Software not soft on fraud

BLOG_mailAs crime increasingly becomes the domain of organized gangs, crime fighters of all stripes are deploying ever-more-powerful technology to discover and break down their shady operations.

Credit-card firms, for example, rely on software that’s extraordinarily skilled at mining vast piles of granular data for suspicious buying patterns. I was refueling my car at a gas station in Washington, D.C., where I live. The pump apparently refused my card because the gas station was located about half a mile outside of the cluster of stations I normally frequent.

The same card refused my purchase at an athletic-clothing store in downtown D.C. likely because I normally shop uptown. So it was no surprise that my alert credit-card company recently called me at my office in D.C. to ask whether I’d just purchased baby clothing in Riyadh, Saudi Arabia.

The software was remarkably sensitive at detecting minutely deviant buying patterns. And it caught those anomalies in real time, down to the second. Unreal.

Insurance fraud fighters are seeking the same technological edge. Insurers as a whole have yet to reach the remarkable sophistication of credit-card companies, but they’re working steadily in that direction.

They need to. Organized gangs are infiltrating the insurance fraudscape with growing force. I no longer blink when I read about a $50-million or $75-million Medicare scam. A staged-crash gang in New York allegedly tried to steal $400 million from auto insurers. Many of these same gangs are probably trying to work over credit-card companies, banks and other enterprises.

The encouraging part is that that nearly half of insurers use advanced fraud-catching software such as predictive analysis, text mining and datamining. The discouraging part is that nearly half of insurers don’t use these tools.

That’s one conclusion that can be drawn from a new study of insurer use of technology. It was conducted by the Coalition, with assistance from the business analytics company SAS.

Software of this high-impact ilk is capable of near-miraculous work by today’s standards. Predictive analysis in theory can catch suspicious insurance transactions in real time − instead of waiting until the insurer has paid the claim and the trail is growing cold. Text mining can pore through volumes of relatively mushy data such as an adjuster’s sketchy field notes.

The insurers who use these tools are better armoring themselves against false claims from serious criminal elements who are making a graduate-degree science of scamming. It’s a science that’s raising premiums for honest policyholders. These insurers have made an institutional decision that fraud is a significant enough drain on their and their policyholder resources to require this level of technology.

Not all insurers routinely face a caliber of crime that requires the often-expensive investment in such software. But with several thousand insurers in the U.S., it takes little imagination to conclude that more than a few insurers could and should use these tools but have yet to reach that needed decision. That’s the discouraging part.

The Coalition’s study tells us other things about insurer mindsets regarding technology, and the crime it’s supposed to catch. A large swath of insurers are wide awake to the oncoming peril of organized crime: More than half say the chief benefit of technology is to catch such fraud rings.

Nearly all insurers use at least some form of anti-fraud software.

Predictive modeling and text mining are the top two areas in which insurers plan to invest in the future. But one of the thorniest barriers to fully investing in technology involves how to prove these tools are worth the investment, the insurers say. How do you quantify, for example, the value of dishonorable claims that are never made because some criminals don’t want to take on an insurer that’s known to be so well-defended?

Insurers as a whole may still be playing catchup with their brethren in the credit-card industry. They need, with growing urgency, to step up the pace. But the encouraging part is that more insurers appear to be taking those steps against a criminal underworld that grows more sophisticated and greedy with each passing month.

About the author: Jim Quiggle is director of communications for the Coalition Against Insurance Fraud.

Manning front lines of legislation

BLOG_mailThis week I have the pleasure of speaking about legislative affairs at one of Americaʼs largest gathering of insurance investigators, IASIUʼs annual training seminar.

Hundreds of investigators from around the nation are exchanging ideas and learning about new techniques for attacking schemes. The Coalition is holding a workshop on how the investigators can strengthen state anti-fraud laws — and the fraud fight — by getting involved in legislation.

Investigators are uniquely qualified. They are at the front lines of combating this crime. They know how the crimes, how a stateʼs insurance fraud laws work, what loopholes need filling, and why.

Most insurer state lobbyists also are only marginally versed in fraud laws, nor do they necessarily view insurance fraud as their highest priority.

But investigators can educate insurers to fully understand the gaps in fraud laws or regulations. They also can clearly articulate an insurerʼs stake in the outcome. This new understanding can help convince more insurers to support and pursue anti-fraud agendas.

Hands-on grassroots involvement is another vital role investigators can play. Most insurer lobbyists are in-house counsel or contracted lobbyists based in the capital. National experts also may fly in to boost the effort.

But fraud investigators live in the state and are constituents of the legislators. And constituents like these can have influence — if they mobilize.

Years ago as a congressional staffer, I wrote an article for a trade association journal. It was a primer on working with a legislative office. I used the “Rule of 5.” One constituent letter does not raise eyebrows in an office. Five letters makes the office wonder if the writers are related or neighbors. And 25 letters could be a groundswell that can convince a legislator how to vote on an issue.

The more people contact their legislators, the greater the likelihood that the lawmakers will listen closely to the messages and pursue the issue. Now that is an effective grassroots effort. And it challenges investigators to flex their political muscles.

Investigators, for instance, can invite legislators to visit insurer claims operations and see firsthand how investigators are protecting constituents from fraud schemes, and deterring other would-be cheaters. High on the invite list should be key legislators such as committee chairs who deal with insurance-fraud issues.

A final thought — do not assume who your opponents will be. Some groups that normally oppose insurers might be allies who support anti-fraud bills.

A couple of years ago, the Coalition brought consumer groups and insurers together to successfully push for no-fault auto reforms in Florida. They were part of a larger package of no-fault reforms.

And several years ago the District of Columbia insurance department worked with the Coalition, insurers and — believe it or not — the trial bar to pass legislation limiting solicitation of auto crash victims for treatment at shady clinics.

So investigators this week are learning how they can play a leadership role in legislative anti-fraud efforts, and why their involvement is needed.

About the author: Howard Goldblatt is director of government affairs for the Coalition Against Insurance Fraud.

Drug diversion and the poor

BLOG_prescriptionBabiesLast week I participated in an expert panel meeting at the Centers for Disease Control & Prevention on the issue of prescription drug abuse and its impact on Medicaid programs.

The new director of the CDC has deemed drug diversion one of six public-health issues that CDC has embraced for study and action in 2012. The meeting included some very smart people from CDC, mostly medical experts, plus representatives from a handful of state Medicaid programs and a few private payers.

Drug diversion is a huge problem for Medicaid. A third to a half of all prescription drug deaths in the U.S. are Medicaid recipients. Eighty percent of babies born addicted to prescription drugs are born to mothers on Medicaid. The prescription rate among patients on Medicaid is more than twice that of the private sector. No doubt many of those pills end up on the street.

One of the most effective tools Medicaid programs have to curb diversion is requiring patients to use only one physician and one pharmacist for their prescriptions. Such “lock-in” requirements help stem doctor shopping.

But there are two problems with such programs. First, they don’t exist in many states because doctors and pharmacists sometimes don’t like them and their lobbies help to either kill lock-in legislation or weakened the bills.

Second, lock-in programs don’t catch Medicaid patients who intentionally avoid detection by paying for their illicit prescriptions in cash. Prescription monitoring programs (PMPs) — in which doctors and pharmacists log prescription activity into a state database — can catch such transactions.

But surprisingly, all but one state Medicaid program are denied access to PMP data mostly because of privacy concerns. That’s a huge missed opportunity to catch drug abusers early, and save taxpayer dollars and perhaps a few lives.

PMPs, health regulators and state legislators need to consider giving Medicaid programs access to drug data so they can become full partners in combating fraud and abuse involving prescription drugs.

About the author: Dennis Jay is executive director for the Coalition Against Insurance Fraud.