Tod McDonald, CPA, CIRA, and Founder of Valid8 Forensic Accounting Software, says that Medicaid fraud is widespread but predicts it will persist because beneficiaries aren’t the ones responsible. Healthcare Innovation recently spoke with Tod McDonald about combating Medicaid fraud.
During the conversation, McDonald explained that his organization builds software for government investigators to trace complex financial activity across bank accounts, across different entities at scale. “We take fragmented data and evidence and pull that into clear, actionable financial evidence so that investigators can focus on strategy and figuring out what case to pursue.”
What scale are we talking about when it comes to Medicaid fraud?
It’s absolutely gargantuan. It's in the hundreds of billions on an annual basis. There are three elements that need to be present for a fraudster to act. Number one, they've got to have pressure. That's pretty easy. People like money. Two, the opportunity to go after the fraud or pursue it. And three, rationalization. The combination of these is known as the fraud triangle. Opportunity and rationalization are unique with Medicaid fraud in that it is a pay and chase operation.
If you submit invoices or reimbursement into the Medicaid system, you're going to get paid. It's pervasive, but that construct of pay and chase creates an especially lucrative area for fraudsters to play in. It's the responsibility of state and federal investigators to identify areas of potential fraud and chase after the money that's already gone out the door to the fraudsters. So that combination of things creates a kind of a perfect storm. The final topper on it is that the tools and methods for identifying and chasing after fraud just haven't evolved very much since the 1990s.
Most fraud is perpetrated by providers. Can you talk a bit about this?
A specific example with one of our major Medicaid clients is an opioid clinic, which included false billing and illegal cash sales of Suboxone. There was a collection of cash directly from patients, which is not legal, and a very large volume of transactions across a multitude of accounts. That falls outside of the ordinary course for Medicaid clinics; lots of different accounts and related entities, which is a common thing that you will see in sophisticated fraud operations, including Medicaid.
That's where we come into play to be able to allow those investigators to create a case, upload their evidence, walk through the quality assurance process, and get into the analysis of what is this, what happened? Where did money come from? Where did it go? How did it get there? What does it mean, and what is our next action to take?
In that particular case with our MFCU (Medicaid Fraud Control Unit) client, they were able to get a two-year sentence and hundreds of thousands of dollars in restitution.
How does Medicaid fraud impact the program?
These programs are broad in scope and funding, but every dollar spent on fraudsters or investigative teams to chase the fraudster is money that's not going to end users for the program itself, and that's true for any program, Medicaid or otherwise.
What are some methods these fraudsters use?
So many times, that evidence is right there. People taking other people's money and using it for their own purposes. There can be layers of obfuscation, meaning setting up different entities and transferring money from account A to B to C, and so on. It's just layers of entities, layers of accounts.
Are you using Artificial Intelligence (AI) in your work?
Artificial intelligence, machine learning, just good old standard coding in terms of being able to incorporate it, if there's not one silver bullet. It's a combination of lots of different tools, some of which would fall under the AI or machine learning umbrella, and other tools that are just standard code, taking sequential processes and building them into an elegant workflow.
What are some of the biggest challenges that you have seen in fighting fraud?
Unbelievably limited resources, and the structural deficiency between that pay and chase model out there. There's a huge amount of fraud. There's a huge amount of burden, therefore, on investigative teams. Historically, there just haven't been the tools to be able to keep up with increasing amounts of fraud, whether it's coming from domestic sources or foreign sources.
What do you expect to see happening in the next few years?
Increased adoption of software, tools, and artificial intelligence will enable a move from historical, very manual efforts. However, boots on the ground will still be necessary. Intelligence interviews involve all the traditional techniques that investigators use, but there has been an excessive amount of time, effort, and energy on historically manual tasks. So just as in your job and my job, we're using tools and software and AI more and more to create better, higher leveraged outcomes in our workday. You're going to see the exact same thing for investigative teams at government agencies and in the private sector, of course.
Do you have any advice for healthcare leaders?
It really comes down to looking at your processes and your resources, understanding the scope of your job or the umbrella of oversight you have, and optimizing those expensive, trained, experienced resources and optimizing outcomes for those teams.
If you sign up to investigate Medicaid fraud with an MFCU or other related entities, you are motivated. You are invested in actually making a difference, catching fraudsters from taking money from a federal fund, and therefore keeping it out of the hands of the people that it was designed for. The ability to go in on a daily basis and be more effective at your job, what you are waking up every day to do to have a bigger impact.
Change is so fast out there in terms of the tools available. Make the investment of your team to understand what's happening out there and how specifically those tools can lead to better outcomes for you, your team and so on.
It's increasingly more difficult to recruit folks into forensic and investigative teams. There are fewer and fewer of these folks who come from a forensic accounting background, and there are fewer and fewer accounting graduates coming out of programs every year. The ability to recruit and retain people to serve the mission of your Medicaid Fraud Control Unit is going to be doubly helpful by offering best-of-breed tools.
