Analytics Improving Insurers' Claims Fraud Detection Efforts

Detection and prevention of claims fraud is both an art and a science. Human insight, legwork and persistence are essential to tracking down perpetrators. But automation increasingly is helping insurance companies undertake these efforts efficiently and profitably.

Anti-fraud investigations undertaken by Blue Cross and Blue Shield companies resulted in savings of more than $500 million in 2009, according to the Chicago-based Blue Cross and Blue Shield Association (BCBSA). This represents a significant improvement over the savings generated in 2008 and contributed to a seven-to-one average return on investment in anti-fraud operations over three years across the Blue plans.

Detroit-based Blue Cross Blue Shield of Michigan (BCBSM), which launched a fraud investigation unit nearly 30 years ago, has been one of the most aggressive and successful Blue plans with its anti-fraud efforts, reporting an estimated $277 million saved since the unit's inception, including $15 million saved in 2009. Greg Anderson, VP of corporate and financial investigations at BCBSM, says 70 percent of the fraud-related leads the carrier receives come from consumers reporting inconsistencies on their explanation of benefits forms to the company's hotline number. But, he adds, while investigative legwork remains the key to fighting fraud claims, database software and search programs expedite a process that once required time-consuming manual review and analysis.

"These technologies have allowed us to go from labor-intensive to limber," Anderson says. "It gives our unit the ability to analyze data on the go." For example, two in-house-developed programs, OSCAR and Claimscape, allow BCBSM investigators to access and query patient and provider information instantly. Furthermore, all investigators are equipped with laptops that allow them to access this information while in the field. And as part of its Medicaid coverage, BCBSM also takes advantage of the VIPPS (Verified Internet Pharmacy Practice Sites) accreditation program, which uses more than 350 algorithms to flag suspicious claims, according to Anderson.

Calvin Sneed, senior anti-fraud consultant for the Blue Cross Blue Shield Association, the umbrella organization for 39 BCBS companies, notes that special investigation units (SIUs) across the association have focused on various off-the-shelf software solutions as well as programs developed in-house that mine claims data - by query or predetermined algorithm - to provide adjusters and investigators with more meaningful information more quickly. Establishing electronic case management systems, he adds, further assists with workflow productivity by helping supervisors keep things moving.

True or False?

Most insurers' anti-fraud efforts begin with adjusters flagging potentially fraudulent claims and reporting them to the SIUs. Donald Light, a senior analyst at Celent (Boston), points out that technology such as analytics systems can streamline and improve the process. In a recent report, Light noted that the key to successful fraud mitigation with technology is applying a combination of several methods - including the typical red flag approach, predictive modeling, neural networks, profiling, claims databases and identity matching - to "maximize the identification of true positive fraudulent claims and of true negative fraudulent claims."

BCBSM's Anderson explains that the possibility for false positives remains because these types of software tools see and return only what they can gather from billing patterns. A high instance of a certain prescription, for example, may be flagged as suspicious when in fact the doctor's specialty may be the culprit, not fraud.

Social media is another technology weapon in the SIUs' arsenal. According to BCBSA's Sneed, investigators across the Blue Cross Blue Shield companies have been using social media to track subjects of investigations. But he sees much more potential in technologies that combat identity theft, such as biometrics incorporated into a patient's insurance card.

BCBSM's Anderson says privacy concerns deter policyholders from using social media to report potential fraud. "People who want to report want to remain anonymous," he says.

The Impact of Reform

Another development that is likely to help carriers in their efforts to stem claims fraud is the recently approved Patient Protection and Affordable Care Act (PPACA), which addresses the costs that fraudulent claims add to the healthcare system. Anderson and Sneed agree that healthcare reform will increase awareness about insurance fraud, and that resources the legislation designates for fighting fraud will certainly help their organizations' efforts.

According to James Quiggle, director of communications for the Coalition Against Insurance Fraud, millions of dollars have been earmarked for fraud detection and prevention under HR 4872, the Health Care and Education Reconciliation Act of 2010, with $95 million set aside for 2011, mainly for public health insurance programs.

"There is potential for stopping waste," BCBSA's Sneed says. "Healthcare reform is going to drive more thinking in ways to respond on the private side." He adds that it is becoming easier to make the business case for investment in fraud-fighting technologies because of the increased awareness of healthcare fraud in general.

But while more money has been allocated for fighting fraud, as more people get health insurance, the potential for fraud also will grow, asserts Lou Saccoccio, executive director of the National Health Care Anti-Fraud Association.

And ensuring a return on fraud-fighting investments is still tricky, adds BCBSM's Anderson. "These systems do pay for themselves," he says. "But when you make the business case, you're making it on fighting fraud, not ROI."