What Is Know Your Patient (KYP) and How Does It Work?

Last month, I sat with a CTO of a growing telehealth platform who shared a troubling story: His company had just lost $400,000 to a sophisticated fraud scheme involving stolen patient identities. "We had all the standard checks in place," he said, shaking his head. "But somehow, they still got through."

This conversation stuck with me because it highlights a reality we see daily at Momentum: Even the smartest HealthTech companies can struggle with patient verification. And while tech headlines buzz about AI and machine learning, the foundation of healthcare security often comes down to something more basic - really knowing who your patients are.

That's where KYP (Know Your Patient) comes in. It's not just another healthcare acronym or compliance checkbox. For the teams we work with, it's the difference between confidently scaling their platforms and lying awake at night worrying about the next potential fraud attempt. The numbers are sobering: Healthcare fraud drains over $150 billion annually from the American healthcare system, with individual companies often bearing devastating losses.

But here's what's interesting - the most effective KYP implementations we've seen aren't necessarily the most complex ones. They're the ones that thoughtfully balance security with the practical realities of running a healthcare business. Read on to learn how this works.

The Scale of Healthcare Fraud in America

The American healthcare system's complexity, combined with high costs and inconsistent accessibility, has created fertile ground for fraud. According to the National Health Care Anti-Fraud Association (NHCAA), even conservative estimates put losses at 3% of total healthcare spending - around $45 billion annually. More aggressive estimates from law enforcement agencies suggest the figure could be as high as 10% of annual healthcare expenditure.

Common Types of Provider Fraud

In our work with healthcare organizations, we regularly encounter several sophisticated fraud schemes:

1. Phantom Billing
  - Billing for services never provided
  - Using stolen patient information to create fake claims
  - Adding charges to legitimate claims for non-performed procedures

2. Upcoding Schemes
  - Billing for more expensive services than performed
  - Inflating diagnosis codes to match costlier procedures
  - Manipulating service descriptions to maximize reimbursement

3. Unnecessary Services
  - Performing medically unnecessary procedures for insurance payments
  - Common in diagnostic testing programs
  - Particularly prevalent in nerve conduction and genetic testing

4. Insurance Misrepresentation
  - Presenting non-covered treatments as medically necessary
  - Common in cosmetic surgery (e.g., billing rhinoplasty as septum repair)
  - Manipulating procedure codes to ensure coverage

5. Documentation Fraud
  - Falsifying medical records to justify unnecessary procedures
  - Creating fake diagnoses to support billing
  - Altering dates or service descriptions

6. Financial Schemes
  - Unbundling services to charge separately
  - Overcharging copayments
  - Accepting kickbacks for patient referrals
  - Manipulating Medicare copayment requirements

Individual and Organized Crime

The fraud landscape isn't limited to provider misconduct. According to the Medical Identity Theft Alliance (MIFA), over 2 million Americans have fallen victim to medical identity theft. The consequences are far-reaching:

- Victims receive improper medical care
- Life insurance eligibility is compromised
- False diagnoses appear in medical records
- Employment medical screenings are affected by incorrect health records

Even more concerning is the rise of organized crime in healthcare fraud. The FBI's 2018 investigation uncovered 812 operations run by 207 criminal organizations, with law enforcement noting a migration from drug trafficking to healthcare fraud due to its lucrative nature.

The Four Pillars of KYP Implementation

To combat these threats, KYP systems rely on four essential components:

1. Know Your Customer (KYC) Verification

- Identity document authentication
- Authorization validation
- Remote verification capabilities (increasingly critical since 2020)

2. Eligibility Checks

- Insurance coverage verification
- Service coverage validation
- Benefit eligibility confirmation
- Real-time status monitoring

3. Pre-Authorization

- Medical necessity validation
- Coverage determination
- Treatment plan verification
- Emergency exception handling

4. Service Delivery and Claims Processing

- Accurate service documentation
- Claims submission and tracking
- Payment verification
- Audit trail maintenance

Digital Infrastructure Requirements

Modern KYP systems rely on several key technological components:

Electronic Health Records (EHR)

- Comprehensive medical histories
- Test results and diagnoses
- Treatment information
- Vaccination records
- Care coordination data

Electronic Medical Records (EMR)

- Disease histories
- Diagnostic information
- Procedure records
- Clinical results
- Patient progress tracking

Patient Matching Systems

Advanced systems that:
- Compare patient data across sources
- Ensure accurate identification
- Prevent data duplication
- Improve information accuracy

Technical Standards and Frameworks

Health Level 7 (HL7)

HL7 provides the foundation for healthcare data exchange through:
- International standardization
- System interoperability protocols
- Data integration guidelines
- Information sharing standards

HL7 Da Vinci Project

This initiative focuses on:
- Accelerating FHIR adoption
- Streamlining payer-provider data exchange
- Improving administrative processes
- Enhancing clinical workflows

Technical Testing Tools

Touchstone provides:
- FHIR compliance testing
- Interoperability verification
- Integration validation
- Standard conformance checking

Additional Standards

- X12 for document exchange
- SMART on FHIR implementation
- PDEX frameworks
- CDS Hooks integration
- USCDI compliance requirements

The 2027 API Mandate

The Centers for Medicare & Medicaid Services (CMS) has mandated five crucial APIs by January 2027:

1. Patient Access API

Healthcare providers must provide APIs allowing patients to:
- Access complete medical documentation
- View test results
- See insurance decisions
- Check authorization status
- Connect through mobile applications

2. Provider Directory API

Insurers must expose APIs enabling:
- Patient insurance verification
- Spending tracking
- Coverage validation
- Service eligibility checks

3. Payer-to-Payer API

Facilitating:
- Inter-insurer data exchange
- Standardized information sharing
- Coordinated coverage details

4. Prior Authorization API

Supporting:
- Streamlined authorization processes
- Medical necessity validation
- Coverage confirmation

5. Provider Directory Services

Offering:
- Network provider information
- Service availability data
- Appointment scheduling
- Pricing transparency

All APIs must comply with:
- HL7 FHIR Release 4.0.1
- Da Vinci PDex IG STU 2.0.0
- SMART App Launch IG 2.0.0
- USCDI standards

Market Opportunities and Implementation Timeline

The healthcare API market is projected to reach $336 million by 2027. Early adopters like CommonSpirit Health, HCA Healthcare, and Trinity Health are already implementing these standards, but the majority of implementation activity is expected in 2025-2026.

Market Size and Potential

- 32,000 clinics in the US
- 6,000 hospitals
- Growing demand for integration services
- Increasing focus on compliance

Implementation Phases

Current Phase (2024-2025)
- Early adoption by industry leaders
- Framework establishment
- Initial implementation testing

Mass Implementation (2025-2026)
- Widespread adoption
- Integration development
- Compliance verification

Best Practices for Implementation

Based on our experience helping healthcare organizations implement KYP systems, we recommend:

1. Strong Identity Verification

- Multi-factor authentication
- Document validation
- Biometric verification options
- Remote verification capabilities

2. Automated Eligibility Processing

- Real-time insurance verification
- Coverage validation
- Benefit confirmation
- Status monitoring

3. Streamlined Workflows

- Intuitive user interfaces
- Efficient data entry
- Automated validation
- Clear process flows

4. Comprehensive Documentation

- Detailed audit trails
- Compliance records
- Process documentation
- Regular updates

5. Regular System Maintenance

- Security patches
- Compliance updates
- Feature enhancements
- Performance optimization

Looking Forward: The Future of KYP

As healthcare technology continues to evolve, KYP systems must adapt while maintaining their core security functions. The focus should be on creating systems that:

- Support both in-person and virtual care delivery
- Integrate seamlessly with existing workflows
- Maintain compliance with evolving regulations
- Provide clear audit trails
- Scale efficiently with organizational growth

The implementation of these new API requirements represents both a challenge and an opportunity for healthcare organizations. While the 2027 deadline may seem distant, the complexity of these systems means that organizations should begin planning their implementations now.

At Momentum, we help healthcare organizations navigate these changes while building robust, secure, and efficient KYP systems. Whether you're just starting your KYP journey or looking to enhance your existing systems, we'd love to discuss how we can help you protect your organization while improving patient care.

Want to learn more about building or improving your KYP system? Let's talk about your specific needs and how we can help you prepare for the upcoming regulatory changes.