Husbands treated at wives' clinics, wives at husbands' — and herbal medicine churned out by the batch

Of the 1.51 trillion won ($1.06 billion) paid out in auto insurance medical fees in the first half of this year, 894.7 billion won — or 59.4% — went to traditional medicine institutions. As traditional medicine billing has ballooned, so too have the methods used to inflate it fraudulently. Schemes range from institutionally organized arrangements in which clinics engineer their own billing structures, to individual cases in which medical professionals become their own patients. What they share is that falsification is nearly impossible to detect from medical records alone.

According to the insurance industry, the suspected traditional medicine insurance fraud cases confirmed by non-life insurers this year include pain questionnaire manipulation, fake ward arrangements, pre-compounded herbal medicine, examination kickbacks and fabricated medical records involving family members and associates.

In the past, most tips came in anonymously, making verification difficult from the outset. More recently, insiders with direct knowledge — including hospital administrative directors and former clinic heads — have been coming forward with photographs and written statements. Within the insurance industry, there is a growing sense that even within the traditional medicine community, awareness of the problem has reached a tipping point.

One traditional medicine hospital removed the 0-to-4 range entirely from the pain questionnaires it handed to patients, ensuring that even those with minimal discomfort would select a score of at least 5. Those inflated scores were then used to justify hospital admission or MRI scans.

At the same hospital, nurses were also taking patients for X-rays without a physician's examination or orders. Under the Medical Service Act, conducting tests without a doctor's examination and instruction may constitute unlicensed medical practice.

Ward fees have also been manipulated. Auto insurance reimburses ward costs based on the rate for standard rooms shared by four or more patients. After the Health Insurance Review and Assessment Service tightened its review criteria in the first quarter of this year — requiring hospitals to actually operate four-bed wards before receiving full reimbursement for two- or three-bed rooms — some traditional medicine hospitals were found to have fabricated records showing they had four-bed wards.

Ward fees for one- to three-bed rooms at traditional medicine hospitals rose an average of 29 percent per year over the past five years — nearly double the 16.4 percent annual increase for standard wards.

At another traditional medicine hospital, investigators found evidence of herbal medicine being compounded in bulk in advance. Large non-woven fabric bags were filled with medicinal herbs, decocted all at once, and stored in baskets like inventory. The boxes were labeled only with prescription names, not patient names. According to the tip, pre-made batches were distributed to patients and then billed retroactively as if each prescription had been individually compounded after examination.

There were also reports that unqualified staff performed the decoction work while simply borrowing a licensed herbalist's credentials. The herbalist reportedly came in only two days a week and was called in urgently whenever health authorities conducted on-site inspections, to make it appear they were always present.

The insurance industry identifies the practice of prescribing herbal medicine in identical doses and formulations — churned out as if on an assembly line — as one of the most representative forms of suspected traditional medicine insurance fraud. Four major non-life insurers have jointly filed a criminal complaint against traditional medicine hospitals suspected of pre-compounding herbal medicine, covering around 80 billion won in claims.

In some cases, the hospitalization existed only on paper. Inpatient fees were billed even when no medical staff were on duty overnight or when patients had left without authorization. Because the documentation supporting a patient's hospitalization consists almost entirely of records written by the hospital itself, insurers say it is difficult to verify whether a patient actually stayed in the ward.

Cases were also found in which hospitals referred patients elsewhere for MRI scans and received a cut of the imaging fee in return. One traditional medicine hospital, lacking its own MRI equipment, sent patients to other facilities and received 20 percent of the imaging costs. Records of tax invoices issued and payments received by bank transfer were left behind.

After a non-life insurer that received a tip cross-referenced the billing records, it found that 237 patients from that traditional medicine hospital had undergone a total of 270 scans at the referred facilities between January 2024 and the time of review. The Medical Service Act prohibits referring patients to other medical institutions in exchange for financial compensation.

Suspected fraudulent billing in traditional medicine auto insurance has emerged not only from organized, hospital-level schemes but also from individual medical practitioners.

One traditional medicine doctor was recorded as having received outpatient treatment 149 times over nearly two years at the clinic where he served as director — all stemming from a minor contact accident in 2022 in which another vehicle struck his car from behind while it was stopped at a traffic light. The insurer paid 10.79 million won in medical fees.

The vehicle showed no visible damage and was never repaired. Investigators found, however, that the same doctor had severely damaged his car in a separate single-vehicle accident six days after the original incident. The insurer suspects that treatment costs from the later accident may have been billed under the earlier contact accident claim.

Another traditional medicine doctor was involved in a contact accident with a motorcycle while riding a bicycle last July. The bicycle bore not even a scratch. Yet records show that 25 of his 28 outpatient treatment days were logged at an acquaintance's clinic roughly 32 kilometers — about a 50-minute drive — from his home.

The insurer grew suspicious that someone who ran their own clinic would commute roughly two hours round-trip each day to another facility, and launched an investigation. The probe found signs that medical records had been written for days when the patient had not actually visited.

In Pohang, North Gyeongsang Province, an entire family was indicted. Prosecutors charged five people last June under the Act on Special Cases concerning the Prevention of Insurance Fraud, and applied an additional charge of violating the Medical Service Act against one medical professional among them for falsifying medical records.

According to the indictment, the group is accused of fabricating medical records 49 times across four patients. There were also signs that records covering two to three weeks were written all at once on a single date, backdated to fill in the gaps — not a daily fabrication, but a periodic bulk creation of past entries.

The insurance industry views these cases as a pattern in which family or personal relationships are exploited to manipulate medical records, with the fraud disguised as normal treatment until detection. Insurers are also investigating similar cases, including record manipulation through a brother-in-law's clinic, simultaneous treatment of family members on days the clinic was regularly closed, and extended self-referral schemes carried out through affiliated practitioners.

A key reason these fraudulent billing practices persist is the limited access insurers have to medical data. Under current law, medical records cannot in principle be disclosed to third parties without the patient's consent. Even when an insurer identifies a clinic it strongly suspects of fraud, it cannot freely access the relevant documents.

Pursuing insurance fraud charges requires proving intent to deceive. But private insurers, which have no investigative authority, find it extremely difficult to obtain bank records or internal hospital documents to establish that intent. That is why a significant share of suspected cases never result in criminal complaints and instead end with the recovery of improperly billed amounts.

On the other side, when insurers tighten their claims review, complaints alleging "improper reductions" are sometimes filed with financial regulators or the media. Industry insiders say that because accumulated complaints affect company performance evaluations, front-line staff face structural pressure that makes it difficult to pursue suspicious cases all the way through.

The Financial Supervisory Service, the General Insurance Association of Korea and individual insurers are running a special insurance fraud reporting and reward program in coordination with a Korean National Police Agency crackdown, through the end of October. The scope of reportable cases has been expanded from the previous focus on indemnity health insurance to include suspected auto insurance fraud.

"If someone inside the hospital doesn't speak up, there's no way to know," an insurance industry official said. "What gets exposed is only as much as the tips that come in."