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March 28th, 2018
Daniel Selikowitz Principal at The Boston Consulting Group, Sydney

The right medicine: three practical steps to reduce the cost of public health fraud

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#Healthcare claims leakage is a large, overlooked drain on the impact and resources of public #health systems – what can be done about it?

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Public health payers that recognise "claims leakage" as a major cost, and take assertive steps to prevent it, will reap significant benefits

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Properly identifying fraudulent #healthcare claims is more about advanced analytics than detective work, says @BCG's Daniel Selikowitz

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30-second summary

  1. "Healthcare leakage", which encompasses fraud, overservicing, and inappropriate or erroneous claims by providers and patients, weakens the impact and harms the resources of public health systems.
  2. Only a modest proportion of this lost value - less than ten cents on the dollar, on average - is eventually recovered.
  3. Advanced analytics, aligning the response to the level of the fraud, and focusing hard on preventing fraud in the first place, are three steps governments can take to address this issue.

Public healthcare spending has grown quickly over the last two decades, exceeding 8% of GDP across OECD countries, and it shows no signs of slowing down. Now more than ever, it's critical that public health spending be as efficient and impactful as possible, and that nonessential expenditure be minimised.

Unfortunately, healthcare claims leakage - where the causes of leakage encompass fraud, overservicing, and inappropriate or erroneous claims by providers and patients - is a large, often overlooked drain on the impact and resources of public health systems. Fraudulent and noncompliant payments are estimated to account for up to 10% of US healthcare spending, a staggering US$300bn, and we see similar rates in the UK, Germany, and almost every other nation where this is measured.

A modest proportion of this lost value - less than ten cents on the dollar, on average - is eventually recovered, often through high-profile dragnets like the one led by US Attorney General Jeff Sessions in mid-2017. The rest is ceded to a mix of dishonest practitioners, inadvertently noncompliant claimants, and - in a small number of high-profile cases - organised criminals. This represents an immense missed opportunity for better health outcomes and reduced expenditure.

In the face of these challenges, some countries are starting to rethink how they detect, prevent and recover healthcare claims leakage - offering powerful lessons for other nations grappling with similar issues. Specifically, we see three practical lessons to be learned from the countries (and private sector health payers) that are making inroads today.

Lesson 1: Put your data to work

Properly identifying fraudulent healthcare claims is becoming less about old-fashioned detective work and more about advanced analytics. The US Department of Justice has identified thousands of fraudsters and recovered billions of dollars through the use of sophisticated data mining, scouring billing data in real time to identify anomalies. Similarly, private health insurers like Bupa and Humana are increasingly turning to sophisticated analytics to track down bad claims.

We have seen a range of analytical approaches that can be effective in identifying noncompliant claims - from narrow, directed analysis based on clinical know-how (e.g. identifying types or volumes of procedures that don't look right to an experienced clinician) to unguided analytics and machine-learning approaches that can expose new patterns of fraudulent behaviour. The unifying factor among organisations that do this well is a commitment to invest in the people and systems needed to harness the data - and an ability to combine cutting-edge techniques with clinical common sense.

Lesson 2: Ensure the response fits the crime

Major sting operations and criminal prosecutions grab the public's attention, and they're an appropriate response in instances of significant fraud. But they are also time- and labour-intensive, and can be difficult to implement at scale. As a result, it's important for public health payers to differentiate between the small number of big-time fraudsters and the large number of small-time opportunists or erroneous claimants - and to adjust their response accordingly.

In the US, for example, major penalties have been imposed for large-scale false billing, sometimes in excess of 30 years in prison. At the same time, light-touch responses and disincentives have been put in place to target a broader base of claimants, e.g. tighter screening of new home-health providers has vastly reduced the number of low-level fraudsters. Similarly, in Australia, the government has made examples of some high-value fraudsters while using light-touch methods to recoup funds from a large number of smaller transgressors.

Lesson 3: Prevention is the best cure

By the time a fraudulent claim has been paid, the probability of recovering the money is approximately 1%. By contrast, preventing the claim protects 100% of the value, and is typically less costly than post facto investigation and recovery. It's for this reason that the World Health Organization has emphasised the importance of taking preventive measures to preclude or discourage noncompliant claims.

There are many different approaches to prevention, and the right ones will depend on each country's specific challenges. In China, systemic changes have been made to prevent doctors receiving kickbacks from the sale of pharmaceuticals, with drug procurement increasingly centralised in hospitals. In the UK, principles of behavioural economics have been applied to “nudge” medical practitioners towards more honest and appropriate claiming. And growing numbers of private healthcare payers are investing in automated, algorithmic claims processing systems that can identify and reject fraudulent claims before they are paid.

Regardless of which approaches are used, public health payers that recognise claims leakage as a major cost, and take assertive steps to identify, prevent and recover any potential losses, stand to reap significant benefits. By taking steps today to cut down on this wasteful and inappropriate spending, countries can maximise the proportion of their spending that reaches its intended recipients, stem the tide of rising healthcare costs, and, above all, deliver better health outcomes to their citizens.



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Daniel Selikowitz Principal at The Boston Consulting Group, Sydney
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