Medical practices take steps to prevent employee embezzlement

U.S. medical practices lose more than $25 billion annually through embezzlement, according to Medical Group Management Association estimates.

In an MGMA survey of 946 medical practices, 83% reported being victims of embezzlement at some point in their operation, Cynthia A. Matossian, MD, FACS, told Ocular Surgery News.

“It is so prevalent that the readers of this article are likely to be among the 83% who have experienced embezzlement in their practices,” she said. “You must be hypervigilant and engaged as a physician to minimize the risk. You don’t have to be the senior partner nor the managing partner in a practice to notice when things may just not be adding up.”

High-dollar theft

High-dollar thefts, defined as $100,000 or more, accounted for 93% of the total losses reported in the MGMA study.

In a 2017 Hiscox Embezzlement Study, 5.1% of all embezzlement cases in the country were in the health care industry, with a median loss of $437,106 per incident.

Practices will lose between 5% and 10% of revenue to fraud every year, and 85% of perpetrators are first-time offenders. Incidents of embezzlement, on average, are discovered between 8 and 24 months after they are perpetrated. Additionally, 17% of thefts go undetected for more than 2 years, Matossian said in a presentation on the topic at OSN New York 2018.

Source: Dalbir Kaur

The problem is so overwhelming that practice owners should realize that embezzlement is not a matter of “if” but “when,” OSN Cataract Surgery Section Editor John A. Hovanesian, MD, FACS, said.

“It doesn’t matter if you’re a small or large practice. There will be some type of incident where someone is taking advantage of their employment, from writing checks for their own personal expenses from the company account, to taking home the coffee creamer, to cheating on the time clock. It’s a problem,” he said.

Business training

Physicians may not have much, if any, business training when they go into practice for themselves. In most owner-run businesses, the owner is not part of the production. In medicine, the doctor is the “product,” and doctors directly provide the main service of the practice, Hovanesian said.

“Any time in our business when we’re not in front of patients doing what we do best, we’re losing money. That means we must delegate the other duties, delegating our business to other people. And usually that means people we’ve hired,” he said.

Physicians have been trained throughout medical school to be honorable and trustful and to treat patients fairly, so it can be a shock when an employee is discovered treating the practice in a dishonest way, he said.

To dissuade dishonest behavior, every practice should have a set of iron-clad rules and standards by which employees agree to abide. This way, there is no leeway when it comes to employment status if they are found breaking one of these rules, Hovanesian said.

“Our employee handbook, as well as our expectations, for all employees requires them to report any illegal or improper business practice to their superior,” he said. That includes not only embezzlement but also incorrect or inappropriate billing.

“They need to let us know because they could be right. If they are required to report anything dishonest, it makes them part of the solution,” he said.

Gathering evidence

When embezzlement is detected, a practice owner must react quickly, aggressively and sometimes “painfully proactively” to address the incident. The employee should be immediately separated from the workplace and put on temporary paid leave while the incident is investigated, Hovanesian said.

Information and evidence should be gathered, and an investigation within the practice must take place before a decision on the employee is made, he said.

“If you need to collect information, you put them on temporary paid leave while you investigate and then you can terminate if you find something. There are a variety of things you can and must do because you set an example for other employees and for your practice. If there is any tolerance of stealing, it sends a message that, well, Susie got away with it because she worked here for 15 years, so the rest of us can get away with it, too. Unfortunately, there needs to be no tolerance at all,” Hovanesian said.

Candace S. Simerson, FASOA, COE, CMPE, president and founder of iCandy Consulting, told Ocular Surgery News that the practice’s legal counsel should be contacted immediately as a risk management strategy if embezzlement is suspected.

Every set of circumstances is unique, so a practice owner needs to ensure the practice is going through the right legal processes of an investigation and handling actions appropriately, she said.

“You do not want to put yourself at risk. Maybe you suspect an employee and it seems certain, but you haven’t checked it out thoroughly, or there may be some other steps or factors at play. It’s a cost-effective solution; it’s just one call to your representative to give them the circumstances and for them to help outline the right process to go through so you end up in the right spot and handle it immediately,” Simerson said.

Pressing charges

If it is determined that the employee is, indeed, embezzling from the practice, it is important for the practice to not only terminate the employee’s contract but also to contact the authorities and press charges, Simerson said.

According to the MGMA survey, 86% of employees who were determined to be embezzling were terminated, but 62% were not reported to the authorities, she said.

“Those people are then back on the market and getting other jobs. That’s also why background checks are becoming more and more important in the medical industry, especially if those potential employees will be handling money in their position,” she said.

A human resources employee, whether full-time or contracted, can be invaluable for a practice when it comes to making difficult personnel decisions, Lisa K. Feulner, MD, PhD, a board certified ophthalmologist in private practice in Maryland, told Ocular Surgery News.

Physicians do not have the expertise to determine what is legal or illegal when it comes to terminating an employee suspected of embezzlement, whereas a human resources employee can help guide decision making and course of action, she said.

“They keep up on the law, the policies, and employee and employer rights and procedures. We can’t hope to know what those are. I rely on my HR employee to guide me in those situations. The rules change. The rules are state dependent. There are so many things we have to keep up on, so there are certain things you have to delegate,” she said.

Learn the business

Having a better grasp on basic business knowledge could go a long way toward ensuring practice success and staving off potential embezzlement opportunities, Feulner said.

“There’s no question in my mind that if I had a better grasp of the business side early on, a lot of the things that have happened to me wouldn’t have happened. I’ve been forced over the years to understand more about the business, but early on I really didn’t have much of an idea. I opened my private practice 15 years ago, and it’s taken me the slow road to figure out what all the numbers mean and how they’re related, how to calculate the different things that go into running a business. What is payroll? What goes into payroll? How it’s not just an hourly rate that you pay people. What’s the total cost of hiring an individual? If you don’t know those things, you can be lost,” she said.

If business courses or classes were offered at the American Academy of Ophthalmology or American Society of Cataract and Refractive Surgery annual meetings, they would be valuable for ophthalmologists running their own practices, Feulner noted.

A better understanding of the bottom line, how all choices affect overhead and strategies to reduce costs would help physicians recognize when they are putting their practice at risk, she said.

“What are the choices being made for me in my practice? Only through that do you really know if you’re losing money consciously or unconsciously, meaning if someone is stealing your money or if they’re just wasting your money. We don’t have a grasp on that. It takes time. Especially for those of us involved in industry and who have families, our time is so limited, but this is so critically important. If I could do it all over again, I’d walk back 5 years to when my practice really exploded and do things very differently,” she said.

Audits and safeguards

The most effective strategy to counteract embezzlement may be to conduct an annual audit of all business practices, Feulner said. Regular external audits can reveal financial mistakes, missing funds or inconsistencies that may be difficult to otherwise identify.

“I think external audits are essential. Fifteen years into this, I’m wishing that I had done this before. There are so many places for improvement and so many holes in the system, but you just don’t know what to look for. When you’re a physician, you just think I will hire the right people, they’ll help me in the office and help me be this great surgeon and doctor, and everyone will be happy. But sometimes it doesn’t work out that way,” she said.

Practice owners can also purchase software programs and tools to automate financial reconciliation and detect anomalies in payments or practice finances. Some programs can automatically send updates or alerts in real time, which may be more effective than bringing in an outside company to periodically look at a practice’s finances, Simerson said.

These tools can safeguard a practice, increase financial efficiency and reduce the opportunities employees have to steal, she said.

“How and why do honest people steal? The rule of thumb is 10% of employees will always steal, 10% will never steal, and 80% will steal under the right circumstances. The key is that you don’t give them the opportunity. If you have the inventory systems, the checks and balances, the software programs, and your employees are aware you have the processes in place to do these audits, then the 80% won’t do it so they don’t get caught,” Simerson said.

Everyone plays a role

Clear-cut and defined employee roles for all financial aspects of a practice should be instituted. No one employee should oversee every financial aspect in a practice, a mistake commonly made by many owners, Hovanesian said.

For example, a front desk employee who is in charge of bank reconciliation should not also oversee writing checks for the office or paying vendors. Giving too much financial power to one employee makes it difficult to detect inappropriate payments or reimbursements, he said.

“We had an incident in our practice where an employee was writing checks to buy supplies, returning them, and then they were getting a cash or check refunded to them. Luckily, it was caught by the bank when they recognized the signature wasn’t valid and alerted us,” he said.

Technology as a defense

After the check incident, Hovanesian said his practice began using Bill.com, a web-based banking system designed to help businesses manage, control and pay expenses. The system evaluates and reviews every check and credit card payment coming out of the practice. Each check issued by the practice must be signed off by a practice administrator, and the entire system is password protected, Hovanesian said.

“Now, nobody can simply forge a signature on a check. Everything is done through the system,” he said.

Digital fingerprint recognition time clock systems can also tamp down time clock fraud, a common form of embezzlement in health care practices, Matossian said.

Time clock fraud can result in hundreds of hours of overtime billed to a practice. Employees engaging in this practice either clock each other in or out when they are not actually in the office or clock themselves in and pad their work hours before actually beginning their duties, she said.

“A huge expense to a practice is time clock fraud. If an employee is padding their daily hours by 15 to 20 minutes at the start and end of the day, it translates into overtime for the practice, which is time and a half, and costs the practice a lot of money. Time clock fraud has been a problem in our practice. When we discovered it, we changed our entire time clock and payroll system. Instead of having time cards that are punched, we implemented a finger registry digital time clock system,” she said.

Employees now clock in and out with a digital fingerprint. Only supervisors can approve overtime for an employee in the system, so employees cannot pad their hours and be paid undue overtime, she said.

An inventory management system to document and monitor the sale of products, such as omega-3 fish oil capsules, microwaveable masks and skin care products for aesthetic services, is important to have in place to deter theft, she said.

“We now have an inventory management system in place where the more expensive items are kept under lock and key. The products are not only kept under lock and key, but the keys are limited to our managers. We have an inventory system where sales of products are reconciled through our EMR system for inventory tracking purposes,” Matossian said.

Matossian noted she recently had a video surveillance system installed in her offices to deter theft.

Financial reconciliation

To ensure patient payments match their exams, sales and surgeries, every day Matossian’s practice has three reconciliation sessions to check that the finances, whether checks, credit card payments or cash at the front desk, match what is collected.

“You need to be engaged. You need to have an explanation for every write-off and for everything that’s been purchased. You need to know how many patients you’ve seen per month and the average revenue per encounter to calculate whether the incoming payments make financial sense. You need to have reports, and if you don’t know what reports to use, there are books out there to get, or you can hire a consultant to get you on the right track and then monitor your dashboard monthly. Without the physicians taking some responsibility and allotting a specific number of hours per week to seriously approach the business side of their practice, embezzlement will continue,” she said.

Not every employee is a potential thief, but taking precautions to avoid embezzlement is a necessity in every practice, Hovanesian said.

“I don’t mean to cast negative doubt on all employees, but over our careers we employ many different people and we don’t know everything about them before we hire them. They can often get into significant mischief before it is detected,” Hovanesian said. – by Robert Linnehan

• References
• Employee theft cost US businesses an average of $1.13 million in losses, according to 2017 Hiscox Embezzlement Study. www.hiscox.com/newsroom/press/2017-hiscox-embezzlement-study. Published Aug. 23, 2017. Accessed Oct. 1, 2018.
• Green C. Preventing employee embezzlement in your organization. www.mgma.com/data/data-stories/preventing-employee-embezzlement-in-your-organizat. Accessed Oct. 2, 2018.
• Matossian CA, et al. Embezzlement: What does it mean to your practice? Presented at: OSN New York 2018; Sept. 28-30, 2018; New York.
• McClure D, et al. Theft in group practices costs billions of dollars annually. MGMA Connexion. www.mag.org/georgia/UploadedFiles/mgma-resource-theft-grouppractice.pdf. September 2010.
• MGMA Stat: More than 4 out of 5 organizations take measures to prevent embezzlement. www.mgma.com/resources/operations-management/mgma-stat-more-than-4-out-of-5-organizations-take. Accessed Oct. 2, 2018.
• Report to the Nations on Occupational Fraud and Abuse: 2010 Global Fraud Study. Association of Certified Fraud Examiners. www.acfe.com/uploadedFiles/ACFE_Website/Content/documents/rttn-2010.pdf. Accessed Oct. 10, 2018.

• For more information:
• Lisa K. Feulner, MD, PhD, can be reached at Advanced Eye Care, 6095, 104 Plumtree Road, Suite 107, Bel Air, MD 21015; email: lisafeulner@yahoo.com.
• John A. Hovanesian, MD, FACS, can be reached at Harvard Eye Associates, 24401 Calle De La Louisa, Laguna Hills, CA 92653; email: drhovanesian@harvardeye.com.
• Cynthia A. Matossian, MD, FACS, can be reached at Matossian Eye Associates; email: cmatossian@matossianeye.com; website: MatossianEye.com.
• Candace S. Simerson, FASOA, COE, CMPE, can be reached at iCandy Consulting, Marana, AZ; email: candysimerson@gmail.com.

Disclosures: Simerson reports she is the president and CEO of iCandy Consulting. Feulner, Hovanesian and Matossian report no relevant financial disclosures.

Click here to read the , “What is the best practice for dealing with an employee who is caught embezzling from a medical practice?”