Although it is  one federal program, Medicaid consists of 56 distinct state-level programs  created within broad federal guidelines and administered by state  Medicaid agencies. States are responsible for ensuring proper payment  and recovering misspent funds. With varying levels of staff and resources, states conduct Medicaid  program integrity activities that include screening providers and  monitoring provider billing patterns. States have prosecuted providers that  bill for services, drugs, and supplies that are not authorized or are not  provided. States’ investigators have also uncovered deliberate provider  upcoding—billing for more expensive procedures than were actually  provided—to increase their Medicaid reimbursement. States Report a Variety of Approaches to Prevent and Detect Improper Payments

States take various approaches to conducting program integrity activities  that can result in substantial cost savings. Expanded measures applied to high-risk providers include on-site  inspections of the applicant’s facility prior to enrollment, criminal  background checks, requirements to obtain surety bonds that protect the  state against certain financial losses, and time-limited enrollment. Thirty- four of the states that completed our inventory reported using at least one  of these enrollment controls. On-site Inspections

Twenty-nine states reported conducting on-site inspections for providers  considered at high-risk for inappropriate billing before allowing them to  enroll or reenroll in their Medicaid programs. Of the 47 states that completed our inventory, 34 reported  targeting their reviews to claims from high-risk providers. These states developed data  warehouses to store several years of information on claims, providers, and  beneficiaries in integrated databases, and they use data-mining software to  look for unusual patterns that might indicate provider abuse. For  example, a state can link related service claims, such as emergency  transportation invoices and hospital emergency department claims for the  same client. In Some States, Legislative Initiatives Have Played an Important Role in Medicaid Program Integrity Efforts

Many states have made Medicaid program integrity a priority, either  through directives to employ certain preventive or detection controls or by  expanding enforcement authority to use against providers that bill  improperly. CMS Pilot Links Information on Providers That Bill Both Medicare and Medicaid

In another effort to support states’ program integrity activities, CMS  facilitates the sharing of health benefit and claims information between  the Medicaid and Medicare programs. In addition, states use TAG to communicate and propose policy changes to  CMS. However, CMS’s efforts to change the policy have not been  successful. CMS  conducts on-site reviews to assess whether state Medicaid program  integrity efforts comply with federal requirements, such as those  governing provider enrollment, claims review, utilization control, and  coordination with each state’s Medicaid Fraud Control Unit. From  January 2000 through December 2003, CMS completed reviews of   29 states. At its current pace of conducting eight state compliance reviews  each year, CMS would not begin a second round of nationwide reviews  before fiscal year 2007. For fiscal year 2004, CMS allocated eight  staff nationally—about four full-time equivalent (FTE) staff in  headquarters and four FTEs distributed across the agency’s 10 regional  offices—and an operating budget of $26,000 for overseeing the states’  Medicaid program integrity activities, including the cost of conducting  compliance reviews. At the peak of its funding in  fiscal year 2002, CMS’s operating budget for these activities was about  $80,000. According to agency officials, the size of the federal Medicaid  program integrity group relative to its responsibilities has resulted in its  use of Medicare’s program integrity resources to help implement pilot  projects and conduct technical assistance activities. The  state agency also did not investigate potential instances of fraud and abuse  identified by its SURS unit or beneficiary complaints, or make the required  referrals to the state Medicaid Fraud Control Unit. CMS has pointed to its compliance reviews of the states’ program integrity  activities as providing the agency with information on the states’ strengths  and vulnerabilities to improper payments. Agency Comments and Our Evaluation

In written comments on a draft of this report, CMS officials took issue  with our observation that the level of resources devoted to federal  oversight of states’ program integrity activities may be inconsistent with  the financial risks to the program.
Why GAO Did This Study

During fiscal year 2002, Medicaid--a program jointly funded by the federal government and the states--provided health care coverage for about 51 million low-income Americans. That year, Medicaid benefit payments reached approximately $244 billion, of which the federal share was about $139 billion. The program is administered by state Medicaid agencies with oversight provided by the Centers for Medicare & Medicaid Services (CMS) in the Department of Health and Human Services. Medicaid's size and diversity make it vulnerable to improper payments that can result from fraud, abuse, or clerical errors. States conduct program integrity activities to prevent, or detect and recover, improper payments. This report provides information on (1) the types of provider fraud and abuse problems that state Medicaid programs have identified, (2) approaches states take to ensure that Medicaid funds are paid appropriately, and (3) CMS's efforts to support and oversee state program integrity activities. To address these issues, we compiled an inventory of states' Medicaid program integrity activities, conducted site visits in eight states, and interviewed CMS's Medicaid program integrity staff.

What GAO Found

Various forms of fraud and abuse have resulted in substantial financial losses to states and the federal government. Fraudulent and abusive billing practices committed by providers include billing for services, drugs, equipment, or supplies not provided or not needed. Providers have also been found to bill for more expensive procedures than actually provided. In recent cases, 15 clinical laboratories in one state billed Medicaid $20 million for services that had not been ordered, an optical store falsely claimed $3 million for eyeglass replacements, and a medical supply company agreed to repay states nearly $50 million because of fraudulent marketing practices. States report that their Medicaid program integrity activities generated cost savings by applying certain measures to providers considered to be at high risk for inappropriate billing and by generally strengthening their program controls for all providers. Thirty-four of the 47 states that completed our inventory reported using one or more enrollment controls with their high-risk providers, such as on-site inspections of the applicant's facility, criminal background checks, or probationary or time-limited enrollment. States also reported using information technology to integrate databases containing provider, beneficiary, and claims information and conduct more efficient utilization reviews. For example, 34 states reported conducting targeted claims reviews to identify unusual patterns that might indicate provider abuse. In addition, states cited legislation that directed the use of certain preventive or detection controls or authorized enhanced enforcement powers as lending support to their Medicaid program integrity efforts. At the federal level, CMS is engaged in several initiatives designed to support states' program integrity efforts; however, its oversight of these state efforts is limited. CMS initiatives include two pilots, one to measure the accuracy of each state's Medicaid claims payments and another to identify aberrant provider billing by linking Medicaid and Medicare claims information. CMS also provides technical assistance to states by sponsoring monthly teleconferences where states can discuss emerging issues and propose policy changes. To monitor Medicaid program integrity activities, CMS teams conduct on-site reviews of states' compliance with federal requirements, such as referring certain cases to the state agency responsible for investigating Medicaid fraud. In fiscal year 2004, CMS allocated $26,000 and eight staff positions nationally for overseeing the states' Medicaid program integrity activities, including the cost of compliance reviews. With this level of resources, CMS aims to review 8 states each year until all 50 states and the District of Columbia have been covered. From January 2000 through December 2003, CMS has conducted reviews of 29 states and, at its current pace, would not begin a second round of reviews before fiscal year 2007. This level of effort suggests that CMS's oversight of the states' Medicaid program integrity efforts may be disproportionately small relative to the risk of serious financial loss.