Thwarting Medicaid Fraudsters Requires Modern Investigation Tools

Experts estimate that Medicare and Medicaid fraud costs taxpayers billions of dollars annually.  Recent federal legislation contains provisions designed to reduce Medicaid losses, but these changes don’t address the primary offenders nor empower investigators to catch the fraudsters. 

Beneficiaries are rarely the ones perpetrating fraud. Typically, it’s care or service providers or fake entities pretending to be legitimate providers. The DOJ’s 2024 Annual Report on Health Care Fraud and Abuse Control Program lists convictions for diagnostic labs, nursing homes, pharmacies, physicians and many other healthcare entities. 

Provider fraud typically manifests through routine billing activities, but state and federal Medicaid fraud enforcement agencies have limited resources to investigate suspicious insurance claims. With small teams and outdated technology, they can only pursue the largest and most obvious cases. 

Meaningful fraud reduction requires empowering Medicaid Fraud Control Units (MFCU) and their partners with tools to expose and deter criminals. 

Why is Medicaid a Target for Fraudsters?

Medicaid operates under a fee-for-service system with retrospective review. Referred to as “pay and chase,” this process pays claims quickly and pursues improper payments after the fact.

Medicaid processes more than a billion claims annually from more than a million providers for countless different services, so individual claim evaluation is unfeasible. According to the most recent report, 5% of 2024 Medicaid payments were improper — meaning they were overpayments, underpayments, or payments with insufficient information to verify the total. This rate demonstrates the challenges with the reimbursement model. 

It’s critical to note that not all improper payments are fraudulent. About 80% of these payments result from insufficient or missing documentation due to an administrative error. Differentiating honest mistakes from malicious cons is time- and resource-intensive, which prevents agencies from further scrutinizing many potential fraud cases.

The pay-and-chase payment process is lucrative for fraudsters. Their illicit claims blend in with the plethora of legitimate ones. 

Fraud schemes take a variety of forms, such as:

• Upcoding claims for a more expensive service than was provided.
• Billing for medically unnecessary services, supplies or medications. 
• Claiming reimbursement for services never provided. 
• Separately coding services that should be grouped together under one lower-cost code.
• Submitting duplicate claims for the same service. 

When done in smaller quantities or amounts, these fraudulent transactions look routine. It’s often only larger ones that attract attention.

For example, in Ohio, one provider of home-delivered meals was indicted for billing Medicaid for 100 meals a day for just four clients over the span of two years. The losses totaled $1.2 million. 

The unusual claim volume in this scenario tipped off fraud investigators, but most cases are not as obvious. Detecting more subtle schemes requires time and resources that most agencies simply don’t have.

With shrinking budgets, investigation teams need additional support to pursue and deter fraud. 

What Will it Take to Stop Fraud?

Identifying fraud using traditional, manual methods involves heavy lifting to prepare the data. A single Medicaid case can involve years of claims data, provider billing records, remittance advice, payments and sometimes patient records. Each set of documents comes in a different format. 

Investigators must manually review, reconcile and verify the information before they can analyze it. This process takes weeks or months, limiting fraud teams’ ability to evaluate additional cases. This results in a significant backlog, so smaller losses or more complex cases may never receive any attention. 

Investigators also must balance exhaustive examinations with their own limited time, which often relegates them to covering only a portion of a case’s documentation. This constraint reduces confidence in a case because critical evidence — whether incriminating or exculpatory — may exist outside the dataset. The uncertainty means many investigations never lead to an indictment or prosecution.

Modernized tools help teams overcome these limitations. Platforms leveraging proprietary algorithms and artificial intelligence (AI) expedite data preparation and analysis. These technologies reduce the burden of manual processes and deliver comprehensive datasets in hours rather than weeks. 

Beyond the time savings, AI-powered platforms also have the ability to reveal subtle patterns in financial data, such as a provider’s unusual billing frequency or a clinic whose claims significantly exceed those of its peers. Insights like these direct investigators toward suspicious activity. Teams can quickly follow the money, build their narrative and confidently prosecute those responsible. 

When investigations take less time, MFCUs and their partners can build more cases. And with enhanced evidence, the government can obtain more convictions and recoup more taxpayer money. 

More convictions send a message to fraudsters that they will be caught. When providers see their peers losing licenses, assets or freedom, the perceived risk rises and the temptation to commit fraud diminishes. 

As provider fraud schemes grow more complex, government agencies need high-tech tools to keep up with fraudsters. Modernizing investigation tactics will enable teams to pursue more cases, recover more taxpayer dollars and demonstrate that Medicaid is no longer an easy target.