The Medicaid Black Hole That Costs Taxpayers Billions

Here’s some cheerful news: States and the federal government are doing little to stop a costly form of Medicaid fraud, according to a government report released last week.

Medicaid, the federal-state health insurance program for poor Americans, now covers more than half its members through what’s known as Medicaid managed care. States pay private companies a fixed rate to insure Medicaid patients. It has become more popular in recent years than the traditional “fee for service” arrangement, in which Medicaid programs reimburse doctors and hospitals directly for each service they provide.

Despite the growth of managed care in recent decades, officials responsible for policing Medicaid “did not closely examine Medicaid managed-care payments, but instead primarily focused their program integrity efforts on [fee-for-service] claims,” according to the Government Accountability Office, the investigative arm of Congress. The managed-care programs made up about 27 percent of federal spending on Medicaid, according to the GAO. The nonpartisan investigators interviewed authorities in California, Florida, Maryland, New Jersey, New York, Ohio, and Texas over the past 12 months.

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Funded jointly by the federal government and the states, Medicaid provided health insurance to about 72 million low-income Americans at a cost of $431 billion last year, according to the report. By the Medicaid agency’s own reckoning, $14.4 billion of federal spending on Medicaid constituted “improper payments,” which include both overpayments and underpayments. That’s 5.8 percent of what the federal government spends on the program. The $14 billion figure doesn’t tally what states lose to bad payments.

The fraud risk for managed care is twofold. Doctors or other health-care providers could be bilking the managed-care companies, which pass on those fraudulent costs to the government. Or the managed-care companies themselves could be perpetrating schemes that cost taxpayers money and harm patients.

What does this look like in practice? New York Times reporter Nina Bernstein wrote a Dickensian report last month detailing the competition among managed-care companies in New York to find the most profitable Medicaid clients:

Even well-meaning managed-care companies may not have an incentive to stop fraud by medical providers, the GAO says. “If [managed-care organizations] are making payments that are too high, or have some waste, fraud, and abuse, sometimes those payments then get put into the calculation for next year’s rates,” says Carolyn Yocom, director of health care at the GAO and author of the report.

The Department of Health and Human Services, in a five-page written response to the GAO included with the report, says the agency periodically assesses states’ managed-care programs, promotes best practices, and offers training for state leaders. The agency’s “comprehensive reviews have identified findings and vulnerabilities related to managed care program integrity,” according to the response. The agency also noted that managed-care audits can be more complex than policing traditional Medicaid payments, so “states can benefit from more direct support.” A spokeswoman for the department declined provide additional comment.

Part of the problem is that Medicaid in general “has not traditionally been very transparent, nor has it been very easy to see where the money goes,” the GAO’s Yocom says. Managed-care arrangements are even more difficult to monitor. “The visibility of what happens is once-removed, because of the managed-care entity itself.”