GAO-11-318SP: Health: Preventing billions in Medicaid improper payments requires sustained attention and action by CMS


Preventing billions in Medicaid improper payments requires sustained attention and action by CMS

Why Area Is Important


In fiscal year 2009, the Medicaid program covered over 65 million people at a cost to the federal government and states, which share the cost of the program, of an estimated $381 billion. Medicaid is a federal-state program that consists of more than 50 distinct state-based programs that cover acute health care and long-term care services for certain low-income individuals, including children and persons who are aged or disabled. The Congressional Budget Office has estimated that, under the Patient Protection and Affordable Care Act, enacted in 2010, the cost of the Medicaid expansion will exceed $430 billion from 2010 to 2019, with the federal government responsible for paying over 90 percent of these increased costs.

The Centers for Medicare & Medicaid Services (CMS) in the Department of Health and Human Services (HHS) is responsible for overseeing the program at the federal level. States administer their respective programs' day-to-day operations, including processing and paying claims submitted by health care providers for services provided to Medicaid beneficiaries. Due to the size, growth, and diversity of the Medicaid program, rigorous fiscal oversight is necessary to prevent improper payments.

What GAO Found


Improper payments to Medicaid providers that submit inappropriate claims can result in substantial financial losses to states and the federal government. The amount of improper payments in the Medicaid program is among the largest of all government programs. For fiscal year 2010, HHS estimated that 9.4 percent of Medicaid payments were improper, representing $22.5 billion in federal expenditures. Medicaid payments can be improper for various reasons, including payments made for which required documentation is missing or inadequate or payments on claims with errors. Improper payments also include payments for people who are not eligible for Medicaid or to providers who are barred from participating in the program. For example, in 2009, GAO found that Medicaid beneficiaries and providers were involved in potentially wasteful or abusive purchases of controlled substances in five selected states. For example, GAO found that Medicaid paid over $2 million in controlled substance prescriptions during fiscal years 2006 and 2007 that were written or filled by 65 medical practitioners and pharmacies that were barred, excluded, or both from federal health care programs, including Medicaid.

State efforts to maximize federal reimbursement also can increase the risk of improper federal payments to states, to the extent states' efforts may inappropriately shift state costs to the federal government. In 2005, GAO reported that a growing number of states were using contingency-fee consultants—consultants employed under contracts whereby payments were contingent upon the consultant's performance—to maximize federal Medicaid reimbursement. States may employ consultants to serve valid Medicaid-related roles, such as adding needed staff or a particular expertise. However, in two states reviewed, GAO identified certain claims for federal funding from contingency-fee projects in five categories of Medicaid services that were problematic because they appeared to be inconsistent with CMS policy, were inconsistent with federal law, or undermined Medicaid fiscal integrity. GAO also found that CMS and state oversight of claims associated with contingency-fee projects was limited and recommended that CMS routinely require states to identify claims or projects developed by contingency-fee consultants. CMS recognizes that claims resulting from consultant revenue maximization projects are at higher risk of being inconsistent with certain federal Medicaid requirements, but as of the end of 2010 it had not established processes to routinely collect information enabling it to identify claims or projects developed by contingency-fee consultants to maximize federal reimbursement. Without adequate controls over improper payments and state maximization efforts, tens of billions of additional federal dollars are at risk as program expenditures grow.

Actions Needed


Sustained agency attention is needed to implement and oversee processes to prevent, identify, and recover improper payments and to reduce the billions of dollars that are annually lost to improper Medicaid payments. Both the executive branch and Congress have acted to curtail improper Medicaid payments, but challenges in preventing such payments remain. The issuance of Presidential Memoranda and a 2009 Executive Order, Reducing Improper Payments, along with enactment of the Improper Payments Elimination and Recovery Act of 2010 (IPERA), are positive steps toward improving transparency and reducing improper payments. However, it is too soon to determine whether the activities called for in the Presidential Memoranda, Executive Order, and IPERA will achieve their goals of reducing improper payments. Further, the magnitude of the program's payment errors indicates that CMS and the states face significant challenges to address the program's vulnerabilities. In its 2009 report on top management and performance challenges facing HHS, the HHS Office of Inspector General reported multiple priorities related to Medicaid, including the need to ensure the integrity of payments to providers by ensuring they are appropriately enrolled and eligible to receive payments. CMS has taken steps to strengthen its financial oversight of Medicaid, but the agency can do more to address gaps in its oversight and financial management.

GAO recommended in 2009 that CMS issue guidance to states to implement processes that better prevent payment of improper claims for controlled substances in Medicaid. CMS generally agreed with GAO's recommendations; however, guidance had not been issued as of the end of 2010. With regard to Medicaid claims related to state efforts to maximize federal reimbursements, GAO recommended that CMS improve its oversight of projects developed by consultants on a contingency-fee basis, in part by routinely requesting information on these projects and associated claims. CMS stated in 2010 that it was committed to fully assessing the basis for all claims, but indicated it did not plan to routinely request this information. GAO maintains that the high-risk nature of consultant-led maximization projects to shift state costs to the federal government by submitting claims for federal matching funds that are inconsistent with federal law or CMS policy, warrants their identification and close oversight.

Framework for Analysis


The information contained in this analysis is based on work GAO has conducted over the past 5 years, ongoing work examining the federal government efforts to curtail improper payments, and recent work to update the status of recommendations.

Area Contact


For additional information about this area, contact Katherine Iritani at (202) 512-7114 or

Related GAO Products