Medicaid Fraud, Waste and Abuse - An IT Fraud Analysts Perspective

By Gerry Hill |

Gerry Hill is a retired IT professional whose career included more than 20 years leading a team of software developers and fraud analysts who installed FWA detection software in the Medicaid systems of 20 states and the District of Columbia. | 

Since shortly after Medicaid was established in 1965, there have been many recurring efforts, campaigns, and proposed legislation to reign in fraud, waste and abuse (FWA) in order to reduce program costs.  Again now, this topic is simmering.  

In the past, the FWA detection focus in Medicaid has been reducing the number of beneficiaries allowed to participate in the program. There have always been suspicions that many people are enrolled who are not entitled to the benefits, costing the program unnecessary expenses. There has been little attention paid to the provider expense for a variety of reasons, ranging from lack of patient access to care in rural areas to the more prevailing political considerations. 

Certainly, there are some people who are enrolled in Medicaid who are not entitled to the benefits. There is the beneficiary who comes to the local Eligibility Office in their late model high-end car, or who shares their Medicaid ID with friends and family members (although this is becoming less common since patients are required to show other identification when receiving treatment), or who ‘doctor shops’ describing vague but terrible pain in the hopes of getting an opioid script either for their own use or to sell on the street, or just need medical care and can’t afford it given the minimum wage jobs they have.  

On average, the cost to Medicaid per beneficiary is about $5,000 per year. But this is not where the large dollar expenditures are and where the potential savings and clawbacks are the greatest.  

The Kaiser Family Foundation (KFF.org) is a highly respected non-profit foundation that provides reliable information and analysis on a variety of health issues.  

From their website:  

What is known about fraud in Medicaid is that it’s not unique to Medicaid (fraud also occurs in Medicare and private health insurance) and is mostly committed by providers. 

Fraud is not unique to Medicaid. Fraud occurs in Medicaid, Medicare, and private health insurance. Most monetary loss from fraud is by providers.  Fraud includes obtaining a thing of value through willful misrepresentation.  Measuring fraud is difficult, in part, because it can only be determined with certainty after the fact and if it is identified.  There are no reliable measures of fraud against Medicaid.  DOJ and HHS-OIG operate a Health Care Fraud and Abuse Control (HCFAC) program designed to coordinate federal, state, and local health care fraud and abuse law enforcement activities.  A HCFAC report is published annually, describing health care fraud enforcement actions. Recent analysis of the FY 2023 HCFAC report found no beneficiary fraud in the listing.  Providers convicted (of different kinds of fraud against Medicaid and Medicare) included ambulance service providers, durable medical equipment suppliers, diagnostic labs, nursing homes, pain clinics, pharmacies, physical therapists, physicians, and substance use treatment providers. Examples of successful criminal and civil investigations highlighted in the report include:

• Sentencing of an EMT supervisor for an ambulance company who wrote and signed hundreds of false ambulance run sheets that were used to send fraudulent bills to the Texas Medicaid program;
• Sentencing of a pharmacy owner in a scheme to bill Kentucky Medicaid (and other health benefit programs) for drug prescriptions that were never filled; and
• Sentencing of a Michigan physician for his role in a health care fraud scheme that exploited patients suffering from addiction by administering unnecessary back injections and illegally distributing millions of medically unnecessary opioids. 

Medicaid is jointly funded by states and the federal government. On average the federal government pays 71% of the costs, and the individual states pay 29%. (Wealthier states pay a higher share, poorer states pay less than 29%). The feds have regulations that specify minimum coverages, but the states each manage their own programs, eligibility rules, claims processing and FWA investigations (usually through a unit called ‘program integrity’ or ‘surveillance utilization’).  

I worked for over 21 years in Medicaid FWA detection, working with the Program Integrity units of 20 states. I managed a team of software developers and fraud analysts who designed and wrote software to analyze the behavior patterns of both beneficiaries and providers.  

We used unbiased statistical models against paid claims to compare similar universes of beneficiaries or providers to each other (e.g., male beneficiaries between the ages of x and y with the same diagnosis, ambulance companies billing for transporting patients, physicians with the same specialty, dentists providing services to children under the age of six). Those beneficiaries or providers who were not behaving in a similar pattern to their peers were included in our ranked suspect lists.  

We surface beneficiaries with suspicious behaviors, such as:

·        Most frequently, the findings related to high dosage levels of drugs that could be easily sold on the street. Many times the pharmacist was cooperating with the patient and would share the profits. 

      Sometimes the patient would surface because of a high number of different physicians they visited (‘doctor shopping’ for a friendly doctor who would issue an opioid script without any questions, usually in exchange for $20 or so) or because they had their scripts filled at a large number of different pharmacies (hoping that no one pharmacist would become suspicious).  Even though these situations are serious and harmful to the patient and the potential buyers, the drugs dispensed are generics and are not a high cost to Medicaid.

·        Occasionally the paid claims would reveal that an ID was used repeatedly on the same day or within a short time for unlikely situations:  e.g., a hospital/cardiac procedure and a dentist office visit on the same day.  Either the patient was sharing his ID with a friend/family member, or one of the providers was billing for a service not actually rendered. 

·        Occasionally, claims would be paid for a patient who had died recently but before the death record was filed.  E.g., a family member dies, the family knows that within a few days the Social Security Death Master file will be updated and therefore the patient’s Medicaid ID will no longer be valid, so they quickly refill any of the patient’s medications they can use for themselves. Once again, even though this situation should not have occurred, filling a few generic prescriptions does not cost Medicaid a lot of expense, certainly not worth an investigator’s time. 

Much more likely and prevalent is FWA committed by providers. In addition to the provider types that KFF states above, there are also dentists, hospitals, home health help, ambulatory surgical centers, and other provider types (depending on the state) whose claim billings should be investigated. 

Note:  A very high percentage of providers did not appear to be abusing the program. The problem is limited to a small number of providers, but their excessive billings add significantly to the cost of the program. 

We surface providers with suspicious behaviors, such as:

·        Ambulance companies who bill for trips ‘to nowhere’: Typically, they legitimately transported a patient to a hospital or emergency treatment some time in the past, obtained the patient’s ID information, saved it, and then repetitively bill for a trip every few weeks without providing any service. 

·        Durable Medical Equipment suppliers: DME suppliers often bill for excessive amounts of diapers and incontinence materials frequently and long after the materials are no longer needed. The same situation applies to catheters and diabetic supplies. DME suppliers also often bill for high-end wheelchairs but instead deliver walkers, scooters, or basic transport chairs.

·        Dentists: Some frequently and repetitively bill for office visits/check ups, a relatively low cost billing that they expect will escape scrutiny.  In one state, a dentist billed Medicaid an average of five office visits per year for each patient (i.e., one visit every 2-3 months), not including additional claims for procedures like cleanings, fillings, etc. Billing an average of 4 office visits per year per patient is not an unusual find. Common sense says that not every patient is going to come for a check-up every three months.

o    Some frequently and repetitively bill for excessive numbers of cleanings and fillings per patient.  Once the provider has the Medicaid ID, repetitive billing is easy using commonly available software, even when no services are rendered.

o    In almost every state there are dentists billing high numbers of root canals and crowns for children under the age of six.  According to the dental consultant we conferred with, occasionally, there are medical conditions that would justify a root canal or a crown on baby teeth, but not in high numbers.  It was not unusual to find a few dentists billing an average of 14-20 root canals/crowns per child (children under six only have a maximum of 20 teeth).  

      At first we assumed that this was a ‘services not rendered’ situation (services billed but not performed), but further investigation showed that these dentists actually were performing these painful procedures on children – sometimes in their office (tying the children down) and sometimes in a hospital – in order to avoid the possible ‘services not rendered’ charge.  If the service was performed in a hospital, that introduces another FWA consideration:  the hospital is billing for operating room time, anesthesia, OR personnel, recovery room services, etc., substantially increasing Medicaid’s costs for what was a questionable procedure.  

      Many hospitals cooperated in the scheme because it brought in substantial revenue, instead of questioning the medical and ethical concerns.  (In one state, the manager of the Program Integrity unit told us to ignore the dentist/hospital collusion we found because “that hospital needs the cash flow”.)

·        Physical therapists:

o   Some PTs always bill for the maximum number of PT visits allowed.  No patient got well enough before the maximum number of visits was billed.

o    We found exercise instructors billing for physical therapy procedures, especially for patients living in a group setting.  The instructors were not licensed or trained PTs, and always billed for the more expensive individualized procedures rather than the ‘group’ procedure codes that didn’t pay as much.

·        Physicians:

o   Some physicians who had patients living in nursing homes or rehabilitation centers bill for a high number of onsite visits.  While patient wellness checks are encouraged, investigation showed that the visits are actually only “wave therapy” – the doctor stops in the doorway of a patient’s room, waves and says something like “Glad to see you are doing well”, moves on to the next patient’s room, and bills for a 30-45 minute visit.  Same scenario a week or two later.

o   Some physicians will bill for a high number of nursing home/rehab center visits but not even visit the facility.  After examining the claims a physician submits for the same date of service, we map the location of the facilities to find that it would be physically impossible for the physician to visit all the patients claimed in one day.  This is not an unusual situation.

o   A common scheme is the upcoding of office visit claims.  These visits are supposed to be billed based on the number of minutes the doctor spends with the patient (e.g., less than 10 minutes, 20-29 minutes, more than 60 minutes, etc.), and the reimbursement amount rises with the time spent.  When comparing the office visit claims of physicians to their peers of the same specialty, it is statistically obvious which ones are upcoding their procedure codes.

·        Nursing homes will often order excessive supplies (e.g., diapers, catheters, incontinent supplies) for their Medicaid patients at no charge to the NH, then stockpile the supplies to use for non-Medicaid patients whose incontinent needs are expected to be met by the NH within the patient’s per diem or monthly charge.  In this situation, Medicaid is paying for everyone’s supplies and the NH avoids incurring an expense that they have nevertheless included in their billing to the non-Medicaid patient’s insurance company or family.

·        Pharmacies:  Besides the situation described above regarding opioid scripts that are filled by a pharmacist even though the patient is questionable and/or the script seems to be forged and/or the dosage level or amounts seem abnormal, there are other FWA opportunities.  One is refills that are never picked up. Some pharmacists will monitor those scripts that are legitimately written by a physician for a medication plus a number of refills.  Many times the patient does not need a refill, or forgets to get the refill.  The pharmacist will refill the script when the refill date approaches, bill Medicaid for the medication, and set it on the shelf, waiting for the patient to pick it up. The patient doesn’t know the refill is waiting, or doesn’t need or want it, so after 5-7 days, the pharmacist returns the medication to stock (to be re-sold to a future customer), but does not refund Medicaid.

 These few examples demonstrate that the possibility of FWA and excessive Medicaid expenses is much more likely to come from providers than from beneficiaries. An investigator’s time would be much more productive if they were pursuing a provider that is unjustly and unethically billing thousands of dollars a month to Medicaid than a beneficiary who might be occasionally getting some free medical help or even obtaining generic drugs to sell. 

However, the problem we repeatedly run into is states’ reluctance to investigate and prosecute their suspicious providers. The reasons are numerous: 

·        There is a legitimate issue with patient access to care in some states or some areas of some states. There are rural areas who have few healthcare providers or facilities, and even urban areas who lack enough providers who are willing to service Medicaid patients (reimbursement rates per claim/procedure are low when compared to commercial insurance plans). 

·        Politics: This is the biggest problem in stopping FWA and reducing Medicaid expenditures.  In many states, the providers are also the politicians, or the friend or relative of a politician, or the donor to a politician, so it is not advisable for a Program Integrity unit to initiate an investigation.  There are also many strong lobbying groups or professional societies who will wage an aggressive defense of a colleague/member, regardless of the evidence. Sometimes the offending provider is a ‘pillar of the community’, publicly lauded for their willingness to service Medicaid beneficiaries - to expose their over-billing practices would be politically risky and a community embarrassment.

·        Some states have outsourced their Medicaid services to a third-party insurance company for a fee per patient per month (pppm). This fee is renegotiated between the state and the insurance processor each year based on the documented expenses paid in the previous year. Many of these states think that this protects them from FWA since they are only obligated to pay the negotiated fee pppm, and any FWA is the responsibility of the insurance vendor.  The logic flaw here is two-fold: 

o    First, in most contracts, any amounts that the third-party processor discovers that they paid for FWA claims must be returned to the state, so why would the processor want to spend their resources to staff an investigative unit that, if successful, causes the company to refund pppm money to the state?  A few states have set minimum FWA discovery goals in their contracts, but once the processor has reached this goal, they have no incentive to find additional FWA during that year.

o    Second, since the pppm fee is typically renegotiated each year, the processor simply includes all claims paid (whether legitimate or not) in their expense calculations for the following year, allowing them to justify an increase in the pppm fee, without any detection effort on their part.  Of course, the processors insist that they are making good faith efforts to stop FWA, and they usually do make token efforts, but the business logic is not there for them to aggressively try to reduce Medicaid spending. 

Official estimates of dollars paid for FWA claims is about 10%.  Malcolm Sparrow, Harvard professor and expert in health care fraud detection (author of License to Steal) estimates losses could be as high as 35%, more likely 30%, almost all of it due to provider FWA.  

Medicaid spending is a big budget item that should be scrutinized (spending for Medicaid in fiscal year 2023 was $871 billion). But we need to spend our limited investigative resources judiciously, examining those areas with the largest potential for clawback and future savings.  

There are not likely to be recoverable dollars from low-income beneficiaries removed from the program, although there will be some future savings. However, providers are costing the program exponentially more dollars annually in FWA billings.  

There is a much higher likelihood of recoveries from providers and many more savings to be realized from stopping their participation in the program in the future. We must empower and incentivize states and PI investigators to pursue fraudulent providers.

Image by Markus Winkler from Pixabay