Item - 2020.AU6.1

During the review of the Order Paper on October 27, 2020, City Council adopted a procedural motion to remove this Item from the Audit Committee and bring it forward to City Council for consideration.

The Audit Committee recommends that:

1.  City Council direct the City Manager to provide an update on actions taken related to the report (October 14, 2020) from the Auditor General, including any referrals that are made to other agencies and regulatory bodies.

2.  City Council request the Director, Pension, Payroll and Employee Benefits, and Green Shield Canada, to implement training for staff around the issue of health benefits fraud; and this should be recurring and updated as the nature of common types of fraud evolve.

3.  City Council request the Director, Pension, Payroll and Employee Benefits, to undertake extra verification procedures to examine health claims coming from health spas.

4.  City Council request the Director, Pension, Payroll and Employee Benefits, to direct all employees in this case to reimburse the City of Toronto for all past claims for themselves and their spouses for services involving the spa because they are not properly supported by legitimate invoices for approved services.

5.  City Council request the Director, Pension, Payroll and Employee Benefits, to seek reimbursement from the employees in this case for all unsupported claims involving the spa and report on the status of the recovery and any resulting police or regulatory body investigation into the conclusions of the Auditor General's report.

6.  City Council request the Director, Pension, Payroll and Employee Benefits, to seek to include in future collective agreements that health services must be medically necessary and that "off-label" use be supported by a physician and authorized by Green Shield Canada prior to reimbursement.

The Audit Committee considered Items AU6.1 and AU6.4 together.

The Auditor General gave a presentation on Employee Health Benefits Fraud Involving a Medical Spa.

This report summarizes an investigation into allegations of health benefits fraud involving three City of Toronto employees. It is our view that health benefits fraud against the City occurred on several occasions in this case.

We bring this matter to the attention of City Council, City management and City employees for three reasons:

1.  To communicate that by implementing past Auditor General recommendations, the City now has a more robust claims monitoring regime and an audit system in place that will likely catch more fraud. Fraud detection and fraud prevention help improve the sustainability of benefit plans.

2.  To report that management is taking appropriate actions to address all concerns raised in this case, including referring some matters to regulatory bodies for further consideration.

3.  To make City employees aware of the increased sophistication in monitoring benefit claims and to stress the importance of not becoming involved in schemes like the one identified in this report.

The case revolves around three City employees and the spouses of two of the City employees (the claimants), who independently attended a medical spa to receive treatment for various conditions. These claimants received documentation stating that a doctor (an obstetrician and gynecologist) diagnosed them with the skin condition of actinic keratosis and prescribed the drug Levulan Kerastick (Levulan) to them as the treatment. They received invoices from the spa stating they had been treated with Levulan for the condition of actinic keratosis (and other conditions). Actinic keratosis treatments with Levulan are covered by the City health benefits plan, whereas many other treatments offered by medical spas are not covered.

They all submitted claims that were reimbursed by the City's health benefits plan.

The claims submissions process is basically an honour system. It is the employee's responsibility to ensure the claims they submit for reimbursement are legitimate and correct. Audits and reviews are conducted after claims are submitted. 

Our investigation was extensive and involved interviews with the City employees, the spa owner, the spa's chief operations officer and three spa employees who treated the claimants. We also reviewed treatment records, spa invoices, spa receipts, emails, and analyzed health claim data. We sought information from subject matter experts in handwriting, dermatology, and pharmacology. We also conducted research on the drug Levulan and how it is dispensed, the condition actinic keratosis, and the rules for physicians and nurses in Ontario.

Although fraud has occurred, we cannot be absolutely sure of the extent and depth of the role or the exact knowledge of each person or organization (the spa, the doctor, some of the City employees, the treating technicians and/or registered practical nurse) played in these events because the very nature of a fraud often involves information that is concealed, altered and/or fabricated. In our view, not all those interviewed were always truthful or forthright.

However, based on all of the evidence we have reviewed, the diagnoses recorded on the Drug Special Authorization Forms were false and/or misleading for two of the employees. For the last employee, the invoices contain diagnoses she said she did not have. Some of the reimbursements helped employees to pay for treatments that were not covered by the City's health benefits plan. In all three cases, it is our view that health benefits fraud has occurred.

It is not the Auditor General's role to determine the consequences for employees found to have committed benefits fraud – that is up to City management. The lessons employees should take away from this investigation is that the City is much better at detecting benefits fraud and that benefits fraud can have repercussions beyond the loss of benefits: it can include termination of employment, criminal charges and regulatory investigations.

The Auditor General has made five recommendations to help the City learn from this investigation.