Shifting the Injury Claims Fraud and Abuse Paradigm

Every insurer knows that claims fraud and abuse exists. They also know that the issue spans a range from large, sophisticated organized fraud rings to individual opportunistic fraud where an insured may pad his claim to make up for the cost of his policy deductible.

The sheer magnitude of claims fraud and abuse is staggering. In fact, in March 2012, the Insurance Information Institute (I.I.I.) reported that industry estimates put the cost of fraud and abuse at about 10 percent of the property and casualty (P&C) insurance industry’s incurred losses and loss adjustment expenses each year, making the average annual cost from 2006 to 2010 more than $30 billion each year. As large as that number is, I.I.I. also reported that the United States Federal Bureau of Investigation has indicated that healthcare fraud and abuse, both private and public, is an estimated three percent to 10 percent of total annual healthcare expenditures, or between $77 billion and $259 billion each year.

Carriers that handle injury claims, therefore, have a potential double whammy on their hands with regard to the size and pervasiveness of fraud and abuse.

Traditional injury fraud and abuse-fighting efforts have largely been claims centric—a painstaking examination of an individual claim that appears to exhibit some aspect of potential fraudulent or abusive behavior. Those efforts are time-consuming and expensive, and—though they may eventually result in the successful pursuit and resolution of a single claim—they do little to advance a wholesale change of the environments that enable certain types of injury claims fraud and abuse to continue to flourish.

Wholesale change is possible. The combination, analysis, and sharing of large amounts of injury claims data in support of legislative efforts; a refocusing of injury treatment protocols to enable the best result for the injured party; and the execution of injury claims optimization strategies can assist in enabling effective change in the claims handling market space. The goal is to reduce injury claims fraud and abuse while empowering better and more cost-effective claims service delivery to the injured party.

Data: How Big Is Big?

Ten years ago, it was astonishing for an insurer to cross the one terabyte data storage mark, but as demands for more granular claims book understanding and better underwriting models expand, regulatory requirements and profitability pressures increase, and consumer expectations evolve, more and more insurers have crossed the petabyte threshold. That’s 1,000 terabytes.

More than just being a storage headache to solve, insurers can look at these massive amounts of data—and equally large amounts of data available from their injury claims management partners—as an enabler of the effective use of big data in the macro understanding and pursuit of injury claims fraud and abuse.

Priority: Effective Resolution

For legitimate injury claims—across the spectrum of geographies, coverages, and claims participants for each specific injury diagnosis—there exists a fairly small subset of appropriate care paths, inclusive of treatment types, durations, and costs that lead to effective resolution.

However, when comparing the same diagnosis and treatment code across multiple jurisdictions—controlled for facility and professional service types—there is a huge variation in total medical costs from onset to release of the patient from treatment. In fact, total medical costs for the same diagnosis varied dramatically, with the lowest in Maryland to the highest in Michigan at more than $18,000, according to a 50-state study of automobile personal injury protection (PIP) claims undertaken by Mitchell Auto Casualty Solutions. Though there certainly can be some variation of treatment costs across geographies, it defies belief that injured parties in Maryland miraculously heal within a massively lower cost structure than those with the same diagnosed injuries in Michigan. On the contrary, the disparity seems to revolve around the high variation between the PIP coverage limits in each jurisdiction, from a nominal $2,500 in Maryland to a lifetime, no-cap PIP limit in Michigan. 

Even within the same jurisdiction, the examination of large volumes of injury claims data can point out tremendous disparities around the evolution of treatments per common injury types. In Florida, for instance, the raw number of medical procedure units per injured party has risen by 54 percent since 2006. Within this phenomenon of “more treatments to resolve the same injury,” however, is a massive shift in the number of time-based treatments undertaken in Florida versus procedure-based treatments undertaken by the medical professional communities in other jurisdictions for people with the exact same injuries.

For instance, since 2006 the average number of time-based specialty massage therapy units per injured party has increased by more than 300 percent, while chiropractic specialty has seen only a 23 percent increase—significantly higher and lower respectively than an evenly distributed 54 percent increase would dictate. While there could be a myriad of treatment-evolution reasons that specialty massage has blossomed in Florida over the past several years, one clear fact emerges: the provider gets paid more overall when allowed to bill time-based units.

Share and Optimize

Far from being a “this is the world we do business in” scenario, insurers actually have many new tools to impact injury claims fraud and abuse at a macro level.

The first tool to be brought to bear is modern medical bill review software. In addition to engaging these powerful offerings to ensure reasonable allowed charges per procedure code, claims payers should work closely with their medical bill review partners to ensure that they are appropriately recognizing and tracking time-based procedures, out-of-pattern billing behaviors, non-specific procedure billings, changes in medical billing code patterns, and discrepancies in types and amounts of billings between first- and third-party injury and workers’ compensation coverages.

Next, claims payers should leverage the power of the injury data that they and their injury claims business partners possess. Properly analyzed and shared, this data becomes information to deliver the insight necessary to drive effective change.

These days all eyes are on the state of Florida, where the passage of House Bill 119 has closed numerous loopholes that enabled many aspects of PIP claims fraud and abuse to flourish, driving an exponentially increasing annual per vehicle “fraud tax” of $83.79 on each insured vehicle for 2011—an increase of 72.3 percent from 2010. Multiplied by the number of insured vehicles in the state, the fraud tax for Florida drivers and insurers reached an estimated $1.5 billion in 2011.

Though credit for the successful passage of HB 119 must go to Florida legislators and their constituents, data and analysis supplied by insurers and their injury claims business partners were indispensable in underscoring the magnitude of the problem and defining the patterns of fraud and abuse necessary to be addressed and loopholes that needed to be closed.

The appropriate use of tiered preferred provider organizations, voluntary provider networks, and out-of-network negotiation offerings can also bring substantial benefit toward assisting the best recovery for the injured party by ensuring timely, appropriate, and high-quality medical care within a much more controlled medical provider cost environment. In addition, because optimized injury claims handling assists in protecting the injured party from the costs of potentially less than appropriate “loophole” treatment regimens, an added bonus to the insured rests in the fact that high-quality care delivered in a lower-cost environment effectively—and substantially—extends their injury policy limits.

Injury claims fraud and abuse is not new and will likely never go away. However, new tools, techniques, and strategies exist by which insurers can assist the process of changing the macro framework that enables rampant injury claims fraud and abuse in some jurisdictions and insurance coverages. The ultimate winner, of course, is the injured party who receives prompt, appropriate, high-quality treatment to enable their best chance of full recovery while providing maximum protection to the insured’s policy limits.  

Michele Hibbert-Iacobacci is vice president of information management and client services, and Mike Mahoney is senior director of product marketing for Mitchell Auto Casualty Solutions.