Why States are Ineffective at Fighting Medicaid Fraud

Texas Medicaid fraudThere is a primary reason why states around the nation have trouble fighting Medicaid fraud.

States inept fighting fraud

Both the KCBS videos from California we posted and the recent Sunset Commission report on Texas HHSC-OIG highlight that state agencies can talk about Mediciad fraud but when it comes to dealing with it, there is a significant problem of ineptitude and resolve.


Why?  That is a very good question.

The answer may be found in a letter supplied to TDMR by Dr. David Gibson, CEO of Reflective Medical, one of the companies that did a “proof of concept” of their Medicaid fraud detection software for Texas HHSC-OIG back in 2011.

FBI fraud experts successful in California

Reflective Medical has a non-profit arm called the Fraud Prevention Institute, from which the letter was written.

On the board of FPI is Gibson, who is a medical doctor with an impressive resume, chair Alan Cates, who established the California Medical Fraud Prevention Bureau, Ed O’Donnell, a retired FBI Special Agent and recipient of the FBI Director’s Award for healthcare fraud investigation and James Weddick, another recipient of the FBI Director’s Award and former member of the FBI’s corruption squad in Sacramento which prosecuted five California lawmakers on RICO and corruption charges in the 1990s.

Gibson told us that “retired Special Agents O’Donnell and Weddick are storied individuals within FBI lore. They are to federal law enforcement what John Slaughter represents to the legend of the Texas Rangers. To ignore the contribution they could have made in eliminating fraud within the Texas Medicaid Program in preference for a firm with no law enforcement experience is laughable in the saddest sort of way.”

FPI’s members gained their expertise while working in the California Fraud Prevention Bureau (CFPB) which was a pilot joint state/federal antifraud taskforce.  CFPB, per Gibson’s letter, had:

“an efficiency rate of $20 in savings per dollar spent over its four years of activity. The unit eliminated over $300 million in fraud schemes, which led to over 200 federal convictions with a 100% felony conviction rate. The pilot returned a record $75 million in court-ordered restitution and asset forfeitures.”

Fundamental design flaw in Medicaid

The letter that TDMR received was originally sent to Dr. Shantanu Agrawal, Deputy Administrator & Director, Center for Program Integrity at the Centers for Medicare & Medicaid Services with a copy to Sen. Orrin Hatch.

Per Gibson, there is a fundamental design flaw in the Medicaid program.

Medicaid is designed to reward fraudsters [emphasis added]. The program is dual funded by the federal and the various state governments. Furthermore, administration of the program is delegated to the state. This design is reasonable to that point.

Success in finding Medicaid fraud penalizes the state

“However, here is where the program runs off the track. If fraud is identified, the state administrating the program is obligated to refund any overpayment of the federal funds paid out by the administrator whether any recovery of funding ever occurs. This design flaw killed the CFPB unit referenced above.

“The unit’s success resulted in federal penalties against the State of California that the state could not afford. 

Thus, actually identifying fraud-diverted overpayments represents a penalty for the state.[emphasis added]”

“Predictably, no one looks seriously for fraud in Medicaid. They occasionally identify a particularly odious malfeasant, preferably a doctor, and a well-choreographed kabuki follows. The government generates reams of press releases, but in reality, no real attempt is made to protect the program.

“If you want to protect the Medicaid program, start by fixing its fundamental design flaw.”

No incentive for states to find Medicaid fraud

So it appears that states have a disincentive to find Medicaid fraud and a fundamental change is needed in the setup of the Medicaid program which is a federal mandate.

Gibson’s full letter is available for download – FPI letter – and we will be publishing further excerpts.

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