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Department of Health and Human Services

OFFICE OF 

INSPECTOR GENERAL 

S M F
USPECTED  EDICAID  RAUD 

R
EFERRALS

Daniel R. Levinson

Inspector General 

January 2007

OEI-07-04-00181
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Office of Inspector General 

http://oig.hhs.gov 
The mission of the Office of Inspector General (OIG), as mandated by Public Law 95-452, 
as amended, is to protect the integrity of the Department of Health and Human Services 
(HHS) programs, as well as the health and welfare of beneficiaries served by those 
programs.  This statutory mission is carried out through a nationwide network of audits, 
investigations, and inspections conducted by the following operating components: 
Office of Audit Services 
The Office of Audit Services (OAS) provides all auditing services for HHS, either by 
conducting audits with its own audit resources or by overseeing audit work done by others. 
Audits examine the performance of HHS programs and/or its grantees and contractors 
in carrying out their respective responsibilities and are intended to provide independent 
assessments of HHS programs and operations.  These assessments help reduce waste, 
abuse, and mismanagement and promote economy and efficiency throughout HHS. 
Office of Evaluation and Inspections 
The Office of Evaluation and Inspections (OEI) conducts national evaluations to provide 
HHS, Congress, and the public with timely, useful, and reliable information on 
significant issues.  Specifically, these evaluations focus on preventing fraud, waste, or 
abuse and promoting economy, efficiency, and effectiveness in departmental programs.  
To promote impact, the reports also present practical recommendations for improving 
program operations. 
Office of Investigations 
The Office of Investigations (OI) conducts criminal, civil, and administrative 
investigations of allegations of wrongdoing in HHS programs or to HHS beneficiaries 
and of unjust enrichment by providers.  The investigative efforts of OI lead to criminal 
convictions, administrative sanctions, or civil monetary penalties. 
Office of Counsel to the Inspector General 
The Office of Counsel to the Inspector General (OCIG) provides general legal services to 
OIG, rendering advice and opinions on HHS programs and operations and providing all 
legal support in OIG's internal operations. OCIG imposes program exclusions and civil 
monetary penalties on health care providers and litigates those actions within HHS. 
OCIG also represents OIG in the global settlement of cases arising under the Civil False 
Claims Act, develops and monitors corporate integrity agreements, develops compliance 
program guidances, renders advisory opinions on OIG sanctions to the health care 
community, and issues fraud alerts and other industry guidance.  Report Template Update  = 04-30-05_rev.15 
F I N D I N G S  
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OBJECTIVES 
To determine (1) the sources and number of suspected fraud referrals 
that Medicaid Fraud Control Units (MFCU) reported receiving and 
(2) the number of these referrals that they accepted for investigation. 
BACKGROUND 
Recent events, such as the passage of the Deficit Reduction Act of 2005, 
have focused attention on Medicaid program integrity.  Within most 
States, two agencies share primary responsibility for protecting the 
integrity of the Medicaid program. The State Medicaid agency is 
responsible for ensuring proper payment, recovering misspent funds, 
identifying suspected Medicaid fraud, conducting a preliminary review 
to determine the extent of potential fraud, and making referrals to its 
MFCU. The MFCU is responsible for reviewing the referrals it receives 
from the State Medicaid agency and other sources to determine if the 
issues involved merit criminal and/or civil investigation. 
The Office of Inspector General (OIG) requested that MFCUs provide 
data on the number of suspected fraud referrals received and the 
number accepted for investigation from the State Medicaid agencies and 
from other sources for the period July 2002 through June 2005. 
FINDINGS 
Medicaid Fraud Control Units reported receiving a total of 
13,733 suspected fraud referrals over a 3-year period, of which 
29 percent came from State Medicaid agencies. Eighty-four percent of 
MFCUs providing information reported receiving less than half of all 
suspected fraud referrals from their respective State Medicaid agencies. 
Referrals from State Medicaid agencies ranged from 0 to 215 for any 
1-year period and from 7 to 590 for the 3-year study period (July 2002 
through June 2005). 
Overall, State Medicaid agency contributions to total MFCU-accepted 
referrals remained constant over a 3-year period, but individual States 
fluctuated widely.  The percentage contribution of MFCU-accepted 
referrals from State Medicaid agencies remained constant during the 
3-year study period at 33 percent, yet the contributions from individual 
State Medicaid agencies to their respective MFCUs fluctuated greatly. 
Fifty-nine percent (26/44) of MFCUs reported accepting fewer referrals 
from their respective State Medicaid agency in the last year of our 
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E X E C U T I V E   S U M M A R Y  
review compared to the average number of referrals over all 3 years. 
This indicates that increases in accepted referrals are concentrated in 
less than half of the States.  One State Medicaid agency contributed to 
67 percent of the increase in MFCU-accepted referrals over the 3-year 
study period. 
RECOMMENDATION 
We recommended in our November 1996 report Surveillance and 
Utilization Review Subsystems Case Referrals to Medicaid Fraud 
Control Units, OEI-07-95-00030, that the Centers for 
Medicare & Medicaid Services (CMS) establish fraud referral 
performance standards for State Medicaid agencies. While CMS 
concurred with this recommendation, it has not established these 
performance standards. 
In the absence of CMS criteria specific to the referral of suspected fraud 
issues, we are unable to determine the adequacy of State Medicaid 
agencies performance. Such criteria would assist State Medicaid 
agencies by providing specifics concerning the development and referral 
of suspected fraud issues to MFCUs.  In addition, such criteria would 
help ensure that the content and manner of referring suspected fraud 
issues is consistent across States.  However, some reported results, such 
as no fraud referrals for an entire year or only one accepted referral over 
3 years, do not appear adequate given the State Medicaid agencies 
access to Medicaid claims information and their designated role to 
identify and refer suspected fraud issues to MFCUs. 
Given the findings in our report and our inability to assess the adequacy 
of State Medicaid agency performance, due to the absence of referral 
criteria, we reiterate this recommendation. 
AGENCY COMMENTS  
CMS concurred with our recommendation to work towards the 
establishment of fraud referral performance standards.  CMS indicated 
that it is in the process of engaging a strategic contractor to conduct a 
comprehensive State program integrity assessment. CMS intends to 
consult with OIG regarding arriving at a commonly accepted definition 
of what constitutes an accepted referral. 
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OFFICE OF INSPECTOR GENERAL RESPONSE 
CMS comments to the report were based on numbers contained in the 
draft report.  However, one State advised OIG after reviewing the draft 
report that it had provided OIG incorrect information in response to the 
initial data request, and it was unable to provide information that 
completely responded to our request.  The State was eliminated from 
our analyses. Although we still find that the number of referrals does 
increase in each year of our study, the increase is less dramatic than 
indicated in the draft report and the percentage of referrals coming from 
State agencies drops in the last year when compared to the prior year. 
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  T A B L E   O F   C O N T E N T S  

EXECUTIVE SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i

I N T RO DUC T IO N  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  1

F I N D IN G S  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  6

MFCUs reported receiving 13,733 suspected fraud referrals over 

a 3-year period, of which 29 percentare from State Medicaid 

agencies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  6

Overall, State Medicaid agency contributions to total 

MFCU-accepted referrals remained constant over a 3-year period, 

but individual States fluctuated widely. . . . . . . . . . . . . . . . . . . . . .  7

R E C O MMEN D A T ION  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  9

APPENDIXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  11

A: 	MFCUReported Referral Data From State 

 Medicaid Agencies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  12

B:	  MFCUReported Referral Data From OtherSources . . . . . . .  13

C: 	Comparison of Accepted Referral and Contribution Rates . . .  14 

D:  AgencyComments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  15

A C K NO WL E D G M E N T S  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  17
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  I N T R O D U C T I O N  

OBJECTIVES 
To determine (1) the sources and number of suspected fraud referrals 
that Medicaid Fraud Control Units (MFCU) reported receiving and 
(2) the number of these referrals that they accepted for investigation. 
BACKGROUND 
The Deficit Reduction Act of 2005 created a new Medicaid Integrity 
Program (MIP) and provided additional funding for the Secretary of the 
Department of Health and Human Services (HHS) to conduct Medicaid 
program integrity activities.1  The MIP funding will assist the Centers 
for Medicare & Medicaid Services (CMS) in these activities. As part of 
this funding, CMS will hire approximately 100 auditors to conduct 
Federal reviews of State Medicaid agency programs.  In addition, 
funding received pursuant to the Deficit Reduction Act of 2005 will 
assist the Office of Inspector General (OIG) in its oversight of Medicaid 
integrity efforts. 
Within most States, two agencies share primary responsibility for 
protecting the integrity of the Medicaid program.  The State Medicaid 
agency is responsible for ensuring proper payment, recovering misspent 
funds, identifying suspected Medicaid fraud, conducting a preliminary 
review to determine the extent of potential fraud, and making referrals 
to its MFCU. The MFCU is responsible for reviewing the referrals it 
receives from the State Medicaid agency and other sources to determine 
if the issues involved merit criminal and/or civil investigation.  The 
MFCU would then either accept the referral for investigation or decline 
the referral.  In situations where the referral is declined, the referring 
agency can initiate appropriate administrative actions. 
State Medicaid Agency Responsibilities 
The State Medicaid agency must conduct preliminary investigations 
when questionable practices or complaints of suspected Medicaid fraud 
are identified or received.2 
1 Public Law 109-171. 

2 42 CFR  455.14. 

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When a preliminary investigation gives the State Medicaid agency 
reason to believe that an incident of fraud has occurred, it must refer 
the matter to the MFCU for investigation.3 
State Medicaid agencies must have certain information processing 
systems, including a Medicaid Management Information System 
(MMIS), to accomplish the tasks for which they are responsible.4 A vital 
part of the MMIS is the Surveillance and Utilization Review Subsystem 
(S/URS).  Two of the primary functions of the S/URS are:  (1) to develop 
a comprehensive statistical profile of health care delivery and 
utilization patterns by providers and recipients, and (2) to investigate 
and reveal misutilization of the States Medicaid program by 
participants and promote correction.5 Some State Medicaid agencies 
exclusively use staff within the S/URS unit to conduct analyses, while 
others have established comprehensive program integrity or Inspector 
General units to oversee these functions. 
Medicaid Fraud Control Unit Responsibilities 
MFCUs are responsible for conducting statewide programs for 
investigating and prosecuting violations of all applicable State laws 
regarding any and all aspects of fraud in connection with any aspect of 
the provision of medical assistance and the activities of providers of 
such assistance under the State Medicaid plan.6  Forty-eight States and 
the District of Columbia (hereinafter referred to collectively as States) 
have established MFCUs.7 
MFCUs are responsible for conducting criminal and/or civil 
investigations of suspected Medicaid fraud and are considered 
integrated law enforcement components.  MFCUs must be single 
identifiable entities of the State government, composed of investigators, 
attorneys, and auditors.8  Most MFCUs are located within the State 
3 42 CFR  455.15(a)(1) and 42 CFR  433.116(h).  In States without a MFCU, the State 
Medicaid agency must conduct a full investigation or refer the fraud issue to the 
appropriate law enforcement agency. 
4 42 U.S.C.  1903(a)(3) and 1903(r), 42 CFR  433.110 and Part 11 of the State Medicaid 
Manual. 
5 Section 11335 of the State Medicaid Manual. 
6 42 U.S.C.  1396b(q)(3) and 42 CFR  1007.11. 
7 The HHS Inspector General granted North Dakota and Idaho waivers of MFCU 
requirements; thus the State Medicaid agency in each of these States is responsible for 
conducting investigations and referring cases to State and local prosecutors. 
8 42 U.S.C.  1396b(q)(6). 
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Attorney Generals office. OIG has been delegated responsibility for 
MFCU oversight and certifying and recertifying that each MFCU meets 
selected Federal requirements.9 
Section 1902(a)(61) of the Social Security Act, as amended by 
section 13625 of the Omnibus Budget Reconciliation Act of 1993, 
required OIG to develop performance standards for assessing MFCUs. 
These standards became effective on September 26, 1994. One of these 
performance standards requires MFCUs to ensure they maintain an 
adequate workload of referrals from State Medicaid agencies and other 
sources (e.g., licensure authorities, insurance departments, providers, 
and private citizens). 
Previous Studies 
Since 1989, OIG has issued three reports addressing the referral of 
suspected fraud issues from State Medicaid agencies to MFCUs.10 
These reports identified variations among the State Medicaid agencies 
in their relationships with and methods of referral to MFCUs. 
Additionally, each of these studies identified deficiencies in the referral 
process, such as a lack of communication between State Medicaid 
agencies and MFCUs and a lack of understanding of roles and 
responsibilities. 
The Government Accountability Office (GAO) has also conducted a 
number of studies that identified vulnerabilities in the Medicaid 
program and in State Medicaid agencies efforts to detect and refer 
suspected fraud issues to MFCUs. In a 2004 report, GAO noted that 
CMSs efforts to ensure State Medicaid agency compliance might be 
. . . disproportionately small relative to the risk of serious financial 
loss.11 
METHODOLOGY 
We requested suspected fraud referral data from both State Medicaid 
agencies and MFCUs in the 48 States that had MFCUs during the 
9 42 U.S.C.  1396b(q)(7). 
10 Referrals by Medicaid agencies to Fraud Control Units, OAI-03-88-00170, 
October 1989; Surveillance and Utilization Review Subsystems Case Referrals to 
Medicaid Fraud Control Units, OEI-07-95-00030, November 1996; Medicaid Post 
Payment Safeguards, OEI-05-99-00072, July 2000. 
11 State and Federal Efforts to Prevent and Detect Improper Payments, Government 
Accountability Office Report to the Chairman, Committee on Finance, U.S. Senate, 
GAO 04-707, July 2004. 
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3-year period July 2002 through June 2005.  Idaho and North Dakota 
have not established MFCUs due to waivers and Nebraska established 
its MFCU toward the end of our study period.  Therefore, these States 
were excluded from the study.  The Kentucky, New York, Oregon, and 
Utah MFCUs responded to our request; however, the data provided was 
not sufficiently complete for comparable analysis.  As a result, the 
responses from these MFCUs and the corresponding State Medicaid 
agencies were excluded from this report.  This study reflects responses 
from the remaining 44 States with MFCUs. 
We asked State Medicaid agencies to provide the number of suspected 
fraud referrals made to MFCUs; the number of those accepted for 
investigation; the number of those declined for investigation, thus 
allowing the State Medicaid agency to initiate administrative actions, as 
appropriate; and the number of those for which no investigative decision 
had been made by their MFCUs.  We asked MFCUs to provide the 
number of suspected fraud referrals they received from State Medicaid 
agencies and other sources; the number of those accepted for 
investigation; the number of those declined for investigation, thus 
allowing another agency to initiate appropriate administrative action, 
as appropriate; and the number of those for which no investigative 
decision had been made.  We asked the MFCUs for information on 
referrals received from State Medicaid agencies as well as those from all 
other sources for the 3-year period July 2002 through June 2005.  We 
also requested the MFCUs to provide the general reasons that referrals 
were not accepted for criminal and/or civil investigation. 
In our requests to State Medicaid agencies and MFCUs, we did not 
define the terms referral, accept, decline, and no decision made for 
respondents.  Although they are not usually defined, these terms are 
used commonly in policies and procedures governing the work for State 
Medicaid agencies and MFCUs.  We provided respondents the ability to 
contact us if they had any questions about the information we 
requested. 
The common understanding of each of the terms is as follows: 
o	 Referral  a matter that an outside entity brings to the attention of 
a MFCU regarding suspected Medicaid fraud.  Referrals can range 
from something that is well researched and developed to simply an 
article mentioning potential wrongdoing clipped from the 
newspaper. 
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o	 Accept  matters that the MFCU retains for further investigation. 
According to internal policy, some MFCUs accept all referrals from 
all sources. Most MFCUs, however, accept for investigation only 
those matters that meet a certain threshold (e.g., indications that a 
crime had been committed, dollar threshold for prosecution). 
o	 Decline  matters that the MFCU does not retain for further 
investigation, allowing another entity to initiate administrative 
actions, as appropriate. The term decline should not be confused 
with a declination on the part of the prosecutor to take a matter to 
court. 
o	 No decision made  matters that, at the time of our inquiry, the 
MFCU had not yet made a determination of whether to accept or 
decline. 
Limitations 
We did not review individual preliminary investigations that State 
Medicaid agencies conducted for completeness or appropriateness. We 
also did not evaluate processes MFCUs used or results achieved as part 
of their acceptance, declination, and/or development of fraud issues for a 
criminal and/or civil investigation. We collected information from State 
Medicaid agencies and MFCUs. We elected to report the referral 
numbers from MFCUs, because they receive referrals from State 
Medicaid agencies and other sources, providing a more comprehensive 
representation of their investigative workload. 
Some MFCU directors stated that they received suspected fraud 
referrals on the same matter from multiple sources. In such cases, the 
referral was credited to the entity that first referred the matter to the 
MFCU. Therefore, State Medicaid agencies could have referred 
additional suspected fraud issues that the MFCU would not have 
counted as a referral from them, when these issues had previously been 
received from other sources. 
Data presented in the report are the raw referral statistics that MFCUs 
provided and are not adjusted for such factors as State Medicaid agency 
or MFCU operating budgets, State Medicaid program expenditures, 
beneficiary and provider populations, or claims volume. 
Standards 
This study was conducted in accordance with the Quality Standards for 
Inspections issued by the Presidents Council on Integrity and 
Efficiency and the Executive Council on Integrity and Efficiency. 
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  F I N D I N G S  
Medicaid Fraud Control Units reported receiving  From July 2002 through June 2005, 
a total of 13,733 suspected fraud referrals over a  MFCUs reported receiving 
4,034 referrals from State Medicaid 
3-year period, of which 29 percent came from 
agencies and 9,699 referrals from 
State Medicaid agencies 
all other sources.  State Medicaid 
agency referrals accounted for 29 percent of all MFCU-reported 
referrals for the 3-year study period.12  Table 1 provides referral data for 
each of the years in our review.  Previous reports examining Medicaid 
suspected fraud referrals found that State Medicaid agency contribution 
to total referrals was 35 percent in 1985 (36 States reporting) and 
25 percent in 1994 (45 States reporting).13 
Table 1: MFCU-Reported Fraud Referrals 
Referrals From  State Medicaid 
Referrals From 
Review Period  State Medicaid  Agency Percent of 
Other Sources 
Agencies  Total Referrals 
20022003  1,161  3,040  28 
20032004  1,403  3,045  32 
20042005  1,470  3,614  29 
Total  4,034  9,699  29 
Source:  Office of Inspector General analysis of MFCU data, 2006. 
For the 3-year period from July 2002 to June 2005, the number of 
referrals that an individual MFCU reported receiving from a State 
Medicaid agency ranged from 0 to 215 for any 1-year period and from 
7 to 590 for all 3 years. (See Appendix A.)  MFCU-reported referrals 
from other sources ranged from 0 to 379 in any 1 year and from 6 to 
859 for all 3 years.  (See Appendix B.)  Eighty four percent (37/44) of 
MFCUs reported receiving less than half of all referrals from their 
respective State Medicaid agencies. 
MFCU-reported referrals from States varied greatly, but clustered to 
low and high ends.  Twenty-one MFCUs reported receiving fewer than 
12 referrals each from State Medicaid agencies (averaging less than 
1 referral per month) in the last year of our study.  These States were 
12 State Medicaid agencies reported sending 3,930 suspected fraud referrals to MFCUs over 
the 3-year period, while MFCUs reported receiving 4,034 suspected fraud referrals from 
State Medicaid agencies over the same period.  
13 Results of Certified Fraud Control Units, GAO/HRD-87-12FS, October 1986, and 
Surveillance and Utilization Review Subsystems Case Referrals to Medicaid Fraud 
Control Units, OEI-07-95-00030, November 1996. 
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rural, urban, small, large, from all regions of the country, and included 
Arkansas (2 referrals), Connecticut (2 referrals), South Dakota 
(4 referrals), Virginia (8 referrals), and Wyoming (11 referrals). Only 
3 MFCUs reported receiving over 100 referrals from State Medicaid 
agencies in the last year of our study: Florida (215 referrals), Arizona 
(192 referrals), and Texas (180 referrals). During the same period, 
California, the largest Medicaid program based on enrollment, reported 
79 referrals from the State Medicaid agency. 
While referral data in Appendix A indicate an increase in the number of 
suspected fraud referrals overall from 1,161 in the 20022003 review 
period to 1,470 in the 20042005 review period, only 1 State Medicaid 
agency significantly contributed to this upward trend. During the 
period July 2002 through June 2005, Floridas reported referrals 
increased from 33 to 82 to 215 for each 12-month period, accounting for 
59 percent (182/309) of the difference between the 20022003 and 
20042005 reported number of referrals. In fact, more than half 
(24/44) of MFCUs actually reported receiving fewer referrals from their 
respective State Medicaid agency in the last year of our review 
compared to the average number of referrals over all 3 years. For 
18 States, MFCUs also reported fewer referrals from other sources in 
the last year, compared to the 3-year average. 
Although the total number of 
Overall, State Medicaid agency contributions to 
referrals MFCUs accepted from 
total MFCU-accepted referrals remained 
both State Medicaid agencies and 
constant over a 3-year period, but individual 
other sources increased, the 
States fluctuated widely  overall percentage contribution of 
accepted referrals that came from 
State Medicaid agencies remained relatively constant during our 3-year 
study period. (See Table 2 on the next page.) In contrast, the 
contributions of individual State Medicaid agencies to their respective 
MFCUs fluctuated greatly. Fifty-nine percent (26/44) of MFCUs 
reported accepting fewer referrals from their respective State Medicaid 
agency in the last year of our review, while 41 percent (18/44) reported 
an increase compared to the average number of referrals over all 
3 years. This indicates that increases in accepted referrals are 
concentrated in less than half of the States. 
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Table 2:  MFCU -Reported Accepted Fraud Referrals 
Referrals Accepted  Referrals  State Medicaid Agency 
Review Period  From State Medicaid  Accepted From  Percent of Total Referrals 
Agencies  Other Sources  Accepted 
20022003  748  1,694  31 
20032004  964  1,780  35 
20042005  1,020  2,164  32 
Total  2,732  5,638  33 
Source: Office of Inspector General analysis of MFCU data, 2006. 
Eight MFCUs accepted all referrals during our 3-year study period. 
(See Appendix C.) As an example, the Florida MFCU saw an increase 
in the number of referrals and accepted referrals by 182 from the first to 
last year of our study. As a result, Florida alone accounted for 
67 percent (182/272) of increases in accepted referrals during this 3-year 
period. 
Twenty-six MFCUs reported accepting, on average, no more than 
one referral a month from their respective State Medicaid agencies. 
MFCU-reported accepted referrals from State Medicaid agencies ranged 
from 0 to 215 for any 1 year and from 1 to 330 for all 3 years. 
(See Appendix A.) MFCU-reported accepted referrals from all other 
sources ranged from 0 to 372 in any 1 year and from 3 to 766 for all 
3 years. (See Appendix B). 
The most frequent reason that MFCUs cited for declining a referral 
from State Medicaid agencies was that the referral did not contain 
enough information to establish that a Medicaid crime had been 
committed (33 MFCUs).14 Other reasons frequently cited include 
referral to another agency for administrative action (19 MFCUs) and 
the need for additional development by the respective State Medicaid 
agency (18 MFCUs). Only 50 referrals for the full 3-year period were 
reported to us as no decision made, indicating that nearly all referrals 
were reviewed and were either accepted for investigation or declined, 
thus allowing the referring agency to take action it deemed appropriate. 
14 We recognize that fraud may ultimately be determined only through a judgment by a 
court of law. MFCUs noted that some referrals did not establish the necessary elements 
to proceed with a criminal investigation. 
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  R E C O M M E N D A T I O N  

We recommended in our November 1996 report Surveillance and 
Utilization Review Subsystems Case Referrals to Medicaid Fraud 
Control Units, OEI-07-95-00030, that CMS establish fraud referral 
performance standards for State Medicaid agencies. While CMS 
concurred with this recommendation, it has not established these 
performance standards. 
In the absence of CMS performance standards or criteria specific to the 
referral of suspected fraud issues, we are unable to determine the 
adequacy of State Medicaid agencies performance.  Such criteria would 
assist State Medicaid agencies by providing specifics concerning the 
development and referral of suspected fraud issues to MFCUs. In 
addition, such criteria would help ensure that the content and manner 
of referring suspected fraud issues is consistent across States.  However, 
some reported results, such as no fraud referrals for an entire year or 
only one accepted referral over 3 years, do not appear adequate given 
the State Medicaid agencies access to Medicaid claims information and 
their designated role to identify and refer suspected fraud issues to 
MFCUs. 
Despite the growth in Medicaid expenditures and the increased focus on 
Medicaid program integrity, 21 MFCUs reported receiving fewer than 
12 referrals each from their respective State Medicaid agency in the last 
year of our study.  More than half of MFCUs reported receiving fewer 
referrals from their respective State Medicaid agency in the last year of 
our review compared to the average number of referrals over all 3 years. 
More than half of MFCUs reported receiving an average of no more than 
one accepted referral per month from their respective State Medicaid 
agency during the period July 2002 through June 2005. 
Given the findings in our report and our inability to assess the adequacy 
of State Medicaid agency performance, due to the absence of referral 
criteria, we reiterate this recommendation. 
AGENCY COMMENTS  
CMS concurred with our recommendation to work towards the 
establishment of fraud referral performance standards.  CMS indicated 
that it is in the process of engaging a strategic contractor to conduct a 
comprehensive State program integrity assessment. The contractor will 
be tasked with determining the measures needed to accurately assess 
the program integrity performance of State Medicaid agencies and to 
develop a national database.  Once these measures are established, 
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R E C O M M E N D A T I O N  
CMS can use this information to begin collaborative work in the 
development of national performance standards.  CMS intends to 
consult with OIG regarding arriving at a commonly accepted definition 
of what constitutes an accepted referral, since the definition of this term 
varies widely from State to State.  CMS noted that the Deficit Reduction 
Act of 2005 provides the necessary resources to implement OIGs 
longstanding recommendation.  CMS comments are included in their 
entirety in Appendix D. 
OFFICE OF INSPECTOR GENERAL RESPONSE 
CMS comments to the report were based on numbers contained in the 
draft report.  However, after reviewing the draft report, one State 
advised OIG that it had provided OIG incorrect information in response 
to the initial data request, and it was unable to provide information that 
completely responded to our request.  The State was eliminated from 
our analyses and the data presented in the report are adjusted 
accordingly.  Although we still find that the number of referrals does 
increase in each year of our study, the increase is less dramatic than 
indicated in the draft report and the percentage of referrals coming from 
State agencies drops in the last year when compared to the prior year. 
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  A P P E N D I X E S  

The information contained in Appendixes A, B, and C is presented in 
alphabetical order by State.  The order is not intended to suggest any 
ranking of performance for any State Medicaid agency or MFCU. 
These data do not take into account factors such as State Medicaid 
agency or MFCU operating budgets, State Medicaid program 
expenditures, beneficiary and provider populations, or claims volume. 
Additionally, these data do not reflect the entirety of workloads for 
either the State Medicaid agencies or MFCUs.  State Medicaid agencies 
pursue overpayment cases in addition to making referrals to MFCUs. 
MFCUs self-generate work in addition to receiving referrals from State 
Medicaid agencies and external sources. 
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  A P P E N D I X   A  
MFCU-Reported Fraud Referral Data From State Medicaid Agencies* 
Referrals Received From State  Referrals Accepted From State 
Totals  Totals 
Medicaid Agency  Medicaid Agency 
State  20022003  20032004  20042005  20022005  20022003  20032004  20042005  20022005 
Alabama  6  13  7  26  6 9   4 19   
Alaska  34  20  94  148  2  7  13  22 
Arizona  196  202  192  590  59  54  42  155 
Arkansas 5 9 5   2 66  21   5 2  28   
California  145  163  79  387  104  125  72  301 
Colorado  6 13   7 26  5   8 5  18   
Connecticut 4 5 5   2 52  26  4   2 32   
Delaware  1  7 7  15  1   7  7 15   
District of Columbia  2 5   5 12   2 4   5 11   
Florida 3 3  82 21 5 330  3 3  82 21 5 330   
Georgia  8  6  11  25  8  6  11  25 
Hawaii  3  2 2  7  3   2  2 7   
Illinois  47  90  83  220  39  49  55  143 
Indiana 1 1  30 3 5 76   11 3 0 3 5 76   
Iowa  1  2 11  14  1   0  4 5   
Kansas  11  21  47  79  11  21  45  77 
Louisiana  10  33  31  74  10  33  31  74 
Maine  8  14  19  41  8  14  19  41 
Maryland  7 11   9 27  2   8 5  15   
Massachusetts  16  6  10  32  15  5  9  29 
Michigan  24  47  26  97  17  26  18  61 
Minnesota 10  9  13  32   6  6 4  16   
Mississippi  25  11  5  41  16  6  3  25 
Missouri  25  23  20  68  25  23  20  68 
Montana 11  7   9 27  8   6 8  22   
Nevada  4  8 7  19  4   4  2 10   
New Hampshire 9   6 9  24   6 2   7 15   
New Jersey  15  21  12  48  14  19  10  43 
New Mexico 11   5 6  22  11   5 6  22   
North Carolina  14  12  18  44  14  10  12  36 
Ohio  60  97  63  220  58  90  58  206 
Oklahoma  70  67  78  215  28  32  32  92 
Pennsylvania 1 2 2 4  18 54   12  24 1 8 54   
Rhode Island  9 6   3 18  8   5 3  16   
South Carolina  14  12  12  38  14  11  11  36 
South Dakota  0 7   4 11   0  1 0  1   
Tennessee 11  5  30  46   6  3 5  14   
Texas  81  205  180  466  40  135  142  317 
Vermont  17  15  5  37  15  13  4  32 
Virginia  13  11  8  32  12  6  7  25 
Washington  25  13  17  55  25  13  17  55 
West Virginia  22  23  22  67  22  23  22  67 
Wisconsin  28 2 7  26 81  1 8  16 1 7 51   
Wyoming  2  12  11  25  2  12  11  25 
Total  1,161  1,403  1,470  4,034  748  964  1,020  2,732 
Source: MFCU reported data, 2006. 
*The Kentucky, New York, Oregon, and Utah MFCUs responded to our request; however, the data provided was not sufficiently complete 
for comparable analysis. 
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  A P P E N D I X   B  
MFCU-Reported Fraud Referral Data From All Other Sources* 
Referrals Received From All  Referrals Accepted From All 
Totals  Totals 
Other Sources  Other Sources 
State  20022003  20032004  20042005  20022005  20022003  20032004  20042005  20022005 
Alabama  8  15  11  34  6  12  7  25 
Alaska  72  67  34  173  11  18  3  32 
Arizona  185  185  183  553  54  46  37  137 
Arkansas  37  48  47  132  24  31  31  86 
California  182  99  166  447  165  71  114  350 
Colorado  65  46  36  147  27  21  16  64 
Connecticut  103  23  55  181  8  23  55  86 
Delaware  11  58  49  118  10  55  45  110 
District of Columbia  27  36  53  116  27  34  51  112 
Florida  193  201  372  766  193  201  372  766 
Georgia  51  58  33  142  44  53  23  120 
Hawaii  60  75  81  216  60  75  81  216 
Illinois  9  29  84  122  9  25  62  96 
Indiana  68  204  137  409  68  204  137  409 
Iowa  39  68  78  185  17  12  17  46 
Kansas  53  49  129  231  14  25  54  93 
Louisiana  51  78  83  212  32  36  38  106 
Maine  64  136  114  314  31  41  50  122 
Maryland  31  27  23  81  10  10  9  29 
Massachusetts  48  25  22  95  15  4  3  22 
Michigan  379  264  216  859  81  46  30  157 
Minnesota  18  22  15  55  11  16  11  38 
Mississippi  36  33  30  99  13  16  6  35 
Missouri  32 1 5 2 0 6 7 3 2 1 5 2 0 6 7  
Montana  20  26  35  81  11  12  12  35 
Nevada  78  91  85  254  17  17  18  52 
New Hampshire 2 0 1 4  16 5 0 1 3  3  9 2 5  
New Jersey  23  35  110  168  21  29  86  136 
New Mexico  79  41  68  188  12  10  20  42 
North Carolina  90  79  90  259  80  72  84  236 
Ohio  161  160  195  516  83  98  146  327 
Oklahoma  15  20  10  45  4  13  7  24 
Pennsylvania  36  33  33  102  36  33  33  102 
Rhode Island  2  1  3  6  2  1  3  6 
South Carolina  28  45  64  137  28  39  58  125 
South Dakota  11  9  20  40  7  4  8  19 
Tennessee  92  78  137  307  20  26  34  80 
Texas  212  290  326  828  73  96  110  279 
Vermont  67  63  94  224  50  39  46  135 
Virginia  35  18  58  111  30  18  19  67 
Washington  164  154  170  488  164  154  170  488 
West Virginia  10  12  10  32  10  12  10  32 
Wisconsin 7  1  0  8  3  0  0  3   
Wyoming  68  14  19  101  68  14  19  101 
Total  3,040  3,045  3,614  9,699  1,694  1,780  2,164  5,638 
Source:  MFCU reported data, 2006. 
*The Kentucky, New York, Oregon, and Utah MFCUs responded to our request; however, the data provided was not sufficiently 
complete for comparable analysis. 
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  A P P E N D I X   C  
Comparison of MFCU-Accepted Fraud Referral and Contribution Rates 
Comparison of MFCU Accepted Referral and Contribution Rates* 
Percentage Contribution of Accepted  Percentage of State Medicaid  Percentage of Referrals From All 
Referrals From State Medicaid Agency  Agency Referrals Accepted  Other Sources Accepted 
State  2002-2005  2002-2005  2002-2005 
Alabama  43.2  73.1  73.5 
Alaska  40.7  14.9  18.5 
Arizona  53.1  26.3  24.8 
Arkansas  24.6  42.4  65.2 
California  46.2  77.8  78.3 
Colorado  22.0  69.2  43.5 
Connecticut  27.1  61.5  47.5 
Delaware  12.0  100.0  93.2 
District of Columbia  8.9  91.7  96.6 
Florida  30.1  100.0  100.0 
Georgia  17.2  100.0  84.5 
Hawaii  3.1  100.0  100.0 
Illinois  59.8  65.0  78.7 
Indiana  15.7  100.0  100.0 
Iowa  9.8  35.7  24.9 
Kansas  45.3  97.5  40.3 
Louisiana  41.1  100.0  50.0 
Maine  25.2  100.0  38.9 
Maryland  34.1  55.6  35.8 
Massachusetts  56.9  90.6  23.2 
Michigan  28.0  62.9  18.3 
Minnesota  29.6  50.0  69.1 
Mississippi  41.7  61.0  35.4 
Missouri  50.4  100.0  100.0 
Montana  38.6  81.5  43.2 
Nevada  16.1  52.6  20.5 
New Hampshire  37.5  62.5  50.0 
New Jersey  24.0  89.6  81.0 
New Mexico  34.4  100.0  22.3 
North Carolina  13.2  81.8  91.1 
Ohio  38.6  93.6  63.4 
Oklahoma  79.3  42.8  53.3 
Pennsylvania  34.6  100.0  100.0 
Rhode Island  72.7  88.9  100.0 
South Carolina  22.4  94.7  91.2 
South Dakota  5.0  9.1  47.5 
Tennessee  14.9  30.4  26.1 
Texas  53.2  68.0  33.7 
Vermont  19.2  86.5  60.3 
Virginia  27.2  78.1  60.4 
Washington  10.1  100.0  100.0 
West Virginia  67.7  100.0  100.0 
Wisconsin  94.4  63.0  37.5 
Wyoming  19.8  100.0  100.0 
Total (weighted)  29.4  67.8  58.3 
Source:  Office of Inspector General analysis of MFCU reported data, 2006. 
*The Kentucky, New York, Oregon, and Utah MFCUs responded to our request; however, the data provided was not sufficiently complete for 
comparable analysis. 
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Agency Comments 
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A P P E N D I X   D  

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A P P E N D I X   ~   B
  A C K N O W L E D G M E N T S  
This report was prepared under the direction of Brian T. Pattison, 
Regional Inspector General for Evaluation and Inspections in the 
Kansas City regional office, and Gina C. Maree, Deputy Regional 
Inspector General.  Other principal Office of Evaluation and Inspections 
staff who contributed include: 
Brian Whitley, Team Leader 
Perry Seaton, Senior Program Analyst 
Zula Crutchfield, Program Analyst 
Linda Paddock, Program Analyst 
Ayana Everett, Program Specialist 
Elise Stein, Director, Public Health and Human Services Branch 
  OEI-07-04-00181  SUSPECTED MEDICAID FRAUD REFERRALS  17