As fraud escalates, are we approaching the Financial 9/11?


Watching our nation approach the "fiscal cliff", and the dire predictions if we truly drive off it like the last scene in Thelma and Louise, has sharpened my view of the potential risks that huge gaps of fraud and abuse present to all of us.  One of the key lessons learned from the tragedy of 9/11 was the risks when government agencies charged with protecting us keep their information in silos and don't partner to take proactive steps to prevent risk.  It was a central theme of the 9/11 Commission Report and great strides were taken to reduce those barriers and ensure that key intelligence is shared.

The very real risk to all of us is that the same barriers that existed between intelligence agencies prior to 9/11 still exist today in the government agencies tasked with collecting and distributing trillions of dollars every year.  While that risk may not put lives at risk directly, it puts all of our livelihoods at risk.

Current estimates of fraud, improper payments and the tax gap run into the hundreds of billions of dollars every year.  The IRS estimates in their latest tax gap study that underreporting runs $450 billion per year.  The GAO estimates that for Medicaid and Medicare, not including Medicare Part D drug benefits, the gap exceeds $70 billion per year.

With numbers that huge, how much would it take to bring down the system completely?  Is that risk just inherent to the organized fraud rings that perpetrate most of the crime today, or in combination with an organized financial attack from a foreign country?

Just a few headlines in recent years:

  • A $44 million Medicaid conviction of a home health care agency in New York in 2010
  • A South Florida Medicare case from 2011 involving fake billing for therapy and home health care for $25 million
  • In 2012, the GAO reported that the IRS recognized nearly 642,000 cases of stolen identities used to commit refund fraud through September 30th, up 62% from the year prior
  • An administrator at a Houston hospital was indicted earlier this year in a $116 million Medicare fraud scheme involving false billings that included kickbacks to patient recruiters

Again and again, schemes are running into the tens and hundreds of millions of dollars.  Those levels show incredible risk to both states and the federal government.  Another magnification of scale, and individual schemes will start running to the billions and tens of billions.  That level of gap, with funds often leaving the country, exposes all of us to a potential financial collapse on the scale of 9/11.

The solutions exist.  Some agencies and states have lowered barriers and enhanced data sharing.  Tools like the SAS Fraud Framework are being put into place to resolve identities and analyze multiple data sets to find anomalies and implement predictive models based on past cases of fraud and abuse.  Utilized appropriately, those approaches not only help staff find and investigate fraud, but serve as a preventative measure, assessing risk up front and keeping the false refunds and improper claim payments from going out the door.

Don't allow government to take the normal approach and attempt to solve the problem AFTER the disaster has taken place.  Take a leadership role now and push for data sharing, coordinated enforcement and proper fraud prevention systems.  We still have a chance to stop the Financial 9/11 before it hits.


About Author

Carl Hammersburg

Manager, Government and Healthcare Risk and Fraud

Carl Hammersburg manages the SAS Government and Healthcare Risk and Fraud team, and has been with SAS since 2012. Prior to that, he spent 20 years in anti-fraud activities for Washington State’s exclusive workers’ comp insurer, the Department of Labor and Industries. In 2004, Carl formed that agency’s comprehensive fraud program, covering tax and premium audit, claim investigation, provider fraud and collections. Data sharing and investigative partnerships with other State and Federal agencies, as well as driving public availability of information and awareness served as cornerstones to the anti-fraud activities of the program. During his stewardship, audit and investigative activities doubled and outcomes tripled, based on a focus on data mining and predictive analytics that improved efficiency and case selection. Program success under Carl’s leadership resulted in awards from two successive Governors of Washington State.

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