Cut Healthcare Costs Through Fraud Protection

1. Cut Healthcare Costs Through Fraud Protection George J. Bregante Founder TC3 Health, Inc

2. Current Health Care Environment

3. 2011– 2014 reform a new, unparalleled level of disruption: Payers are called upon to: • Embrace new individual consumer markets • Engage in new care delivery models • Manage new payment schemes • Implement new information codes and reporting • Achieve mandated cost efficiency • Demonstrate improved value and outcomes • Market cost pressures • National health expenditures (as % of GDP) rose from 5.2% in 1960 to 16.2% in 2008 and will continue to rise over next 10-20 years (Centers for Medicare & Medicaid Services) • Regulatory Pressures. The medical loss ratio mandate has forced payers to lower admin costs. • Electronic payments automation to the payers’ provider networks lowers costs and achieves the mandated ratios • A secure, compliant, and reliable platform to deliver these healthcare and payment transactions is required. Current Health Care Environment

4. Consumer emergence. 42 million people will purchase healthcare ins/services by 2016. • As of January 2010, 10 million were enrolled in high deductible health plans, over doubling 2004 enrollment level • Responsibility for payments moves toward consumers • Consumer market will demand more • Provider cost pressures. Increased consumer responsibility equals increased consumer bad debt for providers. • Consequently, providers will need integrated payment and financial tools to better track and manage payments and outcomes. • Payer and Provider partnership. Achieving healthcare payments automation requires collaboration between healthcare payers and providers. • While this relationship shifts to a partnership model, efficient and automated payment solutions will attract providers under cost pressures and improve financial reporting and management. Current Health Care Environment

5. The Attitudes About Fraud • One of five U.S. adults — about 45 million people — say it’s acceptable to defraud insurance companies under certain circumstances. Four of five adults think insurance fraud is unethical. (Four Faces of Insurance Fraud, Coalition Against Insurance Fraud, 2008) • Nearly one of four Americans says it’s ok to defraud insurers (8 percent say it’s “quite acceptable” to bilk insurers, and 16 percent say it’s “somewhat acceptable.”) (Accenture Ltd., 2003) • About one in 10 people agree it’s ok to submit claims for items that aren’t lost or damaged, or for personal injuries that didn’t occur. (Accenture Ltd., 2003) • Two of five people are “not very likely” or “not likely at all” to report someone who defrauded an insurer. (Accenture Ltd., 2003)

6. How Big is the “Fraud” Problem?

7. The U.S. spends more than $2 trillion on healthcare annually. At least 3 percent of that spending — or $68 billion — is lost to fraud each year. (National Health Care Anti-Fraud Association, 2008) • Medicare and Medicaid lose an estimated $60 billion or more annually to fraud, including $2.5 billion in South Florida. (Miami Herald, August 11, 2008) • Medicare paid dead physicians 478,500 claims totaling up to $92 million from 2000 to 2007. These claims included 16,548 to 18,240 deceased physicians. (U.S. Senate Permanent Committee on Investigations, 2008) • That’s on top of claim processing errors: • Medicare and Medicaid made an estimated $23.7 billion in improper payments in 2007.  These included $10.8 billion for Medicare and $12.9 billion for Medicaid.  Medicare’s fee-for-service reduced its error rate from 4.4 percent to 3.9 percent. (U.S. Office of Management and Budget, 2008) FRAUD – THE NUMBERS

8. Healthcare Fraud in the U.S. By The Numbers 19% - percentage of annual healthcare waste attributed to fraud 10% - percentage of national healthcare spend due to fraud and abuse 50% - percentage increase to OIG’s fraud fighting budget* $600 to 800B – amount of annual fraud, waste and abuse in US healthcare system $226B - Amount of annual loss due to healthcare fraud alone $8 to 12 - ROI for every $1 invested in fighting healthcare fraud Source: Thomson Reuters, 2009 (Federal Bureau of Investigation, “Financial Crimes Report to the Public, Fiscal Year 2007” National Health Care Anti-Fraud Association, 2008) PWC Top 10 Healthcare Issues in 2010

9. Why Healthcare Fraud Has Exploded

10. Healthcare fraud is an intentional misrepresentation of facts submitted to support a healthcare insurance claim that results in payment of a fraudulent claim or overpayment of medical coverage. • Services billed but never performed • Upcoding/Unbundling of services • Double billing • Overuse of an expensive & unnecessary treatment • Performing clinical services without a license • Phantom provider billing – medical identity theft • Recruiting patients for unnecessary medical procedures • Non-disclosed provider financial interests in facility • Doctor shopping for multiple prescriptions • Billing for different services than are actually performed or covered by the payer Common Examples of Healthcare Fraud

11. Types of Healthcare Fraud & Abuse Other Services never provided Pharmacy False diagnosis Upcoding

12. The Willie Sutton Rule: “I rob banks because that’s where the money is!” In other words…it’s easy • Payment models encourage maximum usage, not efficient outcomes • “Pay and chase” dominates the healthcare system • Prevention is minimal and detection is highly resource intensive • Limited use of sophisticated technology • Huge upside – mild penalties (jail time and fines) vs. other crimes • No sharing of information • RESULT: Department of Justice from 1991-2009 recovered $23.2 billion • Less than 0.1% of all program expenditures • The bad guys are outgunning the good guys Why Has Healthcare Fraud Exploded?

13. Prepayment vs. “Pay & Chase”

14. It’s much easier to close the barn door before the cow gets out. • This analogy applies to prepayment investigations. It’s much easier and more • effective to stop a questionable claim from getting paid than it is to “pay and chase.” Prepayment Fraud Detection and Investigations

15. 100% savings on fraud identified and avoided • Real-time savings – no need to finance the fraudsters and abusive billers • Deterrent effect – providers change their behavior • Fewer legal issues – shift burden of proof to bad guys • Focus resources on most suspect, highest ROI claims • No recovery effort or resources needed • Less expensive than post‐pay research and audits • Key to preservation of plan assets The Value of Prepayment Fraud Detection

16. How a Successful Fraud Prevention Program Works

17. Detection • Watch Lists • Analytics • Diagnostics – Rules-Based Technology (“RBT”) • Code Edit Compliance and Duplicate Detection • Investigation • Prepayment • Post-payment • Education • Members • Providers • Employer Groups • Employees Comprehensive Anti-Fraud Program Components

18. Detection • The best systems combine rules, statistical analyses, and predictive modeling. • Watch lists • Analytics/Statistical modeling • Rules-based Technology

19. Detection • “Watch Lists” • Providers • Members, codes • Proprietary – networking, associations, previous investigations • Public – sanctions, licensing, OFAC • Commercial – high risk addresses • Matching against provider demographics to identify suspect claims (pre- or post-pay)

20. Analytics: • - Many software programs are on the market that have been designed to: • identify billing inconsistencies • target specific areas of high cost • indicate patterns of unusual activity • create and data mine an infinite number of issues • provide proactive detection • emulate manual analysis procedures that are followed by investigative staff Detection

21. Rules-based Technology (“RBT”) • Taking known schemes or ideas and translating those into rules • Rules identify claims with selected characteristics • Aids in identifying new providers/members engaged in known schemes • “If-then” type rules • Think creatively – How would I game the system if I could Detection

22. Integrated Payment Integrity

23. Provider Integrity Program Saves 1-2% of total claims costs by detecting fraud, waste and abuse before claims are paid. TruClaimSM Clinical code editing engine and duplicate detector save up to 4% of total claims costs beyond savings identified internally Fraud & Abuse Prevention Suite 3-6% Savings

24. Out-of-Network Repricing Optimizer AccessPlus PPO Networks Travel wrap networks and 90+ aggregated supplemental PPO network totaling 900,000+ provider locations to discount non-par claims R & C Negotiations Proprietary data sets establish reimbursement on retail claims, reducing claims cost by 1-3% 3-6% Savings

25. Data Analytics & Retro Recovery Retrospective Discovery & Recovery Services Administrative overpayments, Fraud & abuse, High cost drugs, and Medical Bill review Data Analytics & Decision Support Clinical and financial predictive modeling, trend analysis, benchmarking and web reporting 3-6% Savings

26. A conservative approach results in very low appeal rates rationale Appeals Of the 1% of claims that are appealed, only 20% are overturned. This means 99.8% of claims are paid or denied appropriately 1% 99%

27. Integrated Loss Control Results

28. The average savings are 3-6%. This means if your average annual paid claims volume is $30,000,000, your saving ($900,000 to $1,800,000) will pay for raises and other expenses as well as: Integrated Loss Control Results 25 Nurses 33 Police 34 teachers 49 Firefighters Source: Indeed.com Salary Search

29. The Four Pillars of the Partnership

30. The Four Pillars of the Partnership Significant long-term savings & benefits No complicated IT implementation Immediate savings No upfront costs

31. Achieving Cost Containment Through Cooperation and Supported of CPEECHCC & CHCC Significant long-term savings & benefits: TR data warehouse & analytics No complicated IT implementation: ASP model - low cost, no maintenance No upfront costs: Paid as a portion of the savings Immediate savings: Fraud, waste and abuse detection

32. A successful anti-fraud program is made up of several components: • Detection which could include a provider watch list program, rules-based technology, analytics, and manual referrals (via hotline or other source) • Investigations – Pre-payment claim investigations, post-payment investigations and recovery, or both • Education and Training – employees, participants, providers • Integration - with other payment integrity programs has a significant cost reduction impact Summary

33. Questions

34. George J. Bregantewww.tc3health.comgbregante@tc3health.com714-343-1019Robert Duncanrd@pacmedi.com949-335-3000 Ext 100