Don Edwards

Department of Statistics

University of South Carolina


Exact, Flexible Sequential Acceptance Sampling for Attributes, With Applications to Medicare Fraud Investigations

We consider the problem of sampling without replacement from a finite lot of N items, where each item may be identified simply as tainted (in error, defective, etc) or not. Our goal is to make inference on the total number of items in error NE over the entire lot. Modern computing power renders sequential and two-stage approaches to this problem completely tractable without resorting to binomial approximations, which will be unreliable in the important cases when NE is near 0 or N. We discuss the theory and computational issues for general elimination boundaries. We show that the solution to the fully sequential problem reduces to predictable finite-sample or multistage approaches using strategic choices for elimination boundaries. We discuss issues in choosing these boundaries to minimize costs in an important auditing application: random sampling of paid Medicare claims for investigation of suspicious billing practices by supposed health care providers. Billions of dollars are lost each year to Medicare fraud.

This is ongoing joint work with:

Iliana Ignatova
Dept. of Statistics
Cal Poly San Luis Obispo

Roland Deutsch
Dept. of Mathematics
University of North Carolina Greensboro


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