REFERRALS  BY  MEDICAID 
AGENCIES  TO  FRAUD  CONTROL 
UNITS 
Richard  P. Kusserow 
INSPECTORGENERAL 
OAI-O3-8840170  OCTOBER  1989 
 EXECUTIVE  SUMMARY 
PURPOSE 
The purpose of this inspection was twofold:  to assessthe effectivenessof the processby 
which Medicaid agenciesrefer possible fraud casesto Medicaid Fraud Control Units, and to 
suggestmethods to improve the process. 
BACKGROUND 
Established in 1967, Medicaid is a State administered program which receivesFederal 
matching funds and pays medically related benefits to needy beneficiaries. Almost all 
Medicaid agenciescontain a surveillance and utilization  review subsystem(SURS) which 
servesas the focus for identifying  fraud and abuseby Medicaid providers and beneficiaries. 
Federal oversight of the Medicaid program is vestedin the Health Care Financing 
Administration  (HCFA). 
Responsibility for investigating and prosecuting of Medicaid fraud, however, is vestedin a 
Medicaid Fraud Control Unit (MFCU).  Fraud units have now beenestablishedin 38 States 
and are generally part of the StatesAttorney Generals office.  Federal oversight of MFCU 
activity is vestedin the Office of Inspector General (OIG). 
Medicaid agenciesand fraud units are required by regulation to enter into a Memorandum of 
Understanding @IOU) in which the Medicaid agency agreesto refer all casesof suspected 
fraud to the fraud unit.  Fraud Control Units are also prohibited by regulation from duplicating 
efforts by Medicaid agenciesto identify providers for investigation.  Identifying  possible fraud 
by Medicaid agenciesand investigating and prosecuting by independent fraud units is the 
system clearly envisaged by this legislative/regulatory structure. 
FINDINGS 
Sk&  Medicaid  Agencies  Are  Failing  To Refer A Significant  Number  Of Potential  Fraud 
Cases. 
We selecteda sample of over 150 unreferred casesin six Medicaid agencies. We 
determined that 36.5 percent of thesecasesshould have beenreferred to the fraud 
control units.  In three of theseagencies,the rate was over 40 percent. 
i  The HCFA  Is Not  Monitoring  Fraud  Referrals  By Medicaid  Agencies. 
The HCFAs oversight of the Medicaid agencys surveillance and utilization  subsystem 
(SURS) does not include monitoring this system to assureappropriate referrals of 
possible fraud casesto the Medicaid Fraud Control Units. 
A Close Working  Relationship  Results  In  The Most  Effective  Referrals. 
This inspection found that a significant difference between effective and ineffective 
referral systemswas how closely Medicaid agenciesand fraud units cooperated. 
Those Stateswhere the fraud unit staff works directly with Medicaid staff to select 
potential casesseemto have the best results. 
Not All  Potential  Sources  Of Referral  Are  Used In  Medicaid  Agencies. 
In addition to SURS, some Stateshave establishedspecial investigative units to 
develop fraud and abusecases. Also Statescharacteristically perform their financial 
audits in a unit other than the SURS unit.  Both of thesefunctions are potential sources 
of fraud referrals which are not integrated into the referral process. 
Medicaid  Agencies  Would  Benefit  From  Technical  Assistance  In  Identifying  Or Referring 
Potential  Fraud  Cases. 
There hasbeen little technical assistanceto Medicaid agenciesin identifying  and 
referring potential fraud  As a result and becauseof competing concerns,State 
Medicaid agencieshave not emphasizedidentifying  or referring casesin their 
screening systems. 
RECOMMENDATIONS 
The HCFA  Should  Hold  State Medicaid  Agencies  Accountable  For  Making  Fraud  Refer
rals  To MFCUs. 
This can be done by measuring and evaluating fraud referrals by Medicaid agenciesas 
part of its systemsperformance review (SPR) and taking appropriate monetary 
penalties for poor referral performance asprovided by the SPR. 
The HCFA  Should  Encourage  State Medicaid  Agencies  To Develop  A Close Working  Reha
tionship  With MFCUs,  Including  MFCUs  Involvement  In Actually  Selecting  Fraud  Cases 
And  Developing  Effective  Guidelines  For  Referring  Of Possible  Fraud  Cases. 
The HCFA  Should  Assure  That AU Possible  Sources  Within  The Medicaid  Agencies  Are 
Making  Appropriate  Referrals,  Including  Separate  Financial  Audit  And  Investigative  Units. 
ii  The HCFA  Should  Assure  That  Medicaid  Agencies  Are  Given Increased  Technical  Assis
tance For  Identifying  And  Referring  Of Potential  Fraud  The HCFA  Should  Also  Desig
nate A Coordinator  To Focus  This Assistance  And  To Coordinate  With  The OIG  In 
Connection  With Related  OIG  Activities  Outlined  In  This Report. 
OIG OVERSIGHT OF MFCUS 
As a result of this inspection, the OIG will  be working directly with MFCUs 
to help the units interact with the Medicaid agencies. Many of our activities 
will  be parallel to our recommendations in this report, and consequently, we 
have indicated theseactivities tier  related recommendations to the HCFA. 
COMMENTS BY THE HEALTH CARE FINANCING ADMINISTRATION 
The Health Care Financing Administration  generally agreedwith our findings and 
recommendations. However, the actions they are proposing to take, while constructive, are 
not fully  responsive to our recommendations that HCFA: 
(1)  hold State agenciesaccountablefor making referrals to MFCUs; 
(2) 	 encourageState agenciesto include in their MOUs provisions that would 
strengthenthe relationship between State agenciesand MFCUs and; 
3) 	 provide increasedtechnical assistancefor the identification  of fraud 
and abuse. 
The HCFA comments and the OIG responseto those comments are contained on pages 12-14 
of this report. 
. . . 
111  TABLE  OF CONTENTS 
EXECUTlVE SUMMARY 
INTRODUCTION  ..*................................................  1 

State Medicaid  Agencies  are Failing  to Refer 

a Significant  Number of Potential  Fraud Cases . . . . . . . . . . . . . . . . . .  5 

The HCFA is not Monitoring  Fraud Referrals 

By Medicaid  Agencies  . . . . . ..*..*...........................  5 

Recommendation  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  7 

A Close Working  Relationship 

Results  in the Most Effective  Referrals  . . . . . . . . . . . . . . . . . . . . . . . . . 7 

Recommendation  *......,..................................  8 

Not All Potential  Sources  of Referral 

are Used in Medicaid  Agencies  . . . ..*........*................  9 

Recommendation  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  10 

Medicaid  Agencies  Would  Benefit from 

Technical  Assistance  in Identifying  and 

Referring  Potential  Fraud Cases  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  10 

Recommendation  . ..a.....................*................  11 

AGENCY COMMENTS  . . . . . . . . . . . . . . . ... . . . . . . . . . . . . . . . . . . . . . . . . . . . .  12 
 INTRODUCTION 

BACKGROUND 
Both the Medicare and Medicaid programs were establishedin 1967 by Act of Congress. Un
like Medicare which is federally administered, Medicaid is a State administered program 
which receivesFederal matching funds. Each State is required to designate a State agency 
(SA) which is the organization in State Government responsible for Medicaid management. 
Surveillance  and  Utilization  Review  Subsystem  (SURS)  - In 1972, when it becameapparent 
that many State Medicaid agencieswere experiencing difficulties  in managing the Medicaid 
program, Federal funds were made available for  developing Medicaid managementinforma
tion systems(MMIS).  Stateswere reimbursed at 90 percent of costs for  developing and im
plementing the system. 
One of the subsystemsof MMIS  is the Surveillance and Utilization  Review Subsystems 
(SURS) which is designed to apply post payment screensto identify patterns which could indi
cate fraud or abuse. (All  but four small Statesnow have SURS; in thesestatesresponsibility 
for referrals lies with the overall operation of the SA.)  While the Statesalso have other detec
tion methods available such as financial audits and explanation of Medicaid benefits mailed to 
beneficiaries, the focus of identifying  fraud and abuseis in the SURS areain most States. 
Federal oversight of all State Medicaid agenciesfunctions including MMIS,  is vestedin the 
Health Care Financing Administration  (HCFA).  Initially,  HCFA conducted State assessments 
of Medicaid agencieswhich included an element measuring the number of referrals to the 
Medicaid Fraud Control Unit.  In 1981, however, HCFA instituted SystemsPerformance Re-
views (SPRs) which are performed at least once in every 3-year period and used as the basis 
of reapproval for MMIS  funding.  However, thesereviews do not measureidentifying  possible 
fraud.  Also, the SPRsexamine theSURS process  but do not measurethe resdts  of SURS ac
tivity-
Medicaid  Fraud  Control  Units  (MFCUs)  - In 1977, CongressestablishedMFCUs to inves
tigate and prosecutecasesof Medicaid fraud. The MFCUs are now in 38 States. During the 
period of October 1,1987, to September30,1988, MFCUs produced 465 convictions and 
$11.4 million  in fines, overpayments, and restitutions. 
The MFCLJs are funded at 90 percent matching for the first three yearsof operation and 75 
percent Federal funding for ongoing operations. During Fiscal Year 1989, the OIG adminis
tered approximately $45 million  in grants to the MFCUs. 
1 
 To assureinvestigative independence,Congressprohibited theseunits from being part of the 
sameumbrella  organization which contained the Medicaid single State agency. Generally, 
the MFCUs are located in the StatesAttorney Generals office and 30 of the 38 MFCUs per-
form prosecutive as well as investigative functions. 
While HCFA was originally  responsible for MFCU oversight, since 1978 Federal oversight of 
MFCUs has been vestedin the Office of Inspector General, Department of Health and Human 
Services. Responsibility for OIG oversight of MFCUs is vestedin the State Fraud Branch, 
Office of Investigations.  This branch is scheduledto conduct biennial recertifications of all 
MFCUs as well asproviding technical assistanceand advice on an ongoing basis. Currently 
a system of performance indicators is being developed in cooperation with the National Asso
ciation of Medicaid Fraud Control Unit Directors to enhancethe effectivenessof Medicaid 
fraud control activities. 
Memorandum  of Understanding  - Each MFCU is also required by regulation to enter into a 
Memorandum of Understanding with the SA. The MOUs are required by regulation to in
clude an agreementby the SA to refer all casesof suspectedfraud to the MFCU and to pro-
vide the MFCU accessto SA records. The MOUs have now been executedin every State 
which has a fraud unit. 
PROBLEMS WITH THE PROCESS 
Recently, indications are that the SA referral processmay not be working asdesigned. For ex-
ample, a General Accounting Office (GAO) report issuedin October 1986 indicated that on 
the averageonly about 35 percent of all MFCU casesare basedon Medicaid agency referrals. 
Staff of the OIGs Office of Investigation, in recertification visits to over 20 MFCUs, found 
that many MFCUs believe a problem exists with both the quantity and quality of SA referrals. 
In a recent OIG inspection, 20 of the 38 MFCU directors indicated this sameproblem. 
We decided to focus this inspection on the processof referring suspectedfraud casesrather 
than on the processesfor identifying  such cases. Methods for improving the Medicaid SURS 
activity including the Medicaid agency-fraud unit relationship are the subject of a best prac
tices project that the Health Care Financing Administration  is now conducting. 
WHAT WE DID 
Becauselittle comparative data was available to gaugethe quantity or quality of Medicaid re
ferrals, we contacted every unit to obtain such information. 
To measurequantity, we askedeach unit to tell us the number of referrals it had received from 
the State agency in 1987. To obtain a standardmeasure,we then divided this number by the 
number of professional staff in the unit.  The following  table depicts the spreadthat was re-
ported: 
2 
 MEDICAID REFERRALS  PER PROFESSIONAL STAFF 
Quartile  Quartile  Medians 
Highest 25%  4.44iProfessiona.l 
Second 25%  1.93Professiona.l 
Third 25%  1.OO/Professional 
Lowest 25%  .SO/Professional 
Thus in 1987 the median State in the highest referral quartile received almost nine times as 
many referrals for each professional staff member asthe median State for the lowest quartile. 
We also attempted to obtain a measureof quality by asking each unit to tell us the percentage 
of its indictments in 1987 which resulted from the State agencyreferrals.  Since only about 
one-half of the units could provide us with this information, we usedour quality measureto 
supplement our more complete measureof quantity, also taking into account unit size and the 
desirability of geographic distribution in selecting a sample. 
Based on this information, we selectedfive Stateswhich ranked in higher quartiles for quan
tity/quality.  We studied theseStatesto determine effective practices that can be adopted by 
other fraud units and Medicaid agenciesworking together with Federal officials to improve 
their referral systems. 
Also, we selectedsix other Stateswhich our indicators placed in the lowest quartiles for quan
tity/quality.  In theseStates,in addition to holding discussionswith fraud unit and Medicaid of
ficials, we also reviewed overpayment caseswhich had beendeveloped by the Medicaid  _ 
agenciesbut which had not beenreferred by the fraud units. Our review was intended to deter-
mine whether a substantial number of thesecasesshould have beenreferred. 
We visited Medicaid agenciesand fraud units in eleven states: Arkansas, Florida, Indiana, 
Maine, New York, North Carolina, Tennessee,Texas,Utah, Virginia, and Washington.  We 
also held discussionswith the HCFA central office staff and regional office staff in four re
gions. In addition, we presentedon the studys goals and methodology to a meeting of the 
MFCU Directors Association and the SURS Units Association. 
3 
 LOCATION  OF  MEDICAID  FRAUD  CONTROL  UNITS 
cNlH 
:i..:. :.:_...:. . . .:  . . . :. . . .~ . .   .~:;:~:;:~:~:~:~
$$&i~~~i;;$
MFCU  STATES  VISITED  DURING  INSPECTION
E.lI.I.ll. :.:...:...:.:.,. 
MFCU  STATES
l!zB  FINDINGS 
STATE MEDICAID AGENCIES ARE FAILING TO REFER A SIGNIFICANT NUM
BER OF POTENTlAL FRAUD CASES 
We visited six Stateswhich ranked in the lower quartiles in the quantity/quality  of referrals. 
In theseStates,in addition to discussions,we performed a casereview to determine if there 
were casesclosed by the Medicaid agency which should have beenreferred. Our review 
teamsin each State included professional staff of our Office of Investigations (OI) as well as 
analyst staff from our Office of Analysis and Inspections. Our casereviews consisted of ana
lyzing the material in the folder maintained by the Medicaid agency and did not involve inde
pendent development or additional contacts. Our sample concentratedon casesinvolving 
large overpayments since such casesgenerally have the clearestprosecutive appeal. 
. 
We found a significant number of unreferred casesshould have beenreferred to the Medicaid 
Fraud Control Unit.  Such non-referrals exist even though State agency staff is aware of the IX
quirement in their Memorandum of Understanding to refer casesof suspectedfraud to the 
MFCU and, as noted below, even in some caseswhere specific referral criteria have been de
veloped to supplement the MOU.  We reviewed over 200 casesin six States. In 156 of the 
caseswe reviewed, we could definitely determine that the caseshould or should not have been 
referred. Seethe following  table. 
RESULTS OF CASE REVIEWS 
Number  % That  Should 
State  Reviewed  Have  Been Referred 
S  26  73% 
T  29  20.7% 
W  32  40.6% 
X  19  52.6% 
Y  27  29.6% 
z  23  4.3% 
TOTAL  156  36.5% 
5 
 Examples of our findings are asfollows: 
. 	 In one State, the State agency and the Fraud Control Unit had developed specific 
referral criteria in addition to their MOU.  We found, however, a significant 
number of casesin which thesecriteria were not applied, including caseswhere 
servicescould not be documented or which involved persistent upcoding. 
. 	 In another State, little communication of any kind existed between the Fraud 
Unit and the State agency. Although the Fraud Unit had specifically requested 
the State agency to provide it with copies of all overpayment letters, we found 
casesin which this requesthad not been carried out.  These casesinvolved large 
overpayments which the Statecollected but did not inform the Fraud Unit. 
. 	 In another State, the Medicaid agency structure included a investigative unit 
whose staff were criminal investigators. Casesinvestigated by this unit had not 
beenreferred to the Medicaid Fraud Control Unit.  Also State agency 
managementhas moved to limit  referrals that had beenmade through informal 
staff contacts and discussions. 
Conjlicting  Concerns  and Priorities 

We discussedconflicting  concernsand priorities with both State agency and Fraud Unit man

agement which may be interfering with effective referrals. The deftiteness  of our analysis is 

limited by the obvious sensitivity on this issue by Medicaid agency managementand the 

clearly speculative nature of opinions offered by Fraud Unit staff. However, we were able to 

discern common elements in many of our interviews in what are believed to be State agency 

perceptions which may influence referral decisions:  \ 

. 	 Medicaid agenciesmake many referrals that do not result in prosecutions but 
which involve considerable work on the State agencys part. 
. 	 Referring a caseinvolving  a significant overpayment to the Fraud Unit where it 
may undergo a time-consuming investigation may delay or even prevent the 
Medicaid agency from claiming that overpayment. 
. 	 Medicaid agenciesare liable for the Federal matching shareof an overpayment 
as soon as that overpayment is identified.  Referring the identified overpayment 
to the Fraud Unit, however, may delay collecting of the overpayment from the 
provider until long after the State agency hasreimbursed the Federal matching. 
(This problem, however, is being dealt with by a proposed regulation which will 
require the Federal matching adjustment only when the overpayment is 
recovered.) 
6 
 . 	 Fraud investigations could affectthe accessof Medicaid beneficiaries to a full 
range of medical servicesby discouraging provider participation in the program. 
This could be especially seriouswhere there was already limited participation by 
a particular specialty. 
. 	 Medicaid fraud convictions could be seenasreflecting on the administration of 
the Medicaid program.  Publicized fraud convictions could be interpreted as 
resulting from loose administration of the Medicaid program. 
THE HCFA IS NOT MONITORING FRAUD REFERRALS BY MEDICAID AGENCIES 
Until  1982, the HCFA conducted State assessmentsof Medicaid agencieswhich included re
ferrals to Medicaid Fraud Units asa performance factor. However such State assessmentsare 
generally no longer performed.  Rather HCFA has selectedas the sole measureof performance 
of the SURS unit a SystemsPerformance Review (SPR) performed by regional HCFA sys
tems staff. The SPR, however, measuresthe compliance of the SURS process  with  Federal re
quirements (for instance, whether a pm-assignednumber of hospitals were reviewed). 
Measurement of ourputs is not part of the SPR. Thus, fraud referrals are not being evaluated 
on a systematic basis. 
We believe the HCFA should usethe SPR to measurethe Medicaid agencys referral activities. 
While such a measurementintroduces a new element into the SPR, this element clearly adds 
to the overall meaningfulness of the evaluation process. 
The HCFA should also consider contacts with Fraud Unit aspart of their evaluation. These 
units are systemsusersand thus should be in a position to offer the HCFA insights in improv
ing the process. 
In addition to measuring SURS performance, the SPR also provides for financial penalties for 
Medicaid agenciesout of compliance with systemsrequirements. In view of the relationship 
between processand output, it would be totally appropriate to apply suchpenalties to agencies 
consistently below par in their fraud referrals. 
RECOMMENDATION 
The HCFA  Should  Hold  State Medicaid  Agencies  Accountable  For  Making  Fraud  Refer
rals  To MFCUs. 
This can be done by measuring and evaluating fraud referrals made by Medicaid 
agenciesaspart of its SystemsPerformance Review and taking appropriate monetary 
penalties for poor performance asprovided by the SPR. 
-- 
7 
 Related  OZG Activities:  The OIG is developing a system for compara
tive indicators of referrals received from the State agenciesby Fraud 
Units.  This indicator system should streamline the processand allay 
Medicaid agency concernsas to wasted effort on their part as well asde
lays in MFCU actions. 
The OIG is also expanding its MFCU recertification guide to cover the 
areaof referrals in greaterdepth. In addition, aspart of its recertifica
tion visits the OIG staff will  regularly contact the parallel State agency 
for an in-depth discussion of referrals to the Fraud Unit.  These discus
sions can serveas the basis for joint  State agency Fraud Units efforts to 
resolve differences between the two organizations. 
A CLOSE WORKING RELATIONSHIP RESULTS IN THE MOST EFFECTIVE RE
FERRALS 
We visited five Stateswhich ranked among the top quartiles in the quantity or quality of 1987 
referrals. Examples of the basic working arrangementswe found in theseStatesare below: 
. 	 In one State, SUBS exceptions are discussedat regular meetings between the 
SURS director and the MFCU director.  The MFCU director then selectscases 
for fraud development. In addition, the MFCU hasfurnished the Medicaid 
financial audit staff with specific criteria for referring casesto the fraud unit; 
thesecriteria resulted in a significant number of audit referrals. By combining 
thesesourcesof referral, this State hasachieved the highest referral rate in the 
nation, with over 8 referrals for every MFCU professional staff member. 
. 	 In another State, the State agency and the MFCU have worked out a method 
giving the Fraud Unit direct accessto the Medicaid agencys database. In 
addition, the unit receives copies of all recovery letters sent by the agency. 
As a result, the unit receives approximately four referrals for each MFCU staff 
member which ranks it in the top quartile in quantity of referrals. 
8 
 We found staff contacts in eachof theseStatesare not limited to formal meetings. Rather, 
staff members are encouragedto contact their counterparts to discussand assistin identifying 
and investigating cases. The MFCU staff is provided on-line accessto the Medicaid data 
base. 
We believe the working relationship in theseStatesbearsa definite relation to their effective 
referral systems. Involving  MFCUs in actually identifying  referrals also contributes to such 
effectiveness. (This working relationship is in clear contrast to the poor relationships we dis
cussin some of the examples in the previous section.) 
RECOMMENDATION 
The HCFA  Should  Encourage  State Medicaid  Agencies  To Develop  A Close Working  Relu
tionship  With MFCUs,  Including  MFCUs  Involvement  In Actually  Selecting  Fraud  Cases 
And  Effective  Guidelines  For  Referring  Possible  Fraud  Cases. 
Related  OZG Activity:  The OIG will  be working with MFCUs to en-
courage them to take all possible measuresto bring about a close work
ing relationship.  Such measurecould include having formal and 
informal national meetings between MFCU and State agency leadership, 
developing processfor resolving differences between the two organiza
tions, and assuringthat MOUs which meet the needsof both organiza
tions are being effectively implemented. 
NOT ALL POTENTIAL SOURCES OF REFERRAL ARE USED IN MEDICAID 
AGENCIES 
Although the SURS unit is the most likely  sourceof referrals, we found that,State Medicaid 
agenciescontain other possible sources. Every Medicaid agency contains a separateProvider 
Financial Audit Section which is a potential sourceof referrals. In addition, some of the large 
State Medicaid agencieswe visited have establishedfraud investigative units which are organi
zationally distinct from the SURS unit. 
We found that with one exception the referral potential of  the Financial Audit Units has not 
been recognized in the Stateswe visited.  Thus in most of theseStatesthere was little contact 
between the SURS staff and the Financial Audit staff and in only one State agency were there 
guidelines for financial auditors for recognizing, developing, and referring fraud cases. As a 
9 
 result, in theseStatesthere have been no referrals from this areato the Fraud Unit.  (By con
trast, the one State which has arrangedto tap this sourcehasreceived a large number of refer
rals from the Financial Audit Unit.) 
There was a similar lack of integration into the referral processof the special investigative 
units established in a few of the larger Stateswe visited.  These units had apparently been es
tablished to supplement the SURS unit activities but the activities of theseunits were not coor
dinated with the Fraud Control Units. 
RECOMMENDATION 
The HCFA  Should  Assure  That AU Possible  Sources  Within  The MedicaidAgencies  Are 
Making  Appropriate  Referrals,  Including  Separate  Financial  Audit  And  Investigative  Units. 
This can be done by the HCFA sending a reminder to all Medicaid agenciesthat all possible 
sourcesof referrals within  the agency should be used. Also, the HCFA regional staff can con
fm  such a tie-in hastaken place in subsequentcontactswith Medicaid agency. 
Related  OIG Activity:  The OIG will  be asking Fraud Units to explore 
other sourcesof referrals in the Medicaid agenciesand to arrangefor 
such sourcesto be included in the Memorandum of Understanding be-
tween the Fraud Units and the Medicaid agencies. 
MEDICAID AGENCIES WOULD BENEFIT FROM TECHNICAL ASSISTANCE IN 
IDENTIFYING AND REFERRING POTENTIAL FRAUD CASES 
While our discussionswith State agenciesfocused on referring of possible fraud casesrather 
than identifying  them, the methods for identifying  fraud were also touched on. We found that, 
in general, StateMedicaid agenciesconsider detecting fraud asone possible result of the 
SURS system which, however, is designed to detect overpayments. 
As a result, in none of the Stateswe visited have screensspecifically designed to detect fraud 
been incorporated in the SURS system, and StateMedicaid managementwas not confident 
that the expertise to design such screenswas available to the State agency. In addition, MFCU 
managementin every State we visited indicated they saw a needfor additional training of 
State agency staff in the recognizing program fraud. The HCFA hasprovided little technical 
10 
 assistanceto develop such expertise. (The General Accounting Offke,  in their report of Sep
tember 1987 entitled, Improvements  Needed in Programs  to Prevent Abuse, GAO/HRD-87-
75, also recommended that State agenciesbe provided with technical assistanceto improve 
abuseprevention). 
RECOMMENDATION 

HCFA  Should  Assure  That  Medicaid  Agencies  Are .Given Increased  Technical  Assistance 

For  Identifying  And  Referring  To Potential  Fraud  The HCFA  Should  Also  Designate  A Co

ordinator  To Focus  This Assistance  And  To Coordinate  With  The OIG  In  Connection  With 

Related  OIG  Activities  Outlined  In  This Report. 

Related  OIG Act@ities:  The OIG staff is available to provide HCFA 
with support in this technical assistanceeffort.  Also the OIG is working 
with the Fraud Control Units to develop a training package for use by 
Fraud Units in training of Medicaid agenciesin the areaof program 
fraud. 
In addition, the OIG will  be requesting MFCUs to include a clausein 
their MOUs calling for Medicaid agenciesto consult with the Fraud 
Units concerning changesin the SURS screens. Where such a clauseis 
already presentin the MOU and not being implemented, the OIG will  be 
urging MFCUs to take stepsto implement that agreement. 
-- 
11 
 AGENCY  COMMENTS 
OIG  RECOMMENDATION 
The HCFA  Should  Hold  State Medicaid  Agencies  Accountable  For  Making  Fraud  Refer
rals  To MFCUs. 
HCFA  COMMENTS 

We agreethat increasedemphasison StateSurveillance and Utilization  Review (SUR) activi

ties will  significantly  improve the fraud referral process. We plan to publish and disseminate 

the SW? Best Practices  Guide by the end of this fiscal year. Stateswill  be able to use theseex

emplary practices to improve their analysis of casesfor fraud referral.  We are also consider

ing a State Medicaid  h4anual  (SMM) instruction outlining  Statesaccountability for making 

referrals to MPCUs.  However, we do not believe the System Performance Review (SPR) is 

the appropriate vehicle for measuring and evaluating fraud referrals by Medicaid agenciesbe

causethe developmental work required for a fraud referral is completed outside the Medicaid 

Management Information  System (MMIS). 

OIG  RESPONSE 

The proposed HCFA actions are clearly directed at improving the State agenciesown capaci

ties to identify  fraud referrals. We believe such actions, while helpful, are not a substitute for 

holding the State responsible for making appropriate fraud referrals to MPCUs. 

The HCFA is correct in pointing out that the SURS system is only a part of the fraud referral 

process. However, the SURS system is commonly the center of this processand it is therefore 

entirely appropriate to measureits contribution to fraud referrals aspart of the SystemsPerfor

mance Review. 

In addition, HCFA at this time has no other method for gauging State agency performance. 

Our recommendation for greater accountability could also be implemented if HCFA choseto 

design and install a more general monitoring and penalty system 

OIG  RECOMMENDATION 
The HCFA  Should  Encourage  State Medicaid  Agencies  To Develop  A Close Working  Reba
tionship  With MFCUs,  Including  MFCUs  Involvement  In Actually  Selecting  Fraud  Cases 
And  Developing  Eflective  Guidelines  For  Referring  Possible  Fraud  Cases. 
12 
 HCFA  COMMENTS 

The HCFA is developing a workplan that will  focus on strengtheningHCFAs oversight of 

State SUR unit activities and improving the relationship between MFCUs and the SUR units. 

A significant phaseof this workplan for Fiscal Year 1990 will  be to conduct regional SUR con

ferencesthat will  facilitate the exchangeof information between the MFCUs and the SUR 

units. We also plan to participate in the annual conferenceconducted by the national associa

tion of SUR officials next spring. 

Concerning the OIGs recommendation for direct accessto the SUR data base,we believe that 

the MFCUs should use the Memorandum of Understanding processto negotiate direct access 

to the SUR data abase. 

OIG  RESPONSE 

We agreethat HCFAs Best Practicesproject which coincides with our findings on an effective 

State Agency MFCU relationship, will  give Stateshelpful information for improving the refer

ral process. We believe, however, that HCFA should also directly encourageState agenciesto 

include in their MOUs the close involvement by MFCUs in the identification  of likely  refer

rals. 

OIG  RECOMMENDATION 
The HCFA  Should  Assure  That All  Possible  Sources  Within  The Medicaid  Agencies  Are 
Making  Appropriate  Referrals,  Including  Separate  Financial  Audit  And  Investigative  Units. 
HCFA  COMMENTS 

The HCFA agreeswith the recommended action and will  senda Program Memorandum to all 

Medicaid agenciescommunicating the OIGs concern that all possible sourcesof fraud detec

tion within  the agency should be usedfor fraud referral. 

OIG  RESPONSE 

We would appreciatereceiving a copy of the HCFA Program Memorandum so that we can 

shareit with the fraud units. 

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 OIG  RECOMMENDATION 
The HCFA  Should  Assure  That  Medicaid  Agencies  Are  Given Increased  TechnicalAssis
tance For  Idkntifiing  And  Referring  Potential  Fraud.  The HCFA  Should  Also  Designate  A 
Coordinator  To Focus  This Assistance  And  To Coordinate  With  The OIG  In  Connection 
With Related  OIG  Activities  Outlined  In  This Report. 
HCFA  COMMENTS 

We agreewith the recommendation that HCFA appoint a coordinator, but believe the appoint

ment should follow  a meeting between our Bureau of Quality Control and OIGs Office of In

vestigations staff to determine specifically the duties of the coordinator. We will  arrangefor 

such a meeting shortly. 

OIG  RESPONSE 

We note the comments do not addressour recommendation that HCFA assureincreasedtechni

cal assistanceto State agencies. We would be glad to work with HCFA on implementing this 

recommendation. 

Our Office of Investigations looks forward to the meeting HCFA mentions in their comments. 
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