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GAO discussed its investigation of fraud in the Medicaid Program, focusing on the diversion of prescription drugs paid for with Medicaid funds. GAO noted that: (1) the Medicaid program's size, short supply of providers, and burdensome controls that discourage participation contribute to its vulnerability to fraud; (2) drug diversion activities include the addition of extra medications to Medicaid customers' orders or Medicaid recipients selling their prescriptions on the street; (3) drug diversion persists in the Medicaid program because of ineffective use of data to detect fraud, inadequate resources to detect and deter fraud, the complex administrative and multiagency structure that requires extensive coordination to pursue investigations, the prevalence of plea bargaining and light sentences for offenders, and poor followup of providers convicted of fraud; (4) to prevent drug diversion and curb fraud, states are implementing advanced identification technology and automated systems that can flag suspicious activity, using multiagency task forces to coordinate case development, and requiring providers to post performance bonds as a condition for participation; (5) managed care programs substantially discourage provider and recipient fraud schemes often found in fee-for-service Medicaid; and (6) the Health Care Financing Administration needs to develop an overall strategy to address Medicaid fraud.

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