1. Employee Embezzlement (Most Common)
Perhaps the most frequent commercial crime claim involves a trusted employee stealing from the practice over several years.
Example
A practice manager at a multi-physician medical group manipulated the accounting system by:
Writing unauthorized checks
Creating fake vendor payments
Using practice credit cards for personal expenses
Altering bank reconciliations
The theft exceeded $1 million before it was discovered during an ownership transition.
How it happened
One employee controlled bookkeeping, deposits, payroll, and reconciliation.
No physician reviewed monthly financial statements.
No outside CPA examined bank activity.
Lesson
Segregation of duties is one of the most effective fraud prevention tools.
2. Payroll Fraud
Payroll fraud often goes unnoticed because payroll is viewed as routine.
Common schemes include:
Ghost employees
Inflated overtime
Unauthorized bonuses
Continuing payroll after termination
Falsified vacation payouts
A single payroll administrator can steal hundreds of thousands of dollars over several years if payroll reports are never independently reviewed.
3. Insurance Payment Diversion
Many practices receive insurance payments electronically, but some still receive paper checks.
Fraud schemes include:
Depositing checks into personal accounts
Altering endorsements
Creating fake patient refund checks
Diverting electronic payments
Small specialty practices are particularly vulnerable when one employee manages both billing and deposits.
4. Patient Payment Theft
Front desk employees sometimes steal:
Cash copays
Check payments
Credit card refunds
The employee simply adjusts the patient's account afterward to hide the missing payment.
Red flags include:
Frequent account write-offs
Excessive refunds
Missing receipts
Patients claiming they already paid
5. Vendor Fraud
Healthcare practices purchase:
Medical supplies
Pharmaceuticals
Office equipment
IT services
Dishonest employees have created:
Fake vendor companies
Inflated invoices
Kickback arrangements
Duplicate payments
The employee then deposits payments into an account they control.
6. Prescription Diversion
Although often viewed primarily as a criminal matter, prescription diversion can also trigger commercial crime losses.
Examples include:
Employees stealing controlled substances
Falsifying inventory records
Creating fake patient prescriptions
Selling medications illegally
Besides the financial loss, practices may face DEA investigations, licensing issues, and liability exposure. The FBI and DEA continue to identify diversion of controlled substances as a significant healthcare crime risk.
Large Healthcare Fraud Cases That Highlight Internal Control Failures
While these cases were primarily billing fraud rather than traditional employee theft, they demonstrate how weak oversight can create significant financial and legal exposure.
TeamHealth (2017)
One of the largest False Claims Act settlements involving physician services.
The company agreed to pay $60 million to resolve allegations that physicians systematically billed Medicare and Medicaid for higher levels of service than were actually provided ("upcoding").
Lesson for practices:
Regular coding audits and compliance programs are essential.
Prime Healthcare (2018)
Prime Healthcare paid $65 million to settle allegations involving unnecessary inpatient admissions and inflated diagnosis coding submitted to Medicare.
Lesson
Strong compliance oversight protects both revenue and reputation.
Circle Medical (2026)
Circle Medical agreed to pay $3.325 million to resolve allegations that claims were submitted using physicians' National Provider Identifiers (NPIs) for services they did not actually provide or supervise, affecting both government and commercial insurers. The settlement illustrates the growing scrutiny of billing controls in telehealth practices.
Why Healthcare Practices Are Especially Vulnerable
Healthcare practices often combine:
High cash flow
Thousands of insurance transactions
Valuable pharmaceuticals
Limited administrative staff
High trust among long-term employees
Unfortunately, these factors make them attractive targets for occupational fraud.
According to occupational fraud research across industries, healthcare consistently ranks among the sectors experiencing significant internal fraud losses, with schemes often remaining undetected for months or years before discovery.
How Commercial Crime Insurance Helps
A properly structured Commercial Crime policy may provide coverage for losses such as:
Employee theft
Forgery or alteration
Computer fraud
Funds transfer fraud
Social engineering endorsements (if added)
Employee dishonesty
Theft of money and securities
However, many policies contain exclusions or sublimits, making it important to review coverage carefully.
Five Ways to Reduce Your Risk
Separate financial duties so no one employee controls the entire accounting process.
Require two approvals for significant payments and wire transfers.
Conduct annual independent financial audits or forensic reviews.
Review bank statements personally each month rather than relying solely on accounting staff.
Carry Commercial Crime insurance with limits appropriate for your practice's annual revenue.
When healthcare practice owners think about risk, malpractice usually comes first. Yet some of the largest financial losses arise from trusted employees who exploit weak internal controls. Commercial Crime insurance is an important safety net, but it should be paired with strong financial oversight, regular audits, and a culture of accountability. Investing in fraud prevention can save a practice hundreds of thousands—or even millions—of dollars while protecting the trust that patients and employees place in the organization.
