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Financial fraud costs the NHS more than £5 billion a year

Most of this is occurs in the payroll, procurement and pharmaceutical services, claims analysis

Caroline White

Thursday, 24 September 2015

Financial fraud is costing the NHS more than £5 billion a year, suggests an analysis* jointly published today by the Centre for Counter Fraud Studies and accountants PKF Littlejohn.

Most of this loss occurs in payroll, procurement, and pharmaceutical services fraud, suggests the analysis, which updates research first undertaken in 2009 and repeated in 2011 and 2013.

It draws on the latest, accurate, statistically valid information from around the world about the true cost of healthcare fraud (and error) spanning a period of 17 years.

The World Health Organization (WHO) has cited fraud as one of the 10 leading causes of inefficiency in health systems, says the report, which emphasises that it is “a serious and growing problem for all sectors.”

The research shows losses to average 5.6% across all sectors, but to be even higher in healthcare at 6.1%, ranging from 0.6% to 15.4%. These losses have risen by almost 30% since 2007.

As a running average, taking account of 17 years of data, when expressed as a proportion of global healthcare expenditure for 2013 equates to £299 billion ($455 billion or €350 billion) or almost three times the NHS’s total budget of £109.7 billion for 2013-2014.

If healthcare organisations reduced these losses by 40%, which some have achieved, it would free up more than £120 billion ($182 billion or €140 billion), the analysis finds.

But far too little attention is paid to the problem, the report suggests. “In almost every other area, healthcare organisations know what their costs are – staffing costs, accommodation costs, utility costs, procurement costs and many others.

“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,” it points out.

The NHS used to have a programme of measuring the cost of fraud (and error). Between 1998 and 2006, 15 loss measurement exercises took place. A further six exercises were carried out between 2007– 8. But only two took place in 2009-14.

Based on the global average fraud loss rate this would mean that the NHS lost £5.01 billion every year.

The largest area of losses as a result of fraud is the NHS payroll, says the report. A loss measurement exercise in 2008, examining payroll expenditure in 2003-2004 across the total payroll budget, showed that total expenditure was £26.8 billion.

The exercise found that the cost of fraud represented 1.7% of the total cost, but that the fraud prevalence rate was 3.4%, indicating that most fraud of this type is high volume, but low value.

While very few ghost employees were found, there were significant losses for incorrectly received allowances (3.2%); incorrectly claimed employment histories (6.8%); and incorrectly claimed qualifications (6.8%).

Applying the 1.7% figure to 2013 payroll expenditure would equate to fraud losses of £555 million, rising to £1.49 billion if the healthcare global average fraud loss rate is applied, the calculations indicate.

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, says the report.

The best estimate of the cost of fraud in this area therefore has to be based on the healthcare global average fraud loss rate, which would equate to £348 million, it calculates.

The report additionally calculates losses due to fraud of £1- £1.27 billion for procurement; £121- £137 million for general dental services; £83 - £96 million for pharmaceutical services; and £12.9 - £23.9 million for general optical services.

The NHS last undertook a loss measurement exercise for prescription charges in 2013-2014. The report has not been published but was referred to in media reports to be in the region of 29.4 million prescriptions wrongly handed out for free last year at a cost of £237 million, which compares to a figure of £47 million in 2003.

* Jim Gee and Professor Mark Button. The Financial Cost of Fraud 2015 What the latest data from around the world shows. Centre for Counter Fraud Studies and PKF Littlejohn LLP, 2015

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