Memorial Healthcare attacks vendor fraud

IBM analytics and content management software help bring transparency to the vendor community

Published on 27-Jun-2013

"As we gained transparency into the vendor vetting process, the staff moved from a clerical role to an analytical role." - David Alexander, vice president of finance, Memorial Healthcare System

Customer:
Memorial Healthcare System

Industry:
Healthcare

Deployment country:
United States

Solution:
Big Data, Big Data & Analytics, Big Data & Analytics: Operations/Fraud/Threats, Enterprise Content Management, Smarter Planet

Smarter Planet:
Smarter Healthcare

IBM Business Partner:
Information Management Consultants, Inc.

Overview

Headquartered in Hollywood, Florida, Memorial Healthcare System is the fifth-largest public healthcare network in the United States. It provides more than 1,900 licensed beds in six hospitals at multiple locations throughout the south Broward county area.

Business need:
Memorial HealthCare System wanted to do more to prevent fraud proactively by making the vendor verification process more transparent.

Solution:
The company deployed a solution using intelligence analytics software from IBM that cross-references information among 800 internal and external databases for greater visibility into vendor activities.

Benefits:
● Delivers a USD2 million ROI over 10 years ● Reduces vendor invoice cycles by approximately 40 percent, from roughly one month to 18 days on average ● Contributes to a USD70 million reduction in costs throughout the healthcare system

Case Study

Quickly vetting potential vendors to discover any financial or criminal risk

Memorial Healthcare System is unlocking new insights to support smarter, more profitable decisions about vendors. The healthcare provider uses a content management system for consolidating accounts payable (AP) processes in tandem with an intelligent analysis system that checks vendor data against more than 800 internal and external databases. This solution not only protects Memorial’s financial interests by cross-referencing and validating financial information but also reveals criminal activities and inappropriate or undisclosed vendor relationships with its doctors and employees, helping the company avoid fraud risks.

Smarter healthcare:

InstrumentedGathers data from more than 800 internal and external databases that Memorial, government agencies, background check providers and credit-reporting firms use.

InterconnectedCentralizes AP and vendor management for Memorial’s six hospitals and 50 locations throughout southern Florida.

IntelligentUncovers insights previously trapped in accounting documents to reveal vendors that Memorial can trust financially and ethically to represent it.
Headquartered in Hollywood, Florida, Memorial Healthcare System is the fifth-largest public healthcare network in the United States. It provides more than 1,900 licensed beds in six hospitals at multiple locations throughout the south Broward county area.

Focusing on financial health

Memorial has long taken a proactive approach to controlling operational costs, well before looming healthcare reform prompted providers to pursue greater efficiency. The company set a target to reduce costs system-wide by USD70 million to improve care delivery. “We began in the accounts payable department with the goal of reducing invoice processing costs,” explained David Alexander, vice president of finance for Memorial. “We didn’t know at the time that our subsequent efforts would lead us to implementing robust vendor fraud analytics.”

Saving more than USD2 million

Memorial contracted with IBM Business Partner Information Management Consultants, Inc. (IMC) to help consolidate AP operations. In 2002, the project team deployed an enterprise content management (ECM) solution based on IBM® FileNet® Content Manager software. It centralizes receipt of electronically transmitted and scanned paper invoices into a single repository and links digitized images of these invoices to an AP authorization and payment workflow.

Previously, each of the six Memorial hospitals manually processed its own invoices. When a hospital mailroom received an invoice, it would be routed to an employee who would sign it and send it through company mail to the AP department. This action initiated an authorization and approval process that could take 30 days or more, was prone to human error and provided no audit trail.

Today, the solution automatically routes invoices upon receipt through a verification process using a hierarchy of people responsible for ensuring that the hospitals deliver products and services according to contract. Also, the system now has an audit trail to indicate that the appropriate person signed each invoice. “Our payment cycle time for vendor invoices is only 18 days because the process is fully automated,” says Alexander. “We’re able to control when we pay specific vendors, which we couldn’t do before, and the process is auditable.”

Faster invoice processing means that Memorial can enjoy volume discounts, contract bundling and prompt-payment discounts that were previously impossible. “Over the years, the solution has helped us identify and take advantage of vendor discounts in excess of USD2 million.”

Accommodating growth through increased productivity

The IBM solution also helped Memorial save money through increased productivity. “We’ve been able to maintain the same number of employees in accounts payable, even after we acquired one hospital and built another, increasing the total number of vendor invoices to 300,000 annually,” says Alexander.

As the business grew, Memorial re-evaluated whether the IBM solution was right for the job. “We did a total-cost-of-ownership study and determined the IBM platform was much more cost-effective than other options,” says Alexander. “We’re glad we continued with the solution because it helped us reform our vendor vetting process.”

Identifying fraud

Today, digitized invoices and automated payment processes help employees perform their work correctly. For example, managers receive emails requesting invoice authorization. Clicking a link within the email, a manager can access and review electronic images of the invoice, sign it, request additional information or even call for an investigation.

Although these controls provided significant advantages in terms of efficiency, they didn’t thoroughly prevent fraudulent activity. In 2009, the healthcare system had concerns about spend patterns among certain vendors. It engaged Palmer Consulting Group Inc., an accounting firm specializing in fraud detection and prevention, to investigate. The firm discovered a vendor kick-back scheme that included cooperation from some of the company’s employees. Because the organization receives significant federal funds for providing service, the Federal Bureau of Investigation (FBI) became involved, and federal prosecutors tried and convicted the former employees. The federal courts praised the healthcare provider and Palmer Consulting Group for discovering the scheme, but Memorial realized it had to do more to prevent fraud proactively.

Bringing transparency to the vendor community

In 2010, Memorial again called on IMC to add advanced analytics capabilities to its IBM content management solution. The goal was twofold: to automate the process of vetting vendors and to provide intelligence about the connections between vendors, alerting the company to potential financial, criminal and ethical risks. The resulting customized solution, called VETTED, is built on IBM i2® Intelligence Analysis Platform software. It gathers information from the Memorial content management system, cross-references it against 800 internal and external databases, and analyzes the resulting data sets to provide previously inaccessible insights into the vendor community.

In the past, the vendor verification process was highly manual. To certify that a vendor provided accurate financial information and was stable enough to meet contract conditions, Memorial engaged Palmer Consulting Group to do a thorough review of the vending owners and related business interests. While effective, this process could take days or weeks. The company needed a more timely and efficient vendor verification process.

IMC worked with the Palmer Consulting Group and Memorial management to address the challenge. Today, VETTED system’s process automation enables staff members to complete vetting activities within a few hours. More important, it provides greater visibility into vendor business activities. The system’s analytics connect the dots among vendor companies and between individuals and vendor companies to help uncover such unethical activities as bid rigging. “We require three bids on certain projects,” explains Alexander. “We found that one of the vendors had set up two fictitious companies in addition to his legitimate company to bid on a project.”

In addition, the VETTED system serves as a repository of documents related to the credentialing process. Memorial staff members now communicate with vendors directly instead of relying on Palmer Consulting Group for reviews, helping keep illegitimate shell companies or straw vendors out the database. Also, the VETTED system can be expanded to cover full vendor management, incoming requests for proposals, and contract management.

Besides reducing exposure to fraud, the solution helps Memorial avoid putting patients at risk. For example, the VETTED system revealed that a vendor bidding on a contract for a children’s hospital had a convicted pedophile on staff.

Business benefits
● Delivers a USD2 million ROI over 10 years
● Reduces vendor invoice cycles by approximately 40 percent, from roughly one month to 18 days on average
● Contributes to a USD70 million reduction in costs throughout the healthcare system

For more information
To learn more about IBM Enterprise Content Management solutions, please contact your IBM marketing representative or IBM Business Partner, or visit the following website: ibm.com/software/data/content-management

Products and services used

IBM products and services that were used in this case study.

Software:
FileNet Content Manager, i2 Intelligence Analysis Platform

Legal Information

© Copyright IBM Corporation 2013 IBM Corporation Software Group Route 100 Somers, NY 10589 Produced in the United States of America May 2013 IBM, the IBM logo, ibm.com, FileNet, and i2 are trademarks of International Business Machines Corp., registered in many jurisdictions worldwide. Other product and service names might be trademarks of IBM or other companies. A current list of IBM trademarks is available on the web at “Copyright and trademark information” at ibm.com/legal/copytrade.shtml Analyst’s Notebook, COPLINK, COPSYNC, i2 and the i2 logo are trademarks or registered trademarks of i2 (or its affiliates), an IBM Company. This document is current as of the initial date of publication and may be changed by IBM at any time. Not all offerings are available in every country in which IBM operates. The client examples cited are presented for illustrative purposes only. Actual performance results may vary depending on specific configurations and operating conditions. It is the user’s responsibility to evaluate and verify the operation of any other products or programs with IBM products and programs. THE INFORMATION IN THIS DOCUMENT IS PROVIDED “AS IS” WITHOUT ANY WARRANTY, EXPRESS OR IMPLIED, INCLUDING WITHOUT ANY WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND ANY WARRANTY OR CONDITION OF NON-INFRINGEMENT. IBM products are warranted according to the terms and conditions of the agreements under which they are provided.

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