Commentary: New strategy, technology emerging in ongoing fight against healthcare fraud

Healthcare fraud is a seemingly overwhelming problem. Large healthcare companies perpetrate systematic schemes, while corrupt practitioners and common criminals steal funds through hoaxes involving phony clinics, phantom patients and billing for services and medical equipment never provided.

Most important, healthcare fraud can injure patients. No clearer example exists than the Michigan oncologist recently sentenced to 45 years in prison for giving false cancer diagnoses and providing unnecessary and dangerous treatments to collect millions of Medicare dollars.

During my years as the chief Obama administration official responsible for fighting healthcare fraud at the CMS, I saw the challenges firsthand. They are big, but not insurmountable.

The answer lies in changing the paradigm, the anti-fraud infrastructure and the technology for fighting fraud as well as strengthening the reward system to encourage those with information about healthcare fraud to step forward.

The paradigm, rightly dubbed “pay and chase,” has been to pay claims quickly, then search for discrepancies after the fact. But this approach has a fatal flaw. As a takedown in June of more than 240 healthcare professionals in 17 cities showed, arrests generally do not happen until hundreds of millions of dollars in false billings have occurred. By then, the money has usually disappeared. Moreover, “pay and chase” addresses fee-for-service fraud, while novel schemes are emerging in Medicare Advantage and prescription drug plans and innovative funding arrangements such as accountable care organizations. A congressional hearing just last week focused on these issues.

The new approach must be one of preventing fraud from occurring in the first place, or detecting and stopping it early. Yet, that shift is not easily accomplished.

“Pay and chase” relies on an entrenched enforcement infrastructure built to carry out investigations and develop cases for prosecution. Prevention and early detection, on the other hand, require costly and complicated advanced technology and analytics that screen real-time claims data to spot and cut off fraudulent claims before they are paid.

This paradigm shift can occur only if prevention and early detection receive high-level commitment and significant financial support. Therein lies an inherent conundrum: Arresting people who have stolen hundreds of millions of dollars grabs headlines, but it is difficult to garner much credit—and therefore, support—for stopping a would-be thief from stealing.

An effective fraud-prevention strategy is emerging. The new CMS Fraud Prevention System uses sophisticated analytics to screen every Medicare fee-for-service claim against billing patterns and other data sources before payment. In its first three years, the system prevented or identified $820 million in inappropriate Medicare payments. The CMS recently announced plans to enhance and expand the system and incorporate models to monitor high-risk prescribers in Part D.

Complementary initiatives are showing results. The CMS reviewed the credentials of over 1 million providers and suppliers, deactivating 470,000 enrollments and revoking some 24,000 Medicare providers' billing privileges. A new regulation enables the CMS to revoke billing privileges of providers or suppliers with a pattern or practice of submitting claims that fail to meet Medicare requirements.

Meanwhile, the CMS is updating its anti-fraud infrastructure by combining and integrating program integrity functions into a single contract oriented toward prevention and early detection. The new arrangement promises a far greater return on the federal investment than was possible with multiple contractors.

Another key development is the Healthcare Fraud Prevention Partnership. Some 18 health plans, numerous private associations, and federal and state governments are working collaboratively to detect and prevent healthcare fraud through data- and information-sharing.

Even with all of these anti-fraud measures, it's important to recognize that the best tools for fighting fraud are healthcare workers and patients who are outraged by scams and schemes that steal public and private funds. Tens of billions of dollars have been returned to the U.S. Treasury, the Medicare trust fund and state governments using the False Claims Act, mostly due to whistle-blower cases.

Adoption of a proposed CMS rule to increase the potential reward under the Medicare Incentive Reward Program would help encourage more individuals to report fraud. Since the incentive program started in 1998, only 18 rewards have been paid, totaling less than $16,000 and leading to the government collecting less than $3.5 million.

The government is taking big steps in the right direction to significantly reduce healthcare fraud, but much more remains to be done.

Dr. Peter P. Budetti is a lawyer and former deputy CMS administrator who is currently of counsel to Phillips & Cohen, a law firm that represents whistle-blowers.