Delivering health and human services is among the largest and most important responsibilities of state and local government. As such, these services often comprise the largest portions of state and local budgets. Medicaid alone processes 3.9 billion claims each year, representing more than $430 billion paid annually for more than 57 million beneficiaries, and that volume of payments creates the greatest opportunity for fraud, waste and abuse in government. Thus, the difference between fraud, waste and abuse remains that of intent. Despite intent, fraud, waste and abuse still costs state and local government billions. Data analytics offer great promise in abating fraud, waste and abuse in the delivery of health services.
With Medicaid’s improper payment rate averaging 8.4 percent since 2008, the program has accrued over $161 billion worth of improper payments. Agency leaders and senior officials across the country count fraud, waste and abuse among their primary challenges in policy implementation.
Innovate State Responses to Fraud, Waste and Abuse
As a large portion of state and local budgets go towards the administration of health and human services,, even modest success in fraud, waste and abuse abatement can yield large savings for agencies across functions. For example, Tennessee recently demonstrated the success of a program called Money Follows the Person, a tailor-made pilot to transition people from nursing homes to home and community based care. In doing so, TennCare allowed the state to reduce unnecessary nursing home stays, freed up resources for other key aspects of its mission, and create organizational capacity for staff to work on other priorities, including the expansion of community housing options for transitioning nursing facility residents.
In addition to assessing the cost benefits of policy actions, eliminating agency redundancies helps to reduce resource and budget waste. However, this does not mean abolishing similar programs all together—in fact, given organizational entrenchment and momentum, this kind of agency consolidation is some of the most difficult work that state and local lawmakers face, with the hope that agencies are able to maintain core HHS agency functions while removing unnecessary overlap.
As a result of reducing waste in the delivery of health and human services, best government practices emerge, creating more opportunities for best-practice adoption, where the greatest opportunities for removing wasteful spending consequently have the potential to improve customer experience and satisfaction. For instance, in Nebraska ongoing efforts to leverage federal funding from the Family First Prevention Services Act aim to accomplish two goals with one effort: through timely intervention, the Nebraska Department of Health and Human Services hopes to keep more children with their families and subsequently bring down the number of children in the foster system, a positive outcome for the children and a positive outcome for a resource-constrained program.
In Medicaid, one way that states are selling skeptical constituents on Medicaid expansion is through public benefits work requirements. Though the legal and practical status of work requirements remains uncertain—with the state of Kentucky currently in the midst of a lawsuit due to its implementation of such work requirements for beneficiaries—the current state of care demonstrates how some state and local governments are attempting to handle the constraints of limited budgets and conflicting expenditure priorities. — Kentucky, West Virginia, and Wisconsin have recently ceased the implementation of multi-year waivers that reduce the number of people expected to meet work requirements to qualify for various forms of public assistance in the hope of curbing expenditures dedicated to delivering health and human service benefits. Coupled with federal directives, these state-level actions are expected to diminish the financial burden placed on states by Medicaid and other health and human services commitments. While other waste abatement endeavors are likely to receive relatively little public coverage, the potential implementation of work-benefit requirements will likely face public scrutiny due to the negative social impacts of work-activation policies in the past.
In an attempt to remove bureaucratic duplication and redundancy, officials in California are welcoming legislative action aimed at creating an ‘all-payer rate setting’ system in which a state-level regulatory body will set prices for an array of healthcare procedures. While this system proves politically divisive, it still embodies the goal of simplifying and streamlining pricing and payments in healthcare and providing a better customer experience. Indeed, though state and local jurisdictions have different—even conflicting—ideas for delivering lower care costs for constituents, the desire to address problematic pricing remains salient, with both major 2016 presidential candidates naming health and human service benefits as priorities on the campaign.
More covertly, procurement and contracting remain the points at which many vulnerabilities are exposed. Just recently, the Department of Health and Human Services and Texas Health and Human Services Commission came under intense public scrutiny for major contract mismanagement, leaving more vulnerable rural populations without the health coverage they had previously received under the Children’s Health Insurance Program (CHIP). As a result of management failure, Medicaid beneficiaries were left uncovered, demonstrating the potential for exogenous shocks to reach even the periphery of an agency.
A Risk-Based, Analytics-Driven Approach to Managing Fraud, Waste and Abuse
Fraud, waste, and abuse abatement is a problem with both internal and external implications for state and local government, and is often the leading cause of measureable deterioration in agency functions and public mistrust of government institutions, with 17 percent of voters polled in Illinois suggesting a cut to the state’s HHS budget as the solution to reduce the deficit.
In addressing fraud, waste and abuse in health and human services delivery, risk-based approaches that incorporate analytics provide an effective way to leverage scarce resources. State and local government agencies can start by asking some fundamental questions: Do we understand how fraud, waste and abuse manifest themselves throughout our processes? What types of fraud, waste and abuse occur? Do we have the data to map a cause-and-effect relationship? How is fraud, waste and abuse controlled today? What are the program and agency priorities/tolerances (e.g., speed of payment, zero-tolerance, public trust)? Where should we focus our data analytics resources?
In July 2015, the Government Accountability Office (GAO) released a report that described leading practices program managers can take to proactively manage their fraud risks. GAO’s Framework for Managing Fraud Risks in Federal Programs describes step-by-step guidance for developing a comprehensive fraud risk management system, focusing on prevention, providing guidance on how government program managers can take a more strategic, risk-based approach to proactively manage fraud (as well as waste and abuse) risks and develop effective fraud, waste and abuse abatement controls. While the GAO Framework is aimed at federal agencies, many states have adopted its practices, and the Centers for Medicare and Medicaid Services has endorsed its use across Medicaid programs.
Within the scope of healthcare services, payers must deal with complex fraud, waste and abuse schemes perpetrated by multiple actors, including fraudulent practitioners, organized criminal schemes, and honest providers who make unintended mistakes while billing for legitimate services. Common examples of fraudulent billing include: billing for services that were never rendered; performing more expensive services and procedures; performing unnecessary medical services solely for the purpose of generating insurance payments; misrepresenting non-covered treatment as necessary, medically-covered treatment to obtain insurance payments; and falsifying patient diagnoses and treatment histories to gain reimbursement for medical services that were never provided.
Data analytics offer great promise in abating fraud, waste and abuse in the delivery of health services, as traditional methods of auditing and internal control procedures are often time-consuming and inefficient. With thousands of healthcare claims being sampled by a few auditors, resources are left with limited time to review individual claims or characteristics without focusing on the comprehensive picture of a healthcare provider’s behavior. Electronic health records and the growing use of computerized systems has led to opportunities for enhanced detection of fraud with the use of analytics-driven solutions, an excellent complement to traditional methods. For example, machine learning techniques allow for automated methods of fraud detection and, when combined with statistical knowledge, use data mining to extract useful knowledge from larger populations of claims to identify a smaller subset of the claims and healthcare providers for further assessment and scrutiny.
In state and local government, fraud, waste and abuse can take many forms. While agency leaders may differ on the precise means, the need for comprehensive and thoughtful action to address the myriad and growing risks state agencies face with regard to fraud, waste and abuse is clear. As states continue to look for innovative ways to address the issue, the future of comprehensive fraud, waste and abuse abatement lies in taking a risk-based, approach and incorporating analytics where possible.
Combating Fraud, Waste and Abuse with Grant Thornton
State and local government leaders address the greatest challenges facing the American public, balancing quality and efficiency in health and human services functions in the face of uncertain policy change. Grant Thornton is an industry leader in fraud, waste, and abuse risk management, developing the federal government-wide program integrity playbook which allows our clients to build effective integrity programs that mitigate the fraud, waste, and abuse risks across the delivery of services at the federal, state and local level. Grant Thornton has developed industry-leading benchmarking tools, methodologies, maturity models, and customizable, scalable risk-management tools designed to combat the range of fraud, waste, and abuse risks your state agencies face.
The pressure to meet the demands of a fast-paced, attentive citizenry is here. Grant Thornton can help ensure your team is flexible enough to respond utilizing the latest management practices and technology.
This content is made possible by Grant Thornton; it is not written by and does not necessarily reflect the views of Route Fifty's editorial staff.
 The U.S. Government Accountability Office (GAO) defines waste, fraud, and abuse as follows: Fraud is attempting to obtain something of value through willful misrepresentation. Waste is squandering money or resources even if not explicitly illegal. Abuse is behaving improperly or unreasonably, or misusing one’s position or authority. https://www.gao.gov/assets/680/676651.pdf