White Paper
Fraud Defense Network Benefits for the Health Care Industry
The companies that manage fraud the best will
gain a distinct competitive advantage.
July 2014
Risk Solutions
Introduction
Fraud is one business problem present in every industry. Every organization, large or small, is impacted by it. For
years, organizations have been adding controls to their business processes to protect against fraudulent activities
which result in long-term financial losses and reputational risk. Until now, businesses have generally taken a very
conservative approach in dealing with this growing problem and solutions have been limited to organization-specific,
or in some cases industry-specific practices.
100B+ USD
annual fraud
Reduced profits =
increased prices
Security and public
safety concerns
Recent technological advancements in the fields of information gathering and processing have put some new tools
at the disposal of businesses. These advancements include Big Data Solutions, Predictive Analytics and Network
Graphing. As understanding of these new technological paradigms spreads, business leaders across industries are
aiming to harness the capabilities these technology advances offer in relevant and productive ways within different
areas of their business.
As expected, Big Data, Predictive Analytics and Network Graphing found their way into the very specialized
organizational functions whose primary role is fraud prevention and fraud compliance. As a result, business leaders
are beginning to see higher success rates in identifying fraudulent transactions and improved understanding of
fraudulent behaviors but usually these tools and analysis have still been applied within the silos of individual company
data sets. Finding the most relevant information in a time sensitive manner has remained a big challenge.
One solution to overcoming this challenge is sharing of information by organizations within an industry for the
common purpose of protecting the industry at large from major losses. This is an approach that has proven
effective for a number of different risk issues. LexisNexis has been involved for over 25 years in the development
and maintenance of a number of such large-scale databases, both for the company’s own operational needs and on
behalf of other industry organizations. Some well-known examples are the C.L.U.E® and Current Carrier® databases
for the P&C Insurance industry, SIRIS for Health Care Insurance on behalf of NHCAA, MIDEX® for the Mortgage Banking
Industry and a contributory database of financial footprints of small businesses on behalf of Small Business Financial
Exchange (SBFE).
However, as highlighted, fraud is not relegated to a single industry or set of industries. Fraud is a universal problem
across all types of financial transactions. In fact, the most egregious fraud activity is perpetrated by sophisticated,
organized fraud rings or individuals that essentially make their living by engaging in fraud. These “professional thieves”
don’t have a particular bias for a given industry but rather follow the money. Therefore, it is likely that fraudulent
activity in one industry will “cross over” into other industries as the truly malicious actors follow the easy money. In
fact, these sophisticated thieves deliberately exploit gaps in the system to hide their tracks.
Fraud Defense Network Benefits for the Health Care Industry
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To test this premise, LexisNexis analyzed fraud activities across industry
boundaries and did indeed find commonalities. Analysis revealed the
same entities involved in fraudulent transactions in one industry with their
foot prints in other industries as well. Based on our initial research, we
have concluded that entities involved in fraudulent activities do tend to
cross industry boundaries more often than conventional wisdom might
suggest. Because LexisNexis has a strong presence and expertise in all
major financial industries, including government, retail, banking, finance,
collections, mortgage, healthcare and all types of insurance, LexisNexis is
in a unique position to create a cross-industry contributory data exchange
to which organizations can contribute and have access to information
about potential fraudulent behaviors related to entities outside their
own industry. Such a comprehensive repository will truly leave fraud
perpetrators nowhere to hide.
Fraud Defense
Network
The LexisNexis® Fraud
Defense Network is
the flagship initiative
through which member
organizations will have
access to information and
advanced analytics that
cross superficial industry
boundaries for the common
purpose of fighting fraud.
The LexisNexis® Fraud Defense Network is the flagship initiative through
which member organizations will have access to information and
advanced analytics that cross superficial industry boundaries for the
common purpose of fighting fraud. More than just a data exchange,
the LexisNexis Fraud Defense Network is a collaborative fraud-fighting
initiative to foster communication of all types across industries to better
address this common problem. As part of the LexisNexis® Fraud Defense
Network, member organizations will contribute potentially fraudulent and
suspicious events to the LexisNexis® Contributory Risk Repository and this
will allow them to have access to reported events from other participating
organizations. Beyond just individuals, the LexisNexis® Contributory Risk
Repository will compile information on suspect addresses, businesses,
medical providers, IP addresses and machine identifiers. On top of the
compiled base information, the LexisNexis® Fraud Defense Network will
also provide advanced analytics capabilities to report emerging fraud
trends and practices.
LexisNexis® Fraud Defense Network benefits
for the health care industry
According to the FBI, health care fraud costs the country tens of billions
of dollars annually, and recent cases also show that medical professionals
are willing to risk patient harm to further their schemes. The continued
growth of health care expenditures – with estimates to exceed $3 trillion in
2014 – underscores the need to focus on a solution to the fraud problem.
Fraud Defense Network Benefits for the Health Care Industry
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What’s more, with the influx of consumers entering the health care
system as a result of the Patient Protection and Affordable Care Act
(ACA), there are now more patient/provider transactions, more billed
claims, and more exposure to possible fraud. There is also significantly
more data being exchanged across health care (particularly through
electronic means), which opens the door to identity-based fraud and
other more complex, collusive schemes. Special Investigative Units
(SIUs) are challenged with finding ways to aggregate and analyze data in
a meaningful way to make their efforts more effective and efficient.
Based on LexisNexis research and other industry reports, there often
is not enough evidence available against the parties involved in the
individual cases of possible fraud, or the documented evidence
available to the investigators is not strong enough for law enforcement
agencies to commit resources. This combined problem results in
lack of interest among law enforcement agencies, and thus creates
an attractive environment for entities with malicious intent —not to
mention a huge exposure for the healthcare industry.
Contributory Risk
Repository
The LexisNexis®
Contributory Risk
Repository is a repository
with information provided
by organizations on suspect
individuals, addresses,
businesses, medical
providers, IP addresses
and machine identifiers.
The LexisNexis® Contributory Risk Repository can provide a very
effective solution for both of these problems:
a. T
o handle this dramatically increased problem with a limited amount
of resources, it becomes very important for fraud teams to focus on
the highest risk cases as part of their investigation. Pareto’s principle
holds true in these cases where 80% of the losses are caused by 20%
of the entities. It also makes sense to focus more attention on those
entities that are systematically defrauding companies than on those
who may be opportunistically taking advantage of the system as a onetime event. Identification of these entities ahead of time comes with
huge ROI gains.
b. O
ne very important consideration in managing fraud has to do with
customer impact. It is highly undesirable to slow down or interfere
with legitimate transactions. By bringing to bear more data about the
activities of the entities in the evaluation, truly suspect transactions
can be separated more effectively from innocuous ones, thereby
expediting more transactions without incurring undue risk or penalties.
c. F
inally, by gaining access to a broader scope of information as
shared by the other LexisNexis® Fraud Defense Network member
organizations within the health care industry and also from other
industries – the payer can create a much stronger case against these
entities, thereby bolstering litigation or gaining the attention of law
enforcement when appropriate. This is particularly true in the case
of organized fraud.
Fraud Defense Network Benefits for the Health Care Industry
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While at LexisNexis we have seen that relatively generic models built to detect possible fraud broadly do work surprisingly
well across multiple industries, we also recognize that there are some industries which have a higher degree of correlation
than others. This is due to several important factors:
a. There are shared roles between industries. For example, a medical provider is a shared role with health care,
automobile insurance and workers’ compensation insurance. LexisNexis has seen numerous cases of the same
medical providers being flagged as problematic in both health care and Auto Insurance claims.
b. O
ne industry consumes services provided by another industry. One example is telecommunications (especially mobile
phones) and retail banking. Due to increased use of mobile devices to initiate financial transactions, LexisNexis has seen
a strong correlation between these two industries in relation to fraud activities.
c. A
ggregate behavior in one industry feeds into another industry. For example, how an individual or a business
performs in a financial industry at the end of the financial calendar is related to the information provided to the
government for taxation purposes.
d. O
ne industry provides tools for another industry. For example, the use of credit cards and bank cards for retail
transactions.
But even when there is lack of obvious associations between industries, fraud behaviors and patterns still show
consistent relationships.
The need for classification
One take-away from these findings is that there is indeed high probability to gain significant benefit by looking across
industry boundaries when addressing potential fraud, but making this actually work requires careful classification
of the data. It isn’t enough to simply share data across industries. In the shared information process, that data must
be classified and managed in ways that assure that use of the data in different contexts is appropriate. For example,
in some cases, the presence of fraudulent activity will be documented by some type of official body resulting in,
for example, a criminal conviction or a sanction. This is the most definitive classification. In other instances, the
fraudulent activity may have been investigated and confirmed but no legal or criminal action was pursued because
the economics didn’t warrant pursuing. These two different classifications of the certainty of fraudulent activity need
to be handled very differently.
Another dimension of classification has to do with the nature and severity of the activity. Probably the most obvious
example of this is the difference between identity theft and other types of fraud. In the case of identity theft, often the
data that is reported is that of the stolen identity – i.e. the victim, rather than the perpetrator. The victim should not be
further penalized for their stolen identity. However, if a bank is taking an application for credit, the fact that the identity
being used was compromised certainly matters and will require a different level of due diligence than an application
that does not have such an issue. The course of action must be appropriate to the context of the information,
which requires proper classification and management of the data. Similarly, not all types of fraud are the same.
Fraud perpetrated by organized fraud rings is generally considered to be more egregious than “opportunistic” fraud
perpetrated by an individual wishing to cover their deductable by claiming damage in an auto accident that wasn’t
caused by the accident.
Fraud Defense Network Benefits for the Health Care Industry
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Another dimension of classification and data management is
Privacy, Security and Permissible Use. Not only is it critical to properly
capture the context of data and classify it properly in order to be
able to effectively re-use it across industry boundaries, but this also
illustrates that it is absolutely essential to properly protect the data.
Because of the seriousness of the risk from fraud to the integrity of
financial transactions, fraud investigations benefit from many special
exemptions in various laws governing privacy and security. However this
data still remains highly sensitive, governed by numerous federal, state
and local laws as well as contractual and other obligations. These laws
and obligations must be carefully managed across all of the data sets
provided and across all of the potential use applications.
Finally, it goes without saying that the security of the data is of
paramount importance. Managing the proper classification of data
from many disparate sources, all while carefully observing permissible
use restrictions and protecting privacy, requires a very sophisticated
infrastructure.
The technology advantage
For the LexisNexis® Contributory Risk Repository, LexisNexis relies on
its superior Big Data platform, refined over two decades specifically
for the purpose of managing, protecting and delivering huge volumes
of data from thousands of disparate data sources. LexisNexis’
reputation as a leader in data aggregation and delivery is, in large part,
attributable to the power of this platform. This technology is capable
of processing the largest amount of data in the shortest amount of
time as compared to anything else available in the market today.
One key aspect of this technology is LexID®. LexID®, a proprietary
linking methodology, makes possible accurate identification of
individuals and businesses in the U.S. The underlying technology is
also leveraged to efficiently process complex interactions and links
between entities, resulting in superior identification of fraud rings and
other associations between individuals, businesses, addresses, etc.,
that may at first appear innocuous.
®
A fast linking
technology platform
available with
results that help
you make intelligent
information
connections.
LexID® is the ingredient
behind our products
that turns disparate
information into
meaningful insights.
This technology enables
customers using our
products to identify, link
and organize information
quickly with a high degree
of accuracy.
• Get a more complete
picture
• Better results, faster
• Protect private
information
As evidenced by the LexisNexis track record, as Fraud Defense
Network partner organizations in different industries contribute
information to the LexisNexis® Contributory Risk Repository,
LexisNexis is ideally positioned to ingest, store, link, normalize,
protect, analyze and deliver results across virtually every type of
financial transaction.
Fraud Defense Network Benefits for the Health Care Industry
6
Conclusion
Organizations and businesses lose 100s of billions of dollars to fraud every year. In most cases, there are telltale signs
to predict this behavior and take proactive measures to help mitigate the risk. Industries and organizations need to
work collectively and share information to better prepare themselves against malicious intent.
Historically, organizations became convinced that there is only so much that can be done to stop these losses
and therefore, only focused on incremental improvements in their existing business environments as the way to
control these losses. It has been generally accepted that fraud is a cost of doing business and everyday business
challenges and revenue pressures take higher priority. Tough competitive business environments and complex legal
requirements have prevented companies from communicating with each other.
If this situation persists, we will see costs continue to increase and prices of products and services continue to rise.
In today’s highly competitive environment, rising prices also mean reduced competitiveness and customer
satisfaction. The companies that manage fraud the best will gain a distinct competitive advantage. The public is also
becoming increasingly aware that money going into the wrong hands creates security and public safety concerns,
and challenges for governments around the world as fraudulent activity is a major funding source for terrorism and
drug activity.
Safe guard
organization from loss
by intercepting critical
high-risk activity
Act early with
confidence
by illuminating more
relevant, reliable
information that improves
decision-making
Identify meaningful
connections fast
with the distinct advantage
of a cross-industry view,
powered by a proprietary
linking technology available
LexisNexis, with its proven success in creating contributory data assets, footprint in most financial businesses, and
advanced technology and analytics capabilities, is committed to assisting our customers in addressing the pervasive
problem of rampant fraud more effectively than ever before.
Fraud Defense Network Benefits for the Health Care Industry
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For more information:
Call 610.399.4615, or email
[email protected]
About LexisNexis® Risk Solutions
LexisNexis Risk Solutions (www.lexisnexis.com/risk) is a leader in providing essential information that helps
customers across all industries and government predict, assess and manage risk. Combining cutting-edge
technology, unique data and advanced scoring analytics, we provide products and services that address evolving
client needs in the risk sector while upholding the highest standards of security and privacy. LexisNexis Risk
Solutions is part of Reed Elsevier, a leading publisher and information provider that serves customers in more
than 100 countries with more than 30,000 employees worldwide.
LexisNexis and the Knowledge Burst logo are registered trademarks of Reed Elsevier Properties Inc., used under license. Copyright © 2014 LexisNexis. All rights reserved.
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