States Increase Medicaid Anti-Fraud Efforts

April 24, 2014

health-care-lawMedicaid fraud, waste, and abuse cost states and the federal government billions of dollars.  For example, a recent report by the U.S. Department of Health and Human Services and Department of Justice estimates the cost of overpayments at about $14 billion for fiscal year 2013.  While both Medicaid providers and beneficiaries commit fraud, waste, and abuse, providers are the main source of Medicaid fraud, waste, and abuse.  As Medicaid represents a significant portion of most states’ expenditures, according to the latest National Association of State Budget Officers’ Expenditure Report, states are motivated to expand Medicaid provider anti-fraud laws.

Fortunately, the Affordable Care Act (ACA) offers states, including states that will not expand Medicaid, new authority to improve their anti-fraud, waste, and abuse measures.

Anti-Fraud, Waste, and Abuse Provisions in the ACA

The ACA’s statutory efforts coalesce around four main areas: (1) improving screening and compliance; (2) improving data sharing; (3) imposing new penalties; and (4) increasing funds for prevention and enforcement.

Screening and compliance:  The ACA increases provider screening and enrollment requirements by requiring state Medicaid programs to base provider screening on categorical risk level and conduct license verifications, database checks, unscheduled medical site visits, fingerprinting and criminal background checks.  Additionally, the ACA requires state Medicaid programs to establish Recovery Audit Contractor (RAC) programs to identify and recover overpayments and underpayments.  State Medicaid programs also have the authority, under the ACA, to suspend Medicaid payments to individuals or entities where there is a credible allegation of fraud and impose temporary moratoria to prevent fraud, waste and abuse among new providers.

Data sharing: The ACA strengthens the data repository of the Centers for Medicare and Medicaid Services (CMS) by requiring the centralization of claims data from Medicare, Medicaid and Children’s Health Insurance Program (CHIP), the Veterans Administration, the Department of Defense, the Social Security Disability Insurance program, and the Indian Health Service.  The ACA also creates a comprehensive Provider/Supplier Data Bank to oversee utilization, prescribing patterns, and complex business arrangements that may disguise fraudulent activity, and offers enforcement agencies like the Department of Justice and the Office of the Inspector General more defined access rights to CMS claims and payment databases.

Penalties:   The ACA imposes stronger civil and monetary penalties on fraudulent providers.  For example, the ACA creates new penalties for submitting false data on applications, false claims for payment, or for obstructing audits or investigations related to Medicaid, and increases the federal sentencing guidelines for health care fraud offenses by 20-50% for crimes that involve more than $1,000,000 in losses.

Funds for prevention and enforcement:  The ACA allocates $350 million over 10 years (FY 2011 through FY 2020) through the Health Care Fraud and Abuse Control Account (HCFAC).  These funds will be used in part to hire new officials and agents aimed at preventing and identifying fraud.

State-level Legislative Initiatives   

In 2013, more than 100 bills designed to combat Medicaid fraud and abuse were introduced in state legislatures in at least 23 states, according to a Pew Charitable Trusts’ article citing data from the National Conference of State Legislatures.  In addition, the article states that 19 states are considering 45 bills related to controlling Medicaid fraud and errors.  Texas and Kansas exemplify recent targeted state legislative action against fraud, waste, and abuse.


Texas Governor Rick Perry signed four bills, effective September 1, 2013, into law to increase Medicaid program oversight and increase opportunities for whistleblowers and state enforcement authorities to bring Medicaid-based civil false claims actions.

S.B. 746 brings Texas’ civil false claims act, the Texas Medicaid Fraud Prevention Act (TMFPA), into compliance with the federal requirements and extends false claims liability to any individual or company that conspires to violate the TMFPA, or who conceals, avoids or decreases their obligations to repay funds to Medicaid.

S.B. 1803 requires the Texas Medicaid program’s Office of Inspector General to investigate any complaint of Medicaid fraud or abuse; mandates referrals of fraud to the Texas Medicaid Fraud Control Unit or other law enforcement entities; and requires the Medicaid program to enact a payment hold on claims for reimbursement where sound allegations of fraud exist.

S.B. 8 requires the Texas Medicaid program to establish a data analysis unit intended to detect data trends and identify anomalies relating to compliance with Medicaid and Children’s Health Insurance Program (CHIP) requirements and limits the marketing activities of CHIP and Medicaid providers.  The bill also changes the licensure of non-emergency medical transportation companies and emergency medical services providers.

H.B. 658 bars plaintiffs from collecting post-judgment interest on any portion of a damages award that includes money subject to Medicare subrogation.  This bill addresses concerns around the accrual of post judgment interest in Medicare subrogation lien cases.


Kansas Governor Sam Brownback signed S.B. 217 into law, on April 18, 2014, which amends the Kansas’ Medicaid Fraud Control Act.  The bill increases criminal penalties for defrauding the Medicaid program and allows courts to sentence defendants to prison, not probation, if their fraud results in a Medicaid beneficiary being denied quality services to which he or she is entitled.  The bill also strengthens the Kansas’ ability to obtain civil fines against individuals who file false claims with the Medicaid program.

The existing Medicaid Fraud Control Act made it unlawful for a person to submit false and fraudulent claims to the Kansas Medicaid program.  Violation of the Act is a criminal offense punishable by imprisonment and payment of full restitution to the state plus interest and all reasonable expenses.


Vermont lawmakers plan to mirror one of Texas and many other states’ legislative approaches to combat fraud, waste, and abuse: compliance with the federal False Claims Act (the Act).  Vermont’s proposed legislation creates a state system of Medicaid false claims liability that parallels the Act.  Compliance with federal requirements will authorize Vermont to impose stricter civil and monetary penalties, including treble damages; incentivize private citizens to bring whistleblower suits on the State’s behalf; and retain a greater amount of money recovered from related lawsuits and settlements.