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A baby with a backache? When claims from chiropractors for treating entire families--including a six-month-old--came into Travelers Corp. recently, they were quickly flagged as possible fraud. Further investigation showed they were part of a kickback scheme where "patients" receiving payments would fork over most of the money to chiropractors. It wasn't an eagle-eyed Travelers employee who noticed the pattern, however. It was the newest weapon in insurers' attack on rampant health-care fraud: Software designed to sift through mountains of claims to detect suspicious billing and treatment patterns.
Such computer sleuthing is increasingly being used to reduce insurers' annual $50 billion fraud costs. With the industry pushing for health-care providers to file more paperless claims through computers, the flesh-and-blood employees that notice fishy claims are taken out of the loop, and insurers are realizing they need software to perform that function. The newly aggressive stance stems also from health-care reform, with its emphasis on cutting costs. The reforms will make it harder for insurers to pass along the cost of fraud to consumers in the form of higher premiums.
NO BLUFFING. Insurers' programs are red-flagging everything from widely divergent Zip Codes between doctors and patients to office visits for the sniffles on Thanksgiving. Other software compares physician practices against peers to see, for example, if they're filing many more claims for hysterectomies than others. The software kicks out potential cases, which are then investigated.
Travelers and Aetna Life & Casualty Co. have been especially active in developing proprietary software. Their systems compare medical treatments prescribed by doctors and medical labs in different regions. A Travelers program is designed to detect overcharging by doctors and labs. One indicator: Several family members receiving care by the same doctor on the same day. The suspicion: A medical provider may have seen one patient that day but sent in claims for the entire family.
The human touch comes when claims are investigated. After documenting a case of excessive billing, a Travelers rep will then approach the doctor. About 15% to 20% of the time, say insurers, there's a legitimate explanation. "We don't bluff people, we just lay the case out," says Michael S. Smiley, president of Travelers' fraud investigation unit. "We have to make them realize that they would lose in court." More often that not, offenders return the money.
Travelers thinks so much of its software that it is establishing a subsidiary to market it to other insurers. Smiley says the unit, ExClaim Inc., can add 2 percentage points to a company's health insurance profit margin. Fraud is estimated to take a 2- to 10-percentage point bite out of margins. Aetna says its program, which spots 500 signs of fraud a month from 7 million claims, was responsible for 15% of the $38 million it recovered in bad health insurance payments in 1992. James L. Garcia, director of Aetna's health insurance tracking unit, predicts that will soon grow to 75% as Aetna relies more heavily on its increasingly sophisticated system.
Helping insurers ferret out fraud is becoming a hot business. Recently, AdminaStar Solutions Inc. of Indianapolis decided to modify the fraud-detection software that it uses to help federal officials detect Medicare fraud and to market it to private health insurers. And on Nov. 17, Big Blue unveiled IBM Fraud & Abuse Management Systems, a service that analyzes the billing and medical practices of health-care providers. One pilot program helped uncover chiropractors in Southern California who were filing inflated claims. One doctor scored 990 out of a possible 1,000 on the IBM fraud-detection system. How did he do it? He charged an average of $5,264 while chiropractors around him were billing $1,184. And he ordered X-rays at twice the rate of his counterparts.
Companies are now looking for other types of fraud their systems can combat. Auto insurance is one logical area. Entire families crashing different cars on the same day? Toddlers with bad transmissions? The possibilities are endless.
USING COMPUTERS TO FIGHT FRAUD TRAVELERS Software can track some 30 indicators of fraud, such as providing care on holidays and performing hysterectomies on men. AETNA Software tracks number of times a claims processor makes changes in a file. The more changes in prescriptions or treatment, the more likely fraud has occurred. MASSACHUSETTS MUTUAL Software determines whether doctors are "upcoding" procedures to more expensive charges or expanding costs by dividing charges for one procedure into separate charges. NORTHWESTERN NATIONAL LIFE Software compares payments to doctors against previous years to spot any dramatic, possibly fraudulent increase in income. DATA: BUSINESS WEEK