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Health Care Fraud: From Detection to Prevention

Spotting Patterns in the Data that Point to Waste, Abuse or Fraud

Waste, abuse and fraud drive up costs in healthcare by tens of billions of dollars each year. In the past, the best anyone could hope for was to spot and correct problems after the damage was done.

But that’s changing.

Today, through advanced tools that identify irregularities or other patterns in payments and invoices, the healthcare industry is successfully preventing fraud, waste and abuse – instead of simply chasing it down after it’s happened.

A problem on a massive scale

In the United States alone, the FBI estimates that 3 percent to 10 percent of healthcare billings are fraudulent. With annual spending on healthcare now approaching $4 trillion, that’s a big loss– and a massive opportunity.

The Centers for Medicare and Medicaid Services (CMS) breaks down the losses into three areas:

  • Fraud – Intentional criminal deception; for example, billing for services or supplies that haven’t been provided.
  • Abuse – such as improper billing or “upcoding” (billing for a state-of-the-art wheelchair, but providing a bottom of the range model)
  • Waste – Inefficient practices, such as providing tests or treatments that aren’t medically necessary.

The move to make the healthcare system more efficient through data and other advanced IT plays in reducing all of the above, but for the sake of focus, let’s look at how this plays out in fraud specifically.

Fighting fraud through detection

Traditionally, anti-fraud efforts have focused on detection after-the-fact – finding the illegal activity and stopping it before a loss occurs. Here’s a hypothetical case study:

Steve, a doctor in a mental health center, bills Medicare for services that were never actually delivered. His state’s Medicare organization uses data analysis that sifts through hundreds of thousands of transactions and spots activity that deviates from his peers using state and national norms.

Steve’s billings are in that batch, and he’s tracked down before he can complete his scheme.

An arms race

Detection efforts can be well worth the time and resources. It’s estimated the federal government recovers $16 in fraudulent claims for every dollar spent fighting fraud.

Just this June, the Medicare Fraud Strike Force pulled off its largest ever fraud takedown, charging 243 individuals for approximately $712 million in false billing.

But there are limits to detection:

  • A large amount of health care fraud still slips through detection’s net
  • Investigation, prosecution and recovery can take years
  • Fraudsters invent new exploits as old ones are closed

So, while detection is valuable, it isn’t enough. Prevention is the real solution.

Fighting health care fraud through prevention

The idea of attempting to prevent fraud before it happens isn’t new. When an organization applies to become a Medicare provider, for example, the credentialing process includes layers of due diligence that screen out fraudsters. And claims in general that seem too good to be true are also routinely subject to being scrutinized and flagged for review.

But healthcare payer analytics are changing the field of play – by enabling much tighter, smarter vetting of both claims and providers.

The new data tools allow for advanced techniques to examine new claims and provider enrollment applications, crunching them against a wealth of existing and co-related data. This allows healthcare payers to highlight outliers and causes of concern, and rapidly create risk profiles and scores.

This means new power to mark suspicious provider applications, and stop fraudsters from even getting close to healthcare dollars – as well as new power to stop fraudulent claims before they get approved.

And the future of prevention is bright. This is exactly the kind of area where advances in machine learning stand to deliver real benefits, with systems that get better and better at spotting warning signs the more they work on the problem.

With the advent of big data analytics, prevention is finally catching up with detection, and taking its rightful place in the vanguard of the fight against health care fraud.

Xerox is proud to be part of that fight. You can learn more about how we help healthcare payers detect and prevent fraud here.