New software to combat Medicare fraud finds $115 million in first year savings

CMSUtilizing strategies used by credit card companies to combat fraud, a new computer system aimed at identifying Medicare fraud has discovered $115 million in fraud in its first year of existence.

The contract for the computer system, known as the “Fraud Prevention System”, was awarded to Northrop Grumman, a company primarily known for defense contracting.  IBM and Verizon also contributed to developing and rolling out the system.

The system approaches Medicare fraud differently than in the past.  Before, Medicare would pay claims and then go after the fraudsters (pay and chase).  Now, officials hope to be able to identify fraudulent claims before they are paid.  Since its start in 2011, the system has screened all Medicare claims (over one billion of them), started 536 new investigations and aided in 511 additional investigations already in progress.

The system cost $34.7 million for the first year to develop and implement, which means the $115 million saved is equal to approximately $3 in savings for every $1 spent.  The money used to develop the system came from the Small Business Jobs Act of 2010.


Obviously the amount saved is a pittance compared to the estimated amount lost to Medicare fraud every year, which the Associated Press states is $60 billion.

I am, however, encouraged by the fact the system was “profitable” in its very first year.

I must say, however, that I am a little saddened it took this long for CMS to decide it was going to start asking questions about questionable claims before it paid them as opposed to simply paying the claims and then trying to figure out after the fact whether the claim was appropriate.

Source:  Medicare Fraud-Busting Computer System Saves $115 Million In First Year – Forbes


Though the amount of money may still be a fraction of a massive program facing hundreds of billions of dollars in cuts as the White House and Congress deal with rising deficits and the so-called “fiscal cliff,” the Centers for Medicare & Medicaid Services says the system is paying for itself and is only in the beginning stages of saving taxpayers even more.

Known as the “Fraud Prevention System,” it takes a method and strategy used by credit card companies by implementing predictive analytics to identify and prevent paying for improper claims. The primary contract for the system was awarded to Northrup Grumman (NOC) though Verizon (VZ), which has a similar system to fight fraud, and IBM (IBM) also had contracts for various aspects of development and implementation.

“Since the technology was first used in 2011, all Medicare claims – over one billion – have run through the system before they were paid,” Dr. Peter Budetti, deputy administrator for program integrity at the Centers for Medicare & Medicaid Services, said in an op-ed accompanying the report and published in Politico.

“In the first year in operation, flags from the system have initiated 536 new investigations, and data from the system have been used to support 511 investigations already in progress,” Budetti said. “And as the system processes more claims over time, it will become more sophisticated at detecting patterns behind fraudulent activity.”

The system is in sharp contrast to traditional fraud-busting in Medicare known as “pay and chase” whereby myriad efforts are made after fraudulent or improper payments have been made, then resources are used to go after the money, individuals or companies.

The system is a product of the Small Business Jobs Act of 2010. It cost about $100 million to implement and develop, including a $77 million master contract to Northrup Grumman over about four years. In the first year, $34.7 million was spent on the system, Medicare officials say.

“In the first year of the system, we have stopped, prevented or identified an estimated $115 million in fraudulent payments,” Budetti said. “This comes out to be an estimated $3 in savings for every $1 spent, a positive return, especially in the first year.”

Critics in Congress have said they would like to see much bigger numbers coming from the detection system given the sheer size of the Medicare program, which by some estimates costs taxpayers tens of billions of dollars a year in fraud.

But Medicare officials are confident it has “exciting promise, and sends a clear message to criminals,” Budetti said.

“Medicare and Medicaid will no longer pay claims and ask questions later,” Budetti said. “The system is designed to grow in sophistication and complexity, helping the government stay one step ahead of fraudsters.”


  1. dr.cosell says:

    With the 80 million dollars saved, the Pentagon will be able to buy nearly a dozen hammers.

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