License to Steal: How Fraud Bleeds America's Health Care System

By Malcolm K. Sparrow | Go to book overview

6
The Importance of Measurement

VISA International administers and operates the global network that handles VISA credit card transactions. On many days, the transaction volume on the network exceeds $1 billion. When considering potential investments in new fraud controls, VISA, like many other credit card operations, considers its "confirmed fraud rate" (which indicates the proportion of VISA card transaction dollars lost to fraud and never recovered.) They like to keep that rate below ten basis points (or 0.1 percent), a level the credit card industry generally regards as satisfactory for fraud in the system, the "acceptable price of doing business."

The health care industry, where the fraud rate might be 10 percent or higher--at least one hundred times worse than in the credit card industry--lacks precise instrumentation on which to base its control investment decisions and generally makes no serious attempt to measure the problem. Only in the last three years has the Office of Inspector General (OIG) instituted its annual audit program for Medicare, and that with a weak methodology that produces misleadingly low loss estimates. Only two states ( Texas and Illinois) have so far attempted to measure the losses due to fraud, abuse, and errors in their Medicaid programs. Other major public programs do no measurement of the losses, nor do most commercial insurers. Given the general lack of such measurement efforts within the industry and the painfully slow development of them within the major public programs (even when they are required by law), it's worth pausing to stress the importance and effects of measurement; many believe measurement studies are a distraction, a waste of time, a research luxury with no practical benefit.

Basic decision theory teaches the value of information when choosing between alternative courses of action. Presumably the health care indus

-143-

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License to Steal: How Fraud Bleeds America's Health Care System
Table of contents

Table of contents

  • Title Page iii
  • Contents v
  • Preface vii
  • Introduction - Who Steals, and How? 1
  • Part One - The State of the Art 37
  • 1 - Control Failures 39
  • 2 - How Goes the War? 56
  • Part Two - New Frontiers for Control 81
  • 3 - False Claims 83
  • 4 - Managed Care 98
  • Part Three - The Nature of the Fraud-Control Challenge 115
  • 5 - The Pathology of Fraud Control 117
  • 6 - The Importance of Measurement 143
  • 7 - Assessment of Existing Fraud-Control Systems 162
  • 8 - The Antithesis of Modern Claims Processing 183
  • Part Four - Prescription for Progress 201
  • 9 - A Model Fraud-Control Strategy 203
  • 10 - Detection Systems 228
  • Conclusion 253
  • Acronyms and Abbreviations 257
  • Notes 259
  • Index 277
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