Representatives from property and casualty insurer CNA, Los Angeles County and health systems consultant OptumInsight painted a bleak picture about fraud in their industries. Numbers like $30 billion were suggested, and that was just insurance fraud. The fraudsters are highly organized; more organized than the efforts to thwart them.

In separate presentations at the Series, each presenter described the fraud problem as too large to accurately quantify.  But they also offered rays of sunlight in the form of fraud-fighting successes they’ve had using analytics.

CNA

In the past, CNA’s anti-fraud efforts were complicated by a few primary factors. The number of fraud referrals differed greatly by individual adjuster and line of business, and suspect claims were not always referred in a timely enough fashion to have a positive impact. There was no way of knowing how much fraud was being missed.

Using analytics, CNA strives to identify claim fraud earlier in the investigation, especially large scale fraud. They want to improve referral quality so that investigations directly impact the bottom line.

Last year, CNA built analytical models, built on historical fraud data, for workers compensation, general liability, auto and property lines of business. Claims are run through the models and flagged as likely fraud if they fit model parameters. They are then triaged via a SAS user interface and referred to investigators.

A key metric is the number of referrals compared to the number of overall alerts reviewed. CNA has increased the percentage of alerts referred by 14 percent for individual claims. More importantly, they’ve increased the percentage of suspected provider network referrals by 31 percent. Those are the cases that tend to recoup the most money, often millions of dollars.

Because so much of the fraud is committed by organized networks, CNA plans to deploy social network analysis this year. CNA has developed a reputation among law enforcement and district attorneys as a provider of reliable criminal information. As the CNA speaker said, “We deliver cases with a bow on top.”

Los Angeles County

LA County’s Department of Public Social Services has a $6 billion budget for public assistance programs, which are a frequent target of individual and organized fraudsters, especially in poor economic times.

In 2008, the County conducted a data mining pilot, analyzing child care services. The pilot achieved 85 percent accuracy in detecting collusive fraud rings. Estimates of cost avoidance from new fraud referrals, earlier detection and increased efficiency totaled $6.8 million.

Based on that promising success, the County developed a system that, since going live last year, has delivered approximately 500 fraud referrals that could have otherwise gone unnoticed by relying on traditional fraud detection processes. Additionally, DPSS Welfare Fraud Prevention and Investigations uncovered two conspiracy rings comprising 16 cases much earlier, significantly reducing the duration of fraudulent activities. The County anticipates cost avoidance of up to $20 million. They’ve also been able to remove many program participants, which could lead to additional avoidance of $12-15 million.

The County has expanded their efforts to in-home support services and the food stamps program is on the horizon.

OptumInsight

The OptumInsight speaker highlighted the drastic rise in fraud fighting activities within the industry and within law enforcement and criminal justice. The Justice Department increased the number of health insurance fraud prosecutions by approximately 85 percent in 2011, compared to 2010. Even more encouraging for companies like SAS, more than 70 percent of anti-fraud units are now using fraud detection software.

OptumHealth (the health management arm of Optum), like many companies and government agencies, is shifting focus toward preventing fraudulent payments from being made instead of pay-and-chase. According to the speaker, only three to five percent of fraudulent payments are ever recovered.

The speaker sees even greater possibilities through public-private partnerships and cross-industry data sharing. OptumHealth is part of the National Fraud Prevention Partnership, a White House initiative “designed to reduce healthcare fraud by pooling resources and using data analysis techniques to sort through claims data.”

Optum’s speaker said, “Fraudsters have been working together for years, but not fraud fighters.”

With organizations like CNA, LA County and OptumInsight leading the way, pushing for more data sharing, and unleashing the power of analytics, perhaps the fraud fighters can turn the tide.

Fraud is a daunting issue; take a look at some of the solutions for fighting back. And, read these other posts for a look at what can be done in the fight against fraudsters.