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Challenge 3: Protecting an Expanding Medicaid Program From Fraud, Waste, and Abuse

Why This Is a Challenge

Protecting the integrity of Medicaid takes on heightened urgency as the program continues to grow in spending and in the number of people it serves. As of October 2014, 27 states and the District of Columbia (28 states) are expanding Medicaid coverage to include qualifying adults earning up to 133 percent of the federal poverty level, pursuant to Affordable Care Act and Medicaid waivers. Further, states that have not expanded eligibility have seen increases in Medicaid enrollment. In addition to facing the challenges in implementing expanded eligibility in the 28 states, Medicaid programs face long-standing program integrity challenges. These include improving the effectiveness of Medicaid data; preventing and addressing fraud, waste, and abuse, including avoiding or recovering Medicaid improper payments; ensuring access to care in Medicaid managed care programs; and curbing state Medicaid policies that inflate federal costs. (See Management Challenge 5 for more information on Medicaid issues related to nursing homes and benefits provided in home- and community-based settings.)

Expansion of Medicaid Eligibility. As of August 2014, CMS reported that enrollment in Medicaid and the Children's Health Insurance Program (CHIP) had increased by 8.7 million people since individuals became eligible to apply under the Affordable Care Act's expanded eligibility criteria in October 2013. For individuals in expansion states who are "newly eligible" under the Affordable Care Act's expanded income limits, the Federal Government will pay the full costs of medical assistance through 2016, after which the federal share gradually falls to 90 percent by 2020 and continues at 90 percent thereafter. For Medicaid beneficiaries who are not "newly eligible," the Federal Government will continue to share costs with states according to its standard Federal Medical Assistance Percentage (FMAP), which currently ranges by state from 50 to 74 percent. Updating eligibility systems and ensuring appropriate eligibility determinations and FMAP designations for each beneficiary present implementation challenges.

Improving the Effectiveness of Medicaid Data. As Medicaid expands, implementing a functional, national Medicaid database is essential to effective oversight of Medicaid payments and services. OIG continues to find that the existing national Medicaid data are not complete, accurate, or timely and that additional data are needed to conduct national Medicaid program integrity activities. CMS has attempted to improve the access and quality of Medicaid data, most recently through the Transformed Medicaid Statistical Information System (T-MSIS) initiative. OIG found that as of January 2013, CMS and 12 volunteer states had made some progress in implementing T-MSIS; however, early T-MSIS implementation outcomes raised questions about the completeness and accuracy of T-MSIS data upon national implementation.

Identifying and Recovering Improper Payments. In 2013, CMS reported that Medicaid's improper payment rate was 5.8 percent. The projected federal share of the $24.9 billion improper payments was $14.4 billion; almost 97 percent of these improper payments were overpayments. Payments made on behalf of individuals who should not have been enrolled in the program were the main source of error. CMS is developing a Unified Program Integrity Contractor model in which program integrity work at the federal level will be consolidated so that each contractor will conduct Medicare, Medicaid, and Medicare-Medicaid Data Match (Medi-Medi Program) work within designated geographic areas; CMS expects to implement this strategy starting in FY 2015. OIG has found that CMS's national Medicaid integrity programs—Medicaid Audit Program and Medi-Medi Program—have had limited success identifying Medicaid overpayments and potential fraud. (See Management Challenge 8 for more information on error rate measurement and reporting.)

Program Integrity and Beneficiary Access in Managed Care Programs. CMS reports that, 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 from fraud, waste, and abuse by health care providers or beneficiaries. Such fraud, waste, and abuse drives 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. In a 2011 report, OIG work revealed that the predominant concerns of both states and plans were provider fraud—billing for services that were not provided, were medically unnecessary, or were upcoded—and beneficiary fraud, including prescription drug abuse.

Ensuring that beneficiaries enrolled in managed care plans have sufficient access to providers and services is paramount. OIG has found that standards for access to care vary widely across states. For example, standards range from requiring 1 primary care provider for every 100 enrollees to 1 primary care provider for every 2,500 enrollees. States do not commonly use "direct tests," such as making calls to providers, to identify whether plans are meeting access-to-care-standards. Further, CMS provides limited oversight of state access standards.

State Policies That Inflate Federal Costs. OIG has raised long-standing concerns, as noted in our Compendium of Priority Recommendations, about states' Medicaid policies that result in the Federal Government's paying a greater share of Medicaid costs than the FMAP percentages would dictate. Medicaid permits states to provide enhanced payments that qualify for federal reimbursement to non-state-owned government providers, such as county or local publicly owned nursing facilities and hospitals. But some states have required such facilities to transfer the funds to the states to be put to other uses, leaving the facilities underfunded. Misalignment of costs and payments at certain state-operated facilities can also inflate federal costs; for example, in New York, Medicaid payments to state-run developmental centers exceeded actual costs by more than $1 billion during New York's State FY 2009. In another example, Pennsylvania used a state tax on Medicaid managed care plans to draw down almost $1 billion in federal funds over a three-year period.

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 determination and payment accuracy, and training state staff on reporting and accounting for expenditures associated with newly eligible individuals.

CMS has taken action to improve its data and technology capabilities with respect to Medicaid program integrity. Beginning in July 2014, all states were expected to demonstrate operational readiness to submit T-MSIS files to CMS. As of October 2014, CMS stated that over 38 states are engaged in testing with CMS regarding the transfer of their T-MSIS files. CMS stated that it will continue to monitor, evaluate, and improve the quality and consistency of T-MSIS data submissions.

CMS has also reported actions to improve the Medicaid Audit Program and the Medi-Medi Program consistent with OIG recommendations, such as assigning more Medicaid audits through a collaborative process, which showed greater success than the traditional process. 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.

In a June 2014 status update to OIG, CMS indicated that it is working with states to protect against fraud, waste, and abuse in managed care. Specifically, CMS is working to update guidelines to states on program integrity in Medicaid managed care. In addition, CMS indicated that it will advise states to work with their managed care entities to identify and implement effective strategies for verifying billed services in managed care settings. CMS also agreed with OIG's recommendations to strengthen oversight of managed care access standards, and it described plans to provide guidance and technical assistance to states.

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. CMS has approved a State Plan Amendment, issued a disallowance letter to New York for $1.25 billion for 2010-2011, and plans to review two subsequent fiscal years. Finally, CMS has 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. In addition, CMS recently issued a State Health Officials letter on the treatment of health-care-related taxes and their effect on federal matching funding, following OIG's audit work in Pennsylvania.

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 work with states to ensure the submission of complete, accurate, and timely T-MSIS data. If states fail to submit timely T-MSIS data, CMS should use its statutory enforcement mechanisms or seek legislative authority to employ alternative tools to compel state participation.

CMS should continue to build on its progress addressing Medicaid Integrity Contractors (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 identifying and auditing providers.

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. CMS should also implement its plans to work with states to ensure adequate access to care for Medicaid beneficiaries enrolled in managed care plans.

OIG has long recommended that Medicaid payments to public providers be based on 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.

Key OIG Resources

Challenge 4: Fighting Waste and Fraud and Promoting Value in Medicare Parts A and B

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