Healthcare insurance fraud represents a growing threat, as a weakened economy creates incentives for criminals. Larry Jacobson describes a technological approach to fighting back.
News about healthcare fraud scams brought to heel by the police – such as the prison sentence awarded in February to an NHS manager who created a fictitious care home – send a feel-good message about the industry’s watchfulness.
Sadly, these are small battles in a war that is taking a huge toll on healthcare providers and insurers.
According to the Healthcare Insurance Counter Fraud Group, private medical insurers lose £280m to £420m per year to fraud.
The Home Office’s National Fraud Authority puts the annual NHS patient fraud losses at £165m.
Some reports claim these figures are woefully underestimated. The Financial Cost of UK Public Sector Fraud, a recent study by MacIntyre Hudson and the University of Portsmouth’s Centre for Counter Fraud Studies, noted that:
“On the basis of the evidence, it is clear that healthcare fraud and error losses in any organisation should currently be expected to be at least 3 per cent, probably more than 5 per cent and possibly as much as 10 per cent.”
That would put the UK’s healthcare insurance fraud losses in the billions.
TACKLING FRAUD HEAD-ON
Across the pond, agencies such as the USA’s Centre for Medicare & Medicaid Services have already declared war on a fraud, waste and abuse problem estimated at anywhere from $200bn to $600bn a year.
This war on healthcare insurance fraud is winnable — but are we winning? Or is it time to send in the reinforcements?
On the evidence, UK healthcare providers and insurers are not yet in a position to claim the upper hand.
The principal reason for this is the reliance on technology and methodology less advanced than that used in other sectors that experience prevalent fraud, such as credit cards.
Analytics-based fraud systems and increasing sophistication of fraud management operations drove fraud losses in the US credit card industry down by more than two-thirds in ten years, and have helped bring UK card fraud losses to their lowest levels in a decade.
Too many insurers still accept fraud as a cost of doing business, or seek to curtail it using a set of rules and well-trained call centre operators.
But it is time to evaluate the advantages of using more advanced tools to prevent mounting losses.
As the complexity and scope of insurance fraud grows, the systems used to detect and prevent fraud, waste and abuse need to evolve as rapidly as the patterns of misuse they’re trying to identify.
When it comes to technology, the most common use to detect fraud, waste and abuse in the UK is using business rules.
Rules-based detection is an effective tool for catching known fraudulent activity.
But rules, by their very nature, can only be written to catch fraud, waste and abuse based on known information.