James Ruotolo is an insurance fraud technologist, thoughtleader, and the principal for insurance fraud solutions at SAS. Hemay be reached at [email protected].

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 (The Coalition) and National Health Care Anti-FraudAssociation (NHCAA) standingside by side with health and p&c insurers, as well asgovernment agencies. 

For too long, the insurance industry has struggled to shareinformation effectively to combat fraud. Yet all the while, as NICBpresident Joseph Wehrle told the audience at a recent industryconference, "Fraudsters don't discriminate. They will take moneyfrom anybody."

Sharing Information Works
There have beenmany successful examples of how information sharing can help thwartinsurance fraud. Fraudulent medical providers seldom discriminatewhen selecting their victims and equally target auto insurers,workers' compensation carriers, health payers, and governmentprograms. Some of these groups have already shown that wheninsurers share information, they all glean better intelligenceabout 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 ForeWARN Alerts andother 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 isgradually shifting priority from its historical focus onauto theft and physical damage claims to medical fraud. TheAggregated 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.

"Private insurers and the federal government have operated formany years like they each have their own distinct set of crooksdefrauding them," said Dennis Jay, executive director of the TheCoalition. "We know that medical providers defraud both. By teamingup and sharing data and intelligence, more fraudulent schemes willcome to light and likely be detected much earlier."

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 partnershipwill likely benefit p&c carriers in the long run, it's unclearexactly how. The announcements made thus far are light on details.In speaking with members of the partnership, a common refrain of"it's very early in the process" is heard. On a positive note, itseems that there has been progress made by the varioussubcommittees of the partnership, which meet regularly to identifyopportunities 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," he said. "While industryexperts believe the concept is a good thing, there are concerns.Let's also hope that the eventual costs of setting up and operatinga program of this scale do not consume too large a share of theamount of money budgeted to uncover the fraud that the program willeventually help to prevent."

Leveraging Big Data
All this informationsharing is bound to be a good thing when it comes to frauddetection and prevention. But a major key to success is how theshared information is analyzed and how insurers and governmentagencies can consume the results in the form of usefulintelligence. While putting the data together is a monumentaleffort, it is arguably the easiest part of thisprogram. 

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 number of claims and dollar values involved arestaggering—Medicare alone receives more than a billion claims eachyear; private health payers and Medicaid pay out $1.8 trillion inclaims annually; and p&c carriers receive more than 40 millioninjury claims a year."

Maximizing Value
Once all this informationis aggregated and an infrastructure is put in place to update andmaintain the data, the next step will be intensive analysis. Bigdata tools and techniques, along with a small army of analysts,will be required to make the most of this new aggregated data set.Surely, one of the first tasks will be to identify trends andpatterns that are indicative of fraudulent behavior. Simplebusiness rules can flag providers who are obviously scamming thesystem. For example, a sole provider who bills for more than 24hours per day in the aggregated data set will be easy toidentify.

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.