Medicaid Fraud and Abuse 


As a significant source of spending in both state and federal budgets, states have an incentive to prevent Medicaid waste, fraud and abuse to ensure the appropriate use of taxpayer dollars. Medicaid fraud and abuse negatively impact health care use by wasting limited resources and potentially endangering patients through unnecessary care or prevented access to medically necessary services. The Government Accountability Office (GAO) has included Medicaid on its list of high-risk programs since 2003 because its size, complexity and diversity make it a challenging program to oversee at the federal level. According to GAO, improper payments totaled more than $57 billion in 2019.

As defined in statute, Medicaid fraud involves knowingly misrepresenting the truth to obtain unauthorized benefit, and abuse includes any practice that is inconsistent with acceptable fiscal, business or medical practices that unnecessarily increase costs. Examples of fraud include deliberately claiming the bill for services or items not provided, claiming reimbursement for treating a person other than the eligible beneficiary, prescribing unnecessary drugs and intentionally billing for an ineligible person. Waste, which is not formally defined in statute, encompasses overutilization of resources and inaccurate payments for services, such as unintentional duplicate payments. As states look for innovative ways to contain burgeoning Medicaid costs and promote the program’s integrity, fighting fraud and abuse offers one approach to ensure the responsible stewardship of taxpayer dollars.

Program Integrity Initiatives

Ensuring the integrity of Medicaid programs is both a federal and state responsibility. According to the Medicaid and CHIP Payment and Access Commission (MACPAC), well-designed program integrity initiatives ensure that:

  • Eligibility decisions are made correctly.
  • Prospective and enrolled providers meet federal and state participation requirements.
  • Delivered services are medically necessary and appropriate.
  • Provider payments are made in the right amount and for appropriate services.

The federal government and states have adopted a variety of steps to combat Medicaid fraud, waste and abuse and to ensure public funds are used to promote Medicaid enrollees’ health.

State Efforts

State programs manage day-to-day Medicaid operations, such as verifying enrollees’ eligibility, licensing and enrolling providers, conducting audits, detecting improper payments, recovering overpayments and investigating and persecuting fraud and abuse. All 50 states, the District of Columbia, Puerto Rico and the U.S. Virgin Islands are required to have Medicaid Fraud Control Units (MFCUs) to investigate and prosecute Medicaid provider fraud and abuse or neglect of Medicaid enrollees in facilities or noninstitutional settings. MFCU operations and court proceedings recovered $1 billion in 2020, with a return on investment of $3.36 for every dollar spent.

Alabama’s Program Integrity Division verifies medical services provided, their cost and the eligibility of providers and patients. Administrative sanctions against providers, such as suspension of payments, exclusion or termination from Medicaid participation, and corrective action for recipients or sponsors of recipients, such as restriction of benefits and restriction of controlled substances, can be taken in cases of fraud or abuse.

Wyoming identifies fraud, abuse and waste through audits. In addition to suspension or termination of providers because of fraud, the state may impose a monitor with access to financial and health records to assess compliance and implementation of corrective actions. Providers or beneficiaries can be assigned educational intervention to correct inappropriate or dangerous utilization of services and the state can suspend participation in the Medicaid program until education is completed.

Federal Efforts

The federal government enforces state compliance with federal rules, reviews state agency and MFCU performance, investigates fraud and abuse, imposes sanctions and provides technical assistance, funding and guidance to states.

The Affordable Care Act introduced various requirements aimed at improving Medicaid program integrity. For example, the law created a web-based portal enabling states to compare information on providers that have been terminated and whose billing privileges have been revoked. An overview of the law’s provisions related to improving Medicaid program integrity is available here.

Guidance from the Centers for Medicare & Medicaid Services in 2019 outlined stronger audit and oversight functions, increased beneficiary eligibility oversight and enhanced enforcement of state compliance with federal rules. CMS audits state programs through the Payment Error Rate Measurement to identify improper payments and the Medicaid Eligibility Quality Control to determine eligibility and additional audits.  

Additional NCSL Resources

Other Recent Medicaid Program Integrity and Fraud Prevention Resources