Forward-thinking fraud, waste and abuse vendors adopt service-based approach

A changing regulatory environment and an evolving payer marketplace is driving growth in fraud, waste and abuse prevention and detection tools, provoking more companies to offer services that supplement existing software, according to a new report by IDC Health Insights.

The report, "IDC Marketscape: US Healthcare Payer Fraud, Waste and Abuse Services 2015 Vendor Assessment," evaluates six different vendors: IBM, Emdeon, Optum SCIO, Xerox and McKesson. Survey data shows that payers have increased spending in this market to engage in a more proactive approach to fraud, waste and abuse. In particular, vendors provide outsourced services that complement fraud detection software, an approach that has become more effective and less expensive for payers.

FierceHealthPayer: AntiFraud spoke with the author of this report, Sven Lohse, a research manager at IDC Health Insights, in an exclusive interview about some of the key takeaways and why payers are turning toward a service-oriented approach to fraud prevention and control.

Service-oriented, cloud-based tools replace in-house software

The services component of fraud, waste and abuse tools is becoming more ubiquitous because it can be delivered easily and with fewer expenses, Lohse said. A variety of components contribute to claims processing, and payers find the complexity of claims processing warrants outside assistance from vendors that can shoulder the burden of detecting fraud, waste and abuse.

"If you have an outsourced partner who can reach to those different functional components of that payer enterprise and to its partners in the ecosystem, independently of the payer, it removes a whole level of complexity around maintenance of apps, updates regarding regulation and law and so forth," Lohse said. "It also means you don't have to promulgate new learnings through your own internal departments and functions.

"Your personnel can actually be going out and preventing the loss of money, preventing leakage or recovering money, as opposed to figuring out the general trends and applying that to the business processes and technology components of the entire process," he added. "To go out to a content expert and technology expert that can supply all those capabilities as a service to all your complex ecosystems, it means the payer can focus more on their core capabilities."

Vendors also supplement internal legal and special investigative units, Loshe said. Major players in this market, such as IBM and Optum, have been able to provide these services in a centralized and efficient way that lowers the cost to the payer.  

"It's just an entirely new way of addressing the problem," Lohse said. "It's much more effective and much cheaper. As we go through all of these legal reforms and so forth with the [Affordable Care Act], it exerts a tremendous demand and distraction to payer operations. You're seeing an uptick in investment in the technology to put the finger in the dike of potential problems."

Regulatory changes open more avenues for fraud, waste and abuse

The ACA has changed the marketplace for payers that offer various kinds of coverage. This exposes them to different opportunities for fraud, waste and abuse. Other changes, such as the ICD-10 conversion, offer more opportunities for mistakes, intentional or otherwise. Additionally, patients face higher out-of-pocket medical costs, which may lead to new fraud schemes.

"Whether that is fraudulently using someone else's identity when you get your healthcare, or working in collusion with a provider to obtain services for less than the out-of-pocket costs you would otherwise be forced to pay, the payer is presented with many new challenges that are not already baked into their processes," Lohse said. "They have to be able to adjust very quickly, so they are looking for an external content expert ... to help address those needs in a very speedy way. The value proposition is really about being less expensive, more effective and faster."

Payers often invest in multiple, complementary systems

As this market grows, payers are likely to invest in systems that overlap but provide a more comprehensive approach to fraud, waste and abuse detection and prevention. This approach offers multiple viewpoints using various data sets.

"I don't think there is a single dominate player in the marketplace that can address all those different segments completely. Each of the identified vendors specializes in a different thing," Loshe said. "In the hypothetical past, the payer may have had all of these capabilities in-house and gradually been finding partners to take on different components, and in some cases these components overlap.

"It may be that one vendor has particularly good skills in identifying providers before they come into a payer's network in their state, and another may be particular good at identifying potentially fraudulent providers before they come into a payer's network across the entire country," he added.

This is especially true for payers planning an acquisition, Loshe said. "It's much less expensive to take care of potential threats before you've integrated them into your network and before you've paid out a lot of money in claims. Recovery is expensive, time-consuming and ultimately not very remunerative."

Although Lohse said there are probably three dozen vendors in the fraud, waste and abuse marketplace that offer a variety of software and services for both large and small payers, the six companies identified in the report stand out because of their substantial growth and willingness to adopt a service-based approach.

The vendors focus on growing markets, offer an interesting value proposition and show they can master core components of these service-based offerings, he said. "How do you really capitalize on technology that serves your clients from afar? Using software as a service, how do you do so using services that are outsourced from an offshore and onshore basis? [These are] the firms that are showing real distinctiveness in the way they go to market and the services they are offering."

Privacy, security could have trickle-down fraud implications

In the wake of the Anthem hack, the question for healthcare organizations is not if a hack will occur, but when, and how their organization will respond. Although the broader issue of cybersecurity is outside of the scope of his report, Lohse said the value of medical information coupled with cost pressure and financial incentives will likely impact fraud, waste and abuse in years to come.  

"Privacy and security is something [outside of] predictive analytics and the rules in which you process claims, but you can see that water finds its course downhill," he said. "Where there is pressure to create fraud, waste and abuse, payers have to defend themselves. I just see a lot of pressure in the system and that's a lot of pressure that creates leakage."

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