Partnership and analytics stemming bleeding of Medicare

By Marc Smolonsky and Peter Budetti
November 6, 2014

Federal insurer long plagued by thievery aiming to turn corner on fraud

imageAbstract: Fraud has bled Medicare for decades, leading to untold billions of dollars in losses to fraud rings and crooked medical providers. But initiatives by the Obama Administration are having a promising impact. Task forces aimed at nine hotspot cities are rolling up fraud rings. New analytics are uncovering false claims with laser precision. The new Health Care Fraud Prevention Partnership also is finding that sharing of information among partnership members is uncovering millions of dollars in false claims against insurers in the public and private sectors. Despite their successes, such initiatives lack funds needed to achieve their potential impact. With promising new programs to strengthen the fight against healthcare fraud, now is the time for the nation to heed this call to action.

The Cropsey Medical Care clinic in Brooklyn engaged in a $13-million fraud scheme against the Medicare and Medicaid programs from 2010 to 2012. Run by Russian criminal figures, the plot involved bribing patients to attend the clinic for unnecessary or fraudulent medical treatment.

As the patients left the clinic through a rear door, they passed a poster on the wall. It was inscribed in Russian and pictured a woman in a babushka holding a single finger to her lips. Silence, she warned. The woman could have been the face of all healthcare fraud, which is perpetrated with lies
and sealed by oaths of secrecy.

Fraud has bled health-insurance programs for decades. Lies, secrecy and increasing cunning were the methods of criminals who returned again and again to steal from public and private payers. But technology now brings new tools in the form of data analytics, predictive models and sophisticated algorithms that can cut through the false claims with laser-like efficiency. There is a new sheriff in town, and his badge is pinned to a computer.

This was not the case five years ago. President Obama and his staff had just settled into the White House in the early days of 2009, and his priorities quickly unfolded. Healthcare reform was at the top of the President’s agenda. A parallel emphasis was the immediate launch of a war against fraud in the two major federal health programs, Medicare and Medicaid.

A joint initiative soon was created to combine the expertise and resources of the Justice Department and the Department of Health and Human Services. It was given the catchy title HEAT — or Health Care Fraud Prevention and Enforcement Action Team. We were leaders of the HHS component of HEAT, along with the HHS Inspector General.

The HEAT blueprint involved special strike forces aimed at fraud hotspots such as Florida, Texas and New York. Nine strike forces eventually were created, though this was less than half of what was needed. The remaining strike forces were put on hold due to lack of resources. Needed funds for the healthcare-fraud operation became one of the many victims of budget battles between Congress and the White House. HEAT still was an enormous success. The number and dollar value of healthcare-fraud convictions doubled and the recovery rate of the federal investment tripled. The federal government took in $4.3 billion in fraud judgments and settlements in FY2013 alone. Federal prosecutors also had 2,041 criminal investigations pending, involving 3,535 defendants. They filed criminal charges in another 480 cases involving 843 defendants. A total of 718 fraudsters were convicted in HEAT cases in FY2013.1

HEAT a major turning point

imageOur informed impression is that HEAT has just scratched the surface of its potential despite these achievements. HEAT’s success involved more than recovering money and putting criminals in jail. HEAT became much more than a better version of the old and ineffective pay-and-chase approach to health-insurance fraud. HEAT was a major turning point in the war on fraud as the synergy between DOJ and HHS grew.

HEAT spawned innovation. Sophisticated data analytics were adopted to identify geographic anomalies and types of medical treatment most vulnerable to fraud schemes.

For the first time, law-enforcement and prosecutors had access to real-time claims data. Congress also got into the act, mandating the federal government’s first Fraud Prevention System at the Centers for Medicare and Medicaid Services (CMS).

We oversaw the creation of a fraud-prevention command center at the agency’s headquarters in Baltimore. The new center is physically impressive. The front wall houses a room-sized, multi-purpose video screen. The floor is bedecked with computer stations, each of which has computers and high-resolution monitors. Law-enforcement agents and CMS program integrity experts work together under one roof to investigate and prevent fraud.

But the invisible technology — not the cool sophisticated hardware — forms the center’s ultimate weapon against healthcare fraud.

Coursing through the Baltimore operation are hundreds of innovative computer algorithms forming the basis of the CMS Fraud Prevention System (FPS). Using predictive modeling to scrutinize healthcare providers and their claims, the FPS algorithms draw upon historical trends, public and internal data and other relevant information to assess the risk of all Medicare providers and claims. The system generates alerts on high-risk behaviors in real time.

System vulnerable to fraud

It is a daunting task. More than 1.5 million medical providers are eligible to participate in Medicare, and some 18,000 new providers line up to enter the program every month.

CMS processes an average of 4.4 million claims a day, with a total daily value of $1 billion. With this number of participants and gigantic claims input, it is no wonder the healthcare system is so vulnerable to fraud. Still, the FPS has been an unqualified success. It is putting a substantial and defined dollar value on fraud prevention for the first time.

The Department›s use of FPS resulted in $54.2 million in actual and projected savings for the Medicare fee-for-service program in just its second year of operation, the HHS Office of Inspector General (OIG) recently certified. This represents a return on investment of $1.34 for every dollar spent on the FPS.

The OIG also certified some $210.7 million in unadjusted savings that the FPS identified. And the OIG spoke to the ongoing value of FPS in the future.2 The program will strengthen efforts to prevent fraud, waste and abuse in the Medicare fee-for-service program, the OIG stated.

Vulnerability to fraud is built into health-insurance payment systems, both public and private. This crime is bleeding our healthcare system of countless billions of dollars every year.

The very designs and policies of our healthcare systems open them to schemes. Medicare, for example, is required by law to process claims of willing providers quickly — within just 30 days of receipt. This creates a narrow window for scrutinizing claims before Medicare must pay them. Estimates of Medicare fraud range as high as $90 billion annually, though all estimates remain unverified. Whatever the figure, it is unquestionably and unacceptably large. That alone should spur the nation into action.

But in our view, the issue is less about fraud’s annual costs than the inherent vulnerability of our programs. It is the high risk exposure that should trigger alarms for a more robust set of controls. No one intentionally created systems prone to fraud, but fraud is so prevalent, and the safeguards so short of resources, that we have virtually put out a welcome mat for thieves.

Need more resources

We do not minimize current fraud-fighting initiatives. They are, indeed, our best achievements to date. Law enforcement is more sophisticated than ever. Fraud prevention, heretofore the stepchild of pay-and-chase strategies, is now at the forefront of federal policy. But we need more. Our efforts are hindered by insufficient resources and inadequate integration between federal, state and private health-insurance programs.

There are opportunities to build on these successes by expanding the HEAT operations significantly, and giving law enforcement the needed tools to fulfill its mission.

But we will never prosecute our way out of healthcare fraud. Driven by predictive analytics, prevention will have the greatest longterm impact on reducing fraud and driving bad actors from our healthcare system.

Prevention efforts will be buttressed by the evolution of technology and continued support for growth of the Fraud Prevention System. But the technology will go only as far as the data take us. Right now, the available data exist in separate, seemingly impenetrable silos. It is characterized by lack of communicability, normalization and accessibility. Entrenched cultures and antiquated policies also prevent information sharing across payment systems.

“We oversaw the creation of a fraud-prevention command center at the agency’s headquarters in Baltimore. The new center is physically impressive."

“The Obama Administration created the Health Care Fraud Public-Private Partnership to overcome these obstacles. Announced with great fanfare in the White House by the Attorney General and HHS Secretary in July 2012, the partnership consists of DOJ, HHS, state Medicaid agencies and private insurance companies.

The partnership fosters collaboration across the healthcare industry. Getting to this stage was a long time coming. Its roots date all the way back to enactment of the Health Care Fraud and Abuse Control Program in 1996. That statute required the HHS Secretary and Attorney General to consult with, and arrange for, the sharing of data with all health plans.

The mandate broadly included all plans or programs that provide health benefits, whether directly, through insurance or other means. This provides statutory authority for the public and private sectors to share data to fight fraud.

The partnership’s main vehicle is the trusted third party. It is an independent organization that collects claims data from all the partners. To protect patient privacy, the third party removes information that identifies patients, providers and the source of the data. It then aggregates claims and provides analysis to identify or prevent fraud.

Useful data shared

The trusted third party concept allows highly useful sharing of data while protecting privacy and proprietary rights. It emerged from similar experiences involving air safety and the property-casualty insurance industry. Operated under contract by the Federal Aviation Administration, the airline industry shares safety data.

The industry uses the data to identify and fix vulnerabilities, and create the safest flight operations in U.S. history. The property-casualty industry also uses a trusted third party to aggregate and assess data from its companies, with similar positive results.

The HFPP has begun slowly and modestly. Thirteen private payers have joined the federal partners, including industry giants United Healthcare, WellPoint, Aetna and Humana. Five state Medicaid programs are enrolled: Arizona, New York, Iowa, Ohio and Kansas. Eight private-sector associations also participate. Among them are leaders such as America’s Health Insurance Plans, Blue Cross and Blue Shield Association, Coalition Against Insurance Fraud and National Health Care Anti-Fraud Association.

The MITRE Corporation, a federally-chartered non-profit research organization, serves as an interim trusted third party and coordinator of HFPP.

The partnership’s work is divided into committees. They focus on issues such as data sharing, education and outreach, and law enforcement.

Expectations for immediate results were low as we initially moved forward. After all, the partnership involved a fraction of the potential universe of health plans and had a small operating budget. For example, there were not enough funds to create a fully operational trusted third party that could collect, house and analyze data. Instead, a subset of the partners took part in several demonstration projects. The demonstration group included the
federal partners, four insurance companies, one national property-casualty insurer, two regional insurers, one state Medicaid agency and one trade association.

Lacking the resources and data-sharing agreements and procedures required to exchange data from healthcare claims, the participants contributed historical information on misused or abused claims codes and suspected fraud schemes each participant had identified internally.

There were 1,400 abused codes submitted, along with 122 suspected fraud schemes.3 The results were explosive, contrary to everyone’s muted hopes for such a constrained demonstration project. To widespread surprise, most partners discovered they were not aware of many of the codes and schemes already identified by other insurers or programs.

The sharing of this very basic information led CMS alone to identify more than $20 million in improper payments. That led to revoked privileges and suspended payments for the targeted active Medicare providers. Private payers also identified millions more dollars in waste. New potential fraud schemes were uncovered and referred to law enforcement for investigation.

Billions of dollars returned

To fully understand the potential value of the HFPP, consider the current state of healthcare fraud recoveries by the federal government. Nearly $26 billion in stolen money has been returned to the government since the Health Care Fraud and Abuse Control Program began operations in 1997. About $10 billion was returned in the last five years alone. This represents recoveries stemming from federal agencies and private whistleblowers.4

Data analytics were not employed, and sharing among public and private healthcare partners did not exist during most of this time. Imagine the untapped potential of full data sharing by all healthcare providers, including all private payers and all federal payers — then add military and veterans’ healthcare systems to the mix. Further imagine the data being subject to aggregated data analysis and predictive modeling. The power of the
data, and ability to prevent fraud, would increase exponentially.

Expenditures under CMS programs represent approximately one-half of all health-insurance spending in the U.S. This does not necessarily mean that some $50 billion could have been recovered if public and private anti-fraud efforts already were more comprehensive, coordinated and operated with full resources. Nor does it mean larger sums could be prevented from being stolen.

But surely it means the potential value of concerted effort is substantial. The fledgling HFPP already has proven that the public and private sectors can work together successfully to combat fraud. Now it is time for the partnership to mature and reach its full potential.

The pay-and-chase approach to healthcare fraud was our only recourse for years. More criminals emerged for every cheater we put behind bars. And fraudsters simply moved when we targeted locations. They were always one step ahead of us.

We will overtake fraudsters if we build on our determination, add resources, expand our partnership and continue developing sophisticated prevention technology. With our insurance programs expanding at a breakneck pace, now is the time to heed the call.

About the authors: Peter Budetti was recruited by the Obama Administration to lead a new CMS initiative to combat healthcare fraud. Serving as the first Deputy Administrator for Program Integrity of CMS until retiring in 2013, he developed and directed the Center for Program Integrity. A board-certified pediatrician and lawyer (inactive), he has held numerous senior positions in government and the private sector.

Marc Smolonsky is the former Associate Deputy Secretary of HHS. He worked for 15 years in various capacities in the Office of the Secretary and at the National Institutes of Health. He also was lead investigator for committees in the Senate and House for nearly 15 years, and is a former journalist and published novelist. Smolonski now works as a consultant
on healthcare issues, focusing on fraud policy.

[1] 2014 Report on the Health Care Fraud and Abuse Control program, HHS Office of Inspector General.

[2] ibid.

[3] ibid.

[4] ibid.

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