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  1. 1. Presentation for NASACT Juan Penalosa August 21, 2006
  2. 2. Agenda 1. The Problem 2. The VERIFY Solution and Value 3. VERIFY Solution Results
  3. 3. 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. 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 95 105 115 125 135 145 155 2000 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
  5. 5. 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%
  6. 6. 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
  7. 7. 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, FraudWaste, Fraud and abuseand abuse
  8. 8. 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).
  9. 9. 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)
  10. 10. Agenda 1. The Problem 2. The VERIFY Solution and Value 3. VERIFY Solution Results
  11. 11. 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.
  12. 12. 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 Smith Total Score 748.8/1000 Overall Rank: 2 Potential Fraud, Waste and Abuse $894,604 $2,481,240 Potential Overcharges Non-suspect Charges
  13. 13. 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
  14. 14. 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
  15. 15. 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$2,205,000,000Total 28,188 320,566 85,910 144,784 Beneficiaries 4.7 5.8 13.1 23.4 % of Total Spend $220,000,000Dakota $273,000,000St. Louis $614,000,000Ramsey $1,098,000,000Hennepin PaymentsCounty 50%321,207$1,066,580,665Total 54,705 65,778 59,571 141,153 Beneficiaries 7% 9% 10% 24% % of Total Spend $154,224,250Washington $194,090,919Marion $206,061,875Lane $512,203,621Multnomah PaymentsCounty
  16. 16. Agenda 1. The Problem 2. The VERIFY Solution and Value 3. VERIFY Solution Results
  17. 17. 17 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”.
  18. 18. 18 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...
  19. 19. 19 …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
  20. 20. 20 New York County executives have earmarked savings to improve service offerings, balance budgets and decrease taxes. County Profile Percent total paid claims to Investigate Value 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 results 2006
  21. 21. 21 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 Dollars 2004
  22. 22. Thank You Juan Penalosa Executive - VERIFY US State and Local Government cell-917-664-5150 jpenalosa@us.ibm.com

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