Tech firms help governments weed out fraudulent claims
The state of North Carolina wanted to partner with IBM to get back Medicaid payments it had made on improper claims, but it faced what seemed an impassable obstacle: no money to allocate for the needed software or services, according to IBM.
In a traditional contracting arrangement, the conversation would stop there. But in this case, the technology firm agreed to take on the job of analyzing the state's Medicaid payments for overbilling and to take a cut of what it found.
Now, IBM has a yearlong contract to comb through six years of data -- the statute of limitations is six years -- to find questionable payments that the state can investigate and, if inaccurate, demand be repaid.
The program is just one of many through which contractors are helping governments recoup lost assets and protect their money -- a need that has only become more pressing following the recession and tightening of state and local budgets.
The efforts vary. Shaun C. Barry, director for fraud solutions in IBM's public sector business, said his company began working with the state of New York after its tax department estimated it was losing $1 billion annually in improper tax refunds.
So IBM built a predictive model that would score every refund request on the likelihood it was valid -- the 4 percent of returns deemed the most questionable were rejected outright. Investigators examined others considered high risk to decide whether or not they were valid.
Over the last five years, the state has denied $889 million in refunds, Barry said, even taking into account successful appeals. Today, the state continues to run the program on its own.
William Comiskey, deputy commissioner in the state's Office of Tax Enforcement, said the key to the program is its ability to rapidly evaluate refund requests while the money is still in hand -- meaning the office doesn't have to try to recoup payments made based on improper claims.
"It's something that every state should have," he said. "It's a true government success story."
Ray Bjorklund, senior vice president and chief knowledge officer at FedSources, which analyzes the government market, said the idea of helping government agencies prevent or recoup improper payments is not new, but that it's gained traction.
"It is becoming, I think, more important not only at the federal level, but especially at the state and local level, because they have been really hurting on revenue," he said.
Basing a contractor's fees on the recouped money it identifies may also become more common, said Angie Petty, a principal analyst at Input, which also analyzes the government market.