(James Ruotolo is an insurance fraud technologist, thoughtleader, and the principal for insurance fraud solutions atSAS.)

The recent announcementby the Department of Health and Human Services and Department ofJustice to form a National Fraud Prevention Partnership to addresshealthcare fraud is a step in the right direction. It's good to seeindustry groups such as the National Insurance Crime Bureau(NICB), Coalition AgainstInsurance Fraud (CAIF)and National Health Care Anti-Fraud Association (NHCAA) standing side by side withhealth and p&c insurers, as well as government agencies. Fortoo long, the insurance industry has struggled to share informationeffectively to combat fraud. Yet all the while, as NICB presidentJoseph Wehrle told the audience at a recent industry conference,“Fraudsters don't discriminate. They will take money fromanybody.”

Sharing Information Works

There have been many successful examples of how informationsharing can help thwart insurance fraud. Fraudulent medicalproviders seldom discriminate when selecting their victims andequally target auto insurers, workers' compensation carriers,health payers, and government programs. Some of these groups havealready shown that when insurers share information, they all gleanbetter intelligence about these organized fraud schemes.

NICB has long acted as an industry clearinghouse for p&ccompanies to share information on suspicious claims and interfacewith government and law enforcement agencies. Most companies thatparticipate in NICB's medical fraud taskforces throughout thecountry cite information exchange as one of the primary benefits.NICB proactively culls claim information, looking for patterns, andthen notifies the industry via ForeWARNAlerts and other communications.

NHCAA's SIRIS database is a repository to share similarinformation for healthcare insurers. It hasn't gained as muchtraction as other projects, but the approach is sound. NHCAA andNICB have been in discussions for quite some time regarding how tobetter share these details between healthcare and p&cindustries.

Steps in the Right Direction

NICB is gradually shifting priority from its historicalfocus on auto theft and physical damage claims to medical fraud.The Aggregated Medical Database program is a huge leap forward inaddressing the challenges of medical insurance fraud for thep&c industry. By pooling medical billing information, NICB canproduce MedAWARE Alerts to notify member companies of emergingpatterns of fraud or suspicious actors.

The newly announced partnership presumably will expand thisconcept across p&c, healthcare, and government agencies.Certainly, aggregating data from these groups will yieldinteresting results.

Dennis Jay, executive director of the Coalition AgainstInsurance Fraud, said, “Private insurers and the federal governmenthave operated for many years like they each have their own distinctset of crooks defrauding them. We know that medical providersdefraud both. By teaming up and sharing data and intelligence, morefraudulent schemes will come to light and likely be detected muchearlier.”

For years, the bad guys have benefited from the disjointedapproaches taken to detect fraud scams. It appears that is about tochange.

Cautious Optimism

While this partnership will likely benefit p&c carriers inthe long run, it's unclear exactly how. The announcements made thusfar are light on details. In speaking with members of thepartnership, a common refrain of “it's very early in the process”is heard. On a positive note, it seems that there has been progressmade by the various subcommittees of the partnership, which meetregularly to identify opportunities for quick wins.

Analyst Stephen Applebaum of Aite Group agreed, “Now let's justhope that this well-meaning initiative doesn't get bogged down inbureaucracy and competitive issues.” While industry experts believethe concept is a good thing, there are concerns. Applebaumcontinued, “Let's also hope that the eventual costs of setting upand operating a program of this scale do not consume too large ashare of the amount of money budgeted to uncover the fraud that theprogram will eventually help to prevent.”

Leveraging Big Data

All this information sharing is bound to be a good thing when itcomes to fraud detection and prevention. But a major key to successis how the shared information is analyzed and how insurers andgovernment agencies can consume the results in the form of usefulintelligence. While putting the data together is a monumentaleffort, it is arguably the easiest part of this program.

The data volumes are huge. The third-party vendor that is chosento support the partnership from a technology standpoint must bewell-suited to handle big data. Applebaum agreed, “The numberof claims and dollar values involved are staggering – Medicarealone receives more than a billion claims a year; private healthpayers and Medicaid pay out $1.8 trillion in claims annually; andp&c carriers receive more than 40 million injury claims ayear.”

Maximizing Value

Once all this information is aggregated and an infrastructure isput in place to update and maintain the data, the next step will beintensive analysis. Big data tools and techniques, along with asmall army of analysts, will be required to make the most of thisnew aggregated data set. Surely, one of the first tasks will be toidentify trends and patterns that are indicative of fraudulentbehavior. Simple business rules can flag providers who areobviously scamming the system. For example, a sole provider whobills for more than 24 hours per day in the aggregated data setwill be easy to identify.

These efforts will take quite some time and will be useful. Butto truly transform the industry, insurers and government agenciesneed to receive and incorporate real-time intelligence into theirinternal fraud detection programs. It is the only way that insurerscan move from a pay-and-chase methodology to a proactivepre-payment stance. Affirmative litigation against fraudulentproviders is effective at shutting down rogue clinics, butit's far from efficient or cost-effective.

While there are many details to sort out, the rightconversations are happening. The tools exist for informationsharing, and all the parties have come to the table. Now, if we canjust focus on the execution, maybe the industry will finally have achance to make a dent in the billions lost to insurance fraud eachyear.