Analytics Solutions

Advanced Analytics for Smarter Benefits, Claims,

and Entitlement Management

Toward a Smarter Government

January 2010
On behalf of the IBM Analytics Solution Center in Washington, D.C., we are pleased to present this white paper,
“Advanced Analytics for Smarter Benefits, Claims, and Entitlement Management.” Improving the performance of the
nation’s systems that handle benefits, claims, and similar citizen requests has been on the top of many agencies’
priority lists. Recent newspaper headlines have highlighted the need to improve these systems. Fortunately, today’s
enterprise information management systems with advanced analytical capabilities can be employed to provide faster
processing, while at the same time reducing fraud and improper processing.

This white paper introduces the field of analytics, and discusses how analytics can be utilized in claims and benefits
processing systems. It also provides an example of how such a system was developed for the U.S. Social Security
Administration.

We hope that this white paper will be useful to managers across the government as they continue to transform their
agencies to meet the needs of their constituents.

Christer Johnson Stephen Brady

Partner Sr. Technologist
North American BAO Advanced Analytics Leader Analytics Solution Center
IBM Global Business Services IBM Federal

About the Analytics Solution Center, Washington, DC

The ASC mission is to:

• Help clients understand how analytics can benefit the performance of their mission through thought leadership events.

• Demonstrate analytics solutions and technology options for solving your organization’s mission problems.

• Provide collaboration to seek and explore innovative, yet realistic, technical approaches.

• Support the development of proofs of concepts and pilot analytical solutions.

Customers, Partners and individuals are invited to join this community by visiting our web site at www.ibm.com/ascdc (IBM
DeveloperWorks registration required to join).

We provide access to a range of useful content regarding information technology that can be applied to the missions of
government departments, agencies, and organizations. Contact ASCdc@us.ibm.com to get more information or to ask us a
question via email.
Introduction
Claims processing is fundamentally a customer service
business, evaluated in terms of effectiveness in
delivering benefits to claimants. Particularly in the
government domain there is a tension between the view
of benefit programs as entitlements and the demand of
the electorate that public resources not be wasted. In
times of stress, such as natural or economic disasters,
both the number of claims to process, and the urgency
of those claims in terms of human need and suffering
are elevated.
The extreme cases of problems in claims handling are
of course the ones that rise to the level of news
coverage. Still when some figures come to light, such
as the average of 196 days required from the time a
claim for veterans benefits is submitted to the Veterans
Administration until the final disposition of that claim, or
the average of 145 days required by the US Immigration
and Naturalization Service to process an application for
citizenship, it is hard to argue that improvements are not
warranted. At the other end of the spectrum, when the
Center for Medicare and Medicaid Services determines
how to satisfy a claim within an average of 5 days, some
could wonder whether unjustified claims are being paid
without being subjected to proper scrutiny. At either
end of the scale, applying more intelligence to the
processing of claims or requests can ensure timely
handling without compromising on verification of the
validity of those claims. The Appendix to this paper
outlines a solution developed by IBM for the U.S. Social
Security Administration, using the principles described
in this paper which allowed the processing of certain
classes of disability benefits to be cut from an average
of 97 days back to only 20 days.
While processing speed and throughput are important
measures of the effectiveness of a claims handling
system, consistency in the way claims are handled and
avoidance of fraud and abuse are essential as well.
Confidence in the fairness of a government program is
undermined when similar claims may be honored in
one geographic region and denied or only partially
granted in others. This kind of inconsistency can result
when human beings are forced to interpret complex
guidelines and can not easily reference previous
experience or evolving trends.
Sources as diverse as USA Today and the US Senate
Panels on Healthcare report that as much as 10% of
the more than a trillion dollars spent each year on
healthcare in the United States may be wasted on
fraud and abuse. Clearly the problem is a significant
one. While organizations may devote a lot of effort to
chasing down and recovering payments in the case of
fraudulent or flawed claims, better still would be to
identify the questionable claims before payment is
made, as part of the claims processing workflow.
The solution to smarter claims handling derives from a
combination of improved process design, application of
information technology, and accommodation of the
people who will use the technology and conduct the
process. Simplifying and facilitating data entry and use
of content management systems make unstructured
data more accessible and usable. Introducing rule-
based management of the workflow associated with
claims processing ensures greater consistency and
transparency in the handling of claims, as well as
contributing to more expeditious processing. And the
factor that actually makes the process “smarter” is
analytics. Analytics contribute to understanding how
the system operates, allow you to develop rules for
governing and directing the flow of claims that reflect
both organizational objectives and a deep
understanding of actual and intended outcomes, and
support continual reassessment of both internal and
external factors and their impact on the effectiveness of
the claims handling process.
Analytics the creation of structured metadata and indices.

The term “analytics” appeared a couple of times in the Descriptive analytics help provide an understanding of
introduction, but what does this term refer to? In fact, the past. Predictive analytics use the understanding of
what we call analytics today is really an extension and the past to make “predictions” about the future. For
aggregation of efforts that have been pursued for a example, a particular type of claim that falls into a
number of years, as people have tried to apply category that has proven troublesome in the past might
computers to help improve the quality of decisions being be flagged for closer investigation. Descriptive
made by human beings. analytics may begin by providing a very static view of
We further subdivide analytics into three categories of the past, but as more and more instances are
increasing complexity and impact: descriptive, accumulated in the experience base of the system, and
predictive, and prescriptive. with algorithms that can execute in very short periods
of time, this evaluation, classification, and
Figure 1: Analytics Landscape categorization can be performed repeatedly endowing
the overall work process with a measure of adaptability.

How can we achieve the best

As descriptive analytics reach the stage where they
Stochastic Optimization
outcome including the effects of
Prescriptive
support anticipatory action, a threshold is passed into
Optimization How can we achieve the best

Predictive modeling What will happen next if ? the area of predictive analytics. Predictive analysis
Forecasting What if these trends applies advanced modeling techniques to examine
Mission Impact

Predictive
Simulation What could happen…. ? scenarios and help detect hidden patterns in large
Alerts What actions are needed?
quantities of data to project future events. It segments
Query/drill down What exactly is the
and groups individuals to predict behavior and defines
Ad hoc reporting How many, how often, Descriptive

Standard Reporting What happened?

trends. It utilizes techniques such as clustering, expert

Degree of Complexity rules, decision trees and neural networks. Predictive

Based on: Competing on Analytics, Davenport and Harris, 2007
analysis most commonly is used to calculate potential
behavior in ways that allow you to:

• Examine time series, evaluating past data and

Descriptive analytics are probably the most commonly
trends to predict future demands (level, trend,
used and understood. These techniques deal with what
seasonality)
has happened in the past and categorize, characterize,
• Determine ‘causality’, creating models from past
and classify existing data. This includes dashboards,
demand patterns while considering other relevant
budget report, and various types of queries. These
data, to help forecast future demands (such as
techniques are most commonly applied to structured
impact on demand for replacement parts at a
data, though there have been numerous efforts to
municipal bus maintenance facility caused by
extend their reach to unstructured data, often through
 known, predicted, or seasonal changes in
passenger demand,)
• Extract patterns from large data quantities via data
mining, to predict non-linear behavior not easily
identifiable through other approaches.
In operational terms, predictive analysis may be applied
as a guide to answer questions such as: “Who are my
customers and what is the best way to target them?”;
“Which patients are most likely to respond to a given
treatment?” or “Is this application likely to be
fraudulent?”
It is at this level that the term “advanced analytics” is
more aptly applied. Included are techniques for
predictive modeling and simulation as well as
forecasting. In simulation, you are creating a model of
the system and inferring from the model what the
behavior of the actual system will be. This requires
being able to build algorithms or mathematical
constructs that provide a sufficiently accurate
representation of the observable behavior of a system.
This in turn can be used to evaluate proposed changes
to a system before they are implemented, thus
minimizing cost and risk. Much of business process
modeling falls into this category. Forecasting can be
applied in lots of way, not the least of which is predicting
workload, often translated into resources required,
including human resources.
Once you understand the past and can begin to predict
what might happen in the future, you can begin to think
about what the best response or action will be. This is
the area of prescriptive analytics. There are many
problems that simply involve too many choices or
alternatives for a human decision maker to effectively
consider, weigh, and trade off - scheduling or work
planning problems for example. Twenty, fifteen, even
ten years ago these problems could only be solved
using computers running algorithms on a particular
data set for hours or even days. It was not useful to
embed such problem solving into a decision support
system since it could not provide timely results. Now,
however, with improvements in the speed and memory
size of computers, similar computations can be
performed in minutes. While this kind of information
might have been used in the past to shape policy and
offer guidance on action in a class of situations,
assessments can now be completed in real time to
support decisions to modify actions, assign resources
and so on.
An example of these sorts of decision support tools
comes from the U.S. Postal Service and involves the
assignment of mail to commercial air carriers. Years
ago, all the carriers were viewed as interchangeable.
However, once it was possible to scan mail and track
how the mail was delivered and which carriers were
involved, it was possible to differentiate service by
carrier and to modify the assignments so they went to
better-performing carriers. This produced a
measurable improvement in overall delivery speed
which probably resulted not only from better choices of
carriers, but also from the incentive created by adding
this factor into the assignment process.
Building Smarter Claims
Handling
To this point the discussion has been about the kinds of
analytic tools that can be brought to bear on the
problem of improving a claims handling process. In this
section we discuss what a process might look like that
would produce a system that is shaped and guided by
these analytic tools.
Figure 2 illustrates a typical claims process, consisting
of a number of separate applications and steps of
gathering and evaluating claims information and then
effecting the actions required to carry out any decisions
made as part of that evaluation.
Figure 2: Basic Benefits/Claims Management Process
Intake Eligibility Evidence Approvals Payments
The first step in trying to improve such a process is to
analyze the store of historical data produced as a
byproduct of the operation of the process. Here, all of
the data analysis and data mining tools can be brought
into play to build a detailed picture of the process,
including benchmarks on performance and identification
of parameters and correlations between parameters that
affect the eventual dispensation of any claim. This may
reveal any number of features that might be the targets
of subsequent efforts, such as process bottlenecks,
processing inconsistencies, and obstacles to reaching
appropriate outcomes. Often the desired behavior can
be codified in the form of policy which can then be
instantiated in a set of rules to govern claims
processing. The entire system will be linked together
under the control of a workflow management system
directed by a rules management system, even while
the separate underlying applications are preserved.
This addresses issues both of consistency in claims
handling and process transparency, and
accommodates regulations for auditing and oversight.
Alternatively, the characterization of the process can be
used to construct a model of the claim handling system
which can itself be the object of study as a way of
identifying potential for process improvement.
The process can then be further modified by applying
External
Input
intelligence to the information gathering stage.
Informed by historical data, customer facing
applications can be created that employ text analytics
Data and contextual information to ensure that claims are
repository
Verificat
of decisions represented consistently and correctly within the
ion
handling system, contributing even more to consistency
of processing outcomes. Claims handling policy may
allow for expedited handling of some claims and
require closer scrutiny for others.
Even within a more automated claims handling
process, a requirement for human evaluation and
assessment will not disappear. Still not all humans are
equal in their experience and areas of competency.
Ensuring that tasks are assigned to appropriate staff
members for handling is a classic workforce
management and scheduling problem, and hence
susceptible to mathematical optimization techniques.
This area in particular has shown significant progress
with the increase in available computing power and
advances in the necessary algorithms.
Continued collection of outcome data, particularly in
cases of fraud and abuse allows the cycle to be
completed and sets the stage for continual improvement
in the claims handling process. The ease with which
rule driven systems can be updated enhances the ability
of the system to react to changes in behavior of those
who use the system and to respond when external
statistical analysis on past claim data to regularly
balance their desire for speedy processing with their
appetite for risk and their overall financial exposure. In
other words, these companies use past data to
estimate the risk associated with each claim or
application and then use statistical models to determine
how to handle each claim or application. In some
cases, they may automatically approve a claim and in
others, the will delay for extensive verification.
A smarter benefits processing system is illustrated in

circumstances produce a surge in the number or a shift Figure 3.

in the type of claims that are being received.

In many cases, the key to better leveraging advanced Figure 3. Smarter Benefits/Claims Processing System

analytics for claims processing is to change the overall

philosophy from one that is based on a manual review
of each claim independently from others to one that
uses rigorous statistical analysis of past claims and
decisions to help guide the decision process on future
claims and begin accelerated payments for selected
(“low risk”) types of claims. Such a change in
philosophy should start with rigorous analysis of the
claim and decision data from previous years. The
purpose of this analysis would be to understand and
identify the most common decision or reimbursement
percentage associated with each claim type. Inherent in
the value of analyzing past data on claims and payment
decisions is the assumption that the organization would
be able to use such statistical analysis to justify
automated pre-payments for certain categories of
claims. This is not different in principle than what most
insurance companies and financial institutions do with
their “scoring models” for claims or credit card/loan
applications today. These companies conduct rigorous
Conclusion
Benefits processing always involves a tension between
the desire to provide prompt relief from a claimant’s loss
or expenses and the need to manage financial
resources responsibly and to avoid paying fraudulent
claims. When the balance moves too far in the latter
direction, claims processing times can become
unconscionably long. In this paper we have discussed
how the application of advanced analytics techniques
can be used to transform a benefits processing system
so that it exploits historical information to help develop
claims handling policy which can then be embodied in a
rules-driven workflow. When this is combined with tools
that improve the quality of claims information gathered
from customers, visualization capabilities to provide
transparency into the operation of the system, and
optimization techniques for fine-tuning the assignment
of work to human evaluators, the result is smarter
claims handling. Technology is an enabler, but in the
end the impact of any of these changes to the claims
handling process is limited by the ability of organizations
to modify the overall business process, the way people
work and the way they think about the work they are
doing. In the benefits and claims handling area, the
effects of the process on the end-customers, i.e., the
citizens in a benefits processing system should never be
ignored.
 Appendix

Case Study: Predictive Modeling for Disability Claims

Client: Social Security Administration (SSA)

Industry: Government, Social Services

Challenge: A recent challenge faced by SSA focused on the both the time required for
reviewing and approving disability benefits for disabled citizens and the
consistency of these determinations across the country. The backlog generated
had come to attention of Federal oversight organizations such as the General
Accountability Office, which only added to the urgency on the part of the SSA.

Solution: Extending prior work at SSA with structured data mining tools such as logistic
regression, IBM expanded its suite of predictive models to include advanced text
analytics to infer meaning from unstructured data in disability applications so that
SSA could automatically score applications to identify potential quick decisions.

Benefits: The predictive model for reviewing new disability applications has reduced the
average cycle time for approving an application from 90 days to 20 days for
selected cases and continues to drive the agency toward higher levels of
consistency across the system. The Quick Disability Determination (QDD)
process has been featured in Congressional testimony and numerous press
releases from the SSA as one of its most successful programs.
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