April 2015

Can Smart Cards Reduce Medical Fraud?
By David Yeager
For The Record
Vol. 27 No. 4 P. 8

It's difficult to quantify the amount of US health care dollars lost to fraud, waste, and abuse each year. According to the Centers for Medicare & Medicaid Services, Medicare, which covers nearly 15.5% of the US population, made $36 billion in improper payments—which includes fraud as well as other factors such as coding mistakes—in 2013, the most recent period for which statistics are available. That's more than 10% of the total money that Medicare paid out. And that doesn't account for other health plans, which cover 71% of Americans with other health insurance.

Most industry experts agree that the money drain is a significant problem. However, there's much less consensus about how to end the madness. Some industry groups think the answer to medical fraud may be as simple as a card that consumers can carry in their wallets. The idea is that these smart cards—processed with biometric markers—can make patient identification failsafe.

The Workgroup for Electronic Data Interchange (WEDI) published a research paper in November 2014 addressing the feasibility of such a mechanism.

Getting Carded
The WEDI paper does not advocate for the use of smart cards; the study was conducted to examine the technology's viability. The study estimates that smart cards could reduce the error rate of unmatched patient records from the 10% to 15% range to as low as 2%, potentially saving money and improving medical care.
"If we implemented this technology, we would get a biometric for each patient as a byproduct, and that biometric accompanying patient records would bring the error rate down dramatically," says Peter Barry, a consultant and cochair for WEDI's Health ID Card Sub-Workgroup. "It would take quite a while to accomplish this, but it is a feasible approach."

The technology behind the simple card is not so simple. It uses a process called patient arrival registration to confirm the patient's identity with his or her health plan before the provider renders service. A patient would bring the card to a doctor's appointment and insert it into a card reader or workstation. Barry estimates the cost of a card reader at around $500.

The card reader taps into a biometric, such as the patient's fingerprint or a facial recognition scan, to create a digital signature to verify the identity of both the patient and the provider. It also confirms insurance information and records the workstation ID along with the date and time. The information is sent to the health plan's computer systems in real time for validation. If the transmitted data match what the health plan has on file, the patient's visit is given the go-ahead.

"It removes the value of, for example, bribing a clerk in a hospital to give you a file of a thousand insurance identifications and patient names and other personal information," Barry says. "There's no value to doing that [with this system], so it's a lot more than what the card is doing by itself. It's the communication to the health plan and the response back [that discourages fraud]."

Does Feasible = Acceptable?
Although this type of technology is used for health care delivery in many countries, there are questions about how well it would be accepted in the United States. For example, Americans generally are leery of sharing their personal information, and may not be willing to wait while biometric identification takes place. The report estimates the process to take 5 to 10 seconds, a timeframe Barry says is probably viable in terms of consumer patience. However, he notes anything beyond 10 seconds may prove problematic.

Sven Lohse, a research manager at IDC Health Insights, says more study is needed to determine the efficacy of a smart card approach. "Whether biometric identification of a member would have a significant impact on identifying fraud is a question that I think would require some deep market analysis, and you'd have to get inside a payer with a large set of claims and figure out what percent of their claims fraud or waste and abuse is actually generated by misidentification or fraudulent identification of members," he says. "Then you'd have to figure out from there what proportion [you could recover] and what proportion of that population you could actually get onto a biometric marker system. It might be a very limited market."

The report's authors, however, believe that reducing the misidentification of records would not only reduce medical errors and curtail medical identity theft but also save a significant amount of money. Although the authors acknowledge that the cards would not prevent the two biggest sources of fraud—upcoding, which is billing for procedures that are more expensive than the ones that are provided, and adding fraudulent items to an otherwise valid claim—they estimate that implementing the technology would result in savings of at least $20 billion to $25 billion annually, approximately one-third of the total cost of health care fraud.

Besides providing secure verification of both the patient and the provider, smart cards can create an electronic audit trail, says report coauthor Randy Vanderhoof, executive director of the Smart Card Alliance, bringing a greater degree of accountability to the health care billing process. The resulting billing that goes back to the insurer and to the government is now able to be tracked electronically, so you eliminate the abuses associated with multiple individuals sharing one health care account or with phantom billing by unauthorized service providers to insurance companies and to the government," Vanderhoof says.

The biggest hurdle to smart card implementation may be gaining enough stakeholders who are agreeable to using the devices. Barry says that legislation has previously been put forward in Congress to require smart cards for Medicare users; however, the motion failed and would need to be reintroduced. He adds that if legislation of that nature were to pass, it likely would provide a critical mass of users and convince other providers to adopt the technology. Without legislation, he doubts that smart card use will become widespread.

Vanderhoof says the fractured nature of the US health care market makes smart cards a harder sell, although other countries have implemented the tools in that space with excellent results. "It's an existing technology that's been widely used outside of the United States in the health care industry and, therefore, the US market should be looking at other countries that have adopted it and find out how they've proven that it works successfully," he says. "It's also a technology that's been proven to work in the payments industry, as well as in the identity and security market, so what's holding the US health care industry back from adopting this technology that already has a proven track record both in the United States and internationally?"

— David Yeager is a freelance writer and editor in southeastern Pennsylvania.