Over the past nine years, Jeff Leston of Castlestone Advisors has written several articles for TDMR examining why Medicaid fraud continues despite decades of enforcement efforts.
In his previous pieces, Why States Aren’t Really Interested in Reducing Medicaid Fraud, A View on How to Stop Medicaid Fraud, and Why Managed Care Hasn’t Solved Medicaid Fraud, Leston argued that the current system relies too heavily on “pay-and-chase” — waiting for fraud to occur and then trying to recover the money afterward.
In the following commentary, Leston reviews several new state initiatives aimed at tackling Medicaid fraud and concludes that they largely repeat the same strategies that have failed for years.
Sad.
States Talk Tough on Medicaid Fraud But Still Rely on the Same Failed Playbook
In the wake of the scandal surrounding Minnesota Governor Tim Walz, state Governors have announced their intent to strike a blow against Medicaid fraud. Three gubernatorial and agency efforts highlighted in this article are like a martini recipe of only vermouth. Not wrong, only incomplete.
And the omission of necessary ingredients will only perpetuate the problem of Medicaid fraud, not address it head-on.
All the announced initiatives are variations on the same theme. The problem with lawmakers is that they see investigation and prosecution as the ultimate solution to Medicaid fraud. This approach, commonly referred to as pay-and-chase, waits for fraud to occur, then attempts to recover the stolen funds.
Minnesota showed us that funds go offshore too quickly to be recovered. Focusing on large case recoveries, the approach of all state and Federal efforts makes the chaser look productive, while most fraud goes unaddressed. And increased penalties seem to have little effect on those contemplating fraud. These are all represented in these announcements.
Although pay-and-chase has been deemed archaic and ineffective, we have three examples of it here. Waiting for fraud to occur without addressing the conditions that enable it or the disincentives to detect it ensures we will continue to bleed cash for years to come.
The true measure of effectiveness is the reduction of fraud, which is recoveries plus prevention. Recognizing this and implementing prevention and deterrence tools along with investigation is the best path to achieving an overall reduction in fraud.
Texas: More Investigations, But No Prevention
Let’s start with Governor Greg Abbott’s letter to HHSC, the state’s Medicaid agency, on steps to address fraud. They include:
- Perform additional reviews of Medicaid services recently identified by the Trump Administration as susceptible to higher incidences of fraud and adjust OIG resources to investigate those suspected of fraudulent activity that are not already under review.
- Ensure that all Medicaid Managed Care Organizations (MCO) have fully staffed Special Investigations Units (SIUs) and are completing mandatory investigative activities, as required by law, to root out fraud.
- Provide additional training to the MCO SIUs to enhance their capacity to prevent, detect, and eliminate fraud, waste, and abuse in the Medicaid program.
- Perform additional targeted reviews of MCO policies for the Medicaid services most susceptible to fraud, waste, and abuse.
- Complete a targeted utilization review of autism services and provide a report in June 2026.
- Highlight the availability of the OIG online fraud reporting portal and hotline to allow Texans to report potential instances of fraud in the Texas Medicaid program.
Nowhere in the Governor’s letter is prevention mentioned. Training MCOs and checking staffing levels when they have minimal incentive to address fraud will not lead to a reduction in fraud. MCOs thrive on increased premiums and keeping network physicians happy.
Indiana: Technology That Still Chases Fraud After It Happens
Indiana Governor Mike Braun has been a vocal advocate for addressing Medicaid fraud since his time in the United States Senate. But even the name of Indiana’s recent Request for Proposal for a “Fraud and Abuse Detection System” says it all. Respondents will be measured on the leads they run down and the dollars they collect.
Again, this approach institutionalizes a perpetual game of catch-up. Wait for fraud to occur, identified by some anomaly, watch the case grow (while allowing more fraudulent claims to be paid), and when it becomes economically feasible, begin a recovery effort.
The Numbers Show the Current System Isn’t Working
Nationwide, Medicaid recoveries were $1 billion on Medicaid spending of $1 trillion, according to the latest OIG MFCU (Medicaid Fraud Control Unit) annual report. Last year, Texas Medicaid Inspector General Ray Winter testified to the State Finance Committee that Medicaid fraud is 10 percent of expenses; this is confirmed by other sources.
That means recoveries of $1 billion are 1 percent of the estimated $100 billion annual fraud. Even with other estimates of $60 billion of Medicaid fraud nationwide, this is not changing the course of fraud reduction.
Pennsylvania: Increasing Penalties Won’t Solve the Problem
Pennsylvania Governor Josh Shapiro is taking the third track. His proposal is to increase the penalties for Medicaid fraud.
As the above paragraph notes, the odds of getting caught are about 1 percent. And many cases end in probation, repayment of theft from future billings, and similar limited remedies. Every year, there is another bill to increase penalties for Medicare and Medicaid fraud, but they do not appear to move the needle.
The MCOs that Governor Abbott wants to scrutinize, and the states, need robust networks to serve Medicaid populations. They will tread lightly when valued providers show billing aberrations. And given a choice, Medicaid beneficiaries want their doctor to be “in network.” The MCOs know that doctors bring patients who in turn bring premium dollars. And those same doctors may be part of a network provided by the MCO’s parents’ commercial plans.
This is another disincentive to impose harsh penalties. Stopping fraud before it is paid and letting aberrant billers know that their behavior is being watched more closely will accomplish more with less friction.
Prevention Must Become the Priority
Governors recognize that fraud is eating Medicaid dollars, which are consuming an increasingly substantial portion of state budgets. The largest source of funds, the Federal taxpayer, is becoming stingier, putting more pressure on reducing Medicaid fraud.
Failing to address the incentives that drive Medicaid fraud and continuing to rely on legal remedies will leave Medicaid in catch-up mode forever.
It is not an outcome we should settle for.
Jeff Leston
Jeff Leston is the President and Founder of Castlestone, which was created to leverage technologies from the financial and mobile technology industries to address the automation needs of healthcare. Mr. Leston conceived and implemented the first use of AI for healthcare fraud detection using technology developed for the credit card industry and created products to use the payment networks for funds transfers and anti-fraud services for healthcare.