Sniffing Out Claims Fraud Before the Check is Cut
Insurance Networking News, December 2007
Thanks to new technologies, carriers are unearthing fraud such as "rent-a-patient" schemes and physician upcoding.
In a health care insurance scam that knew no limits in outright audacity, two Los Angeles doctors were indicted (one has so far pleaded guilty) on fraud charges for submitting fraudulent bills and patient records to numerous insurance companies. In this "rent-a-patient" scheme, the doctors hired "marketers" to recruit people with private health insurance to undergo unnecessary surgical procedures in exchange for cash or discounted cosmetic surgery procedures. Those willing to undergo the unneeded procedures were promised between $300 and $1,200. Patients were instructed by recruiters to describe false and exaggerated symptoms that were used to create medical charts used to make the surgical procedures appear to be justified. The doctors reportedly racked up claims totaling more than $2 million before being caught. Procedures performed on the otherwise normally healthy patients included colonoscopy, sinus surgeries and thoracic sympathectomy, commonly called "sweaty palm surgery."
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Unearthing such scams requires both vigilance on the part of healthcare payers and an ability to rapidly look through claims data to connect the dots on suspicious activities. Carriers not only face the challenge of detecting and forestalling outrageous schemes such as the rent-a-patient fraud, but also are tasked with detecting the even-more pervasive instances of "soft fraud," in which otherwise legitimate claims information may be fudged or exaggerated.
Although fraud has reached crisis proportions across the industry, the ability to effectively contain it is an area of opportunity for carriers, which face increasing pressure to simultaneously cut costs and improve customer service while meeting regulatory requirements for rapid claims resolution.
TIME IS NOT ON OUR SIDE
When it comes to identifying claims fraud, time is of the essence; carriers may only have a matter of days to detect it before the check needs to be cut and sent. Many carriers are stepping up their anti-fraud efforts, but often lack adequate resources to fully investigate fraudulent claims and prosecute the perpetrators. And, once the money is sent, follow-up investigations and attempts to recover the money are more costly than many companies can afford. The Coalition Against Insurance Fraud, Washington, estimates that claims adjusters and investigators detect only about 20% of the fraud that occurs, and in many cases, payments were already made against these claims.
The ability to recoup fraud losses is greatly diminished at this point, observes Kyle Cheek, director of data analytics for Health Care Service Corp. (HCSC), Chicago, Ill., the parent company of Blue Cross Blue Shield in Illinois, New Mexico, Oklahoma and Texas. "At least 3% of health care dollars are paid to fraudulent claims," he says. "Of the claims that are fraudulent, about 10% are identified, and in 10% of those identified, about 10% of the dollars are recovered. It is difficult to recover dollars after they've gone out the door."
Typically, "payers have only been able to identify fraud after claims have been paid," says Joanne Galimi, research director with Gartner Inc., Stamford, Conn. "They may have some kind of analytic tools to look at the claims data and flag claims that were potential fraud, but from there the flagged claims would be sent to investigative units, and they would have to do it all manually by paper, with no automated processes, to determine if this is indeed fraud. Then it would go through the whole litigation process, and basically, the ability to recoup those dollars is very minimal at that point."
The Insurance Research Council (IRC), Malvern, Pa., estimates that more than one of every three bodily injury claims from car crashes involves fraud. These fraudulent claims add more than $6 billion to the price of premiums every year, the IRC says. The IRC also found that only one of four insurers thoroughly investigates cheating on insurance applications, and even fewer investigate insider fraud from employees and agents.
SOFTER IS NOT BETTER
Even harder to track than outright malicious cases of fraud is the phenomenon of "soft fraud," which may involve instances such as a physician altering information on a procedure so a patient may be eligible to collect, or the padding of expense bills by vendors. A survey of 353 property/casualty companies, conducted by the IRC in conjunction with ISO Properties Inc., Jersey City, N.J., found that between 11 to 30 cents of every claims dollar is lost to soft fraud.
"Most of us know about hard fraud," says John Lucker, principal and national leader of advanced quantitative services with New York-based Deloitte & Touche USA LLP. "Criminal enterprises-in a very calculated way-design ways to deceive and steal from insurance companies. That includes crash rings and workers' compensation fraud, where physicians collude with various parties to create claims or medical treatments."
However, Lucker continues, "Soft fraud is more subtle. For example, people may think that since they've been paying premiums for years, they shouldn't have to pay a $1,000 deductible. So, they embellish or exaggerate their claim."
Typically, claims adjusters and investigators relied on manual review processes or even gut-level hunches to unearth fraud in claims. The problem is that overworked analysts and special investigative units affect turnover, and carriers cannot afford to retain or train claims adjusters.
"There was a point in time when we would use fairly manual rules-oriented processes to identify suspect providers," says HCSC's Cheek.
MODELING TOOLS
Spotting potential fraud patterns-whether "hard" or "soft"-requires sophisticated analysis beyond the capabilities of even the most seasoned adjusters. As a result, many carriers are turning to predictive modeling solutions that can rapidly sift through claims data and flag suspicious activities and patterns, before money goes out the door.
Such technologies have already been deployed successfully within the banking and credit card industries to help spot fraud, says Galimi. She urges insurance carriers-particularly those in the health insurance sector-to adopt fraud detection and prevention technologies. Such tools can be positioned in front of the adjudication system, and "help identify potential fraud in claims, flag them, send them to the unit, and do initial investigative work before those dollars actually get sent out the door," she says.
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