Controlling Fraud, Abuse and Waste Could Help Fund Health Reform Priorities

Advocates for improving health insurance coverage access and affordability believe that curtailing waste, fraud and abuse could help slow the growth of overall health care costs (which are predicted to double by 2018), ensure that spending is focused on providing appropriate health care services, and restore confidence in the system.

Although it is important to stress that not all “inappropriate payments” can be classified as fraud – some are billing errors based on human error or administrative complexity – public health care plans often provide a labyrinth of opportunities for individuals intent on committing fraud, particularly in hard-to-monitor cost categories such as non-emergency transportation and durable medical equipment (DME).

Helping to curtail inappropriate payments could save a great deal of money. The National Health Care Anti-fraud Association (NHCAA) estimates that 3 percent of all health care spending is lost to health care fraud¹; with the figure even higher in public health programs. The Federal Bureau of Investigation (FBI) has estimated fraudulent billings to health care programs, both public and private, at between 3 percent and 10 percent of total health care expenditures. ²

“Regardless of which estimate is used – and to be honest, both of these may be a bit conservative – there is no question that there is money to be saved by preventing health care fraud, abuse and waste,” said Gerry Hill, senior project manager, Fraud and Abuse Protection, at Ingenix.

Fraud is pervasive

According to the NHCAA, inappropriate payments affect the entire patient population and the complete range of medical conditions.³ Further, false billings have an exponential factor when they are spread across multiple payers, including Medicare and Medicaid, at the same time.⁴ The FBI defines health care fraud as altered or fabricated medical bills and other documents; excessive or unnecessary treatments; billing schemes, such as charging for a service more expensive than the one provided, charging for services that were not provided or duplicating charges; false or exaggerated medical disability; and collection from multiple policies for the same illness or injury.⁵

The Centers for Medicare & Medicaid (CMS) reports the following improper payment statistics from recent years:

• Medicare fee-for-service: $10.4 billion in FY 2008
• Medicare Advantage: $6.8 billion in calendar year 2006
• Medicaid - $32.7 billion in FY 2007.

In 2005, The New York Times reported that since the inception of Medicaid, New York’s state health care program has “become a $44.5 billion target for the unscrupulous and the opportunistic.”⁶ And in a January 2009 report on improper payments, the Government Accounting Office stated that improper payments to providers submitting inappropriate claims can result in substantial financial losses to states and the federal government.⁷

Program integrity (PI) efforts – activities designed to prevent and recover inappropriate payments – already have helped state and federal governments to preserve health care funds by either preventing or recovering inappropriate payments. However, according to Hill, with limited resources and ongoing budget cuts, “it remains to be seen whether the expectation for significant fraud prevention and detection savings matches the reality of the situation.”

State investments pay off

The federal government is making some effort to enhance the integrity of the Medicare and Medicaid programs. The 2010 budget for the Department of Health & Human Services contained new funding for anti-fraud efforts over five years.⁸ Still, finding the savings to fund health care reform may hinge on whether states step up their fraud detection efforts. For instance, “North Carolina has made a real commitment to detect and prosecute fraud,” Hill said.

However, in the current economic environment, some states might be under pressure to cut back on PI efforts. “The majority of states are running at a deficit, often leaving PI staff as one of the first cuts. States that are considering cuts to Medicaid PI units should take note that fraud investigators are recouping five to six times their annual salaries,” she remarked. Indeed, in 2006, North Carolina’s skilled investigators recovered $57 million. And since 2005, the state of Michigan has recovered $97 million through program integrity efforts.

In addition to continued or new support and funding for PI activities, states and commercial payers should consider increasing – not decreasing – the number of investigators working on fraud detection and prevention, Hill advised. Several large states may have only one or two investigators, “which will not lead to significant program savings today or in the future,” she said.

Technology can speed up, improve program integrity efforts

“Because those perpetrating fraud often move in quickly and then move on, it is very important that states and other payers have plans in place to detect the fraud early,” Hill explained. “Payers may think that they need to approach this either in a pre- or post-payment manner, but they need to consider using both methods. Prospective fraud detection can help payers become more proactive about avoiding and recovering losses, which is less expensive in the long run. Post-payment detection can unearth fraud patterns that can’t be detected until there is an inventory of historical claims,” she said.

Further, payers should take a careful look at their payment policies. “Are their policies too liberal or have they failed to put certain policies in place?” She described a scenario where a dentist was unnecessarily putting stainless steel crowns on baby teeth, with some patients receiving multiple crowns. “When this was detected, the state program realized that it had no policy covering stainless steel crowns for children, so they could not prosecute this program abuse,” Hill stated.

Ingenix offers government and commercial payers a multi-dimensional strategy that has yielded as much as a 755 percent return on investment and a 370 percent savings improvement for clients in the first year of implementation. Using advanced analytics and expert systems integration, Ingenix technology uncovers billing and coding errors, payment policy violations and aberrant billing patterns that indicate possible fraud and abuse before claims are paid. For example, Ingenix findings led one state to stop $14 million in improper payments before they were made.

Post-payment analytic solutions offered by Ingenix include peer grouping, cross-claim and intra-claim comparisons, geo-spatial analysis and spike detection, Hill noted. “Using the full array of tools helps states and other payers reveal scams against the system,” she said. Ingenix also offers post-payment fraud and abuse review and recovery services that often are provided to state agencies on a contingent basis, ensuring that states do not pay until monies are recovered.

Ingenix also offers pre-payment claims editing software and fraud and abuse detection and prevention services. The pre-payment services generally are paid on a contingent basis so, like the post-payment services, payers do not pay until monies are saved.

“Eliminating the most egregious offenders does make some headway in reducing fraud, which benefits the entire system,” Hill noted. “Our technology is strong enough to make a real difference, but states need to commit if they want to see substantial savings. Their budgets, and the future of health care reform, may depend on what approach they take to combat fraud and eliminate waste and abuse from the system.”

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