Health plans look for fraud before they pay claims

The backward-looking process insurers have used for years to identify potential fraud is giving way to systems that look for fraud or mistakes before paying a claim.

Insurers long have retrospectively searched paid claims for potential “overpayments” due to fraud or miscoding. Then they try to get back money they believe was paid in error, sometimes months after the fact.

The new approach — or “real-time” process — stops payments until they are verified as legitimate. It is similar to what credit card companies do when they see an unusual transaction pop up, such as an out-of-state purchase that is much larger than is typical for the cardholder. In those cases, credit card companies can block a transaction and often will call the customer to verify that the purchase was intentional.

Health care fraud prevention companies sell the idea to insurance companies as a way to save money, not only by preventing improper payments, but having to keep from spending money chasing down overpayments.

The companies say physicians eventually will benefit too, because they won’t have to search for paperwork related to months-old claims or get hit with overpayment recoupments. They also will benefit from the savings to the health care system.

But those potential benefits may not outweigh one immediate drawback for physicians: claims delays and denials that are a result of “false positives.” That’s the industry term for claims that are legitimate but appear problematic and require the insurer to ask for more information from the physician. In the meantime, payers may hold off on paying a claim or even all claims payable to the particular physician.

“With real-time fraud detection that is under way, it really creates a heightened level of scrutiny,” said Elizabeth Hampton, an attorney with Fox Rothschild in Princeton, N.J., who helps health professionals with business litigation and legal disputes.

She said physicians sometimes are not notified about a problematic claim and resulting delay in payment, and they have to call to ask why they haven’t been paid.

“My experience of it is that often [physicians] become aware of it after the fact,” she said.

Physicians favor old system

Payers know that physicians don’t like having their payments stopped. But the alternative — retrospective system, sometimes called “pay and chase” — just doesn’t work well, said Julie Malida, principal for health care fraud with SAS, a data analytics firm based in Cary, N.C.

“Most physicians accept and like the idea of retrospective [claims examination] because it keeps them honest,” she said. “But from a payer’s perspective, it’s just untenable.”

Nashville, Tenn.-based Emdeon is one of a few dominant health insurance claims analytics firms specializing in advanced and prospective claims analytics.

“The false positives are the ones that frustrate the providers the most,” said Tommy Lewis, senior vice president for corporate communications at Emdeon. “We have a lot of data to run our analytics against, and one objective is to reduce the number of false positives.”

False positives are not unusual. Insurers using state-of-the-art claims analytics software find between 30% and 40% of claims flagged as a problem are actually false positives. This is a low rate compared with insurers that run their own rules-based systems to spot problem claims, where as much as 90% of tagged claims are false positives. Few claims go unpaid — most payers block payment on only about 0.5% of all claims, Malida said. (See correction)

Precision is key to targeting fraud or abuse without casting too wide a net, said Russell Streur, vice president of core business operations at EDIWatch, an Atlanta fraud detection firm whose clients include commercial insurers and Medicaid plans.

“To be effective, the system has to be finely tuned,” he said.