Billing for services or medical equipment not received or medically unnecessary

Transcription

1 V E N D O R S P O T L I G H T H e a l t h c a r e Fr a ud Management: Solutions for I d e n t i f i c a t i on and Interve n t i o n November 2011 Adapted from Perspective: 360-Degree View Health Reform as a Market and Technology Disruptor by Lynne A. Dunbrack, Judy Hanover, Sven Lohse, et al., IDC #HI Sponsored by Verizon Healthcare fraud costs our already financially constrained healthcare system between $74 billion and $247 billion annually. Prompt payment laws have compelled payers to pay claims first and then analyze them retrospectively for potential fraud. This strategy often referred to as "pay, chase, and recover" allows fraudulent behavior to continue undetected for a period of time and hampers full recovery of improper payments. New legislation is requiring the federal government to use predictive modeling to identify potentially fraudulent healthcare claims and prevent improper payment from occurring. This strategy identify and intervene represents an important change in fraud management and one that more payers should pursue to rein in escalating healthcare costs. This Vendor Spotlight highlights the impact of healthcare fraud on private and public payers, as well as the personal toll such fraud takes on consumers who have had their medical records compromised as a result. It examines the efficacy of prospective identification strategies versus retrospective recovery strategies traditionally used by payers. This paper also discusses Verizon's Fraud Management for Healthcare Solution, a customized version of the Fraud Management Software Platform that the company uses for its own fraud detection program. The Impact of Healthcare Fraud Healthcare fraud is a significant and growing problem in the United States, and it will continue to worsen as cybercriminals become more sophisticated. The Federal Bureau of Investigation (FBI) estimates that fraudulent billing accounts for between 3% and 10% of healthcare expenditures each year. Put another way, healthcare fraud costs private and public payers between $74 billion and $247 billion annually. Healthcare fraud can take many forms, ranging from licensed practitioners and their staff committing fraud to organized crime rings that use stolen patient and provider identities to submit fraudulent claims for payment. Other examples of healthcare fraud include: Billing for services or medical equipment not received or medically unnecessary Upcoding or unbundling procedure codes to maximize payments for services rendered Misrepresenting diagnosis codes to ensure and/or maximize payment Waiving patient copayments and deductibles and overbilling the payer Accepting kickbacks for patient referrals Stealing provider and patient identities for fraudulent claims IDC 1212

2 Healthcare Fraud Is Not a Victimless Crime Healthcare fraud, much like identity theft, can have a profound impact on individuals when their medical identities are stolen. The Coalition Against Insurance Fraud reported that in 2010, 1.4 million Americans were victims of medical identify theft, up from 500,000 in Consumers can spend countless hours trying to resolve billing issues. Maximum limits might be reached as a result of fraudulent claims, but this issue is discovered only when the consumer's claims for legitimate services are denied. According to the Coalition Against Insurance Fraud, consumers pay on average $20,000 to resolve their cases, sometimes even paying for medical care they did not receive to restore their health coverage. More egregiously, the consumer's medical record might be compromised with falsified diagnosis or procedure codes, thus making it difficult to obtain health or life insurance because of pre-existing conditions. While the Patient Protection and Affordable Care Act of 2010 (PPACA) will eliminate pre-existing conditions within a few years, this legislation may be overturned after the 2012 elections. In the worst-case scenario, it can be a matter of life and death if vital information, such as allergies and blood type, is compromised and the wrong drugs or blood products are administered to a patient. Consumers are also placed at risk when unscrupulous clinicians provide medically unnecessary services or services that they are not qualified to provide. Legislation Increases the Focus on Preventing Fraud The passage of the Patient Protection and Affordable Care Act of 2010 (HR 3950) serves to increase the focus on preventing fraud and strengthening the tools to combat fraud when it occurs. A few notable examples are as follows: Approximately 32 million uninsured Americans will be eligible for health insurance coverage, thus providing more opportunity for fraud to be committed against their patient records. The expansion of covered persons and services as a result of insurance reform (e.g., eliminating pre-existing condition provisions, lifetime maximum limits) will increase healthcare expenditures; at the same time, the industry is trying to reduce costs. Two ways to controls costs are to reduce fraud and abuse and to improve operational efficiencies in the areas of claims processing and payment recovery. PPACA allocates $350 million over 10 years (with $95 million in the first year) through the Healthcare Fraud and Abuse Control (HCFAC) Program from FY2011 through FY2020 to provide new resources to fight fraud and abuse. PPACA will require the Secretary of Health and Human Services (HHS) to establish a national healthcare fraud and abuse data collection program that will collect data from multiple federal healthcare programs and help identify providers that have an action filed against them by another agency. Greater coordination among federal and state agencies will also be required, and sharing with private health plans will be encouraged. There are new rules and sentences that increase sentencing guidelines by 25% to 50% for crimes that involve more than $1 million in losses and tougher civil and monetary penalties for those who have committed fraud. The Secretary of Health and Human Services can withhold payment to Medicare and Medicaid providers if there is a credible allegation that fraud has been committed and an investigation is pending. This provision reverses the typical strategy of the federal government, which is to pay healthcare claims first and then attempt to recover improper payments after the fact. In addition to PPACA, other recently passed legislation is compelling federal and state agencies to focus on how they combat fraud. One such example is the Small Business Jobs and Credit Act of 2010, which was signed into law on September 27, 2010, by President Obama and requires the federal government to use predictive modeling to detect fraudulent healthcare claims. According to the legislation, the predictive modeling program had to be in place by July 1, 2011, in the 10 states identified by the HHS Secretary as being at the highest risk for fraud and abuse in the Medicare Fee- For-Service program IDC

3 Recovery Strategies: Prevention Versus "Pay, Chase, and Recover" Historically, fraud and abuse detection has been a retrospective function referred to as "pay, chase, and recover." This strategy is pursued by payers in part because prompt payment regulations require claims to be paid within a prescribed time frame typically between 30 and 60 days, and faster for electronic claims. As a result, fraudulent activity may not be detected until months after claims have been paid, and even more time may pass before improper payments are recovered. In that time, fraudsters may have ceased operations in one location and set up shop elsewhere to avoid getting caught. Thus, payment recovery is made more difficult, if not impossible. Furthermore, retrospective analysis for fraud and abuse is typically applied to a sampling of claims because of the sheer volume of paid claims data. On average, using a "pay, chase, and recover" strategy, payers recover between 50% and 60% of improper payments. In contrast, some payers, including the federal government, are re-evaluating the "pay, chase, and recover" approach and are deploying more proactive, preventive strategies that use predictive modeling to identify potentially fraudulent claims. "Identify and intervene" strategies are particularly effective for low-dollar fraud where, despite the volume of this activity, there is little economic incentive to recover an individual claim of approximately $50. Considering Verizon Verizon, a $107 billion company headquartered in New York, provides IT, communications, network, and security solutions to enterprises and government agencies around the world and has a multibillion presence in healthcare. Expanding upon its core services into new areas of growing importance in the healthcare industry, Verizon has launched a number of healthcare solutions and services in the past several years through its Connected Healthcare Solutions practice. They include: Telehealth Collaborative Services (2009) Verizon Security Management Program-Healthcare (SMP-H) (2009) Data Discovery, Identification and Security Classification suite of security consulting services (2010) Verizon Medical Data Exchange (2010) Verizon Health Information Exchange (2010) Medical identity credentials for 2.3 million clinicians (2010) Verizon Fraud Management for the Healthcare Vertical Market (2011) Verizon processes billions of records in near real time on a daily basis. Over the past 10 years, Verizon's fraud operations has monitored more than 10 times the traffic including voice, data, and managed services and security with less than half the staff and has driven a significant decline in Verizon annual fraud losses during that period of time. Verizon uses a combination of data reduction architecture and predictive modeling to find the proverbial "needle in a haystack" and detect fraud. (see Figure 1) IDC 3

4 F i g u r e 1 Data Reduction Architecture: "Finding the Needle in the Haystack" Source: Verizon, 2011 According to Verizon, hundreds of alerts and patented algorithms for data reduction, pattern recognition, and artificial intelligence are applied to the data in real time to detect potential anomalies such as fraud and security breaches. These anomalies are then further analyzed, and if warranted, cases are created to be prioritized for further investigation by case managers and, in extreme cases, law enforcement agencies. If fraud is detected, Verizon can immediately shut down further fraudulent activity by deactivating the calling card or outbound telephone number or blocking the switch at the network layer depending upon the type of fraud committed. Verizon's Fraud Management for Healthcare Solution Verizon's Fraud Management for Healthcare Solution is a customized version of the platform Verizon uses for its own fraud detection program. The Fraud Management Software Platform includes the following key components: Fraud Case Management Workbench features a Web-based user interface and workflow engine to support healthcare fraud analysis. The workflow tools can be configured to route potentially fraudulent claims to the appropriate staff for further investigation. Interactive and Visual Graphic Analysis uses links analysis and geomapping to visually show the relationship between providers and patients. Healthcare domain-specific alerts identify suspicious claims. For example, alerts can identify claims from a provider seeing patients at locations that are geographically dispersed across state lines or treating more patients than can be physically seen in a given time period. Geomapping also provides a street-level view of the service address, which can help verify whether the place of service is legitimate or a sham. Case Management Tools help fraud analysts document cases, access case notes, and track internal and external documentation to compile the evidence necessary to demonstrate fraudulent activity and support an enforcement action. Reporting and Analytics support performance metric reporting, regularly scheduled reports, and ad hoc queries. A large volume data warehouse is available for data mining and trending and analytics IDC

5 Verizon's Fraud Management for Healthcare Solution can be provided as a comprehensive managed service that combines the Fraud Management Software Platform with technical and professional services ranging from software hosting and data integration to healthcare fraud operations. Verizon Professional Services can help customers assess their fraud programs, develop appropriate procedures for their risk levels, and design new programs to address evolving threats. Advanced domain-specific predictive models are applied to healthcare claims to examine them by patient, provider, service origin, and other patterns that might indicate an anomaly requiring further review by fraud analysts and investigation by law enforcement investigators. Verizon has a significant footprint in the healthcare sector; the company reported that it provides IT solutions to more than 90% of the Healthcare Fortune As noted previously, Verizon has launched a number of products and services designed to address the unique requirements of the healthcare industry. The company also has strong expertise in security, identity management, datacenter management, and managed network services. According to the company, a key differentiator for Verizon's Fraud Management for Healthcare Solution is its data reduction architecture, which enables the solution to examine 100% of the claims in near real time and supports "identify and intervene" strategies. Thus, fraudulent activity is discovered earlier in the claims processing cycle and before the claim is paid. Challenges A challenge faced by Verizon is that it is a recent entrant into the relatively crowded market of healthcare fraud management solutions. A number of vendors offer fraud and abuse solutions for the healthcare industry. However, these solutions tend to mirror the current industry practice of performing a retrospective analysis to identify fraudulent activity. A comparatively new offering, Verizon's Fraud Management for Healthcare Solution is a customized version of the Fraud Management Software Platform that Verizon has used internally with success. Verizon can point to this success and also to the fact that the healthcare solution will scale because it supports Verizon's global fraud operations. Conclusion Predictive modeling for fraud detection is an essential weapon in a healthcare organization's arsenal to combat fraud and abuse. The current practice of "pay, chase, and recover" allows fraudulent activity to flourish undetected for longer periods of time, allowing losses to grow. The U.S. healthcare system cannot afford to withstand these substantial losses. Funds used for improper payments could be used to provide services for legitimate beneficiaries, fund innovation, or stem rising premiums. As a result, the healthcare industry needs a new approach to fraud management that is less retrospective in nature and that utilizes data reduction and predictive modeling technologies. If Verizon can address the challenges outlined in this paper, IDC believes the company can succeed in the important market for healthcare fraud solutions. A B O U T T H I S P U B L I C A T I ON This publication was produced by IDC Health Insights Go-to-Market Services. The opinion, analysis, and research results presented herein are drawn from more detailed research and analysis independently conducted and published by IDC Health Insights, unless specific vendor sponsorship is noted. IDC Health Insights Go-to-Market Services makes IDC Health Insights content available in a wide range of formats for distribution by various companies. A license to distribute IDC Health Insights content does not imply endorsement of or opinion about the licensee IDC 5

6 C O P Y R I G H T A N D R E S T R I C T I O N S Any IDC Health Insights information or reference to IDC Health Insights that is to be used in advertising, press releases, or promotional materials requires prior written approval from IDC Health Insights. For permission requests, contact the GMS information line at or gms@idc.com. Translation and/or localization of this document requires an additional license from IDC Health Insights. For more information on IDC Health Insights, an IDC company, visit For more information on IDC, visit For more information on GMS, visit Global Headquarters: 5 Speen Street Framingham, MA USA P F IDC