IBM Counter Fraud

IBM Counter Fraud Reducing the cost of improper payments October 24, 2013 Ed Rounds, IBM North America Program Manager for Fraud Waste and Abuse Steve Sharp, IBM Global Business Services , Associate Business Partner – Federal Business Intelligence Robert McGinley, IBM Global Business Services, Global Health Counter Fraud

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IBM at a Glance We create business value for enterprise clients through integrated solutions that leverage innovative IT and deep business insights

2012 Revenue

$104.5B

2012 Income

$17.6B

Key Business Segments

Services Software Hardware Research Financing Operations in over 170

countries

A highly inclusive workforce 430,000 employees

50% with less than 5 years of service 40% working remotely |

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Customers We Serve National Security

Defense

Law Enforcement

Austrian DoD

Private Sector

Government

World Bank

United Nations | ©2013 IBM Corporation

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IBM Capabilities National Security

Defense

Law Enforcement

Private Sector

Government

Counter Terrorism

Establishing Civilian Structures Counter Intelligence Intelligence Analysis Target Analysis and Defense Peacekeeping Force Protection Pattern of Life Analysis Human Terrain Mapping

Tactical Lead Generation Counter Terrorism Major Investigations Organized Crime Neighborhood/ Community Policing Public Order/Major Event Management Volume Crime Fusion Centers

Security Investigations

Industry Oversight & Compliance

Industry Oversight & Compliance

Cybercrime

Counter Intelligence Intelligence Analysis Border Security Cyber Risk

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Cybercrime Risk Management Anti-Money Laundering Fraud

Securities Investigations Anti-Money Laundering Fraud

IBM has a strong history helping clients address fraud Banking

Insurance

Anti-Money Laundering

P&C and Healthcare Claims fraud

Enterprise Fraud Management

IBM has implemented over 70% of the Global Tier 1 Bank’s AML systems

Government

Medicare/Medicaid Fraud

Healthcare

Health Insurance Claims fraud

Revenue/Tax Fraud

Over 60 global Insurers use IBM software for fraud

IBM has delivered 50+ implementations

IBM has more than 30 client implementations for Healthcare payers

IBM i2 has 50+ installations in Federal Government

Business Outcomes • Reduced fraud by 30% while improving on AML Reporting Requirements • 40% improvement in Suspicious Transaction Reporting

Business Outcomes • $17M savings in first 4 months of use • 70x faster settlement on legitimate claims

Business Outcomes • Identified $75m in fraud recoupments in the first 12 months of use • One provider charged >800 days worth of billings in a single year

• 403% ROI in 3 months • 80% productivity saving • Reduced investigation referral window from 45–60 days to 1–3 days

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• Stopped more than USD16 billion in fraud in 2012

Business Outcomes • Identified 200 facilities with questionable outlier behaviors • Identified >$20M in potential recoveries • Potential incremental recoveries of $20M+ per year

Financial Crime Challenges – Why Is IBM In This Game? Often Stuck Between A Rock And A Hard Place

Today’s intensifying challenges mandate a fresh approach to managing threat information

Multiplication of threat types, and frequency with which they occur Threats are increasingly asymmetrical Explosion in complexity of threat identification Multi cultural nature of threat Frequency of transaction/interactions

IBM Projects FBI FTTTF and other Intel Agencies: suspicious activity reports, foreign currency transactions reports, and foreign bank reports, analytics to detect terrorist and insider threats IRS: currently running EFDS (Electronic Fraud Detection System) - in which for Tax Year 2012, STOPPED $16 B in fraudulent illegal refunds IRS: developing next generation EFDS. IRS/CI: development work installing Entity Analytics for the Criminal Investigation organization.

Transparency is clouding Citizen, Policy Maker and Regulatory expectations and pressures are increasing

CMS: currently developing data mining algorithms in support of CMS Program Integrity Office USCIS: did a pilot project (using entity analytics) to find immigration fraud

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IBM Differentiators

Broadest and Deepest Portfolio of Services Proven Expertise 30,000+ analytics-driven client engagements

9,000+ consultants

9 Analytic Solutions Centers

Delivering Business Transformation for our Clients Strategy and Transformation Consulting Services

Transformative Business Partnership with our Clients

Thought Leadership

One IBM: Software, Systems, Services, and Research IBM Global Services (GBS, GTS, AMS, GPS)

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IBM Software Group (Business Analytics, Information Management, Industry Solutions) IBM Systems & Technology Group

IBM Research (Watson, Largest private math dept, 700+ patents)

This new era is reshaping the IT landscape and creating new market dynamics The new era is driving the IBM Counter Fraud strategy

Cloud

Mobile

Social

Internet of Things SEPTEMBER, 2013 |

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IBM defines Fraud as an illegal activity that is deliberate; and uses misrepresentation to produce a financial gain. Abuse is the same, but may not be able to be proven to violate a legal statute

Related areas Waste – payments made for higher value than necessary

Organized Opportunistic

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Error – mistakes made by not applying appropriate rules Improper Payment - collection of all of the above used to define the category for Health Payers

IBM is seeing an increase in Medical fraud that is expected to continue. We anticipate greater focus on fraud as a potential compromise in closing budget gaps 1. Crime rings are increasingly turning to fraud Fraud is low risk and relatively easy to conduct Medical claims are path to revenue for fraudsters

2. Economic downturns lead to greater fraud and abuse Individuals and businesses seek new ways to make ends meet

3. Market conditions pressuring our public and private bottom line Need to find new sources of savings

• Survey participants estimated that the typical organization loses 5% of its revenues to occupational fraud each year • The median loss caused by the occupational fraud cases in our study was $140,000

4. Advances in analytics are make finding and preventing fraud both possible & economical We can now do what we previously couldn’t |

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• 20% of the cases were greater than 1M • The frauds reported to us lasted a median of 18 months before being detected

What our clients are telling us about fraud… 1. Fraud is pervasive, growing and has become a board room issue 2. Fraudsters are much more sophisticated, technology enabled and transnational 3. Fraudulent activity continues to rise, methods more sophisticated 4. Organized crime rings are more prevalent 5. Continued and growing concern about e-commerce attacks 6. Insiders (employees) are a prominent threat 7. Enormous amounts of data to uncover fraudulent activity is a daunting task (Structured & Unstructured) 8. There are simply not enough resources to attack the problems

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IBM’s Counter Fraud solution reduces improper payments using a layered “best of breed” approach to disrupt the intentions of both organized and opportunistic fraudsters Detect in real time if a medical bill or other transaction is fraudulent by applying models and rules in real time to determine the propensity for fraud

Predict & Protect

Apply the results of Detection to stop processing known fraud, or encourage fraudsters to abandon their objective by showing more is known than they think should be known

Detect

Prosecute & Recover

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Gather data about DETECTED or DISCOVERED fraud; build cases for prosecution, recoveries, or denial of payments. Provide feedback to DETECTION and/or DISCOVERY ©2013 IBM Corporation

Disrupt & Defeat

Take action in real time – when it matters

Detect fraud within a business process

Investigate

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Prevent

Fraudster

Confirm fraud for prosecution, recovery, rules and watch lists

Discover Find fraud within the data

Learn & Apply

Discover fraud retrospectively by reviewing past data and looking for patterns and anomalies that may indicate an individual or organization is potentially fraudulent

Big Data is essential to the IBM counter fraud platform for Health

Transactional & Application Data

Machine Data

• Volume • Structured • Throughput

• Velocity • Semi-structured • Ingestion

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Social Data

Enterprise Content

• Variety • Highly unstructured • Veracity

• Variety • Highly unstructured • Volume

IBM’s Counter Fraud offering delivers distinct and unique capabilities

Operational Systems Advanced Industry Libraries: Data Models, Predictive Models, Rules, Reports, Process, External Fraud Data etc.

Real Time / “In line”

Back Office Analytics

Prevention

Detection

Discovery

Investigation

Integration

Predictive Analytics

Selection

Case Management

Action

Evaluation

Rules Guidance Rules

Anomalies Decision Management

Identification

Relationship Visualization Investigative Analytics

Reporting

Operational Reporting Dashboards Feedback

Observation Space

Information Domains |

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Internal Sources

External Sources

Evolving Unstructured Sources

Fraud Use Case Libraries

IBM Counter Fraud Offering is built on the foundation of IBM’s analytic capabilities being brought together in a single product, augmented by FAMS for enhanced Discovery

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IBM Counter Fraud Solution: Detection, Prevention, Investigation, and Reporting FNOL, Bill, etc.

Discovery

Detection

Entity Analytics Business Rules

Claimant

Predictive Model Optimize Fraud Decisions

Entity Analytics

Provider

9,500 model library Anomaly Detection

Selection Evaluation Identification

Real Time Alert

New Investigation

Observation Space

Case Management |

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Intelligent Investigation

Intelligent Fraud Dashboards

IBM Counter Fraud Solution for Healthcare: Discovery FNOL, Bill, etc.

Discovery

Detection

Entity Analytics Business Rules

Claimant

Predictive Model Optimize Fraud Decisions

Entity Analytics

Provider

9,500 model library Anomaly Detection

Selection Evaluation Identification

Real Time Alert

New Investigation

Observation Space

Case Management |

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Intelligent Investigation

Intelligent Fraud Dashboards

Robust Approach To Enterprise Counter Fraud Multiple layers of detection helps create a “harder” target for Fraudsters Identity Resolution / Social Network Analysis
Resolves identities across claims
Identifies relationships across entities

Uniquely identifies claim entities and relationships

Business Rules
Industry specific rules • Ex: More patients per day than is possible
Business expertise rules

Predictive Models and Anomaly Detection
Combines structured and unstructured big data
Identifies anomalous behavior – claim, provider, employee, etc.

Rules Library

Predict Suspicious and Anomalous Behavior

Case Management
Centralized referral management
Collaboration for improved efficiencies and results
Integrated text mining of social media and other big data forms

Fraud Insights
Monitor fraud metrics ensures performance
Provides insights to front-line managers and executives |

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Manage, Automate, and Collaborate Cases

Closed Loop Analysis for Fraud Metrics

IBM’s Counter Fraud Signature Solution IBM’s Counter Fraud Solution for reducing improper medical payments is not a point solution or as a step in the process. It is more than a “score”. Fraud becomes preventable, predictable, provable, and can be managed pervasively across the process lifecycle.

Ecosystem Big Data Transparent Multi-layered “Smart” |

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Demonstration

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How to Proceed Elements for analyzing the current and future state operating model

The Process element: • • • •

Shows how various functions and locations interact, how work is executed, where hand-offs occur. Addresses policies, approvals/delegation of authority aspects that align with the process. Shows the key metrics and measurement processes required to ensure an effective operating model. Outlines the practices to capture, store, share and govern the relevant data, as well as the methods to analyze this information to support proactive and reactive actions.

Processes

The Organization and Governance element: The Technology element: • Indicates how well technology enables the business strategy. • Outlines the services, applications / tools and infrastructure supporting automation of the process. • Shows capability to implement change or replacement of applications

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Operating Model Technology

Organization and Governance

• Outlines the organizational structure, locations of where activities occur, the sourcing of activities (external vs. internal). • Describes the mechanism by which implementation and changes to the element will be managed. • Addresses people implications in terms of skills and behaviors required, the expected headcount distribution and the change implications.

How to Proceed Capability Maturity Assessment

A maturity model used as a reference to determine client’s current state position relative to industry best practices. Process

Organization & Governance

Technology

Maturity Levels Leading – An organization that has differentiated itself based upon its capabilities and simultaneously redefined those capabilities – the “state-of-the-art” organization in a given capability. Systems are fully integrated. Optimizing – An organization that has not only developed functional capabilities but also actively integrates the function within an enterprise operating model - – the “leading practice” organization in a given capability. A high degree of cross-functional integration. Practicing – An organization that has implemented basic capabilities that are consistent with industry norm – the “industry-competitive” organization in a given capability. Capabilities have been deployed with business results in key touch points, but not all. Developing – An organization that has a rudimentary, loosely-woven set of capabilities in place – the “basic operational” organization in a given capability. Processes, information, and technology are under developed and lack integration across touch points. Aware – An organization that has few of the required capabilities, enabled generally through manual processes with little automation – the “immature” organization in a given capability.

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Getting started with IBM Smarter Analytics Signature Solutions There are three paths to value based on your needs

Start finding actionable insights in 6+ weeks OPTION 1: SOLUTION PROOF-OF-CONCEPT Define and Implement Pilot 6-8 Weeks

Start Here

Strategy Workshop

Evaluate Pilot 1-4 Weeks

OPTION 2: SOLUTION IMPLEMENTATION Define Use Cases

Establish Solution Components

Conduct Solution Impact Assessment

Duration: ½ day - 2 days OPTION 3: BUSINESS VALUE ACCELERATOR Assess Requirements

Develop Business Case

2-3 Weeks

2-3 Weeks

Define Solution Roadmap 1-2 Weeks

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Note: Strategy Workshop duration varies based on client scope and target solution areas ©2013 IBM Corporation

Design, Build, and Deploy

Summary 1.

IBM has provided analytics based counter fraud, waste, and abuse solutions to the Health industry for more than 20 years

2.

In September 2012 IBM announced the IBM Anti-Fraud, Waste and Abuse “Signature Solution” which focused the best of IBM on creating holistic solution to the fraud problem

3.

Today IBM is providing an integrated solution consisting of the proven FAMS Anti-Fraud (Discovery) platform integrated with IBM’s “best of breed” technologies for Detection, Prevention and Investigation

4.

Going forward, IBM will continue to integrate capabilities to provide a holistic, multi-layered approach to counter fraud, waste, abuse, error, and improper payments

5.

The solution will leverage Big Data, Cloud, Cyber, Sense Making, and cognitive computing to ensure our customers stay ahead of the fraudsters

6.

We are currently working on moving the solution to a cloud enabled approach that can be delivered in a Software as a Service model

7.

IBM is able to deliver these capabilities in a gain sharing model should this suit the customers needs

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Our primary differentiators are: Breadth and Depth of Capabilities; Skills and Expertise; Flexible Approach, and Innovation |

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