Medicaid: State Efforts to Control Improper Payments Vary	 
(07-JUN-01, GAO-01-662).					 
								 
State Medicaid programs make a wide variety of payments to	 
individuals, institutions, and managed health care plans for	 
services provided to beneficiaries whose eligibility status may  
fluctuate because of changes in income. Because of the size and  
the nature of the program, Medicaid is potentially at risk for	 
billions of dollars in improper payments. The exact amount	 
unknown because few states measure the overall accuracy of their 
payments. Some improper Medicaid payments by states are the	 
result of fraud by billers or program participants, but such	 
improper payments are even harder to measure because of the	 
covert nature of fraud. Efforts by state Medicaid programs to	 
address improper payments are modestly and unevenly funded. Half 
of the states spend no more than 1/10th of one percent of program
expenditures to safeguard program payments. States also differ in
how they help prevent improper payments as well as the degree to 
which they coordinate their investigations and prosecutions of	 
fraud. Federal guidance to the states relies largely on technical
assistance. The Health Care Financing Administration has recently
taken a more active role to facilitate states' efforts and	 
provide a national forum to share information.			 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-01-662 					        
    ACCNO:   A01032						        
  TITLE:     Medicaid: State Efforts to Control Improper Payments Vary
     DATE:   06/07/2001 
  SUBJECT:   Erroneous payments 				 
	     Federal/state relations				 
	     Fraud						 
	     Health care programs				 
	     Health insurance					 
	     Internal controls					 
	     Program abuses					 
	     State-administered programs			 
	     HCFA Medicaid Fraud and Abuse National		 
	     Initiative 					 
								 
	     Medicaid Management Information Systems		 
	     Medicaid Program					 
	     Medicaid System Surveillance and			 
	     Utilization Review Subsystem			 
								 

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GAO-01-662
     
GAO United States General Accounting Office

Report to the Chairman, Committee on Energy and Commerce, House of
Representatives

June 2001 MEDICAID State Efforts to Control Improper Payments Vary

GAO- 01- 662

Page 1 GAO- 01- 662 State Efforts to Control Improper Payments Vary

Contents Letter 3 Appendixes Appendix I: Scope and Methodology 32

Appendix II: Aggregated Results From State Medicaid Agency and MFCU
Questionnaires 34

Appendix III: Comments From the Department of Health and Human Services 66

Related GAO Products 69 Tables Table 1: Examples of Prepayment Reviews 16

Table 2: Selected State Efforts to Ensure Legitimacy of Providers 17 Table
3: National Medicaid Fraud and Abuse Initiative Activities 26

Abbreviations

DOJ Department of Justice FBI Federal Bureau of Investigation HCFA Health
Care Financing Administration HCFAC Health Care Fraud and Abuse Control
Program HHS Department of Health and Human Services HIPAA Health Insurance
Portability and Accountability Act MCFU Medicare Fraud Control Unit MMIS
Medicaid Management Information Systems OIG Office of Inspector General SURS
Surveillance and Utilization Review Subsystem

Page 2 GAO- 01- 662 State Efforts to Control Improper Payments Vary

Page 3 GAO- 01- 662 State Efforts to Control Improper Payments Vary United
States General Accounting Office

Washington, D. C. 20548 Page 3 GAO- 01- 662 State Efforts to Control
Improper Payments Vary

Lett er

June 7, 2001 The Honorable W. J. ?Billy? Tauzin Chairman, Committee on
Energy and Commerce House of Representatives

Dear Mr. Chairman: Both the federal government and states have a strong
financial interest in assuring accurate payments in the jointly funded
Medicaid program. About 40 million low- income Americans- parents and
children, as well as elderly, blind, and disabled individuals- receive
preventive, acute health care, and long- term care services paid through the
Medicaid program, administered by the Health Care Financing Administration
(HCFA). In fiscal year 2001, the program is projected to cost the federal
government $124 billion, and the states about $95 billion, in program
payments and administrative expenses. Within states, two agencies share
responsibility for protecting

the integrity of their state Medicaid programs. The state Medicaid agency is
responsible for ensuring proper payment and recovering misspent funds, while
the Medicaid Fraud Control Unit (MFCU) is responsible for investigating and
ensuring prosecution of Medicaid fraud.

Improper payments in government health programs such as Medicaid drain vital
program dollars, hurting beneficiaries and taxpayers. Such payments include
those made for treatments or services that are not covered by

program rules, that are not medically necessary, or that were billed but
never actually provided. Improper Medicaid payments can result from
inadvertent errors as well as intended fraud and abuse. Unlike inadvertent
errors, which are often due to clerical errors or a misunderstanding of
program rules, fraud involves an intentional act to deceive for gain, while

abuse typically involves actions that are inconsistent with acceptable
business and medical practices.

Given the importance of Medicaid to millions of Americans and the financial
resources at stake, in response to your request, we assessed whether the
states had estimated the risk of, or losses due to, improper payments in the
program. We also reviewed state Medicaid agencies?

activities to prevent or identify and respond to improper payments, and
state MFCUs? efforts to investigate and prosecute possible fraud. Finally,
we reviewed the federal guidance and support provided to states as they
pursue their program integrity efforts.

Page 4 GAO- 01- 662 State Efforts to Control Improper Payments Vary

We specifically focused on efforts to safeguard fee- for- service payments,
which represented 86 percent of program payments in fiscal year 1998 and are
the focus of most state program integrity activities. 1 We reviewed state
Medicaid payment accuracy measurement studies and conducted site visits to
state Medicaid agencies and MFCUs in Georgia, New Jersey, Texas, and

Washington. We chose these states to provide regional diversity and because
agencies within those states were among the ones considered by federal
officials to be particularly active in efforts to identify and respond to
improper payment practices- either through the use of new technology or
other means. In addition, we surveyed officials from all state Medicaid

agencies and MFCUs. Fifty- three of the 56 state Medicaid agencies and 46 of
the 47 MFCUs responded to our surveys 2 (see aggregated survey results in
appendix II). We also interviewed officials in other states and federal
agencies, including HCFA, which oversees Medicaid at the federal level, and
the Department of Health and Human Services (HHS) Office of Inspector
General (OIG), which oversees MFCUs at the federal level. Finally, we
interviewed health care provider, supplier, and insurer groups, and analyzed
HCFA, state Medicaid agency, and MFCU program reports and other documents.
Details of our scope and methodology are in appendix I. Our work was
conducted from September 1999 through April

2001 in accordance with generally accepted government auditing standards.

Results in Brief State Medicaid programs make a wide variety of payments to
many individuals, institutions, and managed care plans for services provided
to a

beneficiary population whose eligibility status may fluctuate because of
changes in income. Due to the size and nature of the program, Medicaid is at
risk for billions of dollars in improper payments. The exact amount lost is
not known because few states measure the overall accuracy of their payments.
A portion of states? improper Medicaid payments are made because of
fraudulent activities on the part of those billing or participating 1 Under
fee- for- service, Medicaid programs make payments to providers for specific
services provided to eligible beneficiaries. To receive payment, a provider
files a claim with the state that includes both the provider?s and the
beneficiary?s identification numbers, a list of the treatments and services
provided, and diagnostic information to justify the treatments and services
being billed.

2 An additional MFCU in the District of Columbia, which had lost its federal
certification in 1983, was recertified in March 2000 after we had fielded
our survey; it was not included in our survey.

Page 5 GAO- 01- 662 State Efforts to Control Improper Payments Vary

in the program, but such improper payments are even harder to measure
because of fraud?s covert nature. States? efforts to identify billing
mistakes or abuses of various kinds are limited- even with claims reviews
and other screening efforts- because it is impossible to thoroughly check
every claim and payment. However, lax administration increases the risk, as
was seen in California, where investigations have revealed widespread
payment for drugs, equipment, and supplies that were either not delivered or
not needed.

Efforts by state Medicaid programs to address improper payments are modestly
and unevenly funded. Half of the states spend no more than onetenth of 1
percent of program expenditures on activities to safeguard program payments.
Few secure all available federal funds earmarked for antifraud efforts
because states would have to increase their own spending to do so. States
also differ in their use of tools to help prevent improper payments, such as
computerized checking of claims before payment is made and site visits to
providers whose billing might be questionable, as well as the degree to
which they coordinate their efforts to investigate and

then prosecute fraud. There are, however, promising recent activities. Some
states are devoting more resources to program integrity activities than they
had previously and are obtaining more sophisticated computer analytic
capacity to review payment trends and spot improper billing.

Others are implementing stricter health care fraud and abuse control laws
and policies. Federal efforts to help guide the states rely to a large
extent on technical assistance, and to a lesser extent on guidance on how to
conduct their activities. HCFA has recently taken a more active role to
facilitate states? efforts and provide a national forum for sharing
information. The agency has helped states exchange best practices, held
conferences on issues such as computer technology, and provided guidance on
fraud and abuse in managed care. Until recently, HCFA has lacked consistent
information on how states were conducting their program integrity efforts,
which would be needed to actively guide their efforts, but it has begun to
systematically review states? activities. In regard to the MFCUs, the OIG
annually reviews

them to certify that they are in compliance with federal regulations and
eligible for federal funding. It also assists MFCUs by providing technical
assistance and training opportunities. In its written comments on a draft of
this report, HHS provided information on the Department?s most recent

efforts to control improper payments.

Page 6 GAO- 01- 662 State Efforts to Control Improper Payments Vary

Background Medicaid is the third largest social program in the federal
budget and is also one of the largest components of state budgets. Although
it is one federal program, Medicaid consists of 56 distinct state- level
programs- one for

each state, District of Columbia, Puerto Rico, and each U. S. territory. 3
Each state has a designated Medicaid agency that administers its program
under broad federal guidelines. The federal government matches state
Medicaid spending for medical assistance according to a formula based on
each state?s per capita income. The federal share can range from 50 cents to
83 cents of each Medicaid dollar spent.

HCFA administers the Medicaid program at the federal level. In accordance
with the Medicaid statute, it sets broad guidelines for the states, but
within them, each state establishes its own eligibility standards;
determines the type, amount, duration, and scope of covered services; sets
payment rates; oversees the integrity of its program; and develops its
administrative

structure. States are required to describe the nature and scope of their
program in a comprehensive written plan submitted to HCFA- with federal
funding for state Medicaid services contingent on HCFA?s approval of the
plan. HCFA is responsible for ensuring that state Medicaid programs meet all
federal requirements. In addition to Medicaid, HCFA also has responsibility
for administering Medicare, a federal health insurance

program for certain disabled persons and those 65 years and older. While
Medicaid and Medicare have different structures and governance, some low-
income beneficiaries and many providers participate in both programs.

3 Hereafter referred to as states.

Page 7 GAO- 01- 662 State Efforts to Control Improper Payments Vary

There are also- in 47 states and the District of Columbia- separate MFCUs 4
that are responsible for investigating and prosecuting Medicaid provider
fraud, patient abuse, and financial fraud. In 1999, MFCUs received authority
to investigate cases involving Medicare fraud as well. 5 Most MFCUs are part
of the state Attorney General?s office, and most prosecute the cases they
investigate. MFCUs that have been federally certified for

more than 3 years receive 75 cents in federal funding for every dollar they
spend, up to a limit established by federal regulations. 6 4 All states are
required to have an MFCU or obtain a waiver from the HHS Secretary.
Currently, Idaho, Nebraska, and North Dakota have such waivers. States
granted waivers have similar units already in place. 5 Section 407 of the
Ticket to Work and Work Incentives Improvement Act of 1999, P. L. 106170,

expanded the jurisdiction of MFCUs to investigate Medicare fraud in cases
primarily related to Medicaid and to investigate patient abuse or neglect in
non- Medicaid board and care facilities. 6 The federal government pays 90
percent of a federally certified MFCU?s budget- up to a limit- for its first
3 years, and 75 percent thereafter. For an MFCU that has been operating

for more than 3 years, the maximum federal budget contribution is the
greater of $125,000 or one- fourth of 1 percent of the total federal, state,
and local expenditures of a state Medicaid program during its previous
quarter.

Page 8 GAO- 01- 662 State Efforts to Control Improper Payments Vary

In addition to state Medicaid agencies and MFCUs, other state and federal
agencies assist in dealing with Medicaid improper payments. Because of their
responsibilities to ensure sound fiscal management in their states, state
auditors or state inspectors general may become involved in Medicaid payment
safeguard activities through efforts such as testing payment system controls
or investigating possible causes of mispayment. At the federal level, the
Federal Bureau of Investigation (FBI) and the OIG investigate, and U. S.
Attorneys prosecute, certain Medicaid fraud cases, such as those that
involve multiple states or also involve fraud against other health care
programs. Funding for these agencies to pursue fraud and

abuse in federal health care programs is available from the Health Care
Fraud and Abuse Control Program (HCFAC). Established in 1996 by Section 201
of the Health Insurance Portability and Accountability Act (HIPAA), it
funds, consolidates, and strengthens federal fraud control efforts under the
Department of Justice (DOJ) and HHS. This fund provided $154.3 million in
fiscal year 2000 to the OIG and DOJ. Separately,

the FBI received an additional $76 million in HIPAA- specified funding for
fiscal year 2000. Medicare has been the major focus of this effort, but
Medicaid has also benefited. In its joint report with DOJ on the HCFAC fund,
7 HHS reported returning nearly $45 million dollars to Medicaid as a result
of these fraud control activities for fiscal years 1997 through 1999.

Medicaid Is at Risk for Improper Payments but the Amount Lost Is Unknown

With state and federal Medicaid payments projected to total $221. 6 billion
this fiscal year, even a small percentage loss due to improper payments
represents a significant loss to taxpayers. The magnitude of improper
payments throughout Medicaid is unknown, although a few states have
attempted to determine the level by measuring the accuracy of their
program?s payments. An even more difficult portion of improper payments to
identify are those attributable to intentional fraud- recent cases in
California and other states provide examples of losses due to fraudulent
activities.

Few States Have Measured Improper Payments

There are no reliable estimates of the extent of improper payments
throughout the Medicaid program. However, at least three states have
conducted studies to try to measure their program?s payment accuracy

7 For more detail, see The Department of Health and Human Services and the
Department of Justice Health Care Fraud and Abuse Control Program Annual
Report for FY 2000,

January 2001.

Page 9 GAO- 01- 662 State Efforts to Control Improper Payments Vary

rates and pinpoint where payment vulnerability occurs, with varied success.

 Illinois, in 1998, reported an estimated payment accuracy rate of 95. 3
percent, with a margin of error of +/- 2.3 percentage points, of total
dollars paid. The estimate was based on a sample of individual paid claims,
for which the state reviewed medical records and interviewed patients to
verify that services were rendered and medically necessary. As a result of
this audit, the state identified key areas of weakness and

targeted several areas needing improvement. For example, because the
Illinois payment accuracy review indicated that nearly one- third of
payments to nonemergency transportation providers were in error, the
Illinois Medicaid program has taken a number of steps to improve the
accuracy of payments to this provider type.

 Texas, also in 1998, reported an estimated payment accuracy rate of 89. 5
percent in the acute medical care fee- for- service portion of the program.
However, in making that estimate, reviewers had trouble locating many
patients and records due to statutorily imposed time constraints. Further
work led the state, in 1999, to revise the estimate to between 93. 2 and 94
percent. In developing the estimate, the state identified ways to reduce
improper payments through expanded use of computerized fraud detection
tools, such as matching Medicaid

eligibility records with vital statistics databases to avoid payments for
deceased beneficiaries. In January 2001, Texas reported that a more recent
study estimated a payment accuracy rate of 92. 8 percent in its acute
medical care fee- for- service payments.

 Kansas, in 2000, reported an estimated payment accuracy rate of 76 percent
with a margin of error of +/- 9 percentage points. The estimate was based on
a sample of individual paid claims, as in Illinois. The payment accuracy
study recommended increased provider and consumer education, as well as
improvements to computerized payment systems. In addition, Kansas officials
undertook focused reviews of certain types of claims that were identified as
vulnerable to abuse.

In their payment accuracy studies, these states commonly identified errors
such as  missing or insufficient documentation to show whether the claim
was appropriate;

 claims for treatments or services that were not medically necessary;

 claims that should have been coded for a lower reimbursement amount; and

Page 10 GAO- 01- 662 State Efforts to Control Improper Payments Vary

 claims for treatments or services that the program did not cover. Because
payment accuracy studies can provide useful guidance toward developing cost-
effective measures to reduce losses, HCFA has sought HCFAC funding for
grants to states for such efforts. HCFA also has established a workgroup to
develop guiding principles, definitions, and

reporting protocols for payment accuracy studies. HCFA and its workgroup of
state officials are also trying to assess whether, given the many
differences among the various Medicaid programs, a common methodology

can be developed that would allow valid comparison of error rates across
states. Fraud and Abuse Represent a Portion of Improper Payments That Is
Even

More Difficult to Quantify State payment accuracy studies may not fully
identify improper payments

that might be related to fraud, due primarily to fraud?s covert nature.
Losses due to fraudulent billing and other related practices are difficult
to quantify. However, these amounts can be significant, as was demonstrated
recently in California?s program, in which millions of dollars were paid to
numerous fraudulent providers. Since July 1999, a state- federal task force
targeting questionable pharmaceutical and durable medical equipment
suppliers for improper billing has charged 115 providers, wholesalers, and
suppliers in

cases involving about $58 million in fraud. At least 69 individuals have
been convicted and paid about $20 million in restitution. An additional 300
entities are being investigated for suspected fraud that could exceed $250
million. In one case, a family- run equipment company defrauded the program
out of more than $9 million by submitting thousands of claims for equipment
and supplies that were never delivered to patients. Investigators also found
the following.

? Bump and run? schemes in which individuals bill for a few months for
services that are not rendered, stop billing before being detected, and then
start again under a new name.

 Wholesalers who gave pharmacies and suppliers false invoices to
substantiate false claims.  Use of ?marketers? who recruit and pay
beneficiaries $100 or more to

lend their Medicaid identification cards for use in improper billing.

 Use of beneficiary identification numbers stolen from a hospital to bill
for services not provided.

 Use of identification from providers who had retired or moved out of the
state.

 Purchase of an established business in order to fraudulently bill under
its name.

Page 11 GAO- 01- 662 State Efforts to Control Improper Payments Vary

Administrative weaknesses in the California Medicaid program made these
activities easier to accomplish. For example, the program was issuing new
billing numbers to individuals with demonstrated histories of current or

past questionable billing practices. The program allowed providers to have
multiple numbers, and applicants did not have to disclose past involvement
in the program or any ongoing audits. As a result, in some cases,
individuals who had past questionable billings applied for a new provider
number and were reinstated with full billing privileges. In addition,
applicants for a billing number for a business that needed a license- such
as a pharmacy- did not have to disclose that actual owners were not the
licensed individuals. This allowed unlicensed individuals to pay medical
professionals for the use of their licenses to obtain a provider number.
California has taken steps to try to close such loopholes.

In addition to single- state schemes, fraudulent activities sometimes
involve large- scale multistate schemes. One case led to a $486 million
civil settlement in early 2000- one of the largest health care settlements
ever. It followed a 5- year investigation of a dialysis firm billing
Medicare and several state Medicaid programs for intradialytic parenteral
nutrition 8 that was not necessary or not provided in the quantity claimed.
The company had an ownership interest in a laboratory that also double-
billed for unnecessary tests and paid kickbacks to nephrologists and clinics
that used the laboratory. In another case, a national laboratory
headquartered in Michigan was ordered to pay $6. 8 million in a multistate
settlement for

billing Medicare and five Medicaid programs for bogus medical tests.
Improper billing schemes such as the ones discussed above are the principal
types of fraud cases developed by MFCUs, according to MFCU directors
responding to our survey. Improper billing includes ?upcoding,? in which the
provider misrepresents treatment provided and bills for a more costly
procedure; ?ghost? or ?phantom? billing, in which a provider bills for
services never provided; and delivering more services than are either
necessary or appropriate for the patient?s diagnosis. However, other types

of fraud occur, including improper business practices- such as kickbacks for
steering services to a provider- or misrepresentation of qualifications,
such as an individual falsely claiming to be a physician. MFCU directors

8 Parenteral nutrition is a liquid food mixture given intravenously.
Intradialytic parenteral nutrition is a form of parenteral nutritional
therapy that is provided to a dialysis patient during the hemodialysis
procedure. The nutrients are infused into the blood returning from the
dialyzer to the patient.

Page 12 GAO- 01- 662 State Efforts to Control Improper Payments Vary

have found a wide variety of providers involved in fraud, including
physicians, dentists, pharmacies, durable medical equipment providers, and
transportation providers. Beneficiaries also engage in fraud, either by
misrepresenting assets to become eligible for the program, lending or
selling their identification numbers for another?s use, or obtaining
products

such as pharmaceuticals for resale. Fraud is not merely a financial concern-
it can also pose a risk to the physical health of beneficiaries. For
example, providers have drawn blood unnecessarily in order to better
substantiate billing for tests that were not performed, and dentists have
conducted extensive unnecessary dental work on beneficiaries in order to
bill the program.

States? Efforts to Control Improper Payments Are Uneven

The amount of resources and effort that state Medicaid programs devote to
protecting the integrity of their programs varies. Some states have focused
their efforts on preventing improper payments by strengthening their
prepayment claims checking. States? abilities to detect improper payments
also vary, in part because some lack sophisticated information technology

that can help them analyze and track instances of inappropriate billing.
Strong leadership in certain states is resulting in stricter laws and
restructured operations to better ensure that the Medicaid program pays
claims appropriately.

Page 13 GAO- 01- 662 State Efforts to Control Improper Payments Vary

Resources Devoted to Program Protection Efforts Are Generally Modest

Resources for addressing improper Medicaid payments are generally modest. In
our survey, 25 state Medicaid agencies reported spending onetenth of 1
percent or less of program expenditures on these efforts. Others, such as
California, spend about one- fourth of 1 percent of program expenditures on
preventing and detecting improper payments. However, this is not unique to
Medicaid. As we recently reported, the Medicare program devotes little more
than one- fourth of 1 percent of its program expenditures to safeguarding
payments. As a result, we recommended that the Congress increase funding for
these important activities. 9

All states forgo some of the federal funds available to help their MFCUs
investigate and prosecute fraud. MFCUs, once federally certified and in
operation for 3 years, are eligible for 75 cents in federal funds for every

dollar they spend, up to a maximum federal contribution of the greater of
$125,000 per quarter or one- fourth of 1 percent of the state Medicaid
program?s total expenditures in the previous quarter. However, only 10
percent of MFCUs receive enough state funding to obtain even half of the
allowed federal match. States ranged from having enough state funding to
obtain less than 7 percent to having up to 86 percent of their allowed

federal match. Many Medicaid state agency fraud control and MFCU officials
reported gaps in staff, staff training, or technology acquisition. Many
state officials said that they wanted to increase their workforce by hiring
staff with specific skills, such as auditing, computer analysis, and
clinical knowledge,

and adding the technology to analyze large amounts of claims data. For
example, in our survey, only 14 of 53 state agencies reported that they have
statisticians to help collect, organize, and analyze data to spot improper

billing practices. Further, although information technology to store and
analyze large amounts of data easily has improved significantly in recent
years, some states reported using very old information technology to

assess program billing. Four state Medicaid agencies reported using software
that is at least 15 years old to assess claims before payment, and three
state Medicaid agencies reported using software at least that old to analyze
claims after payment to ensure the billings were proper. 9 Medicare: HCFA
Could Do More to Identify and Collect Overpayments

(GAO/ HEHS/ AIMD- 00- 304, Sept. 7, 2000).

Page 14 GAO- 01- 662 State Efforts to Control Improper Payments Vary

While about half of the state agencies and a third of MFCUs reported that
their program integrity unit budgets were steady or declining in the
previous 3 years, 10 we did learn that other states showed a more promising
trend. In our survey, 8 state Medicaid agencies and 4 MFCUs reported that
their budgets for program integrity activities had increased significantly,
while another 15 state agencies and 27 MFCUs reported that their budgets

had increased somewhat. As a result, they reported that they were able to
hire additional staff and increase program safeguards. For example,
Connecticut?s increased funding allowed the state Medicaid agency to hire
additional staff to increase audits and site visits to providers. Georgia?s
state Medicaid agency also received increased funding, which allowed it to
increase staffing levels and to make a number of additional improvements,
such as opening an office to cover the southern part of the state.
Prevention Efforts Emphasized in Certain

States Preventing improper payments can be a cost- effective way to protect
program dollars. Prevention can help avoid what is known as ?pay and chase?
in which efforts must be made to detect and attempt to recover

inappropriate payments after they have been made. Such postpayment efforts
are often costly and typically recover only a small fraction of the
identified misspent funds, although they can identify parts of the program
where controls, such as on payments, may need strengthening. States use a
variety of preventive approaches- such as prepayment computer ?edits,?
manual reviews, provider education, and thoroughly checking the

credentials of individuals applying to be program providers- and the scope
and effectiveness of these activities varies among the states.

States Use Prepayment Edits and Reviews to Help Prevent Improper Payments

All 41 of the state Medicaid agencies responding to our survey about
prepayment claims review reported that they use such reviews to varying
degrees. These include automated computer ?edits? and manual reviews to help
ensure payment accuracy. Typically, their edits check the mathematical
accuracy of claims, the correct use of payment codes, and

patients? Medicaid eligibility. Such reviews help ensure that the services
listed on the claim are covered, medically necessary, and paid in accordance
with state and federal requirements. For example, an edit can be used to
deny a claim for obstetrical care for a male beneficiary. Some states have
thousands of such edits in their payment systems that identify 10 This was
current as of the dates of their completed surveys, which were generally

completed by March 2000.

Page 15 GAO- 01- 662 State Efforts to Control Improper Payments Vary

duplicate claims, invalid dates, missing codes, or claims for services that
conflict with previous care provided to the beneficiary. Although widely
used, recent experiences from several states that are aggressively working
to detect overpayments suggest that their existing

prepayment edits have not been catching various types of improper payments.
A few states have hired a private contractor to help analyze claims data to
uncover overpayments. For example, with the aid of this contractor, Florida
learned that it was paying some pharmacies 10 times more than it should for
asthma inhalant because its edit did not stop claims listing the amount in
unit doses rather than in grams, as required. Following this contractor?s
overpayment review, Kentucky made edit changes it estimates will prevent $2
million in improper payments. This same contractor assisted Washington in
making edit and other policy changes that are anticipated to save $4
million. Investigations in other states have also identified the need for
new and

revised edits. Some MFCU officials reported that they had advised their
state agencies to strengthen certain edits based on the cases they had
investigated. For example, the North Carolina MFCU suggested an edit to its
state agency to identify and bundle laboratory services that should not have
been billed separately. 11 Also, the Louisiana MFCU reported that it had
recommended that its Medicaid agency develop an edit to prevent duplicate
payment of children?s medical screenings and physician visits and to ensure
that physicians and certified nurse practitioners working together do not
send in duplicate claims for the same services.

Manual reviews before claims are paid can further help prevent improper
payments, but they are resource- intensive, thus limiting the number of such
reviews that can be done cost effectively. Manual reviews involve a trained
specialist- such as a nurse- examining documentation submitted with a claim
and possibly requesting additional information from providers,
beneficiaries, and other related parties. Because of the cost and time

involved, manual prepayment review is often targeted to certain providers.
For example, if a provider?s claims pattern is substantially different from
his or her peers, or if there is a sudden increase in claims volume for a

given provider, or if there is substantial evidence of abuse or wrongdoing,
11 From its work with several state Medicaid programs, one contractor
estimates that use of the prepayment edits to address laboratory services
unbundling would allow a Medicaid program with 800,000 enrollees to avoid
costs of about $420, 000 annually.

Page 16 GAO- 01- 662 State Efforts to Control Improper Payments Vary

payment may be withheld until a reviewer determines whether the aberrations
or increases are appropriate and can be substantiated. Table 1 shows
examples of prepayment reviews currently being used by some states.

Table 1: Examples of Prepayment Reviews

Source: GAO.

Educating Providers Is Another Approach Used by States to Prevent Billing
Errors

Because billing mistakes can be inadvertent, educating providers on how to
comply with program rules and file claims correctly can often prevent
errors. For example, in our survey, almost all state Medicaid agencies
reported initiating meetings with providers, usually to discuss coding and
policy changes. Seventeen state Medicaid agencies reported that their staff
met with providers to discuss safeguarding the confidentiality of provider
and beneficiary Medicaid numbers. In addition, 17 state Medicaid programs
alerted providers to prevalent fraud schemes. 12 State Medicaid agencies
also reported conveying information on proper billing procedures to
providers through a variety of other means, such as letters, bulletins,

Internet sites, and professional meetings.

Action State efforts

Focused review of certain providers California bars providers with
previously questionable billing patterns from submitting claims
electronically and performs a manual review before making payment. This
saved more than

$17 million in fiscal 1998 and 1999. Review checks prior to disbursement
California analyzes and refers questionable claims to audit and on- site
review before payments are made.

New Jersey uses off- the- shelf software to analyze claims for aberrant
patterns before payments are made. Point of sale review system Washington
uses an on- line drug claims management system to finalize pharmaceutical
claims when the pharmacist fills the beneficiary?s prescription. The system
screens for duplicate claims and drugs requiring prior authorization, and
provides alerts to such factors as insufficient or excessive dosages and
interactions with other drugs. If appropriate, it approves payment.

12 Eleven states reported both meeting with providers to discuss
safeguarding provider and beneficiary numbers and alerting providers to
fraud schemes.

Page 17 GAO- 01- 662 State Efforts to Control Improper Payments Vary

Provider Enrollment Screening Processes Are Often Limited

Some states use more extensive provider enrollment measures to help prevent
dishonest providers from entering the Medicaid program and to ensure better
control over provider billing numbers. While all states collect some basic
information on providers, states have considerable latitude in how they
structure their provider enrollment processes. In addition, states are
required to check if those providers who should be licensed are

licensed and whether the provider has been excluded from participating in
other federal health programs. Checking a provider?s criminal record and
business site has been found to be important by states such as Florida to
ensure that providers entering the program are legitimate. Nine of the
states responding to our survey reported having a provider enrollment
process that included all four of these checks- licensure, excluded provider
status, criminal record, and business location verification- in their
provider enrollment processes. Table 2 provides examples of these

activities. 13

Table 2: Selected State Efforts to Ensure Legitimacy of Providers

Source: GAO.

13 For more detail, see Medicaid: HCFA and States Could Work Together to
Better Ensure the Integrity of Providers (GAO/ T- HEHS- 00- 159, July 18,
2000).

Action State efforts

Enhanced background checks Florida requires providers such as physicians,
pharmacists, dentists, and others who are not employees of institutions like
hospitals, to undergo fingerprinting and criminal background screening. All
officers, directors, managers, and owners of 5 percent or more of a provider
business must be screened. Fingerprints are checked with both state and
federal law enforcement agencies.

Strengthened provider agreements Connecticut, Florida, Georgia, and Texas
revised provider agreements so they can terminate

providers from the program without cause, allowing for more expeditious
removal of providers who are billing inappropriately. Reenrollment under
tightened standards Florida and Texas tightened enrollment standards-
through enhanced background checks and

strengthened provider agreements as well as other methods- and has required
existing providers to reenroll under the new standards. Special procedures
for select providers New Jersey has more stringent enrollment procedures for
provider categories with higher risk of payment problems, such as
pharmacies, independent laboratories, and transportation companies.

Preenrollment site visits Some states- including Florida, Georgia, and New
Jersey- conduct preenrollment site visits, usually to higher- risk provider
types, such as pharmacies and durable medical equipment suppliers.

Page 18 GAO- 01- 662 State Efforts to Control Improper Payments Vary

Most Medicaid agencies reported checking whether applicants whose practice
requires licensure had a valid license and whether they had been excluded
from participating in other federal health programs. 14 However, less than
half of the states responding to our survey reported checking

whether applicants have criminal records. While conducting such checks on a
targeted basis might be useful in helping to protect the program, they can
be time- consuming and difficult to perform, according to states that have
attempted them. This is due in part to often inaccurate and

incomplete statewide databases containing records on criminal convictions.
Nineteen of 52 state Medicaid programs reported that they conducted site
visits to determine if an applicant had a bona fide operation. Of those that
do conduct site visits, most limit them to particular types of providers
they believe have a greater likelihood of abusing the program. For example,
Kansas Medicaid officials reported that, based on a risk analysis, there is
a greater risk that durable medical equipment suppliers are not legitimate
providers and, therefore, the Medicaid program

conducted site visits of these applicants. Many states allow providers, once
enrolled, to bill the program indefinitely without updating information
about their status. Poor control over provider billing numbers can make
Medicaid programs more vulnerable to improper payment. In our survey, 26
states reported allowing providers to continue to bill indefinitely while
other states had an enrollment time limit, which often varied by provider
type. However, 33 states reported that they cancel inactive billing numbers-
generally for providers who have not billed the program for more than 1 to 3
years. Such efforts can be important, as questionable providers have been
known to keep multiple billing numbers ?in reserve? in case their primary
billing number is suspended. In California, some individuals falsely billed
the Medicaid program using the numbers of retired practitioners.

States? Postpayment Detection Activities and Capabilities Differ

Just as states are uneven in their efforts to prevent improper payments,
they also vary in their ability to detect improperly paid claims. Because
prepayment reviews cannot catch all erroneous claims, Medicaid programs must
have systems in place to retrospectively review paid claims. While

some states are using software from the early 1980s to analyze paid claims,
14 These two checks are related to federal requirements that states use only
qualified providers and that the federal government not pay for medical
services provided by excluded providers.

Page 19 GAO- 01- 662 State Efforts to Control Improper Payments Vary

other states- such as Texas and Washington- are implementing state- ofthe-
art systems to improve their ability to detect and investigate potential
improper payments.

Each Medicaid state agency is required to have an automated claims
processing and retrieval system that can be used to detect postpayment
errors. These automated claims processing systems, known as Medicaid
Management Information Systems (MMIS), contain a Surveillance and
Utilization Review Subsystem (SURS) that state agency officials can use to
identify providers with aberrant billing patterns. For example, these might
include providers with a large increase in Medicaid activity or with billing

patterns that are significantly different from their peers and that result
in enhanced reimbursement. Almost all states reported conducting focused
reviews or investigations when a provider?s billing was aberrant to
determine if any improper payments had been made. State Medicaid officials
told us that when their state Medicaid agency discovers that improper
payments have been made, it takes action to recover the improper payment,
and, if warranted, refers the provider to its state MFCU for possible
criminal investigation and prosecution. Providers who have been identified
as having significant billing problems generally receive continued scrutiny
if they remain in the program. The systems used to uncover such aberrant
billing- MMIS and SURS-

were developed in the early 1980s when computer algorithms to identify
potentially inappropriate claims were less sophisticated and analysis
required more programming skill. Newer systems allow staff to use desktop
computers to directly query large databases of claim, provider, and
beneficiary information, without requiring the assistance of data processing
professionals. Several state officials reported that buying or

leasing these upgraded computer systems and hiring staff skilled in their
use would be their top priority if they had more funding. Other states are
already purchasing or leasing such systems, as the following examples
illustrate.

 Texas is using private contractors to design, develop, install, and train
staff to use a state- of- the- art system intended to integrate detection
and investigation capabilities. It is intended to allow the state to uncover
potentially problematic payment patterns that old SURS profiling

methodologies would have missed. It also includes a ?neural network? that is
intended to ?learn? from the data it analyzes and adjust its algorithms to
identify previously overlooked aberrant payment patterns. The system is
further enhanced with modules designed to help develop

Page 20 GAO- 01- 662 State Efforts to Control Improper Payments Vary

cases for prosecution. The first 2 years of the project cost Texas $5. 8
million, but according to state Medicaid officials, Texas had already
collected $2.2 million in overpayments in the system?s first year of
operation.

 Kentucky has hired a private contractor to use an advanced computer system
to analyze claims payment data. It is paying that contractor through
contingency fees based on overpayment collections related to these efforts.
Using claims data from January 1995 through June 1998, the contractor
identified $137 million in overpayments, of which the

state has collected between $4 and $5 million. That compares to previous
recovery efforts by the state that, on average, netted about $75,000 a year.

 Under its new Payment Integrity Program, Washington is using a private
contractor to design, develop, install, and train staff to analyze data on
an advanced computer system. The system improves access to data and includes
fraud and abuse identification software with prepackaged algorithms to
analyze the data and identify overpayments, as well as develop leads that
would need further investigation. It also allows agency staff to develop
algorithms and perform their own online reviews. Since the program started
in June 1999, the contractor and state agency staff have identified
overpayments totaling more than $2. 95 million. Some states have developed
detection strategies that combine the use of advanced technology with
special investigative protocols. For example, New Jersey conducted special
audits of transportation services, crossmatching

data on transportation claims to beneficiary medical appointments, and
sometimes contacting providers to confirm that the beneficiary actually
arrived and was treated. Also, using billing trend reports, New Jersey
audited pharmacies with abnormally large numbers of claims for a newly
covered high- priced drug, and then audited the

pharmacies? purchases from wholesalers, thus discovering that these
pharmacies were billing for a larger amount of this drug than had been
shipped to them.

Beneficiaries can also play a role in helping state Medicaid agencies detect
improper payments. Forty- two states reported having hotlines that
beneficiaries could use to report suspected improprieties. Fourteen states
reported alerting beneficiaries to certain types of fraudulent schemes.
Twenty- seven reported taking other types of actions. For example, some
states commented that they mail explanation- of- benefit statements to
beneficiaries to increase awareness of the services being billed in their

Page 21 GAO- 01- 662 State Efforts to Control Improper Payments Vary

names, so that if beneficiaries are not receiving billed services, they will
be able to inform the state.

Fraud Investigation and Prosecution Is a Shared Responsibility

State Medicaid agencies are primarily responsible for conducting program
integrity activities, but they share this responsibility with other
agencies. For example, they are required to refer potential fraud cases to
the MFCUs for investigation and prosecution. Cases that may involve improper
billing of Medicare or private insurers as well as Medicaid may also require
investigation by the OIG or the FBI, and may involve prosecution by DOJ. In
addition, other state agencies, such as those responsible for licensure,

can become involved in an investigative effort. Federal regulations require
Medicaid agencies and MFCUs to have an agreement to cooperate; however, the
actual level of cooperation between state Medicaid agencies and MFCUs
varies. State Medicaid agencies are required to refer suspected fraud cases
to MFCUs for investigation and possible prosecution, provide needed records
to the MFCUs, and enter into a Memorandum of Understanding establishing
procedures for sharing information and referring cases.

In our survey, MFCUs generally reported that about one- third of the cases
that they open are referred by their state Medicaid agency. The most common
criterion reported by state agencies for referring cases to MFCUs

was a belief of an intent to commit an impropriety on the part of a
provider. The number of cases state agencies reported referring in their
previous fiscal year varied substantially. This is not surprising because
Medicaid

agencies differ in size, organization, scope of services, and beneficiary
eligibility requirements. They also operate in different states, each of
which has its own legal system and business climate, differences that can
affect the number and quality of fraud referrals made by the state agency.
In addition to differences in referral patterns, the reported level of

interaction between states? Medicaid agencies and MFCUs also varied. For
example, meetings between the two organizations to discuss pending cases are
important for preventing agency actions that could compromise a fraud

unit investigation or for alerting MFCU officials to cases the state agency
is developing. Most state Medicaid agencies reported having joint meetings
at least six times a year; however, eight states reported that they conduct
such meetings only one to three times each year.

Page 22 GAO- 01- 662 State Efforts to Control Improper Payments Vary

New Jersey is a state where the Medicaid agency and MFCU have worked
together to further each agency?s efforts through close cooperation.
Medicaid agency staffers are sometimes detailed to the MFCU to continue
working cases they have developed. The state agency and MFCU hold joint
meetings monthly to discuss developing cases, case progress, and to plan

strategies for investigations, prosecutions, and administrative actions. The
MFCU tries to use search warrants and other methods to gather evidence in
suspected fraud cases so that information can be shared with the Medicaid

agency. This is in contrast to the use of another MFCU tool- grand jury
investigations- which have secrecy rules to prevent disclosure of evidence.
This level of cooperation allows the state Medicaid agency to take immediate
administrative action to stop improper payments without

disrupting criminal case development. The MFCU also works to have defendants
who are pleading guilty sign a consent order debarring or disqualifying them
from participating in Medicaid, 15 eliminating the need for state agency
debarment or disqualification proceedings. In contrast to New Jersey, in
another state, the director of an MFCU reported to us that MFCU
investigators were denied access to state Medicaid agency meetings, which
made it more difficult for both agencies to develop potential fraud cases.
State Medicaid and MFCU officials told us that close collaboration among
state agencies or state and federal law enforcement agencies was

particularly important for certain types of cases. In the handful of states
whose MFCUs lack authority to serve warrants or prosecute cases, MFCUs must
work with other agencies to ensure that these activities take place. When
dealing with individuals whose fraudulent or abusive activities cross state
lines, one MFCU may need to work with other states? agencies or with federal
officials. Some cases involve efforts to defraud both Medicare and Medicaid,
which can require an MFCU to work with the OIG or FBI. Such interagency
collaboration has been fostered by the HCFAC program, which has increased
funding for federal health care law enforcement efforts. Implementing
section 407 of the Ticket to Work and Work Incentives Improvement Act of
1999, which authorized MFCUs to address cases that involve Medicare as well
as Medicaid fraud, will also likely necessitate

enhanced cooperation between MFCUs and federal law enforcement officials. 15
Debarred providers cannot participate in New Jersey?s Medicaid program for a
period generally not to exceed 5 years; providers disqualified for an
indefinite period of time cannot apply for reinstatement for a minimum of 8
years.

Page 23 GAO- 01- 662 State Efforts to Control Improper Payments Vary

Nearly all MFCUs responding to our survey reported that they have conducted
joint investigations with other organizations in the last 3 years. Most
commonly, this involved conducting joint investigations with their state
agency, state licensing boards, the OIG, FBI, or a federal task force.
Cooperative efforts have led to joint prosecutions. Twenty- seven states
reported jointly prosecuting criminal cases with federal attorneys in the

previous 3 years- about half doing so at least four times. Such cooperation
can augment state officials? activities. This was demonstrated in
California, where members of a task force created by the FBI, the U. S.
Attorney?s office, the California State Controller?s office, the Attorney
General?s office, and the state Department of Health uncovered numerous
fraud and abuse cases in the Los Angeles area. The Controller?s

staff audited suppliers and referred to the FBI those with insufficient
inventories or purchase records to substantiate claims volume. The FBI
investigated further and made referrals to the U. S. Attorney. Meanwhile,
the governor created a fraud prevention bureau within the state agency that
worked closely with on- site FBI agents to investigate provider operations.

Once a case was developed, the FBI referred it to the MFCU and U. S.
Attorney?s office for prosecution.

Some States Have Taken Additional Steps to Enhance Medicaid Program
Integrity

During our review, we found that several states- including Georgia, New
Jersey, North Carolina, and Texas- have enacted stricter rules or
restructured operations to better ensure the integrity of their Medicaid
programs. A few examples of their accomplishments follow.

Page 24 GAO- 01- 662 State Efforts to Control Improper Payments Vary
Legislative changes: Some states are enacting health- care- specific
criminal and civil legislation- often modeled after federal law. With these

statutes, prosecutors no longer must develop cases based on more generic
mail fraud, racketeering, theft, or conspiracy statutes. For example, New
Jersey enacted the Health Care Claims Fraud Act, which creates the specific
crime of health care claims fraud and provides for 10- year prison
sentences, fines of up to five times the amount gained through fraud, and

professional license revocation. 16 Meanwhile, civil statutes- such as one
enacted in North Carolina and other states authorizing action against
providers who ?knowingly? submit false Medicaid claims for payment- allow
prosecutors to take advantage of less stringent evidentiary requirements
than those required by criminal statutes. 17 Restructuring operations: Some
states are enhancing their program

safeguard operations through restructuring. Texas created an Office of
Investigations and Enforcement in 1997 within the state Medicaid agency,
giving it power to take administrative actions against providers. These
actions cannot be appealed when the Office has tangible evidence of
potential fraud, abuse, or waste. It also can impose sanctions and recover
improper payments. Meanwhile, Georgia established an MFCU in 1995 that
differs from most in that it includes auditors from the state Department of
Audits, investigators from the state Bureau of Investigation, and
prosecutors from the state Attorney General?s office. They work together

as a discreet entity under memoranda of understanding signed by the three
agencies. Current Federal Role Focuses on Technical Assistance

HCFA and the OIG- the agencies that are responsible for the Medicaid program
at the federal level- are taking steps to promote effective Medicaid program
integrity by providing technical help to the states to facilitate states?
efforts. These federal agencies also conduct some information gathering on
state activities in order to guide state efforts.

Many state agency and MFCU officials reported that their agencies had
benefited greatly from federal technical assistance, guidance, and training,
and would welcome more assistance.

16 N. J. Stat. Ann. 2Csect. 21- 4. 3, N. J. Stat. Ann. 2Csect. 51- 5. a.( 1998). 17
North Carolina?s Medical Assistance Provider False Claims Act was signed
into law by the governor July 25, 1997, (N. C. Gen. Stat. sect.108A- 70.10 et
seq.).

Page 25 GAO- 01- 662 State Efforts to Control Improper Payments Vary

HCFA Has Increased Efforts to Facilitate State Program Integrity Activities
In 1997, HCFA began a new approach as a facilitator, enabler, and catalyst
of states? program integrity efforts. To do so, HCFA established the

National Medicaid Fraud and Abuse Initiative, led by staff from HCFA?s
southern consortium 18 and headquarters, with designated, part- time
coordinators for the Initiative in each of HCFA?s 10 regional offices. The
strategy for the Initiative was to partner with the states and have state
representatives work with HCFA staff to set the agenda and goals for the
effort. The Initiative provides networking, information sharing, and
training opportunities for state agencies and their program integrity
partners. Participants in early Initiative meetings identified 10 major
focus areas-

including payment accuracy measurement, managed care, and information
technology. Workgroups are developing recommendations in each area.

The Initiative also includes the Medicaid Fraud and Abuse Control Technical
Advisory Group, consisting of HCFA and state officials, which serves as an
ongoing forum for

 sharing issues, solutions, resources, and expertise among states;

 advising HCFA on policies, procedures, and program development; and

 making recommendations on federal policy and legislative changes. The
Initiative has resulted in several tangible products and events, including a
fraud statute Web site, managed care guidelines, seminars on innovations and
obstacles in safeguarding Medicaid, and a technology conference. These
efforts are described in table 3. 18 This comprises the Atlanta and Dallas
regional offices.

Page 26 GAO- 01- 662 State Efforts to Control Improper Payments Vary

Table 3: National Medicaid Fraud and Abuse Initiative Activities

Source: GAO. State Medicaid officials that we spoke with reported that
Initiative activities are helping them with their program safeguard efforts
by providing important networking, information sharing, and training
opportunities. Our survey results indicated that staff from 41 state
Medicaid agencies attended Initiative- sponsored training last year, and
more than 40 percent of state agencies had staff serve on Initiative panels.
In fact, nearly 75 percent of state Medicaid agency survey respondents would
like more of the types of assistance HCFA has been providing,

including additional

 training;

 technical assistance on use of technology;

 guidance on managed care fraud detection and prevention; and

 information on innovative practices in other states.

State fraud statutes Web site This Internet site- at http:// fightfraud.
hcfa. gov/ mfs- includes a database of state statutes used to combat program
fraud and abuse that other states can use as models.

Managed care guidelines HCFA issued Guidelines for Addressing Fraud and
Abuse in Medicaid Managed Care, which includes information on how to
identify managed care fraud and abuse, and outlines key components of an
effective managed care fraud and abuse control program. Seminars on
innovations and

obstacles HCFA sponsored four regional ?executive seminars,? attended by
program executives from 49 states and other program integrity partners, to
discuss innovations and obstacles in safeguarding Medicaid. A report on the
findings was published in 1999, and a follow- up ?Commitment Conference? was
held in the Washington, D. C. area in 2000. Technology conference HCFA, with
DOJ, cosponsored a conference, Combating Health Care Fraud & Abuse:
Technologies and Approaches for the 21 st Century, to advance understanding
of how technological tools such as data mining and neural networks can help
detect fraudulent or abusive payments.

Page 27 GAO- 01- 662 State Efforts to Control Improper Payments Vary

According to HCFA and some state officials, this approach has been more
effective than previous efforts to guide state activities. Prior to 1997,
HCFA reviewed information systems- including state SURS unit activities-
through formal ?systems performance reviews? of program controls. These
controls included those related to payment and program safeguard activities.
HCFA could impose penalties on states that failed these reviews, and some
HCFA and state officials told us that states found the reviews burdensome.
Section 4753 of the Balanced Budget Act of 1997 19 repealed HCFA?s authority
to conduct such reviews. State and federal officials agree that federal
attention to state program protection efforts declined after

these mandatory reviews were eliminated. HCFA officials told us that staff
in HCFA?s regional offices continued to provide some oversight of state
efforts, but not in a coordinated way. However, without a regular review of
state activities to address improper payments, HCFA staff had little
information with which to guide states where more effective efforts were
needed. To get a more comprehensive

and systematic view of state antifraud efforts, the regional Initiative
coordinators conducted structured site reviews of certain program safeguards
in eight states in fiscal year 2000. These reviews examined how state
Medicaid agencies identify and address potential fraud or abuse,

whether state agencies are complying with appropriate laws and regulations-
such as how they check to ensure that only qualified providers participate
in the program- and potential areas for improvement. Reviews in another
eight states are being conducted in fiscal year 2001. However, these
reviews, as with all of HCFA?s Initiative endeavors, focus only on state
efforts to address potential fraud and abuse; they do not address all of the
ways states may be trying to prevent or detect improper payments, and
whether these efforts could be improved.

OIG Reviews MFCUs? Reported Activities and Provides Training Opportunities

The OIG initially certifies, and each year recertifies, that MFCUs are
complying with federal requirements and are eligible for federal funding. 20
The OIG determines whether an MCFU should be recertified primarily based on
reports the MFCUs submit on their activities. The OIG assesses these reports
to determine whether each unit has used federal funds

19 P. L. 105- 33. 20 Initially, HCFA had responsibility for certifying MFCUs
and monitoring their activities. In 1979, the responsibility was transferred
to the OIG because MFCU activities are more closely related to the OIG?s
investigative functions.

Page 28 GAO- 01- 662 State Efforts to Control Improper Payments Vary

effectively and has met a set of 12 performance standards. These standards,
which the OIG developed in conjunction with the National Association of
Medicaid Fraud Control Units, cover areas such as staffing, training, types

of cases (whether they constitute potential fraud or physical abuse of
beneficiaries), case flow, and monitoring of case outcomes. For example, in
the area of staffing, the OIG checks whether an MFCU has the minimum number
of staff required. This includes at least one attorney experienced in
investigating criminal cases or civil fraud, one experienced auditor capable
of supervising financial records reviews and assisting in fraud
investigations, and one senior investigator with substantial experience in
conducting and supervising criminal investigations.

The OIG may also conduct site visits to observe MFCU operations or provide
guidance. Eight MFCUs received such visits in fiscal year 1999. OIG
officials said they rarely decertified MFCUs. If decertified, an MFCU can
reapply for federal certification when officials believe it will meet the
required standards. Such is the case with the District of Columbia?s MFCU,

which was decertified in 1983 for ?lack of productivity.? It was recertified
in 2000. The MFCUs generally reported being satisfied with OIG oversight and
guidance, but indicated several areas where the OIG could provide more
assistance- especially by providing more training. More than 45 percent of
MFCUs reported that their staff attended OIG- sponsored training in the

past fiscal year. MFCUs also would like the OIG to do the following.

 MFCU officials wanted the OIG to provide more training and assistance in
their new authority to address cases that involve both Medicare and Medicaid
fraud. Survey respondents were particularly interested in learning more
about Medicare program rules, how Medicare claims processing contractors
operate, and recent Medicare fraud schemes. They also wanted help in working
with HCFA and Medicare claims

processing contractors to get timely, online access to Medicare claims data.
The OIG has begun to provide training on Medicare related issues.

 MFCUs would like the OIG to increase the number of OIG staff in regions
and local areas to increase their participation in joint investigations.
Concluding Observations

Medicaid remains vulnerable to payment error and, while most states are
taking steps to address their programs? vulnerabilities, their efforts are
uneven. Some states have worked diligently to prevent or detect improper

Page 29 GAO- 01- 662 State Efforts to Control Improper Payments Vary

payments, while others have not been as proactive. The federal government
has provided technical assistance and a forum for information exchange for
the states, as well as some guidance. Given that states are responsible for
administering Medicaid and investigating and prosecuting any fraudulent
activities, states must set their own course to ensure the

integrity of their Medicaid programs. But the federal government has a
responsibility to actively partner with states to ensure that they succeed.
In recent years, HCFA and other federal investigative organizations have
played a more active role as partners in this endeavor.

Agency Comments and Our Evaluation

We provided draft copies of this report to HHS for comment. HHS officials
provided written comments (see appendix III). We also provided excerpts from
the draft report that dealt with state activities to states that we had
visited. The reviewing officials suggested some technical corrections, which
we incorporated into the report where appropriate. In its written comments,
HHS provided information on the Department?s most recent efforts to prevent
improper payments and to combat fraud and abuse in the Medicaid program.
Among other activities, these efforts include a resource guide for states, a
summary report of the joint HHS- DOJ technology conference, and a data
exchange project between Medicaid and Medicare. HHS highlighted efforts to
review program integrity activities in states and indicated that it intends
to broaden the scope of the review in future fiscal years. Both the OIG and
HCFA have developed training for

state officials, including training for MFCU officials on Medicare. Finally,
HHS reported that it has established a Web site at www. hcfa. gov/ medicaid/
fraud to provide states with additional technical assistance and guidance in
their efforts to prevent and detect improper payments and to address fraud
and abuse.

As agreed with your office, unless you announce this report?s contents
earlier, we plan no further distribution until 30 days after the issue date.
We will then send copies to the Honorable Tommy G. Thompson, Secretary of
HHS; the Honorable Thomas Scully, Administrator of HCFA; Mr. Michael
Mangano, Acting Inspector General; and other interested parties. We will
make copies available to others upon request. If you or your staff have any

questions about this report, please call me at (312) 220- 7600 or Sheila K.

Page 30 GAO- 01- 662 State Efforts to Control Improper Payments Vary

Avruch at (202) 512- 7277. Other major contributors to this report were
Barrett Bader, Bonnie Brown, Joel Grossman, and Elsie Picyk. Sincerely
yours,

Leslie G. Aronovitz Director, Health Care- Program

Administration and Integrity Issues

Page 31 GAO- 01- 662 State Efforts to Control Improper Payments Vary

Page 32 GAO- 01- 662 State Efforts to Control Improper Payments Vary

Appendix I

Appendi xes Scope and Methodology Appendi x I

As we developed our work on this report, we focused on the risk of improper
Medicaid fee- for- service payments, states? efforts to address improper
payments- including efforts to investigate and prosecute fraud- and the
guidance and oversight the states are receiving from federal oversight
agencies. To do this work, we used information from our surveys, state
visits, interviews, and analyses of agency program integrity documents and
literature.

To address the risk of improper fee- for- service payments, we reviewed
studies that Illinois, Kansas, and Texas have conducted to measure payment
accuracy in their Medicaid programs, and we interviewed state officials on
the studies? methodologies, findings, and limitations. To gain information
on the types of improper billing schemes and other types of fraud cases, we
interviewed state officials and reviewed state and HCFA documents. We also
used results from our state survey, described below.

To find out about state activities and federal oversight from the states?
perspective, we analyzed the results of surveys we sent to the 56 state
Medicaid agencies and the 47 federally certified MFCUs then in existence.
Fifty- three of the 56 state Medicaid agencies and 46 of the 47 MFCUs
responded to our surveys. An additional MFCU in the District of Columbia,

which had been decertified in 1983, was recertified in March 2000 after we
sent out our survey. To facilitate their answering our questionnaire, we
asked respondents, in several questions on the surveys, to base their
answers on data from their most recently completed fiscal years, whether
state or federal. (See appendix II for copies of our questionnaires and
results.) To supplement the survey analyses, we visited state Medicaid
programs and

MFCUs in four states: Georgia, New Jersey, Texas, and Washington. 1 We chose
these states to provide regional diversity, and because they were among the
ones considered by federal officials to be particularly active in efforts to
identify and respond to improper payment practices- either through the use
of new technology or by other means. Also, by telephone, we interviewed
Medicaid, MFCU, and state government officials in other states that have
taken steps to strengthen their Medicaid program integrity efforts.

1 We also conducted an initial visit in Tennessee.

Appendix I Scope and Methodology

Page 33 GAO- 01- 662 State Efforts to Control Improper Payments Vary

To better understand efforts to control improper payments at the national
level, we interviewed officials at HCFA?s Central Office and leaders of the
agency?s National Medicaid Fraud and Abuse Initiative in HCFA?s Atlanta and
Dallas regional offices, as well as officials at the OIG. To gain a more

broad- based perspective on other joint agency investigations and
prosecutions, we interviewed representatives of the FBI, the U. S. Attorneys
office, and the Civil and Criminal Divisions of DOJ. In addition, we
participated in several meetings on control of improper payments, including
fraud, which were sponsored by HCFA and others. Finally, we interviewed
representatives of provider and supplier groups and technology companies
that have developed software that is useful in the detection of improper
payments. In addition, we reviewed literature on health care fraud and
abuse, including studies by the OIG, HCFA, and others.

We performed our work from September 1999 through April 2001 in accordance
with generally accepted government auditing standards.

Page 34 GAO- 01- 662 State Efforts to Control Improper Payments Vary

Appendix II Aggregated Results From State Medicaid Agency and MFCU
Questionnaires Appendi x II

Appendix II Aggregated Results From State Medicaid Agency and MFCU
Questionnaires

Page 35 GAO- 01- 662 State Efforts to Control Improper Payments Vary

Appendix II Aggregated Results From State Medicaid Agency and MFCU
Questionnaires

Page 36 GAO- 01- 662 State Efforts to Control Improper Payments Vary

Appendix II Aggregated Results From State Medicaid Agency and MFCU
Questionnaires

Page 37 GAO- 01- 662 State Efforts to Control Improper Payments Vary

Appendix II Aggregated Results From State Medicaid Agency and MFCU
Questionnaires

Page 38 GAO- 01- 662 State Efforts to Control Improper Payments Vary

Appendix II Aggregated Results From State Medicaid Agency and MFCU
Questionnaires

Page 39 GAO- 01- 662 State Efforts to Control Improper Payments Vary

Appendix II Aggregated Results From State Medicaid Agency and MFCU
Questionnaires

Page 40 GAO- 01- 662 State Efforts to Control Improper Payments Vary

Appendix II Aggregated Results From State Medicaid Agency and MFCU
Questionnaires

Page 41 GAO- 01- 662 State Efforts to Control Improper Payments Vary

Appendix II Aggregated Results From State Medicaid Agency and MFCU
Questionnaires

Page 42 GAO- 01- 662 State Efforts to Control Improper Payments Vary

Appendix II Aggregated Results From State Medicaid Agency and MFCU
Questionnaires

Page 43 GAO- 01- 662 State Efforts to Control Improper Payments Vary

Appendix II Aggregated Results From State Medicaid Agency and MFCU
Questionnaires

Page 44 GAO- 01- 662 State Efforts to Control Improper Payments Vary

Appendix II Aggregated Results From State Medicaid Agency and MFCU
Questionnaires

Page 45 GAO- 01- 662 State Efforts to Control Improper Payments Vary

Appendix II Aggregated Results From State Medicaid Agency and MFCU
Questionnaires

Page 46 GAO- 01- 662 State Efforts to Control Improper Payments Vary

Appendix II Aggregated Results From State Medicaid Agency and MFCU
Questionnaires

Page 47 GAO- 01- 662 State Efforts to Control Improper Payments Vary

Appendix II Aggregated Results From State Medicaid Agency and MFCU
Questionnaires

Page 48 GAO- 01- 662 State Efforts to Control Improper Payments Vary

Appendix II Aggregated Results From State Medicaid Agency and MFCU
Questionnaires

Page 49 GAO- 01- 662 State Efforts to Control Improper Payments Vary

Appendix II Aggregated Results From State Medicaid Agency and MFCU
Questionnaires

Page 50 GAO- 01- 662 State Efforts to Control Improper Payments Vary

Appendix II Aggregated Results From State Medicaid Agency and MFCU
Questionnaires

Page 51 GAO- 01- 662 State Efforts to Control Improper Payments Vary

Appendix II Aggregated Results From State Medicaid Agency and MFCU
Questionnaires

Page 52 GAO- 01- 662 State Efforts to Control Improper Payments Vary

Appendix II Aggregated Results From State Medicaid Agency and MFCU
Questionnaires

Page 53 GAO- 01- 662 State Efforts to Control Improper Payments Vary

Appendix II Aggregated Results From State Medicaid Agency and MFCU
Questionnaires

Page 54 GAO- 01- 662 State Efforts to Control Improper Payments Vary

Appendix II Aggregated Results From State Medicaid Agency and MFCU
Questionnaires

Page 55 GAO- 01- 662 State Efforts to Control Improper Payments Vary

Appendix II Aggregated Results From State Medicaid Agency and MFCU
Questionnaires

Page 56 GAO- 01- 662 State Efforts to Control Improper Payments Vary

Appendix II Aggregated Results From State Medicaid Agency and MFCU
Questionnaires

Page 57 GAO- 01- 662 State Efforts to Control Improper Payments Vary

Appendix II Aggregated Results From State Medicaid Agency and MFCU
Questionnaires

Page 58 GAO- 01- 662 State Efforts to Control Improper Payments Vary

Appendix II Aggregated Results From State Medicaid Agency and MFCU
Questionnaires

Page 59 GAO- 01- 662 State Efforts to Control Improper Payments Vary

Appendix II Aggregated Results From State Medicaid Agency and MFCU
Questionnaires

Page 60 GAO- 01- 662 State Efforts to Control Improper Payments Vary

Appendix II Aggregated Results From State Medicaid Agency and MFCU
Questionnaires

Page 61 GAO- 01- 662 State Efforts to Control Improper Payments Vary

Appendix II Aggregated Results From State Medicaid Agency and MFCU
Questionnaires

Page 62 GAO- 01- 662 State Efforts to Control Improper Payments Vary

Appendix II Aggregated Results From State Medicaid Agency and MFCU
Questionnaires

Page 63 GAO- 01- 662 State Efforts to Control Improper Payments Vary

Appendix II Aggregated Results From State Medicaid Agency and MFCU
Questionnaires

Page 64 GAO- 01- 662 State Efforts to Control Improper Payments Vary

Appendix II Aggregated Results From State Medicaid Agency and MFCU
Questionnaires

Page 65 GAO- 01- 662 State Efforts to Control Improper Payments Vary

Page 66 GAO- 01- 662 State Efforts to Control Improper Payments Vary

Appendix III Comments From the Department of Health and Human Services
Appendi x I II

Appendix III Comments From the Department of Health and Human Services

Page 67 GAO- 01- 662 State Efforts to Control Improper Payments Vary

Appendix III Comments From the Department of Health and Human Services

Page 68 GAO- 01- 662 State Efforts to Control Improper Payments Vary

Page 69 GAO- 01- 662 State Efforts to Control Improper Payments Vary

Related GAO Products

Major Management Challenges and Program Risks: Department of Health and
Human Services (GAO- 01- 247, Jan., 2001).

National Practitioner Data Bank: Major Improvements Are Needed to Enhance
Data Bank?s Reliability (GAO- 01- 130, Nov. 17, 2000).

Medicaid: State Financing Schemes Again Drive Up Federal Payments (GAO/ T-
HEHS- 00- 193, Sept. 6, 2000).

Financial Management: Improper Payments Reported in Fiscal Year 1999
Financial Statements (GAO/ AIMD- 00- 261- R, July 27, 2000).

Medicaid: HCFA and States Could Work Together to Better Ensure the Integrity
of Providers (GAO/ T- HEHS- 00- 159, July 18, 2000).

Medicaid In Schools: Improper Payments Demand Improvements in HCFA Oversight
(GAO/ HEHS/ OSI- 00- 69, Apr. 5, 2000).

Medicaid: Federal and State Leadership Needed to Control Fraud and Abuse
(GAO/ T- HEHS- 00- 30, Nov. 9, 1999).

Financial Management: Increased Attention Needed to Prevent Billions in
Improper Payments (GAO/ AIMD- 00- 10, Oct. 29, 1999).

(101880) Lett er

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