How address verification helps solve medical billing address fraud

Healthcare fraud isn’t just an occasional headache—it’s a $20 billion-a-year black hole draining financial institutions. 

And that’s just the fraud we know about. 

As healthcare systems become more complex, fraudsters are also getting smarter, faster, and more creative at exploiting vulnerabilities, especially in address verification.

The healthcare industry is an easy target. Medical data can be more valuable than credit card numbers, billing systems are a tangled mess, and the sheer complexity of transactions creates endless opportunities for fraud to slip through unnoticed. 

This isn’t about occasional breaches or one-off scams. Experts warn that fraudsters don’t just take advantage of weak points—they exploit them with ease.

Address verification is a frontline defense in a system that loses money to fraud. Right now, too many organizations are leaving the door wide open with a scalpel on the table.

One bad address at a time

Three major forms of fraud stand out as particularly costly and pervasive:

Medical billing address fraud – Scammers use fake or vacant addresses to submit fraudulent claims for treatments that never happened or supplies that were never delivered. This allows them to collect payouts for ghost services while leaving healthcare providers and insurers to clean up the mess and eat the cost.

Synthetic identity address fraud – A more advanced scheme where fraudsters create entirely new patient or provider identities by pairing fabricated addresses with real, stolen Social Security numbers. These synthetic identities are then used to establish accounts, file fraudulent insurance claims, and bill for care that they certainly never received.

Doctor shopping — This type of healthcare fraud involves individuals traveling long distances to obtain medications or procedures from specific providers known to prescribe or perform them inappropriately. Often also referred to as provider shopping, it’s commonly linked to drug-seeking behavior and results in medically unnecessary services being billed to insurance.

Technology gap

Traditional address verification systems have a critical flaw that fraudsters exploit, and that's this fact: over 20 million real, legitimate places in the U.S. aren't served by the USPS—but people live and work there. In addition to some systems being unable to validate “non-USPS” addresses, there’s also the challenge of not being able to assign geocoordinates to those addresses—making it difficult to track or identify potential doctor shoppers based on travel patterns.

This massive blind spot in verification systems that rely solely on postal service databases creates opportunities for fraud while complicating care for legitimate patients.

Sometimes, investigations involve contacting the customer to ask for additional factors. Maybe the address isn't validating because it's a non-postal address, such as a new construction. This affects residents in newly constructed areas, people with non-traditional addresses, and those in remote locations.

So fraudsters actively exploit these gaps. To quote our ebook, 13 Costly address data mistakes in healthcare you can’t afford to ignore (and how to fix them), "Fraudsters may use false addresses to divert medical supplies to a location where they can be resold or exploited. They might bill insurance companies or government programs for supplies that are either never delivered or are sent to fraudulent or untraceable locations."

With schemes that cost financial institutions $20 billion annually, the price of inadequate address verification extends beyond financial losses. Healthcare organizations face delayed care delivery, increased administrative work, and damaged patient trust.

You can't afford to ignore it any longer

Every day without robust address verification is another day your healthcare organization is left exposed. The $20 billion annual cost to financial institutions is just the surface-level damage. The deeper costs? Lost patient trust, operational inefficiencies, and compliance nightmares waiting to happen.

Fraudsters don’t just stumble upon system weaknesses—they hunt for them. They create synthetic identities, manipulate billing addresses, and use aliases with surgical precision. Standard postal databases miss millions of legitimate addresses while failing to catch the sophisticated fraud schemes that drain resources and exploit vulnerabilities.

This is just one piece of a much bigger puzzle. Smarty’s full healthcare ebook explores the broader spectrum of healthcare security, covering how Smarty's verification systems integrate with existing workflows, advanced fraud detection techniques, strategies for balancing security with patient accessibility, and real-world case studies of organizations that have transformed their approach to fraud prevention.

The question isn’t whether fraudsters will target your organization—it’s whether you’ll catch them before the damage is done. We've given you a key piece of the puzzle. 

Don’t wait for a breach to be your wake-up call. The insights here are just the beginning—there’s more fraud and healthcare issues related to address data to uncover in Smarty’s full healthcare ebook.