GAO report shows Medicaid program integrity efforts could use more funding

The General Accounting Office (GAO) said the federal resources committed to overseeing state Medicaid program integrity activities "may be disproportionately small relative to the risk of serious financial loss." The Centers for Medicare & Medicaid Services (CMS) disagreed with that assessment, saying program integrity work should be viewed as part of its broader financial management of state Medicaid programs.

CMS officials noted that 65 agency financial management staff in regional offices review Medicaid expenditures, conduct financial management reviews, provide technical assistance to states on financial policy issues, and analyze state cost allocation and administrative claiming plans. They also said the agency experts to hire 100 new Medicaid financial management staff this fiscal year and has contracted with the Office of Inspector General to perform additional auditing.

"We commend CMS for the actions it has begun to take to address its Medicaid financial management challenges," GAO said in its summer 2004 report. "As we have reported in recent years, CMS had fallen short in providing the level of oversight required to ensure states’ Medicaid financial responsibility. When fully implemented, CMS’ effort to increase the number of staff dedicated to reviewing the states’ financial management reports should help it strengthen the fiscal integrity of Medicaid’s state and federal partnership. However, financial management and program integrity, while related functions, are not interchangeable," it noted. "Finan-cial management focuses on the propriety of states’ claims for federal reimbursement, such as the matching, administrative, and disproportionate share funds that CMS provides the states. In contrast, program integrity — the focus of this report — addresses federal and state efforts to ensure the propriety of payments made to providers. Unlike the commitment to expand resources for Medicaid financial management activities, CMS has not indicated a similar commitment to enhancing its support and oversight of states’ program integrity efforts."

According to GAO, various forms of Medicaid 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 also have been found to bill for more expensive procedures than were provided. In recent cases, it found, 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.

State officials told GAO auditors 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. Some 34 of the 47 states that completed a GAO inventory reported using one or more measures to control enrollment of high-risk providers. Controls cited included on-site inspections of applicants’ facilities prior to enrollment, criminal background checks, requirements to obtain surety bonds that protect the state against certain financial losses, and policies to enroll providers on a probationary or time-limited basis.

States also reported making use of information technology to integrate databases containing provider, beneficiary, and claims information and conduct more efficient utilization reviews. Targeted claims reviews are conducted by 34 states to identify unusual patterns that might indicate provider abuse. States also cited legislation to direct use of certain preventive or detection controls or authorized enhanced enforcement powers as lending support to their Medicaid program integrity efforts. The report briefly summarizes some state activities in each of these areas.

At the federal level, GAO said, CMS has initiatives designed to support states’ program integrity efforts. Those initiatives include two pilots: one that seeks to develop a methodology for measuring the accuracy of each state’s Medicaid claims payments, and the other to identify aberrant provider billing by linking Medicaid and Medicare claims information.

The most recent results of the first pilot showed Medicaid fee-for-service accuracy rates for 11 states ranged from 81% to nearly 100%. The second pilot resulted in a reported $58 million in savings and more than 80 cases against suspected fraudulent providers after the first year of testing in California.

GAO said CMS also provides technical assistance to states by sponsoring monthly teleconferences at which states can discuss emerging issues and propose policy changes.

The congressional oversight agency said varied and substantial cases of Medicaid fraud or abuse uncovered around the country reaffirm the need for Medicaid agencies to safeguard program dollars. Such losses have prompted program integrity units and legislatures in many states to take active roles in prevention and detection efforts. In their attempts to limit improper payments, states have pursued a broad range of methods, such as tightened provider enrollment and advanced claims review techniques, it added. "As some states report identifying substantial cost savings, further enhancements in program integrity activities are likely to generate positive returns on such investments."

As noted, GAO expressed concern that there may be disparity between the level of CMS resources devoted to Medicaid program integrity and the program’s vulnerability to financial losses. On its current schedule for conducting state program integrity compliance reviews, the watchdog said, CMS will not obtain a programwide picture of states’ prevention and detection activities more than once every six years. Moreover, because these reviews are limited in scope, CMS does not evaluate states’ effectiveness in addressing improper payments. In addition, findings from the CMS payment accuracy pilot indicate a need for CMS to further enhance state efforts to prevent and detect payment errors.

(To see the report, go to