How vulnerable are dental businesses to fraud? 3 hard truths [Free quiz]

Embezzlement and fraud are a widespread problem in the dental industry. Embezzlement happens internally, and fraud sometimes occurs accidentally. Why are these two serious crimes so common in the dental industry — and how can dentists safeguard their businesses?

Exactly how common are fraud and embezzlement in the dental industry? The American Dental Association (ADA) spoke to Roger Levin, DDS, MBA, and chief executive officer of the Levin Group, who surveyed hundreds of dental offices. The ADA reports: 

“The data from questionnaires with his clients indicates that 35% of dental offices have been embezzled once, and 17% more than once — and these are just the offices that are aware that embezzlement has even occurred!” 

And you might read that and think, “Well, can’t dentists just catch the culprit, have them arrested, then get their money back?” That’s a reasonable question, but it’s not so simple in the dental industry. Recovery is costly, and oftentimes the embezzler is not prosecuted. he funds are not returned to the dentist, either.

According to Dentistry IQ, the top 4 reasons many dentists won’t do anything about embezzlement or fraud are:

1. Fear of bad publicity (39.0%)
2. Internal discipline considered sufficient (35.6%)
3. Private settlement reached (23.3%)
4. Too costly to prosecute (18.8%)

So, why and how is this happening in dental businesses? Where are the red flags, and what can dentists do to safeguard their businesses?

We did a deep dive on fraud and embezzlement in the dental industry to answer these questions, and we uncovered 3 hard truths.

If you happen to be a dentist, there is a quiz at the end of this article to assess just how vulnerable your business is to dental fraud. Use the results to guide your next steps in safeguard your dental business. 

Key takeaways on dental businesses managing the risks of fraud and embezzlement: 

• It can happen to anyone — and it does happen at most dental practices.
• Dentists should not blindly trust their employees, even if they’re family, or they’ve known them for years
• Eliminating opportunities plus multiple eyes on incoming revenue and dental insurance claims are keys to protecting a dental business

Hard truth #1: Dentists are more vulnerable because they don’t suspect dental insurance fraud or embezzlement will occur at their office

Dentists go to dental school and learn how to treat oral health, not how to run a business.  Because of this lack of education on best business practices, they often go about opening their first dental practice unaware of the pitfalls and challenges they’ll have to face.

Of course, there are things one can only learn along the way after starting a business, but the trend of dentists removing themselves from the business side of their practice is apparent, as you’ll see.

After being indicted, convicted, sentenced, jailed, and fined for dental fraud violations, Roy Shelburne, DDS now dedicates his time to educating dentists on common areas of fraud. When asked, “How aware would you say most dentists are of their office’s billing practices?” He answered that most were pretty oblivious.

“Most dentists are focused on the clinical aspect of the office, and how that runs, and are more than happy to delegate the responsibility for the business systems to someone else.” –Roy Shelburne, DDS via DocTalk

This lack of oversight opens the door for both fraud and embezzlement.

Is your dental business vulnerable to fraud? Take this quiz to find out: 

Fraud vs Embezzlement: Aren’t they the same thing?

When you’re reading about fraud and embezzlement within dentistry, they are often used interchangeably. But they’re actually two different crimes that involve two different parts of the dental business.

In purely legal terms, Hancock Law Firm differentiates the two:

“Fraud happens when someone intentionally cheats or misleads another person, generally for his or her own monetary gain. On the other hand, embezzlement occurs when a person entrusted with certain assets intentionally takes the assets for himself or herself.”

In a dental business, here are the ways fraud and embezzlement happen. 

Dental insurance fraud explained

According to the Colorado Dental Association, between 20% to 60% of dentists will be affected by fraud over the course of their career. Those are huge numbers — so how is fraud happening inside dental businesses, and why so often?

Dental insurance fraud is typically committed during the everyday dental insurance claim submission process — and it’s not always intentional.

Delta Dental shares 5 different ways dental insurance fraud typically happens:

1. Billing for unperformed services: It’s fraudulent to submit claims for services that were never performed or were not completed. 
2. Waiving deductibles or co-payments. Waiving required patient payments, such as their deductibles or coinsurance, is considered fraud because it misrepresents the total fee billed to insurance. 
3. Altering dates of service. Using incorrect service dates on claims can lead to fraud, especially if the date influences coverage, such as claiming treatment occurred before a plan's waiting period ended.
4. Submitting claims under the wrong patient's information. Filing a claim under one patient’s name to secure coverage for another patient is a clear example of fraud. 
5. Improper use of procedure codes. Unbundling procedures — that is, breaking a single service into multiple codes — or using inaccurate codes is not allowed.

Actually, some of these examples of dental insurance fraud occur accidentally by billers unfamiliar with CDT codes and claims guidelines, but we’ll get to that later in this article. Now let’s define embezzlement in a dental office. 

Dental office embezzlement explained

Embezzlement is less complicated, and it doesn’t involve dental insurance in the same way. Instead, it’s a direct attack on a dental business’ revenue.

In his interview with Dentistry IQ, David Harris, the CEO of Prosperident – Dentistry's Embezzlement Experts, explains: 

”Most embezzlement involves misappropriation of between 3% and 7% of monthly revenue. In an office billing $100,000 monthly, embezzling more than $75,000 per year is possible, and many offices bring in several times that.”

The table below estimates the financial impact of stolen revenue at a dental office. We used Harris’ figures to calculate just how much a business who brings in “several times that” could be losing to embezzlement:

Unfortunately, embezzlement is typically committed by a dentist’s employee, often one that has built trust with the business owner over years of working together — which leads us to our second hard truth.

Hard truth #2: The signs of fraud or embezzlement can be obvious, but sometimes they’re revealing honest mistakes

Pharmacists Mutual shares shocking figures:

“According to the National Health Care Anti-Fraud Association, of the $250 billion spent on dental care procedures annually, an estimated $12.5 billion, or 5%, is lost to dental fraud and abuse”

These are staggering numbers when seen across the entire industry — unsurprising, though, when the numbers for a single practice are huge amounts of revenue to simply disappear.

If the problem is this widespread and impactful, and also rooted in the essential processes of most dental businesses, there must be red flags that dentists and business owners are missing… right?

When fraud’s red flags are false

Sometimes there are red flags, but in the case of insurance fraud, those red flags can be merely signals for honest mistakes. Here are the highlights from our own article that details 4 common mistakes that lead to insurance fraud:

• Mistake #1: Incorrectly listing the treating dentist
• Mistake #2: Not disclosing the treatment is due to an auto- or work-related accident
• Mistake #3: Lack of education and training on insurance claim guidelines
• Mistake #4: Downcoding and upcoding through incorrect codes

Those mistakes can be due to a lack of dental insurance education and experience, not an intention to steal or do harm. But ignorance isn’t typically an excuse accepted in fraud cases like these, especially if the error is repeated often.

If a dental office is audited by their insurance provider and found at fault, it could face massive fines, and even jail time for the owner and staff. 

When fraud’s red flags fly true

So, now let’s assume someone is intentionally committing dental insurance fraud. Coxwell & Associates offers these 4 examples of purposeful dental insurance fraud which reinforce what we learned earlier from Delta Dental: 

1. Billing for services not rendered. Charging for procedures like fluoride or sealants when only a brief consultation occurred is fraudulent billing.
2. Altering dates of service. Changing service dates to bypass waiting periods or meet deductible requirements constitutes insurance fraud.
3. Misrepresenting services. Falsely diagnosing or using incorrect billing codes to boost reimbursements increases patient costs and is fraudulent.
4. Upcoding routine services. Reporting higher-cost procedures than performed, known as upcoding, violates ADA guidelines and inflates practice income unfairly.

This is a significant difference from fraud: Embezzlement is never accidental — it is always intentional. 

6 signs of embezzlement

Embezzlement is never the result of an innocent mistake. It is someone deliberately causing harm to a dental practice for their own financial gain.

The average amount of employee embezzlement from a dental office is approximately $105,000 per incident, which is a stunning amount. With this much revenue on the line, there are genuine red flags that dentists must be vigilant about.

The Dental Tribune lists these indicators of embezzlement:

• The dentist fails to receive financial information in a timely manner
• Employees are resistant to any type of change in the present accounting system
• The dental business has large numbers of unexplained accounting adjustments
• Collections have slowed
• Cash deposits have declined
• An employee refuses to take a vacation

But each of those can be easily dismissed as something else. Collections may have slowed because there hasn’t been sufficient outreach, for example. Especially when the embezzler is a trusted employee who has not given the dentist a reason to question their loyalty, it’s easy to give them the benefit of doubt.

So, these are helpful signals, but can a dentist truly tell if someone is embezzling?

Could you spot an embezzler?

There isn’t a profile of an embezzler that dentists can learn to easily spot offenders — it may be as much about opportunity as personality or a tendency.

Prosperident, a company that helps dental businesses combat embezzlement, posed the question, “Is there a psychological test that will allow you to flag employee dishonesty?”

It turns out, there is, but the results are discouraging.

A study called “The Use of Integrity Tests for Pre-employment Screening,” performed by the Office of Technology Evaluation of the United States Congress, found that integrity test accuracy was between 37% and 64%.”

With accuracy that low, dentists might think an integrity test isn’t worth their time. For peace of mind, it could be priceless, but there are more effective and reliable ways for dentists to protect their businesses. 

Hard truth #3: Safeguards to reduce dental businesses’ vulnerability to fraud and embezzlement are straightforward, but constant vigilance is required

There are several proven practices dental business owners can enlist to protect their businesses from unlawful activity. It’s a matter of recognizing the vulnerabilities and repairing them — but it’s not a “one and done.” Someone will always need to have an eye out for those red flags.

Townebank claims,

“The best prevention is education. As the business owner, it is your responsibility and obligation to be informed about what fraud is, and to ensure that all staff are held accountable for billing and processing claims properly.”

Dentists do not have the luxury of handing over the business side of their practice to the administrative team. Leaving financial oversight to someone else is the easiest way to put business revenue at risk.

Fortunately, there are active steps dentists can take to safeguard their business from both fraud and embezzlement, and all of them include support from experienced professionals — dentists don’t have to take this on alone.

Insurance provider audits

Dental insurance companies are able to audit the claims submitted from a specific dental office. When the office team knows there is expert oversight, it lowers the likelihood of insurance fraud:

Dental and Medical Counsel explains: 

“When dental professionals work with dental insurance carriers, they agree to contractual obligations to adhere to local, state, and federal regulations. The purpose is to:

• Make sure the treatments administered to patients are necessary
• The treatments claimed on insurance were actually performed
• Treatments performed were done so correctly or,
• All treatments and procedures were billed correctly

Audits are a way of check and balances to make sure providers are not taking advantage of insurance carriers by committing fraud.”

Fear of getting caught by an insurance audit will discourage insurance fraud, but it won’t prevent it. People will take incredible risks if they believe the payoff will be worth it. And a claims audit won’t dissuade or prevent embezzlers from intercepting funds further down the billing workflow.

Here is our tried-and-true recommendation to minimize opportunities for embezzlement and avoid dental insurance fraud — both accidental and intentional. 

Expert third-party revenue cycle management

Having multiple sets of experienced eyes on insurance claims is an effective solution to avoiding fraud, whether it’s intended or not.

Dentists who hire a third-party billing expert to manage their insurance claims find that their expert will check for mistakes, including those that may lead to fraud. Ideally, they’ll also follow up with the insurance company until the claim is reimbursed. In a case where the insurance company denies the claim (which they frequently do), a dedicated billing expert will file the appeal, resubmit the claim, and continue to follow up until it’s paid.

At DCS, our experts do all of this, and they also post insurance payments to dentists’ practice management software to reconcile billing at the end of every workday.

Learn more: 3 ways RCM services combat the risk of dental billing fraud at your practice

These extra eyes can also use their expertise to spot an embezzler — and even prevent an embezzler from getting started.

Internal supervision and anti-theft workflows

Dental practices are known to hire friends and family members, and then keep them on as long-term employees. The close connection and trust are invaluable, but they can also cause blind spots.

Dental CFO explains:

“The average practice consists of a close-knit group of people. The majority of these team members come to know each other and the dentists quite well. This familiarity may lead to a lack of instituting strict business principles, policies, procedures, and controls. This lack of control, mixed with the daily flow of cash and checks, and a lack of supervision, can set the practice up as the perfect victim for a potential embezzler.

With all of this in mind, we offer our recommendations for dentists to safeguard their dental business against embezzlement: 

• Have more than one person responsible for billing
• Restrict team members to read-only access of bank accounts
• Opt-out of virtual credit cards
• Create a whistleblower policy
• Outsource insurance and patient billing so a third party can oversee the billing process

Third-party experts are a proven safeguard against both fraud and embezzlement at a dental practice. If you’re a dentist thinking they could never happen at your practice, take our free quiz below and see. 

QUIZ: For dentists: How vulnerable is your dental business?

This quiz will measure how likely your dental practice is at risk for fraud or embezzlement — and yes, they put your entire business at risk. Your revenue, team members, reputation, license, and livelihood are all at stake. Now, let’s see… 

Every dentist is vulnerable to dental business fraud: But knowledge is power — and taking action is protection

To recap, here are 3 hard truths about dental business’ vulnerability to fraud and embezzlement: 

• Hard truth #1: Dentists are more vulnerable because they don’t suspect dental insurance fraud or embezzlement will occur at their office
• Hard truth #2: The signs of fraud or embezzlement can be obvious, but sometimes they’re revealing honest mistakes
• Hard truth #3: Safeguards to reduce dental businesses’ vulnerability to fraud and embezzlement are straightforward, but constant vigilance is required

Although fraud and embezzlement are widespread, dentists can take protective measures to minimize and avoid them.

One of those protective measures is partnering with DCS, a revenue cycle management solution for dental businesses of all shapes and sizes. Our services and software streamline administrative operations and increase revenue, and they also ensure accountability for claims mistakes and misplaced or missing funds. 

If you’re a dentist, take the first step to protect your life’s work today: Book a free 30-minute call with DCS.