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Something smells foul with Medicare Fraud and Misuse Detection project

by Avivah Litan  |  March 3, 2012  |  4 Comments

On February 23rd, the Associated Press reported that months after the Summer 2011 launch of a $77 million computer system to detect Medicare fraud, only one suspicious payment worth $7591 had been stopped by Christmas. See:

After hearing about all the studies that have found hundreds of millions and even billions of fraud and abuse in Medicare, I’m convinced a student could have done a much better job preventing bad payments using random manual reviews!

Medicare officials say that the $7,591 in prevented Medicare payments doesn’t reflect $20 million in potential savings in the first six months of system operation resulting from flagged cases and denial of suspect claims that went to investigators. But those savings and cases have not been quantified nor analyzed for public consumption. So all we really know is that the new shiny and very expensive system stopped one measly $7K payment in the government’s attempt to end ‘pay and chase’ for Medicare payments (where payments are first made and then fraudulent or unauthorized payments are chased down in attempts to recoup them).

Why is this such a tough problem to solve?

As a U.S. citizen and taxpayer, this subject always riles me up. Various high profile efforts from the White House and our Congress have gone absolutely nowhere that I can tell in stopping Medicare and Medicaid abuse, and returning the stolen or wasted funds to the very needy U.S. Treasury till. I suppose more folks aren’t as worked up as I am over this issue because essentially this is an anonymous victimless crime. Unlike credit card or other types of financial fraud, here the crooks and bad guys aren’t hurting any consumers directly. (In contrast they hurt the big mammoth private and public insurance companies). But indirectly, they are jeopardizing our national future and costing me and the rest of you a ton of money in wasted taxes that go to worthwhile projects, like our children’s education, that are in dire need of funding.

I’ve heard reliable government (e.g. from the Office of Management and Budget) estimates that Medicare and Medicaid Fraud is as high or higher than $60 billion. I’ve also seen several reliable vendor estimates, including one recent national benchmark test done for HHS that found about $20 billion of fraud and abuse in just two of the healthcare industry segments (Part A, Hospital and Part B, Physician).

So what on earth went wrong?

I’ve been talking with lots of knowledgeable colleagues about this flop, asking what they think was the problem, just to make sure I’m not totally off in left field. Summing it all up, here are the three main factors that most think may have contributed to this fiasco:

a) The contractors who developed the system had no expertise in this type of fraud and predictive modeling and analytics. This is the most common theory on the street, since it’s easy to point the finger to the system developers. But surely even the worst system could have detected more than $7K in fraud ahead of the payment.

b) The bureaucrats and staff at the government agency helping develop and implement the system did not cooperate with the system developers and contractors, and gave them bad test data and little or bad feedback on test results. This was either a result of inertia or fear of job insecurity. (Who knows if this is really the case, but it’s a common theory out there).

c) The bad guys or criminals have insiders in the government agencies and made sure the system would fail. (This sounds really far-fetched but you can’t rule this out).

Whatever the reasons for the poor results, I just really hope this doesn’t stop the little momentum that exists in the government to put a stop to Medicare and Medicaid fraud and abuse. Most governmental initiatives in this area have fallen flat on their face in recent years, largely because of bipartisan politics.

And while the clock keeps ticking, and our national deficit keeps ratcheting up, the fraudsters and abusers continue to have their heydays and must be laughing all the way to their offshore banks. At the same time, the legitimate doctors and healthcare providers continue to be plagued by what seems to be an antiquated and largely brain-dead rule-based taxpayer-funded health care payment system.

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Avivah Litan
VP Distinguished Analyst
19 years at Gartner
34 years IT industry

Avivah Litan is a Vice President and Distinguished Analyst in Gartner Research. Ms. Litan's areas of expertise include endpoint security, security analytics for cybersecurity and fraud, user and entity behavioral analytics, and insider threat detection. Read Full Bio

Thoughts on Something smells foul with Medicare Fraud and Misuse Detection project

  1. dennis byron says:

    Hi Avivah

    It’s not often that my pre-retirement world (I’m a retired IDC middleware and ERP market analyst) cross with my retirement world (Medicare market “expert” by virtue of age and by actually passing a test from the Medicare folks to help others sign up–first test I took since I left college 45 years ago). As I signed up for Medicare I realized that it needed some good old fashioned IDC/Gartner/etc. rigor in understanding why seniors do what they do when it comes to healthcare.

    A couple of background points if you decide to dig into this story further:
    1. They talk about fraud, waste and abuse but most of it’s waste, which I’m sure would be hard for a system to pick up predictively after such a short time in operation. The fraud and abuse get the headlines because of illegality but the waste is in doctors ordering tests that are not needed, etc. (often because they are afraid of malpractice suits)
    2. Parts A and B Medicare is where you find most of the fraud, waste and abusue because that’s where the money is and because of the way they are administered.
    — 75% of benefiticiares are primarily dependent on Parts A and B, a fee for service insurance plan, and their claims are paid by the government prospectively as you say above after being received by a private insurer that administers the plan. After paying the bill, the poorly paid administrative insurance companies try to figure out if they should have. That makes sense huh?
    — The other 25% of us are on what is called Medicare Part C, which are usually HMOs, and are administered the way non-senior healthcare insurance is administered. Medicare Part C gives insurers a chance to make a decent “profit” — although many of the insurers are non-profits — and is usually much less expensive than Parts A and B considering that Part A and B also provides such lousy insurance that those dependent on it also have to buy private supplementary insurance.

    There’s FWA here of course to but it is easier to find and stop becuse of the payment method. Acting exactly the opposite of the
    way A and B work, the government deducts millions from the insurers HMO payment and tells it to go chase the offending healthcare provider to get its money back. The good old IDC/Gartner way of doing business.

    Do not hesitate to call if you decide to take this research further and need backup info

  2. Avivah Litan says:


    Thanks for the insights and information. Very helpful and interesting… I will definitely give you a ring if I take this research further.


  3. Jeff Leston says:

    Interesting point, Aviva. I’d be happy to speak with you about our technology platform which uses the existing financial (credit card) networks to verify healthcare transactions in real time. This fraud would not have been possible because there would have been no verification or authentication of an in-office visit, required to approve home care services under the Affordable Care Act, and just common sense. We are in the prevention business, not the pay and chase business.

  4. Avivah Litan says:

    Thanks for telling me that Jeff. What’s the product/company name?

    I just don’t get why the payers don’t utilize all the great innovative technology that’s out there that can prevent the fraud and misuse. The only thing I can think of is there are no direct victims – other than the payers, who just pass on the costs to the insured.

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