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sparente100ED. NOTE: In the last of this  two-part series on healthcare waste fraud and abuse by Stephen T. Parente, PhD., Professor, Department of Finance, Carlson School of Management, University of Minnesota, offers policy solutions.


The most common approach in healthcare fraud and abuse detection today is to apply rules-based or judgmental methodology and technology. Rules are intended to imitate and automate human judgment. They are typically retrospective “if/then” statements, hard-coded into the back end of a claims adjudication system. The terminology for implementing judgmental criteria is called “edits.” This approach also mimics the manual process for identifying claims with parameters that place them outside of normal policy. But it has done little to mitigate healthcare fraud and abuse.


However, the recent passage of the Small Business Act in October 2010 included a provision for full deployment of fraud-mitigation technology by multiple vendors by mid-2011. This component of the bill was introduced by Sen. George LeMieux, R-Fla., and was built on four years of Senate interest in advanced fraud-mitigation technology that originated with efforts by Sen. Tom Coburn, R-Okla., and Sen. Mel Martinez, R-Fla. The act creates funding for a real-time, claims-data transaction platform that could provide a technology base for national public- and private-insurer data stores, similar to what was developed for the financial services industry and still is deployed today.


Currently, the financial services industry uses four identical data transaction hubs for financial services that update in real time: Fair Issac (FICO), TransUnion, Experian and Equifax.


For healthcare, data that would move in real time would be routed through similar transactions hubs. This data, called “personal health information,” would be situated on third-party servers independent of a medical provider or health insurer. Multiple copies of the information provide security, and multiple vendors competing to maintain the contracts promote innovation. The data also is warehoused and can be used as a repository for future research.


In contrast, a handful of states have been creating all-insurance-payer databases for policy research for more than a decade with limited success. The data is usually at least a year old, is housed by one vendor and has little to no value for clinical decision-making.


Also, new public financing is being made available to Ingenix, a part of UnitedHealth Group – the United States’ largest health insurer – to create a national all-payer database for health policy research. This would be the equivalent of Citibank winning a contract to displace FICO and the three other data hubs, with federal financing used to investigate the overall performance of the entire retail banking industry in which Citibank competes.


Although UnitedHealth has formidable data-management prowess, it is not nearly as independent as the four transaction hubs built to serve the financial services industry. It also would not deliver real-time information and would require the implementation of new public financing.


Policy Suggestions to Reduce Fraud and Improve Health System Performance Prescriptions Going Forward


On its current trajectory, health IT policy is expensive, slow and potentially ineffective.  To change the policy, keeping today’s political situation in mind, here is a four-step tactical plan based on the evidence and cases described above.


1.   Create at least three financial services hub equivalents for electronic health-claims data, using all federal and Medicaid data to start. The financial services industry operates with four of these repositories today without federal subsidy. This prescription can be implemented as part of the modernization of existing technology platforms. Make this part of the healthcare fraud prevention in the Small Business Jobs Act (signed in September 2010, with implementation in 2011 currently prescribed).


2.   Apply existing predictive-modeling technologies for risk assessment in healthcare to the hubs to get a FICO score for all, in as close to real time as possible by also adding real-time retail pharmacy data.


3.   Set a goal to pay medical providers at the point of care for all ambulatory services and Medicare-permitted reimbursement in cases costing less than $3,000, with payment for no more than three days later for all other services. As a fraud-prevention strategy, require lab and imaging tests to be submitted before payment is made. Doing this will turn claims data into electronic medical records within a couple of years, rather than the near-decade that has gone by with almost no tangible progress toward a national interoperable system.


4.   Take the ARRA funds and repatriate them to pay for high-risk pools as appropriate to expand coverage for those most in need, as indicated in the first three tactical steps.





Real-time health IT, if widespread, could speed payment and reduce fraud. The concept of real-time IT is based on a currently accepted form of health IT – insurance payment transaction processing – and could provide a platform to link data across all sites of care without a command-and-control integrated delivery system, creating the information flow necessary for a high-performance medical industry. Of course, this solution ultimately relies on widespread acceptance and wise use of the information by consumers, providers and financial intermediaries. Without such a bold set of gestures, the economic impact associated with healthcare fraud is likely to increase.


About the Author


Stephen T. Parente, the Minnesota Insurance Industry Professor, Department of Finance, Carlson School of Management at the University of Minnesota who, also holds an appointment as adjunct faculty member at Johns Hopkins University and once served as a Legislative Fellow in the US Senate during the Bush and Clinton Administrations’ health reform initiatives.


Contact the Author




To comment on this article please go to editor@racmonitor.com


To read the article entitled, “The Audit is Finished – Now What??,” please click here


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