PKF Littlejohn: Fraud costs NHS over 5 billion a year

05 January 2016

Fraud and error cost the global healthcare system around £299 billion, a recent study claims. Data from seven countries highlights that error and fraud remain major cost posts for healthcare institutions, many of which are already strapped by rising costs. The research finds that the NHS might be losing £5.01 billion per year to fraud alone – although this figure remains disputed by the Department of Health.

The healthcare system is complex and involves a wide range of bodies working together in a host of ways to produce its results. Much of that work, and the monetary exchanges there for, goes on behind the doors of everyday activity. While much of what goes on behind the doors of everyday activity can be accounted for, some of it cannot. Either through fraud or error, money intended for one thing ends up somewhere else. Given the volumes involved, discovering how much of what goes on is lost to error and illicit activity is no easy feat.

PKF Littlejohn, in its released report titled ‘The Financial Cost of Healthcare Fraud Report 2015’*, seeks to quantify how much money is improperly used every year by global health institutions, as well as the NHS. The report estimates the cost of error and fraud by leveraging past analysis, taking into account of loss measurement data from 1997 to 2013, and reports on a total of 107 exercises. The report covers 14 different types of healthcare expenditures totalling over £2.91 trillion ($4.44 trillion), in 33 organisations from 7 countries.

High, low average costs from error and fraud

Global costs
According to the report, the percentage costs from fraud and error uncovered for the countries involved, amount to between 0.60% and 15.40%, with an average of 6.19%. In absolute terms, when expressed as a proportion of global healthcare expenditure for 2013 (£4.83 trillion), this equates to £299 billion. Almost three times the total budget of the NHS's £109.7 billion for 2013-2014. The number has not remained static according to the data. Over the period 2008-2013, the average level of error or fraud increased by 10.7% relative to the period 1997 to 2007. The increase is in part due to a decrease in the active search for error or fraud within institutions. 

Increasing costs from error and fraud

The research does highlight that the high end of this analysis is less common than the low end, as the researchers find that 30.77% of the exercises turned up a loss of <3%, while 57.69% were in the range between 3-8%. The high end (>8%) occurred only in 11.54% of cases. The research also distinguishes between fraud and error. Fraud accounts for around three-quarters (73.8%) of the losses, while error makes up the remaining quarter (26.2%).

Costs breakdown from error and fraud

In terms of the NHS, there were 23 loss measurement exercises completed over the past two decades. The largest number occurred between 2008 and 2006, with 15 exercises, followed by 6 exercises between 2007 and 2008, and 2 between 2009 and 2014. The low number of exercises in recent years highlights that the issue has become less of a concern, while also highlighting – so say the researchers – that making it a concern may be able to easily uncover considerable savings for the institution as government policy comes to bite.

Error and fraud measurement exercises for NHS

Total NHS costs
The exercises, with a relatively low sample size in recent years, show divergent results. The high end ranges between 9.5% and 3.8%, while the low fraud loss result is in the range of between 5.8% and 1.6%. The two figures are seen converging in the 2009 - 2014 period, to an average of around 3.5%. This compares to the global fraud rate of 4.6%. In absolute terms this means that £5.01 billion was lost on average annually.

NHS fraud losses

The Department of Health however disputes this figure, arguing that the data is too speculative and not rich enough to reach a meaningful conclusion, a DH spokesperson remarks that: “The breadth of the health and care system, and the differences in processes and risk across the sectors, makes it impractical to calculate a total value for the financial loss due to fraud. The figures produced in the PKF report can only be regarded as highly speculative.”

* The report has been created in association with the Centre for Counter Fraud Studies at University of Portsmouth.