RiskTech Forum

SAS: How a Hybrid Anti-Fraud Approach Could Have Saved a Federal Health Agency More than $100 Million

Posted: 30 September 2013  |  Source: SAS

The New Face of Fraud and Detection

Law enforcement experts know that professional criminal enterprises inflict more damage and losses on society than opportunistic individuals. Yet today, health care anti-fraud program managers focus primarily on detecting outliers, researching standalone fraud events, and acting on tips. This is no surprise given that most anti-fraud analytic methods are focused at the provider or claim level; very little – if any – advanced data analysis focuses on the detection of collusive behavior among multiple entities. Criminal enterprises use this to their advantage, of course. While law enforcement gets distracted with the latest fraud scheme, professional fraud organizations constantly change their tactics, always staying one step ahead of the “pay-and-chase” game.

Consider the example of Armen Kazarian, who represents the new breed of mob boss. He is an apex fraud predator who hails from a petri dish of experienced black marketers and professional fraudsters in Eastern Europe. To them, contending with the US criminal justice system is child’s play relative to battling with the formidable KGB and other Eastern European law enforcement and intelligence agencies. Unlike traditional mafia operatives, his “family” consists of professional white collar criminals who run a prolific network of trained fraud operators. They call themselves “thieves in law.”

Eschewing the traditional mob activities of extortion, armed hijacking, gambling and drugs, they know you can steal more money with a computer and paperwork than a gun – and with significantly less risk. Organized crime is highly lucrative. And health care fraud losses are much more lucrative than fraud in financial services, as evidenced by the dollars lost to fraud in health care every year. According to a recent federal indictment in New York, exploiting our health care system was easy money for Kazarian and the Mirzoyan-Terdjanian organization, which operated 118 phony clinics in 25 states and billed federal payers more than $100 million dollars over a span of 10 years. Using industry insiders, professional intelligence gathering expertise, identity theft and cyber exploits, Kazarian’s organization identified and exploited vulnerabilities in federal payment systems, such as benefit processes, alert threshold levels, and pay-and-chase approaches, to fleece our national health care system.

The organization stole the identities of doctors and filed applications to bill federal payers, often using an address that was nothing more than a mailbox. With help from an insider, the organization then stole identities of thousands of real federal beneficiaries, including the identities of approximately 2,900 Medicare patients treated at one hospital. With the stolen identities of doctors organization billed for treatments no doctor ever performed and no patient ever received. By the time the fraud was identified (and the phony clinics shut down), the US government had already paid out millions of dollars, and the money had already been withdrawn and often transferred overseas.

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