Presentation for NASACT

Juan Penalosa

August 21, 2006

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Agenda

1. The Problem

2. The VERIFY Solution and Value

3. VERIFY Solution Results

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State deficits have begun to decline but remain far above 1990s.

0

40

80

120

160

200

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Total State and Local Deficit ($MM)

Growth in Total Government Deficit

State and Local 1994-2004

4

The dramatic growth in Medicaid spending has been a significant contributor to fiscal ill-health of the states.

95

105

115

125

135

145

155

2001 2002 2003 2004 2005

Growth in NY Medicaid Spending Growth in NY Budget

95

105

115

125

135

145

155

2000 2001 2002 2003 2004

Growth in Medicaid Spending Growth in IA Budget

95

120

145

170

195

220

2000 2001 2002 2003 2004

Growth in Medicaid Spending Growth in Revenue

85

95

105

115

125

135

145

1552000 2001 2002 2003 2004

Growth in Medicaid Spending Growth in Revenue

% Growth in State Revenue vs. Medicaid Spend (Yr 2000=100)

NY IA

AZ OR

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Over five years, Medicaid expenses grew from 25% (ND) to 165% (AZ).

Growth in Total Medicaid Spending (1999-2004)

Greater than 150%

100-149%

50-99%

25-49%

% Growth Since 1999

Less than 25%

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Medicaid expenses are so large now, they crowd out other state priorities.

20%4%

45%

10%23%

19%

13%

39%

18% 11%

17%

27%

31%

8%18%

State Spend Breakdowns (2004)

18%13%

44%

6%

19%

Medicaid E&S Education Transportation Higher Ed Other

MA IA

OR AZ

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Based on US GAO and NY Times estimates, a minimum of 10% of Medicaid spend may be fraud, waste and abuse. If true, States may recoup more than $28 Billion a year.

Total US spend 2004

$288 Billion

$28 Billion

Potentially Recoupable Medicaid Spending

10%10%Waste, Fraud Waste, Fraud

and abuseand abuse

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While States are making strides to reduce Medicaid fraud, waste and abuse…

“Iowa Recovers $194,127 in Medicaid Fraud Settlement with Schering Plough…”

“…they violated Minnesota consumer and Medicaid fraud laws by grossly inflating the prices of their inhalant drugs used by Medicare beneficiaries and the Minnesota Medicaid program.”

AG REILLY RETURNS $1.15 MILLION TO MASSACHUSETTS MEDICAID PROGRAM AS PART OF NATIONAL SETTLEMENT AGAINST DRUG MAKER SERONO October 24, 2005 BOSTON -- Massachusetts has reached an agreement with Rockland-based Serono, S.A., to settle charges that the company engaged in illegal conduct in the marketing of Serostim, a drug used to treat profound weight loss in AIDS patients. Massachusetts will receive $1.15 million as part of the multi-state settlement. Under the agreement, negotiated by a team of state Medicaid Fraud prosecutors, Serono, S.A., together with its U.S. subsidiaries, Serono, Inc., Serono Holding, Inc. and Serono Laboratories, Inc. agree to pay a $136,935,000 criminal fine and a total of $567,065,000 to settle civil liabilities.  "Serostim is an important drug for AIDS patients," AG Reilly said. "This settlement against Serono is a victory in the fight to hold companies who use deceptive marketing practices to push their products accountable. My Office fought for enactment of the False Claims Act and this case is a textbook example of why it is a valuable law enforcement tool."Serostim is a drug normally administered to AIDS patients to counter body mass wasting. This agreement settles allegations that Serono marketed and sold unapproved computer software for use in measuring body mass loss, marketed Serostim for unapproved, off-label uses and used various forms of illegal kickbacks in marketing the drug.The state settlement was negotiated by a global settlement team appointed by the National Association of Medicaid Fraud Control Units (NAMFCU). 

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significant amounts of recoverable funds remain on the table.

Total Medicaid Spending

$231.7 BN

Estimated Fraud, Waste and Abuse

$23.2 BN

Total Actual Recovery$252 MM

Actual Recovery vs. Estimated Fraud, Waste and Abuse (2003)

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Agenda

1. The Problem

2. The VERIFY Solution and Value

3. VERIFY Solution Results

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How it works:

State suspects claims behavior in a specialty area

State extracts claims data for that specialty

IBM Consultants analyze, cross-check against macro

data, execute results

State auditors further investigate provider behavior identified as suspicious

State recovers funds from offending providers/recipients or avoid paying the fraudulent claims

VERIFY technology scores all user selected features to rank providers/recipients

The VERIFY solution combines consulting with powerful IBM software.

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VERIFY provides States with easy-to-use reports identifying potential fraud, waste and abuse in dollars, allowing for prioritization of investigations.

Sample Reports from VERIFYNY

Provider: John SmithTotal Score 748.8/1000Overall Rank: 2

Potential Fraud, Waste and Abuse

$894,604

$2,481,240

Potential Overcharges Non-suspect Charges

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VERIFY is a unique offering in that it is an On Demand solution, allowing States to pay by the drink and conserve limited resources.

• A State’s investment is minimized as they are not required to shoulder software, hardware, training and system maintenance costs

• IBM staff operate the software tools on the world’s fastest and most accurate supercomputers and analyze results to create a targeted list of suspect providers

• State staff can focus investigations where success is most probable

• IBM Center for Business Optimization is available on an ongoing basis

• The On Demand version of VERIFY always deploys the latest version of the software

• No competitors are offering an On Demand solution

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VERIFY On Demand includes a growing list of “profiles” that allow States to choose which specialty areas to investigate for fraud, waste, and abuse.

VERIFY Profiles

Ambulance Dermatology

Ambulatory Surgical Centers Ear, Nose, Throat

Anesthesiologists Gastroenterologist

Chiropractor OB/GYN

Cardiologists Orthopedic

Cosmetic Pediatric

Podiatry Physical Therapy

Recipient Dental

Drugs (Pharmacy) Inpatient Hospital

Durable Medical Equipment Pain Management

Internists – Abortion Internists - General

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States can also focus on specific geographies with high total spend or high per beneficiary spend.

Source: FY2003 Medicaid Eligibles and Payments by Basis of Eligibility; Medicaid State Summary Data FY03: Centers for Medicare and Medicaid Services

Spending per Beneficiary Total Spend by County

Sample Spend Breakdowns (OR 2003)

Over $4,000 $3,500-$3,999 $2,500-$3,499 Less than $2,500

47%291,000$2,205,000,000 Total

28,188

320,566

85,910

144,784

Beneficiaries

4.7

5.8

13.1

23.4

% of Total Spend

$220,000,000 Dakota

$273,000,000 St. Louis

$614,000,000 Ramsey

$1,098,000,000 Hennepin

PaymentsCounty

50%321,207$1,066,580,665 Total

54,705

65,778

59,571

141,153

Beneficiaries

7%

9%

10%

24%

% of Total Spend

$154,224,250 Washington

$194,090,919 Marion

$206,061,875 Lane

$512,203,621Multnomah

PaymentsCounty

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Agenda

1. The Problem

2. The VERIFY Solution and Value

3. VERIFY Solution Results

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Combating Medicaid waste, fraud and abuse with VERIFY is a high profile success in New York.

“Potentially improper bills accounted for about 19 percent of the money paid to those providers,” Mr. Vanderhoef and IBM officials said.

“…when local property taxpayers understand the cost to them of fraud in the system, then they will understand the need to aggressively prosecute the fraud”.

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The VERIFY solution is a result of millions of dollars and many years of R&D invested by IBM and the Healthcare and Insurance industries...

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…and has been deployed to great success, with most customers realizing a positive ROI within one year.

 

“The results from this model were astonishing. We identified numerous providers who were billing for suspect cosmetic procedures and estimate our recoveries at over $500,000.” BlueCross BlueShield of Louisiana   One year after launching the system, Empire estimates FAMS-driven savings will exceed $4 million each year. “It’s lived up to and beyond our expectations”, says Paula Monetti, Executive Advisor for the Fraud Division. “IBM is an integral partner in our new, aggressive approach.” Empire Blue Cross and Blue Shield

“We have just begun using this new filtered profile and anticipate a high number of new cases and approximately $900,000 in savings.” Trustmark Insurance Company

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New York County executives have earmarked savings to improve service offerings, balance budgets and decrease taxes.

County ProfilePercent total paid

claims to InvestigateValue of Suspect

Claims

County 1 Pharmacies 16% $60,200,000

County 2 Internists 42% $894,000

County 3 Pharmacies 24% $21,900,000

County 4 Pharmacies 49% $12,800,000

County Executive Scott Vanderhoef told the New York Times “If the effort saves just half as much money as Rockland has flagged so far as questionable payments, that's a 15 percent reduction in property tax that we have achieved” (NYT, January 6, 2006).

Sample VERIFY results2006

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States can significantly improve budget outlooks by combating Medicaid waste, fraud and abuse.

$3.1 BN

$263 MM

$493 MM

$35 MM

$49 MM

$259 MM

$227 MM

$513 MM

$899 MM $4.5 BN

$204 MM

$891 MM

$472 MM

$431 MM$836 MM

$922 MM

$1.29 BN$89 MM

Possible Medicaid Waste, Fraud and Abuse Dollars2004

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Thank You

Juan PenalosaExecutive - VERIFYUS State and Local Governmentcell-917-664-5150jpenalosa@us.ibm.com