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Testimony on Medicaid Fraud and Abuse by Penny Thompson
Program Integrity Director, and
Rhonda Hall, Medicaid Fraud & Abuse National Coordinator
Health Care Financing Administration

Before the House Commerce Committee, Subcommittee on Oversight & Investigations, & Subcommittee on Health & Environment
November 9, 1999

Chairman Bliley, Chairman Upton, Representative Klink, distinguished Subcommittee members, thank you for the opportunity to discuss our efforts to fight fraud, waste, and abuse in Medicaid. We share your concern for protecting taxpayer dollars and Medicaid program integrity. And we appreciate the evaluations and advice provided by the HHS Inspector General and the General Accounting Office on these efforts.

We fight fraud, waste, and abuse in Medicaid in partnership with States, beneficiaries, providers, contractors, and federal agencies. States are primarily responsible for detecting, prosecuting, and preventing Medicaid fraud, waste, and abuse. We provide funding and technical assistance and oversee States in their efforts to ensure that taxpayer dollars are spent appropriately.

Some States are making good progress in making sure that their Medicaid programs protect taxpayer dollars. However, we all agree that more needs to be done, and we are committed to repeating and building upon this success across the country.

To further these efforts, we hired an expert outside contractor, Dr. Malcolm Sparrow, to conduct seminars and produce a report on how to better fight Medicaid fraud, waste, and abuse.

We are providing States with comprehensive guidance and technical assistance so they can build strengthen efforts to prevent improper payments, rather than try to recoup them after the fact.

We also are working with States to help them develop better data systems and other technological tools for ferreting out fraud, waste, and abuse. And we are modifying our National Fraud Investigation Database to include Medicaid cases, which will further help in tracking down and stopping unscrupulous providers across the country.

These actions are helping to build a foundation upon which we can, together with States, establish measurable goals for improvement and greater accountability. In the coming months, we will begin working with States to develop systems to measure their progress in fighting fraud, waste, and abuse. Two states have already begun developing claims error rates to accurately determine the extent of improper payments. Concrete goals and accountability measures will provide a clearer picture of what we must do to eliminate fraud, waste, and abuse in Medicaid and ensure that taxpayer dollars are spent appropriately.


Medicaid is a State/federal partnership. Each State runs its own program with federal financial support and oversight. Beyond a core set of mandatory covered services, Medicaid programs vary widely among States. Each State Medicaid program is required to have systems in place to protect program integrity but, again, these vary widely. Some states have independent Inspectors General, others have very active involvement from the Office of the Controller, and others rely heavily on the State Attorney General.

Special federal matching funds are available for State Medicaid fraud control units. These fraud control units are usually located in the State Attorney General’s office and generally perform both investigatory and prosecutorial functions. Congress specifically prohibited these units from being part of the designated Medicaid agency to assure investigative independence. Forty-seven States have established such units to investigate allegations. The HHS Inspector General administers the funding and activities of these State Medicaid fraud units. In States without fraud control units, the Medicaid agency is responsible for investigating allegations and referring cases to the appropriate authorities.

Federal funding is also available to States for Medicaid management information systems. All States include review of claims before they are paid, as well as surveillance and utilization review to look for errors after claims are paid, in their management information systems. The prepayment reviews include verification that the recipient is an eligible beneficiary, the provider is authorized to furnish services, the services and visits are logically consistent, the payment does not exceed the reimbursement rate, and that no other party is legally liable for payment. The post-payment reviews identify abnormal billing patterns that may indicate fraud, waste, or abuse. The surveillance and utilization review units are required to refer suspected fraud to the fraud control units, if one exists, for further investigation and possible prosecution.

Federal Oversight

In June 1997, our agency’s Southern Consortium was given the lead for the national Medicaid fraud and abuse oversight efforts. The Southern Consortium, which consists of the Atlanta and Dallas regional offices, had already been very aggressive in tackling some of the most daunting program integrity challenges. The Consortium’s leadership and this innovative arrangement allows our national office to get closer to the "front lines" of State activity in the fight against fraud, waste, and abuse.

In August 1997, we convened a focus group of State Medicaid staff to assess States’ efforts, needs, and challenges. This provided many valuable lessons that we have been able to act upon.

For example, one of the major needs expressed by the States was for a national forum that States can use to share information and discuss issues. We therefore formed the Medicaid Fraud and Abuse Control Technical Advisory Group in which State and federal technical staff discuss how program integrity policy is carried out. This advisory group is divided into six workgroups, including:

  • the Legislative and Regulatory Workgroup, which is charged with developing State legislative proposals and policy clarification on a number of issues;

  • the Database Workgroup, which is developing an educational packet that identifies various reporting requirements and suggestions on how States can implement them;

  • the Pharmacy Workgroup, which is formulating a Best Practices guide for controlling fraud and abuse in the pharmacy area;

  • the Inspector General’s Issues Workgroup, which is identifying various Inspector General activities that affect states and collaborating with the Inspector General to allow State input into the design and development of audits, studies, etc.;

  • the Managed Care Workgroup, which is focusing on operational issues related to the unique program integrity problems posed by managed care; and

  • the Data Sharing Workgroup, which is will disseminate information to all States on Medicare-Medicaid data sharing rules.

The advisory group has also surveyed program integrity and fraud control unit officials across the country to gain a deeper understanding of their needs and concerns.

Fraud and Abuse Seminars

Because of the clear need to be more effective in fighting Medicaid fraud, waste, and abuse, we last year contracted with Dr. Malcolm Sparrow, a nationally recognized expert in health care fraud issues. He conducted a series of seminars across the country where State program integrity personnel came together to discuss their successes, challenges, and concerns. Three essential themes emerged:

  • There are unique program integrity issues within managed care that need to be addressed. Many States are still learning how to address the unique program integrity challenges posed by managed care, and some are fighting the misconception that managed care somehow does away with program integrity issues.

  • There are substantial technology issues, such as obtaining access to claims databases, claims analysis, fraud & abuse detection. Many States have inadequate technological infrastructures and a basic inability to interrogate databases efficiently to ferret out improper claims. They could benefit from further guidance and technical assistance on acquiring new data systems and other fraud and abuse detection tools.

  • There is a need for building commitment, understanding, support, and resources for fraud and abuse control efforts. While some States are having success, the seminars made clear that, in many States, the nature and magnitude of the Medicaid fraud problem is still not properly understood. In some States it may not even be treated as a serious or central issue in program administration.

We are taking several steps to help States address these concerns.

Managed Care

For managed care, we have sponsored a series of workshops, dating back to 1997, to bring State managed care staff together with utilization and review Directors and fraud control unit Directors. They have been conducted in conjunction with George Washington University's Center for Health Policy Research and attended by Medicaid staff from 49 States. These workshops focused on how fraud manifests differently within the managed care setting and how programs to address it should be structured. They also featured "negotiating sessions" among State delegations and resulted in written agreements on how to work more cooperatively and effectively together.

To further address managed care program integrity issues, we worked with State Medicaid agencies and fraud control units to develop Guidelines for Addressing Fraud and Abuse in Medicaid Managed Care. The guidelines focus on:

  • key components of an effective managed care fraud control program ;
  • data needed to detect and prosecute managed care fraud;
  • how to report managed care fraud,
  • suggested language for managed care contracts and waivers to help fight and prevent program integrity problems; and
  • the roles of the Health Care Financing Administration, State Medicaid agencies, State fraud control units, managed care organizations, and the HHS Inspector General.

We hope to have these guidelines to the States by early next year.

Technology and Data Systems

Better data systems are key to improving efforts to fight Medicaid fraud, waste, and abuse. We are working diligently to help States make the most effective use of State and federal data systems and data collection efforts. As noted above, our technical advisory group is preparing an educational packet that identifies various reporting requirements and suggestions for how States can implement them. They are also compiling and will disseminate information to all States on Medicare-Medicaid data sharing rules.

We recently developed a national fraud and abuse electronic bulletin board, co-sponsored by the American Public Human Services Association, to allow States to exchange and share information on fraud and abuse related issues.

These efforts are particularly important because instances of fraud and abuse are often not limited to one State or even one program. For example, a special South Florida task force demonstration project had unprecedented success in fighting fraud, waste and abuse by getting Medicaid agencies, Medicaid fraud control units, Medicare claims processing contractors, and U.S. Attorneys to all work together to detect fraud and abuse in both Medicare and Medicaid. For example, the task force matched Medicare and Medicaid data to identify patterns of questionable billing practices. We have learned from this effort and are encouraging other States to replicate these types of efforts.

And, as mentioned above, we are modifying our National Fraud Investigation Database to include Medicaid cases. Until now, this system has captured only Medicare information. This will play a key role in helping us to replicate the success seen in the South Florida task force demonstration project.

State Accountability

Because States have the primary responsibility for protecting Medicaid program integrity, we are taking several steps to help States meet this challenge and understand their obligation to ensure that taxpayer dollars are spent appropriately.

For example, we have developed and posted on our cms.hhs.gov website a comprehensive listing of State statutes that target Medicaid fraud. This allows States to access and share innovative and effective program integrity legislation. For example, if a State is considering proposing legislation to regulate third party liability, a listing of State laws on this subject is readily available, along with links that allow direct viewing of statutory language. The website also includes detailed contact information for State program integrity personnel and individual State legislation web sites.

And we are now working to clarify how States can ensure that payments are not made to providers who have been "excluded" from Medicare and Medicaid because of program integrity or other problems. We have worked closely with the HHS Office of the Inspector General on this, and expect to disseminate clear guidance on the process early next year. This guidance will address the specifics of what must be reported to whom, when and where, as well as how to enforce exclusions, and the consequences for States that fail to comply. We are also working to help States enhance their processes for identifying excluded providers.

Still, it is clear that each State needs to be held accountable for protecting taxpayer dollars and meeting concrete goals and objectives for improvement in the fight against fraud, waste, and abuse. As mentioned above, we are going to work with States to develop systems to measure their progress. Two states have already begun developing claims error rates that are essential for accurately determining the extent of improper payments and any improvement in preventing them. With clear goals and concrete accountability measures we will have a clearer picture of what we must do to further to eliminate fraud, waste, and abuse from Medicaid.

Internally, we have developed clear guidance for our own staff on how to review State agency program integrity efforts, both in fee-for-service and managed care. This guidance mandates focus on:

  • how States identify, receive, process and use information regarding potential fraud and abuse by Medicaid providers;
  • how entities outside the Medicaid agency participate in preventing, identifying and reducing fraud and abuse;
  • whether key program integrity components are included in State contracts with managed care organizations; and
  • whether State agencies are complying with appropriate laws and regulations.

To begin developing objective and measurable goals for improvement, we will in January 2000 send a national review team to conduct a targeted evaluation of anti-fraud efforts in eight States selected to represent a cross section of State Medicaid programs. This will help provide an accurate assessment of where States are, what barriers may hinder their progress, and what most needs to be done to ensure substantial, measurable improvement.


We have been working diligently to help States improve their efforts to fight Medicaid fraud, waste, and abuse. We are providing States with information, tools and training to build effective program integrity infrastructures. And we are building a basis for holding States accountable for measurable improvement in their program integrity efforts. We welcome your assistance and appreciate your continued interest. And I am happy to answer your questions.

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