In keeping with its strategy to cut Medicaid costs, using EDS to track fraud costs the state no extra revenue. The company gets a cut from whatever savings it produces for California.
"We've got EDS on an incentive process. We don't pay them anything specifically to operate the system. For every dollar they save for us, we give them 10 cents," Rosenstein said.
The company doesn't get its cut from a fraud case until it completes corrective action against the fraudulent provider or patient, demonstrating a reduction in Medicaid payments, Rosenstein said.
For example, in 2006, EDS identified 97 cases of fraud resulting in a $1.9 million savings. EDS received $197,000, and the state kept the remaining 90 percent.
"It works incredibly well because they have a strong incentive to find cases. If it doesn't work, we don't spend anything. If it works, we get 90 percent of the savings," Rosenstein said.
TennCare, Tennessee's Medicaid program, manages its patients' prescription drugs with an "e-prescribing" IT system that enables doctors to see a patient's Medicaid prescription history. TennCare uses the solution to reduce fraud. For example, it uses software to detect when a patient visits several different doctors in a short time each for different ailments, but for prescriptions of the same drug. That patient could be overmedicating or selling the excess quantities on the street.
"When you talk about a drug like OxyContin [a prescription pain medication], a couple of years ago, the word on the street was that you could get a dollar a milligram for that drug," said David Beshara, pharmacy director of TennCare.
Sometimes Medicaid patients purchase drugs intended for overuse or street sale at pharmacies. TennCare can't detect those cases because the purchases don't involve its e-prescribing system. TennCare has a cost reduction interest in that type of fraud because the agency pays for the doctor visits enabling those fraudulent purchases.
Recently passed state legislation will require Tennessee pharmacies to submit all of the narcotic prescriptions they administer Tennesseans to a centralized database. TennCare plans to connect its e-prescribing system to that database.
The project could find instances of private prescription drug purchases connected to Medicaid-paid doctor visits.
TennCare also uses the e-prescribing system to reduce inappropriate prescriptions not resulting from fraud, but from pharmaceutical marketing campaigns, said Beshara.
He said patients often see TV ads for drugs they erroneously think they need and get doctors to write prescriptions for them. TennCare uses software to determine the most commonly misused drugs and includes them in its "prior-authorization" process. The e-prescribing system analyzes a patient's past medical treatment before letting a doctor prescribe one of those drugs. If the system rejects the prescription, the doctor can call the agency to appeal the rejection.
"We really have a prior authorization so we can make sure we're paying for things we should be paying for," Beshara said. "With marketing from the pharmaceutical companies, they spend $20-plus billion on marketing activities. They spend that money to create sales for their products, and I can't say with 100 percent certainty that their sales are based on completely justified use 100 percent of the time."