Management Challenge 4:
Protecting the Integrity of an Expanding Medicaid Program
Why This Is a Challenge
In 2014, States have the option to expand Medicaid eligibility to qualifying adults earning up to 133 percent of the Federal poverty level. In addition to the challenges in implementing this expansion, increases in the Medicaid population and spending also heighten the urgency of addressing the program integrity challenges that Medicaid already faces. These include reducing waste associated with excessive payment rates, avoiding or recovering Medicaid improper payments and payments for which a third party is liable, and preventing fraud, waste, and abuse in Medicaid managed care programs. (Other key challenges for Medicaid are addressed elsewhere - prescription drug abuse in Management Challenge 3; vulnerabilities in nursing homes and home- and community-based settings in Challenge 7; and limitations in the national Medicaid database in Challenge 8.)
Expansion of Medicaid Eligibility. For individuals who are "newly eligible" under the Affordable Care Act (ACA) expanded income limits, the Federal Government will pay the full costs of their care through 2016; after which the Federal share gradually falls to 90 percent by 2020 and continues at 90 percent thereafter. For other Medicaid beneficiaries, the Federal Government will continue to share costs with States according to its standard Federal Medical Assistance Percentage (FMAP), which ranges by State from 50 to 74 percent. These eligibility expansions are expected to increase the number of Medicaid beneficiaries and Federal spending on Medicaid significantly. Many individuals eligible for Medicaid will use the ACA created Marketplaces to enroll in Medicaid and thus the Marketplaces must effectively facilitate that enrollment (see Challenge 1, Overseeing the Health Insurance Marketplaces.)
Challenges involve the implementation of this expansion and the financial and internal controls needed to ensure that the Federal Government pays the appropriate share of costs for each beneficiary depending on the criteria under which he or she qualified for coverage. It may be challenging to apply Medicaid eligibility requirements accurately, and to the extent that States miscategorize beneficiaries, the financial implications for the Federal and State financial shares could be significant.
Problems Identifying and Recovering Improper Payments. OIG found that CMS Federal Medicaid Integrity Contractors (MIC) had limited success identifying Medicaid overpayments. Review MICs initially identified over 113,000 providers with potential overpayments of $282 million, but after performing audits, the Audit MICs found actual overpayments to only 25 of these providers, totaling less than $300,000. Likewise, 80 percent of the audits that OIG reviewed either did not find an overpayment or were unlikely to find overpayments. OIG found similarly limited results for Medicaid from the Medicare-Medicaid Data Match program (Medi-Medi Program). Of the total $46.2 million in expenditures recouped through the program during 2007 and 2008, more than three-quarters - $34.9 million - was recouped for Medicare.
OIG has also found that longstanding challenges persist in recovering payments from third parties. Millions of Medicaid beneficiaries have additional health insurance through third-party sources. If beneficiaries have another insurance source, it should pay before Medicaid does, up to the extent of its liability. However, since 2001, States have consistently reported challenges in getting third parties to provide complete coverage information and to process or pay claims. As a result, as of 2011, $4 billion in claims remained at risk of not being recovered.
Program Integrity in Managed Care Programs. As of 2011, almost three-quarters of all Medicaid beneficiaries were enrolled in some type of managed care system. The private plans and Medicaid share financial risk; fraud, waste, and abuse by health care providers or beneficiaries drive up costs for both the plans and Medicaid. Fraud or abuse by the managed care plan (e.g., manipulating its bids) can further increase Medicaid costs.
CMS's guidelines identify six areas of fraud, waste, and abuse in Medicaid managed care: (1) managed care contract procurement, (2) marketing and enrollment, (3) underutilization of services, (4) claims submission and billing procedures, (5) fee-for-service payments within managed care, and (6) embezzlement and theft. OIG found that the predominant concerns of both States and plans were provider fraud - billing for services that were not provided, medically unnecessary, or upcoded - and beneficiary fraud including prescription drug abuse.
Excessive Payments to Public Providers. OIG has raised long-standing concerns about States' Medicaid payment rates to public providers. For example, we found that in 2009, New York Medicaid paid $2.27 billion ($1.13 billion Federal share) to 15 State-run developmental centers. New York's payments to these centers were not based on actual costs. If New York had used actual costs in its rate-setting, Medicaid reimbursements to the developmental centers could have been up to $1.41 billion lower that year, saving the Federal Government up to $701 million.
In some cases, the excess Medicaid payments are returned to the State and not retained by the facilities to provide care to Medicaid beneficiaries. In essence, this can serve as a mechanism for States to use Federal Medicaid funds to subsidize non-Medicaid costs.
Progress in Addressing the Challenge
CMS has reported that it is working to promote program integrity with respect to the Medicaid expansion by providing tools and technical assistance to the States, developing new procedures and practices for ensuring eligibility verification and payment accuracy, and training State staff on reporting and accounting for expenditures associated with newly eligible individuals.
CMS has also reported actions to improve the MIC and Medi-Medi programs consistent with OIG recommendations, such as assigning more Medicaid audits through the collaborative process, which showed greater success than the traditional process. This progress includes assigning 516 collaborative audits in 32 States as of August 2013. CMS is also reconfiguring its approach to Medicaid program integrity contractors, including letting the Review MIC contracts expire. In the future, CMS expects to develop a Unified Program Integrity Contractor model in which program integrity contractors will cover Medicare and Medicaid.
In addition, CMS stated that it will continue working with States and third parties to address problems identified by States with identification and collection from liable third parties. CMS also stated that it will review existing authorities to identify options for increased enforcement to deal with uncooperative third parties.
In 2011, OIG reported that States and managed care plans were taking important steps to protect against fraud, waste, and abuse. These included providing program integrity training to managed care plans' staffs and to providers in their networks. States conduct desk reviews of managed care plans' compliance plans, and many States also conducted onsite reviews. States also reported requiring managed care plans to disclose ownership and control information. CMS is working to update guidelines to States on program integrity in Medicaid managed care settings.
Finally, CMS is continuing to work with New York to revise its methodology for Medicaid payments to State-run developmental centers to better align them with costs. In addition, CMS issued guidance on Medicaid upper payment limits and is requiring all States to demonstrate annually the upper payment liability to the Federal Government for services that are subject to these limits.
What Needs To Be Done
CMS should continue its efforts to develop robust oversight for the Medicaid expansion. CMS must be vigilant in addressing program integrity risks associated with the expansion, including monitoring States' compliance with eligibility requirements and FMAP expenditures.
CMS should continue to build on its progress addressing MIC and Medi-Medi performance in identifying Medicaid overpayments. In particular, CMS should expand its use of collaborative audits to ensure that all States and the District of Columbia are actively engaged with the MICs in the identification and auditing of providers.
CMS should work with States to explore options to strengthen enforcement of third party liability. CMS could facilitate a conversation with States about additional enforcement authorities at the State and Federal levels.
Given that concerns about identifying fraud and abuse remained among States and plans, particularly with respect to provider and beneficiary fraud, CMS should update guidance to States to reflect these concerns. CMS should work with States to ensure that contracts with managed care organizations contain adequate provisions for the identification and referral of potential fraud cases.
OIG recommends that Medicaid payments to public providers be limited to the costs of providing services. In 2008, CMS issued a final rule that, among other things, would limit Medicaid payments to public providers to their costs of providing care, but the rule was ultimately vacated by Federal District Court. CMS should issue new regulations to prevent excessive payments to public providers.
Key OIG Resources
- Office of Inspector General testimony on Medicaid overpayments to public providers. September 20, 2012
- Office of Inspector General testimony on Medicaid contractors. June 14 2012
- Medicaid Third-Party Liability Savings Increased, But Challenges Remain. January 2013
- Medicaid Managed Care: Fraud and Abuse Concerns Remain Despite Safeguards. December 2011
Management Challenge 5: Fighting Fraud and Waste in Medicare Parts A & B
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