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How States Are Turning the Tables on Medicaid Abusers

The government has a “pay first and ask questions” later policy when it comes to making Medicare and Medicaid payments. This helps ensure that health care providers are paid in a timely manner, but it has also opened the door to rampant errors and criminal activity.

Now is the time for decisive action to reclaim the billions that are lost each year.

According to the White House, improper payments in Medicare and Medicaid programs cost $54 billion in 2009. Some were the result of simple mistakes while others were due to outright fraud.

At the Federal level, the Centers for Medicare and Medicaid Services (CMS) use multiple approaches to detect and pursue improper payments including the Medicare Strike Forces launched last year in Miami, Los Angeles and Detroit.

Aggressive audit teams are also on the hunt to sniff out crime in different regions of the country. However, most of these methods take a retrospective approach.

Sadly, today in most parts of the country, the single most effective tool used for spotting fraud is a tip from someone calling a hotline about suspected abuse.

With the upcoming expansion of Medicaid coverage to everyone under 133 percent of the federal poverty line – along with growing cost pressures on both Medicare and Medicaid – the government has even more motivation to hold the line on costs and improve their odds against criminals looking to abuse the system.

This is more than just a federal problem. The fifty U.S. states administer the programs, and each state has its own set of challenges. For example, false claims for prosthetic limbs can be rampant in one state, while in another, misrepresentation of home health claims could be draining the coffers.

The problem is exacerbated by rules requiring the government to pay these claims within 30 days, making investigation on the front end extremely difficult. The result is often a game of “pay and chase” in which claims are paid and then later — sometimes years later — investigated for fraud. These after-the-fact collections are almost never paid in full.

The amount of information needed to process just one claim—from proof of service and patient referral documentation to proof of eligibility—is enormous. It can quickly result in a manila folder two inches thick that must be sifted through by hand.

Fortunately, new technology for uncovering fraud and abuse is becoming available.

Several states have made great progress in tackling this issue by changing the way they identify and pursue improper payments. For example, just last month, the governor of North Carolina announced a program to run Medicaid claims through software that can spot suspicious activity and fraud among the nearly two million Medicaid patients and 60,000 Medicaid providers in the state.

The new scrutiny is expected to bring in tens of millions of dollars in savings. In Maryland, state senators just voted overwhelmingly for legislation intended to combat Medicaid fraud, a year after rejecting a similar measure.

This technology is capable of sorting through tens of thousands of pro­viders and hundreds of millions of claims in minutes using analytics software and then ranking providers by their potential for abusive behavior. For example, claims submitted for patient visits on Sundays and holidays have a much higher probability of being illegitimate.

Similarly, large numbers of claims for performing the most complex—and most expensive—types of procedures are highly suspicious. These can be immediately flagged and investigated first, before the payout is even considered.

Health benefits companies already using such systems have achieved a nearly 90 percent reduction in fraud, a sharp contrast to previous methods, which have typically netted them 20 to 30 percent. For example, at Aetna , the company’s special investigations unit used an automated system to identify more than 200 facilities with questionable claims saving more than $20 million that would have otherwise been squandered due to fraud.

In places like North Carolina, government officials are beginning to use information and analytics to identify and address fraudulent claims. Other states must embrace a new sense of urgency in combating the abuse of our Medicaid and Medicare programs—a problem that is taxing our health care system as it undergoes transformation.

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Shaun Barry serves as global leader for IBM Global Business Services Fraud and Risk Management practice. He works directly with federal agencies worldwide, state and local governments, and large health benefits organizations in their use of use of analytics technology to prevent and eliminate fraud and abuse by uncovering patterns, hidden meaning and new insight from data. His expertise is in the area of tax revenue and healthcare fraud investigation.