Saryu Nayyar is CEO of Gurucul, a provider of behavioral security analytics technology and a recognized expert in cyber risk management.
Medicare fraud in the U.S. is a huge and costly problem. Taxpayers are losing more than $100 billion a year to Medicare and Medicaid fraud, according to estimates from the National Health Care Anti-Fraud Association. Senior Medicare Patrol places estimates at $60 billion a year—far lower, but still significant. The amount of money lost to fraud is not surprising, considering the total spending on Medicare and Medicaid exceeded $1.6 trillion in 2021 and continues to grow.
Who commits this fraud? It’s a range of perpetrators, including unscrupulous medical providers, healthcare facilities, contracted billing services and even patients themselves. Suffice it to say, anyone who touches a claim has the opportunity to include fake charges. Here are just a few ways that bad actors cheat the system:
• Seeking payment for services that weren’t provided.
• Billing for services that are different from those actually received.
• Performing services that aren’t medically necessary.
• Using another person’s Medicare card to receive services.
• Providing or receiving medical equipment that isn’t really needed.
Regardless of how the fraud occurs, every tax-paying American is harmed by this crime.
Complexity Leads To Fraud Risk
Even the Government Accounting Office recognizes the risk of Medicare fraud. An April 2023 report from GAO designates Medicare as a high-risk program due to its size, complexity, effect on the federal budget and healthcare sector, and susceptibility to mismanagement and improper payments. The program is, indeed, quite complex. GAO says the Medicare program has more than 1.4 million providers and more than 20 different payment systems.
Occasionally, fraudsters are caught and brought to justice. In June 2023, the U.S. Justice Department announced criminal charges targeting 78 defendants across 16 states involving $2.5 billion in alleged healthcare fraud schemes. Among the various cases were allegations of falsely billing the federal Medicare insurance program and paying illegal kickbacks.
Claims Processing Is Disjointed
Anyone can report Medicare fraud. The Centers for Medicare and Medicaid Services (CMS) publishes a fraud prevention toolkit to help stem the problem. CMS also has hotlines to report instances of fraud. The problem with this kind of reporting is that it requires knowledge of actual or suspected fraud. The vast majority of fraud is unseen due to the sheer volume of claims made each year. Fraud that happens on a massive scale requires a detailed analysis of the data.
CMS authorizes a handful of Medicare administrative contractors (MACs) to process claims and make payments to fee-for-service (FFS) healthcare providers, which do not include the Medicare Advantage plan providers. That’s a whole can of worms in its own right. CMS audits the MACs’ institutional provider cost reports each year. In 2022, the MACs processed more than 1.1 billion FFS claims submitted by more than 1.1 million healthcare providers, paying out $422.5 billion in taxpayers’ dollars.
MAC performance is evaluated on the quality, quantity and timeliness of processing claims. “Quality” includes “proper use of trust fund dollars,” which implies that fraudulent claims are caught and denied. Astoundingly, CMS reports that all MACs were 100% in compliance in a recent audit. If fraud is rampant, and we know it is, how can the MACs’ performance be evaluated so highly?
Clearly, CMS needs an automated systemwide fraud detection methodology—something that will scrutinize every claim, look for suspicious anomalies and alert investigators to the possibility of abuses, preferably in time to prevent sending payment to the fraudsters.
CMS Fraud Prevention Has Low Efficacy
According to a 2016 statement from CMS, the agency does have a broad Health Care Fraud and Abuse Control (HCFAC) Program that is intended to reduce fraud, waste and abuse within the Medicare/Medicaid programs. The CMS Fact Sheet says: “These focused efforts are successful. In Fiscal Year (FY) 2015, the government recovered $2.4 billion as a result of healthcare fraud judgments, settlements and additional administrative impositions in healthcare fraud cases and proceedings.” One must question CMS’ definition of “successful” if the fraud recovery rate is only 4% or less.
The Fraud Prevention System (FPS) utilized by CMS has been in place since 2011. It may be time for a technology refresh—or at the minimum, more effective machine learning models—to improve the capabilities of the system’s predictive fraud analytics and bring them up to state of the art.
Fraud Prevention Requires Modern Technologies
Surely part of the problem is the volume of data that may be trapped in too many silos. Think about the 20 or so MACs, all processing claims separately. Even if all their data is combined, that amounts to more than 1 billion claims each year. Traditional databases can’t handle so much data.
What’s needed is a modern cloud-based fraud prevention system that can aggregate every claim into a single data lake, normalize and correlate the data, and analyze it in real time using machine learning, anomaly detection and artificial intelligence. With billions of legitimate claims as comparative data points, fraudulent claims would stand out as anomalies that should be investigated before any payment is made to the provider.
It’s essential to break down the silos of the MACs doing their separate claims processing. By centralizing and correlating the data and scrutinizing for outliers, the large fraud schemes that span across MACs can be readily surfaced.
As Medicare continues to represent a large and growing percentage of the federal budget each year, costs can be lowered by using the right technology to detect and prevent fraud. Modern cloud-based systems have the scale and processing capacity to detect bogus claims in real time and deny payment to fraudsters.
Meanwhile, anyone who suspects fraud in the system can report it to Medicare.gov. It’s incumbent on all of us to safeguard our federal programs that lose billions of dollars each year to fraud.
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