On August 17, FinCEN gathered law enforcement and financial institutions in Los Angeles to tackle a growing threat: organized fraud networks exploiting hospice care benefits. This briefing wasn't just a compliance update. It addressed a systemic failure in detecting healthcare fraud before it evolves into complex money laundering schemes.
What Happened
FinCEN has identified rising fraud targeting Medicare and Medicaid hospice services. These schemes involve both domestic and transnational criminal organizations. Fraudulent proceeds are funneled through multiple accounts and jurisdictions, with transactions designed to look legitimate when viewed individually.
The meeting focused on financial typologies, red-flag indicators, and vulnerabilities in hospice billing that criminals exploit. The next day, FinCEN trained law enforcement on using Bank Secrecy Act data to trace fraud through financial networks.
This sequence highlights a critical issue: financial institutions weren't providing the intelligence needed to disrupt these schemes early.
Timeline
Pre-August 2023: Fraud networks set up accounts at multiple institutions, using legitimate-looking business structures tied to hospice care providers, billing companies, and intermediaries.
Transaction Phase: Fraudulent reimbursements flow into these accounts, moving quickly through layered transfers to obscure their origin. Transactions appear routine for healthcare businesses, so they don't trigger alerts.
August 17: FinCEN convenes financial institutions and law enforcement in Los Angeles to address the pattern. The focus on typologies and red flags shows existing monitoring rules weren't catching the activity.
August 18: FinCEN trains law enforcement on BSA data analysis, emphasizing that intelligence exists in Suspicious Activity Reports and Currency Transaction Reports but isn't being used effectively to connect the dots across institutions.
Which Controls Failed or Were Missing
Customer Risk Profiling: Healthcare businesses were onboarded without assessing hospice-specific fraud risks. If your Customer Due Diligence doesn't differentiate between a legitimate hospice provider and a shell company, you're misclassifying high-risk entities.
Transaction Monitoring Rules: Standard scenarios for healthcare businesses focus on cash structuring or large wire transfers. They don't account for the typology FinCEN described: rapid movement of reimbursements through connected entities. Your rules likely measure transaction size and frequency, not the velocity of funds through intermediary accounts.
Entity Link Analysis: The schemes involve providers, beneficiaries, intermediaries, and connected businesses. If your system reviews each account independently without mapping relationships between entities, you won't see the network.
Information Sharing: FinCEN's emphasis on collaboration points to a breakdown in proactive intelligence sharing. Section 314(b) of the USA PATRIOT Act allows institutions to share information about suspected money laundering. If you're not using it, you're blind to what others see.
Ongoing Due Diligence: Healthcare fraud schemes evolve. A hospice provider onboarded years ago may have changed ownership or billing patterns. If your review cycle is annual and limited to document refresh, you're missing behavioral changes that signal fraud.
What the Relevant Standard Requires
Bank Secrecy Act (31 CFR 1020.210): Requires filing Suspicious Activity Reports when detecting transactions involving funds from illegal activity. Healthcare fraud generating illicit proceeds falls within BSA reporting obligations.
FinCEN's Customer Due Diligence Rule (31 CFR 1010.230): Mandates understanding customer relationships and developing a risk profile. For healthcare businesses, assess services provided, payer mix, and operating jurisdictions.
FATF Recommendation 10: Requires ongoing due diligence, including transaction scrutiny to ensure consistency with your knowledge of the customer. If a hospice provider suddenly receives reimbursements from new states, that's a deviation your monitoring should catch.
Lessons and Action Items for Your Team
Segment healthcare customers by service type. Don't treat all healthcare businesses the same. Hospice care, medical equipment, and laboratory services each have distinct fraud risks. Build risk profiles reflecting these differences.
Add velocity-based monitoring rules. Create scenarios that flag rapid movement of reimbursements through connected accounts, especially when funds don't stay with the provider long enough to be consistent with normal operations.
Map entity relationships during onboarding and periodic review. Identify shared beneficial owners, common addresses, and overlapping transaction counterparties. If hospice providers share the same billing company and show similar patterns, investigate.
Review your 314(b) participation. If you're not sharing information about suspected healthcare fraud, you're missing a control FinCEN highlighted. Establish processes for querying and responding to 314(b) requests related to healthcare typologies.
Train your alert review teams on healthcare fraud typologies. Analysts need to understand hospice fraud: billing for services not rendered, enrolling ineligible beneficiaries, kickbacks. Without this context, they'll clear alerts that should escalate to Suspicious Activity Reports.
Reassess your SAR narratives. When filing on suspected healthcare fraud, describe the network. Identify connected entities and intermediaries. Law enforcement can't connect the dots if your SAR only describes activity at a single account.
FinCEN's Los Angeles briefing wasn't a warning about future risk. It was a post-mortem on controls that already failed. Start implementing these action items today.
