July | August 2017


Promising Solutions for Medicaid Fraud

By Chris Whatley, CSG Washington, D.C. Office Director
Texas Sen. Jane Nelson has one word to describe what she saw as abuse of her state’s Medicaid system—infuriating.
An investigation in 2012 revealed that between 2008 and 2010, Texas spent $424 million on medically unnecessary orthodontic braces for Medicaid recipients, more than was spent on braces by all the other states combined. In total, the Texas inspector general identified more than $6 billion in fraud and waste in the program from 2004 to 2011.
“We can't afford to be losing a single dollar—let alone this amount,” said Nelson, who chairs the Texas Senate Health and Human Services Committee. “Under the current system, all too often we uncover systemic abuse weeks or months after services have been delivered and money has left the treasury.”
So she and Lt. Gov. David Dewhurst have introduced Senate Bill 8 to further enhance the state’s fraud control system.
“Senate Bill 8 will focus more attention on claims data much earlier in the process and before the damage adds up into the hundreds of millions, as we are unfortunately seeing today,” she said.
“Senate Bill 8 will help to punish the criminals who are stealing from our most vulnerable citizens, making the system better for us all.”

A National Problem

Nationwide, the improper payment rate for Medicaid—an important indicator of potential fraud—is 7.1 percent. That number has fallen from 10 percent in 2008, but Medicaid fraud still cost the federal government more than $19 billion in 2012, according to the Centers for Medicare and Medicaid Services. That doesn’t include the billions states paid out to cover up to 50 percent of the costs for every Medicaid payment, depending on match rate. The CMS refuses to make its list of state-by-state payment error statistics publicly available, which limits the public’s understanding of the state-specific nature of the problem and hampers state legislative oversight.
The problem could continue to grow if left unchecked.
Medicaid has surpassed education as the single largest component of state spending, according to the National Association of State Budget Officers. Ballooning Medicaid costs threaten the ability of states to meet critical needs in education, infrastructure and other important areas. To put the problem of Medicaid fraud in perspective, more money is lost annually through payment error than is spent by the federal government each year on the Temporary Assistance to Needy Families, the nation’s primary welfare program.
The scope of the problem depends on the state. Some states have achieved error rates of 2 percent, while others have exceeded 30 percent, according to the CMS.
Some states have successfully combined aggressive law enforcement efforts driven by Medicaid Fraud Control Units housed within attorneys general offices with complex data systems and screening procedures to identify suspicious payments and prevent fraud before it occurs. Others rely largely on so-called “pay and chase” methods to catch fraud after the fact.
The Texas legislature created the Office of the Inspector General within a reorganized and strengthened Health and Human Services Commission in 2003 as a way to address fraud. The system created a new authority with strong investigative powers, direct accountability to the governor and clear legislative oversight. Since 2003, the inspector general claims to have saved the state more than $4.6 billion both through fraud prevention and through recovery of improper payments.
That reform effort born in Austin soon found its way to Albany, N.Y.
Sen. Kemp Hannon, chair of the New York Senate Health Committee, said his state was losing billions through Medicaid fraud and invited the Texas inspector general to testify.
Hannon and Senate Majority Leader Dean Skelos subsequently led a successful effort in 2006 to pass the most sweeping Medicaid fraud legislation enacted by any state to that date. The legislation created an independent Medicaid inspector general and made new investments in a host of data systems and procedures designed to expand the scrutiny of claims before they are paid.
“The results were staggering,” Hannon said.
The inspector general recovered more than $1 billion in the first few years, Hannon said. The target for savings in the 2014 fiscal year, he said, is $1.1 billion, including $809 million in cost avoidance.
“The key to our success was making the IG independent and directly accountable to the governor,” said Hannon.
New York is one of the few states that provide a hard estimate of the dollar amounts saved from preventing fraud on the front end. This type of data is essential for allocating resources to the most effective strategies to weed out improper payments, such as systems to check providers against national lists of providers banned from Medicare and to check to see if patients are eligible for care from other insurance providers.
According to Hannon, who was appointed to Gov. Andrew Cuomo’s Medicaid Redesign Team in 2011, the state is now focusing on ensuring vigorous fraud oversight in managed care as part of a larger Medicaid reform effort designed to save $17 billion over the next five years.

Evidence For Reform

While the federal government is helping states address Medicaid fraud through increased funding and staff training, the New York and Texas experiences demonstrate that there is no substitute for legislative leadership for forging state-specific solutions. Until recently, individual state reform efforts were largely disconnected and lacked a comprehensive resource to highlight evidence-based reform ideas.
In January, The Pew Center on the States launched an aggressive effort to meet this important need.
Drawing on reports from the CMS, Pew has built a database, available here, that makes it simple to learn about anti-fraud and abuse strategies used in a specific state or at different stages in Medicaid’s interactions with providers and patients. The Pew database centralizes hundreds of anti-fraud and abuse practices, including policy approaches from 49 states and the District of Columbia.
“States have identified hundreds of promising anti-fraud and abuse practices,” said Kavita Choudhry, research manager for the State Health Care Spending Project. “Our aim is to make it simple for lawmakers to learn about these strategies and take steps to ensure that more of their Medicaid dollars go toward care that improves patients’ health.”