This audit is one of a series of reviews the Office of Inspector General is conducting under our "Strategic Plan for the Oversight of Managed Care". The findings from this review may result in a special managed care fraud alert. The final report points out that Medica, a health maintenance organization, received improper payments under its Medicare risk-based contract on behalf of beneficiaries who were improperly classified as institutionalized. We estimate the improper payments totaled at least $861,615 over a 5 year period. In addition to a financial adjustment, we recommended that Medica establish more prescriptive policies and procedures for monitoring and reporting their beneficiaries' institutional status. Medica officials generally agreed with our findings and recommendations.