£3.73 billion - £5.74 billion.
5.42 Several points arise from this analysis:
• The NHS’s own loss measurement exercises (now sadly
almost completely curtailed) do not show significantly
different loss rates from those found globally in other
healthcare organisations (and highlighted in previous
reports of this type);
• The level of loss is significant and is likely to undermine
the NHS’s capacity to provide patient care of the quality
which it wishes to;
• These losses can be reduced substantially. This is
not just shown globally but from the NHS’s own
history between 1998 and 2006, where, losses were
substantially reduced and fell significantly below the
healthcare global average loss rate.
So what is to be done?
5.43 So what is to be done? It is the view of the authors of this
Report that there are three first steps for the NHS to take
to reduce the cost of fraud:
1) The NHS needs to re-adopt an approach which
is focussed on reducing the cost of fraud not just
investigating and prosecuting individual examples
(although this is important too);
2) It therefore needs to re-commence loss measurement
exercises across key expenditure streams. It is only with
accurate knowledge about the nature and extent of
fraud that proportionate, effective action can be taken to
reduce its extent;
3) It needs to re-create a powerful, well-resourced
organisation to lead this work with a remit and authority
across all parts of the NHS.
10 The Daily Mail – 30 December 2014

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6.1 This Report renews research into accurate information
concerning the extent of losses to healthcare fraud
(and error). Without such information it is impossible for
healthcare organisations to properly prioritise the problem
or to invest proportionate sums in solving it.
6.2 The research demonstrates that it is possible to measure
the nature and extent of healthcare losses – and to reduce
them. It may be embarrassing for some organisations to
find out just how much they are losing but it is possible to
do this.
6.3 The report is based on global research and highlights a
global healthcare average loss rate both for fraud (and
error) and for fraud alone. However, it also focusses on the
UK’s National Health Service and shows what the issues
and problems are there, making some recommendations
for improvements, including recommencing work to
measure and reduce losses.
6.4 Because of the direct, negative impact on human life
caused by healthcare losses, it is never easy to admit they
take place. However, the first step to reducing losses is to
stop being in denial about them. If an organisation is not
aware of the extent or nature of its losses, how can it apply
the right solution and reduce them?
6.5 Where losses have been measured, and the organisations
concerned have accurate information about their nature
and extent, there are many examples where losses have
been substantially reduced. Indeed, these examples
include historic success in the UK’s National Health Service
(the second largest organisation in the world) between
1999 and 2006, where losses were reduced by up to 60%,
and by up to 40% over a shorter period.
6.6 Four things are clear:
• losses to healthcare fraud (and error) can be measured –
and cost effectively;
• on the basis of the evidence it is likely that losses in any
healthcare organisation and any area of expenditure, will
be at least 3%, probably more than 5% and possibly over
10%;
• with the benefit of accurate information about their
nature and extent, they can be reduced significantly;
and
• countering fraud effectively could free up considerable
resources for better patient care, whether in the UK or
globally.
6.7 The authors of this Report hope that it focuses attention
on the problem of healthcare fraud (both in the UK and
globally) and on the potential benefits to be derived from
starting to solve it.
6 //
Conclusion

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Jim Gee is Director of Counter Fraud
Services at PKF Littlejohn LLP, a leading
accountancy and business services firm and
Visiting Professor and Chair of the Centre
for Counter Fraud Studies at University of
Portsmouth. During more than 25 years as
a counter fraud specialist, he led the team
which cleaned up one of the most corrupt local authorities in the
UK – London Borough of Lambeth – in the late 1990s; he advised
the House of Commons Social Security Select Committee on
fraud and the Rt. Hon. Frank Field MP during his time as Minister
of State for Welfare Reform; between 1998 and 2006 he was
Director of Counter Fraud Services for the Department of Health
and CEO of the NHS Counter Fraud Service, achieving reductions
in losses of up to 60% and financial benefits equivalent to a 12:1
return on the costs of the work.
Between 2004 and 2006 he was the founding Director-General of
the European Healthcare Fraud and Corruption Network; and he
has since worked as a senior advisor to the UK Attorney-General
on the UK Government’s Fraud Review. He has also worked with a
range of healthcare organisations, companies and charities as well
as delivering counter fraud and regulatory services to companies
both in this country and internationally. His work has taken him to
more than 35 countries to counter fraud and he has advised the
Chinese and New Zealand Governments about how to measure,
pre-empt and reduce the financial cost of fraud. 2013 also saw
him jointly author a book – ‘Countering Fraud for Competitive
Advantage’ – with Professor Mark Button, which was published
by Wiley.
Professor Mark Button is Director
of the Centre for Counter Fraud Studies.
He has written extensively on counter
fraud and private policing issues,
publishing many articles, chapters and
completing six books with one
forthcoming:
• Private Security (published by Perpetuity Press and
co-authored with the Rt. Hon. Bruce George MP);
• Private Policing (published by Willan);
• Security Officers and Policing (Published by Ashgate);
• Doing Security (Published by Palgrave);
• Fraud, Corruption and Sport (Published by Palgrave with
Graham Brooks and Azeem Aleem)
• Studying Fraud as White Collar Crime.
With Jim Gee he wrote a book (published globally by Wiley) called
‘Countering Fraud for Competitive Advantage’ and the ‘Accredited
Counter Fraud Specialists Handbook’. The former highlights the
financial benefits to be obtained from countering fraud effectively.
He is also a former Director of the Security Institute. Mark founded
the BSc (Hons) in Risk and Security Management, the BSc (Hons)
in Counter Fraud and Criminal Justice Studies and the MSc in
Counter Fraud and Counter Corruption Studies at Portsmouth
University and is Head of Secretariat of the Counter Fraud
Professional Accreditation Board (CFPAB).
Before joining the University of Portsmouth, he worked as a
research assistant to the Rt. Hon. Bruce George MP specialising
in policing, security and home affairs issues. He completed his
undergraduate studies at the University of Exeter, his Masters
at the University of Warwick and his Doctorate at the London
School of Economics. Mark has also worked on a research
project funded by the National Fraud Authority and ACPO
looking at victims of fraud.
About the authors

THE FINANCIAL COST OF HEALTHCARE FRAUD 2015
© PKF LITTLEJOHN LLP AND UNIVERSITY OF PORTSMOUTH 2015 PAGE 14
About the publishing organisations
PKF Littlejohn Counter Fraud and Forensic Services
PKF Littlejohn is one of the leading firms of accountants and business
advisers in the UK and the London member of PKF International.
We offer a full range of forensic services on a national and international
basis including:
• Counter fraud services which focus on measuring, managing and
minimising fraud as a business cost
• Expert investigation and litigation support
• Professional counter fraud training
• Business intelligence services – undertaking due diligence work
across the world
• Advice on combating bribery and corruption
• Advanced data analytics.
About PKF
In the UK and Ireland, PKF International is represented by six PKF
member firms - PKF Littlejohn, PKF Cooper Parry, KLSA, Johnston
Carmichael and PKF-FPM and PKF O’Connor, Leddy & Holmes. They
have a combined fee income of £78m, with services delivered by 1,000
partners and staff.
The PKF International network has close to 300 member firms and
correspondents in 440 locations in 125 countries providing accounting
and business advisory services. PKFI member firms have around 2,270
partners and nearly 22,000 staff.
www.pkf-littlejohn.com
The Centre for Counter Fraud Studies (CCFS) is one of the specialist
research centres of the Institute of Criminal Justice Studies, formed in
2009 to accommodate the growing interest in counter fraud that has
occurred within the Institute over the last ten years. The Centre aims to
collate and present the widest possible range of information regarding
fraud and the solutions applied to it, and to undertake and publish further
research where needed. Additionally, the Centre’s Fraud and Corruption
Hub gathers the latest thinking, publications, news and research in one
central resource for counter fraud professionals.
www.port.ac.uk/centre-for-counter-fraud-studies

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