Bayesian multinomial latent variable modeling for fraud and abuse detection in health insurance

Andreas Bayerstadler, Linda van Dijk and Fabian Winter

Insurance: Mathematics and Economics, 2016, vol. 71, issue C, 244-252

Abstract: Healthcare fraud and abuse are a serious challenge to healthcare payers and to the entire society. This article presents a predictive model for fraud and abuse detection in health insurance based on a training dataset of manually reviewed claims. The goal of the analysis is to predict different fraud and abuse probabilities for new invoices. The prediction is based on a wide framework of fraud and abuse reports which examine the behavior of medical providers and insured members by measuring systematic deviation from usual patterns in medical claims data. We show that models which directly use the results of the reports as model covariates do not exploit the full potential in terms of predictive quality. Instead, we propose a multinomial Bayesian latent variable model which summarizes behavioral patterns in latent variables, and predicts different fraud and abuse probabilities. The estimation of model parameters is based on a Markov Chain Monte Carlo (MCMC) algorithm using Bayesian shrinkage techniques. The presented approach improves the identification of fraudulent and abusive claims compared to different benchmark approaches.

Keywords: Fraud and abuse detection; Health insurance; Predictive model; Bayes; Latent variable (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:insuma:v:71:y:2016:i:c:p:244-252

DOI: 10.1016/j.insmatheco.2016.09.013

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