Medicaid Fraud and Abuse

Medicaid Fraud and Abuse 



NCSL Contact

Two snakes medical symbol photoUpdated April 2013


Fraud and abuse in Medicaid cost states billions of dollars every year, diverting funds that could otherwise be used for legitimate health care services. Not only do fraudulent and abusive practices  increase the cost of Medicaid without adding value – they increase risk and potential harm to patients who are exposed to unnecessary procedures. As states look for innovative ways to contain burgeoning Medicaid costs, fighting fraud and abuse offers one approach that everyone can support.

While Medicaid fraud involves knowingly misrepresenting the truth to obtain unauthorized benefit, abuse includes any practice that is inconsistent with acceptable fiscal, business or medical practices that unnecessarily increase costs. Waste is a related, though somewhat different issue, which encompasses overutilization of resources and inaccurate payments for services, such as unintentional duplicate payments. 

Various programs have been developed at both the state and federal levels to prevent, identify and prosecute Medicaid fraud and abuse by providers, patients and insurers. While states have traditionally relied upon the “pay and chase” model, paying Medicaid claims and then trying to recover improper payments, the focus is increasingly on preventing and detecting fraudulent activities early on.

New York, for example has integrated targeted data mining and risk analysis into its fraud-fighting tool box. In Texas, a few simple process changes and new pattern analysis and recognition efforts moved the state closer to ‘real–time analysis’ and significantly increased the amount of fraud identified.  For more on what these states have done to fight Medicaid fraud and abuse, check out this Webinar archive.

Medicaid Integrity Provisions in the Affordable Care Act

The Affordable Care Act (ACA) introduces various requirements aimed at improving Medicaid program integrity. While some require initial state investment, the hope is that these changes will reduce costs associated with fraud and abuse in the long run.

In effort to stem fraud and abuse in Medicaid, the ACA:  

  • Creates a web-based portal that enables states to compare information on providers that have been terminated (and whose billing privileges have been revoked). States are required to enter information about these providers into the new database, which also enables states to identify providers that have been terminated by other states and by Medicare.  

  • Increases provider screening and enrollment requirements. Requires provider screening based on their categorical risk level – ‘limited,’ ‘moderate,’ or ‘high.’ Screenings include license verifications, database checks, unscheduled medical site visits, fingerprinting and criminal background checks, among others.  

  • Requires that states suspend Medicaid payments to individuals or entities where there is a credible allegation of fraud, unless a state believes there is ‘good cause’ not to. 

  • Allows states to impose temporary moratoria to prevent fraud, waste and abuse among new providers.

  • Requires state Medicaid programs to establish Recovery Audit Contractor (RAC) programs to identify and recover overpayments and underpayments. RACs are private entities with which states must contract to conduct post-payment review, including provider audits, claim review and improper payment identification and collection. These contractors are paid on a contingency fee basis.

  • Mandates the use of the Nation Correct Coding Initiative (NCCI) to minimize improper coding. NCCI is a CMS program containing coding policies and edits that are used to identify procedures and services performed by one provider for a certain beneficiary on a specific date of service. 

  • Encourages data system enhancements and expands Medicaid Management Information Systems data elements to identify fraud and abuse. Matching federal funds are available for states to design, develop and install certain systems. 

  •  Requires that physicians document a face-to-face encounter (telehealth permitted) with a Medicaid beneficiary before ordering home health services, medical supplies or equipment.

Common Examples of Medicaid Fraud 

Provider Fraud Patient Fraud Insurer Fraud
  • Billing for services not performed

  • Billing duplicate times for one service
  • Falsifying a diagnosis

  • Billing for a more costly service than performed

  • Accepting kickbacks for patient referrals

  • Billing for a covered service when a noncovered service was provided

  • Ordering excessive or inappropriate tests

  •  Prescribing medicines that are not medically necessary or for use by people other than the patient

  • Filing a claim for services or products not received

  • Forging or altering receipts

  • Obtaining medications or products that are not needed and selling them on the black market

  • Providing false information to apply for services

  • Doctor shopping to get multiple prescriptions

  • Using someone else's insurance coverage for services

  • Overstating the insurer's cost in paying claims

  • Misleading enrollees about health plan benefits

  • Undervaluing the amount owed by the insurer to a health care provider under the terms of its contract

  • Denying valid claims

NOTE: NCSL provides links to other Web sites for information purposes only. Providing these links does not necessarily indicate NCSL's support or endorsement of the site.


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