5 Simple Strategies to Stop Healthcare Theft in Its Tracks

Did you know that roughly three to ten percent of total healthcare costs are attributed to theft and fraud?

That’s a staggering number, considering the US spent $3.6 trillion on healthcare in 2018 and $4.3 trillion in 2021. Three to ten percent translates into $300 to $400 billion.


These are big numbers. But make no mistake: any degree of theft can add up to big losses over time and jeopardize the health of the practice.

I talked about embezzlement and employee theft in last week’s podcast.

Today, let’s go over simple strategies to help stop theft and embezzlement in its tracks… before it’s too late.

1. Understand the Risks

Theft and embezzlement are a problem across all industries, including healthcare.

While challenging for all, bigger healthcare organizations may be better equipped to deal with it, even though there are steps even the smallest office can take to guard against theft and embezzlement.

The first step is acknowledging and understanding the potential risk areas for fraud in the practice.

Theft and embezzlement may come in different shapes and forms, including:

  • Cash Theft: the direct stealing of cash from the practice, often from petty cash or patient payments.
  • Fraudulent Billing: may involve creating fake patient accounts or inflating bills to siphon off funds.
  • Payroll Fraud: employees might manipulate time sheets or create ghost employees to receive extra payments.
  • Data Theft: stealing patient information for sale or personal use.
  • Supply Theft: Pocketing medical supplies, drugs, or office equipment, which can be costly.

2. Recognize Warning Signs

Running a small office with a handful of employees is a balancing act…

You’re the boss. You’re friendly with your employees; sometimes, you’re also a friend.

At the same time, this is your business, and you want to be aware of potential warning signs indicating your practice is headed for trouble.

Specifically, you want to be aware of financial and behavioral red flags.

Financial Red Flags

  • Look for discrepancies in your financial records, such as unexplained deficits, entries, or irregularities in bookkeeping.
  • Recognize inconsistent cash flow patterns and unaccounted expenses.
  • Notice frequent changes in financial procedures without clear need or justification.

When you notice a red flag, stop and take a closer look. Investigate and ask questions until you get to the bottom of the issue and resolve it, no matter how small the discrepancy.

If it turns out the issue was a mistake or a misunderstanding, great.

But at the same time, your actions let staff know you’re paying attention. You may discourage future theft and embezzlement.

Behavioral Red Flags

Being mindful of employee behavior may feel uncomfortable, but it’s worth paying attention to.

  • Does one of your employees seem to be living beyond their means or displaying a sudden lifestyle change? Proceed with caution here. While the person may have come into an inheritance or entered a new relationship… they could also be dipping into practice money.
  • An employee may be hesitant to go on vacation or share job responsibilities, which could indicate the person is trying to cover their tracks, preventing their fraud from being discovered.
  • Other times, employees who engage in fraud may display overly defensive behavior when questioned about financial matters.

You’re put in an awkward position when you suspect theft or embezzlement. However, it’s imperative you set aside your feelings and deal with the problem head-on.

3. Establish Controls

This is where you have the greatest leverage, establishing effective controls with your systems and processes.

Once developed, put to paper, and implemented, they are your biggest ally in keeping everyone honest and preventing fraudulent activities.

Financial Controls

Review the Flow of Money

Understand the flow of money through your office.

  • When is it collected, what forms of payment are accepted, how is it recorded, when is it deposited, and by whom?
  • If possible, assign two people to handle the cash in your practice. You could have each person take different aspects or require a second employee to verify the numbers.
  • Who orders supplies and pays the bills for the practice? How are they paid? By check or credit card? Who is authorized to sign checks on behalf of the practice? Don’t pre-sign checks and require dual signatures for all checks or checks above a certain amount. What type of reporting is required of the person authorized to sign checks?
  • Assign different aspects of practice finances (receipts, disbursements, reconciliations) to other staff members if possible. Implement approval processes for refunds or adjustments.
  • Ensure that no single employee controls all parts of a financial transaction.

Review Financial Reports

Familiarize yourself with basic financial reporting.

  • Make sure that all reports from your financial system are always accessible to you. Review financial reports at regular intervals, at minimum monthly. Not only will it help you detect trends and discrepancies, but it will also help you assess the financial standing of your practice.
  • Even though you may be pressed for time, schedule regular meetings to discuss financial matters with the appropriate staff member.
  • Ask for reports ahead of time, i.e., the morning of a noon meeting, so you have time to review. These meetings don’t have to take much time. However, meeting regularly lets you keep tabs on what goes on with your finances.

Regular and Surprise Audits

Implement checks and balances in your accounting procedures. Audit your financial practices for accuracy and efficiency on a regular schedule. Additionally, surprise audits may be particularly effective as they prevent employees from preparing cover-ups.

Hiring Practices and Employee Management

  • When hiring to fill a position in your practice, always complete a thorough background check, including drug testing. Verify previous employment, contact references, and check criminal history.
  • Ensure that job roles and responsibilities are clearly defined and understood. Regularly review and update job descriptions to reflect any changes in roles or responsibilities, especially as they relate to financial handling.
  • Managing employees should include regular performance reviews to assess employee behavior and job satisfaction.
  • Be sensitive to those in jobs with financial responsibilities and look for any signs of undue stress or pressure, which can sometimes lead to unethical behavior.
  • Foster a supportive work environment where employees feel valued and are less likely to engage in fraudulent activities. Schedule regular employee meetings to discuss current practice issues and collect employee input and feedback.
  • Encourage employees to report any suspicious activities without fear of retaliation. Establish a clear, anonymous reporting mechanism for unethical behavior and ensure that whistleblowers are protected from harassment or professional repercussions.

4. Utilize Technology

Wherever possible, utilize technology to help prevent or spot theft and embezzlement in your practice.

Leverage technology for secure financial management and work toward automating processes to help minimize human error and oversight.

Financial Software

  • Use accounting and other software to help manage finances and flag irregularities, such as unusual billing patterns or discrepancies in financial records.
  • Automated systems not only reduce manual data entry errors, but they also make it harder for people to manipulate financial data.
  • If possible, use some form of electronic inventory management software. It will help track medical supplies and equipment, minimizing the risk of physical theft.
  • And be sure to set up alerts for when inventory levels don’t match logged usage or purchases.

Safeguard Data

Protect patient data and financial information through solid and up-to-date security protocols.

Ensure that security software is updated regularly, all employees use strong passwords, and employees get training in cybersecurity best practices.

Control Access

Limit who has access to sensitive financial information and accounting systems and give access to only those who need it.

You may also consider implementing user-level permissions and tracking logins and activities within financial systems.

5. Insurance and Legal Advice

  • Depending on your practice, you may consider insurance coverage for employee theft and embezzlement.
  • Do your due diligence before deciding to add such coverage. If you purchase insurance, regularly review and update it to ensure adequate coverage as your practice grows or changes.
  • Additionally, you want to obtain legal advice when drafting employment contracts and policies to ensure they include clauses related to theft and embezzlement.  
  • You may also get legal advice when creating and updating employee handbooks that address theft and embezzlement policies.

In the Event of …

In the event you suspect or discover theft, embezzlement, or some fraud in your office, act at once and respond immediately.

  • Start by initiating an investigation (discreetly, if possible) to collect all the facts. You may consider obtaining legal counsel to ensure that the steps you take are legally sound and won’t hurt you down the road.
  • Secure all relevant documentation and evidence. If the employee stays on for any reason, limit their access to practice resources.
  • Remember to document everything you discover, what you’ve been told, and the steps you take in response.  Be extra thorough with your documentation.
  • Make sure you talk with other staff members in a way that maintains confidentiality and avoids potential claims of defamation.
  • Decisions on whether to prosecute will be best made in consultation with legal counsel.

Once the incident has been resolved, it’s time to review the relevant internal processes and controls to identify and rectify any weaknesses.

Instead of blaming yourself for the incident, look at it as a learning opportunity to improve your systems and procedures so they will be stronger going forward.

Finally, remember the importance of staying aware.

Theft and embezzlement happen across the board, including in healthcare offices, small and large.

When undetected, they can put you out of business, potentially leaving you with a huge mess to clean up…

While there is no guarantee that theft and embezzlement won’t happen in your practice, your biggest lever against them includes:

  • Staying aware
  • Implementing tight controls
  • Letting people know you’re paying attention
  • Using technology tools to shore up protection
  • Immediate response to any occurrence, no matter how small

Have you encountered theft, embezzlement, or fraud in your office? What was your experience, and what was your response?

Please share your experience with us; we want to know; leave your comment below.

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