Stopping Medicaid Fraud — How Do We Know What Works?

Stopping fraud and abuse in Medicare and Medicaid is an objective everyone agrees on.Yet, it’s difficult to know either the extent of fraud or the effectiveness  of particular enforcement efforts.

HHS recently released two reports that describe the efforts and activity of the Medicaid Integrity Program (MIP) from different perspectives.  In 2007, MIP began to review the programs in each state on a three- year cycle.  It recently released its third  annual summary of states’ best practices.   The same areas of weakness and failures of compliance arise each year, with provider enrollment the most common.

Several of the best practices described are now required under the Patient Protection and Affordable Care Act (PPACA) (P.L. 111-148), including checks of available data bases that list individuals and entities convicted of crimes, subjected to disciplinary action or excluded from participation in Medicare or Medicaid.  However, when states fail to require prospective providers to identify individuals with ownership or control, they can’t search effectively. If they do request the information and receive it, states may not verify its accuracy or check the data bases for the names of all the  individuals listed.

Still, the MIP notes a gradual shift among states toward the adoption and implementation of best practices, and new legal requirements to adopt them will probably speed up that process. The MIP summary also describes extensive training provided to state agency staff, especially on using the diagnostic and procedure codes to identify improper or incorrect claims.

The HHS report to Congress on the Medicaid Integrity Program shows that assistance to states consumes only about 1.7 percent of the MIP budget. The lion’s share of the money, more than 60 percent, actually goes to pay contractors.  One group of contractors will use algorithms to mine massive data bases for unusual billing patterns to identify providers to be audited. A second group will audit the providers to find and recover overpayments.  Still another group of contractors will perform outreach and educate providers about the requirements of the law.  The report to Congress announces that all of the contracts have been awarded and a test audit has been run in four states. The test audit identified more than $8 million in potential overpayments. By the end of fiscal year 2010, audit contractors had brought the total potential overpayments up to about $10.7 million.

Meanwhile, state Medicaid Fraud Control Units (MFCUs) have been busy detecting fraud and abuse, seeking recovery and bringing criminal prosecutions.  For example, cooperation among several MFCUs and the federal government  recently resulted in a $154 million settlement with two pharmaceutical companies alleged to have submitted fraudulent price reports that inflated Medicaid payments for drugs.  State agencies and MFCUs bring civil actions, and criminal prosecutions by MFCUs can result in punishment as well as payment of damages or fines.

You might wonder why the agency gave this work to contractors? The answer: because Congress said so.  The Deficit Reduction Act of 2005 (DRA) (P.L. 109-171), which created the Medicaid Integrity Program, required the agency to hire contractors for this work.  The DRA also provided funding for 100 new full-time employees to work on the MIP  assisting states. By the end of fiscal 2010, the agency had filled 83 positions.

A recent Government Accountability Office (GAO) report illustrates the potential unintended consequences of appropriating first and deciding on the work later.  GAO recently reviewed CMS’ use of the additional appropriations it received for the Medicare Integrity Program under PPACA.  CMS upper management cited the reduction of improper payments,  the return on investment (ROI), as a measure of success of the integrity program.  But the officials with direct responsibility for the integrity program did not connect their work with the agency’s goal of reducing  improper payments. These officials considered their assessments of contractors and surveys of provider associations and customers as well as funds recovered, savings from claims processing and ROI.  GAO highly recommended that upper management communicate clearly with the program integrity staff  so that their work could be aligned with the agency’s goals. GAO also noted that CMS’  measure of ROI was inaccurate, in part because it was based on preliminary reports of expenditures and was not updated when those expenditures were finalized. In other words,  even when different components of the agency used the same measure, the measure  itself  didn’t mean what they thought it did.

GAO also noted that CMS found that cutting the number of contractors from 51 to 15 created efficiencies that freed up funds for additional program integrity activity.