Report Template Update:  06-30-07  
    
 Department of Health and Human Services
 
OFFICE OF 

 
INSPECTOR GENERAL 

  
 
 
 
 
 
 
 
FEE-FO  R-SERVICE PAYMENTS 

 
S C
FOR  ERVICES  OVERED BY 

 
 
C M M
APITATED  EDICAID  ANAGED 

 
  C  
ARE 

 
 
 
 
Daniel R. Levinson 
  
Inspector General 

 
July 2008 
 
OEI-07-05-00320 
 
    Report Template Update:  06-30-07  
 
 
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 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.  These evaluations focus on preventing fraud,  waste, or abuse  and promoting  
economy, efficiency, and effectiveness of departmental programs.  To promote impact, OEI 
reports also present practical recommendations for improving  program operations.  
Office of Investigations 
The Office of Investigations (OI) conducts criminal, civil, and administrative investigations  
of  fraud and misconduct  related to HHS programs, operations, and beneficiaries.  With 
investigators working in all 50 States and the District of Columbia, OI  utilizes its resources 
by actively  coordinating with the Department  of Justice  and other Federal, State, and local 
law enforcement authorities.  The investigative efforts of OI often lead to  criminal 
convictions, administrative sanctions,  and/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 for OIGs  internal operations.  OCIG represents  OIG in all civil and 
administrative fraud and abuse cases involving HHS programs,  including False Claims Act, 
program exclusion, and civil monetary penalty cases.  In  connection with these cases, OCIG 
also negotiates and monitors corporate integrity agreements.  OCIG renders advisory 
opinions, issues compliance program  guidance, publishes fraud alerts, and provides other  
guidance  to  the health care industry concerning the anti-kickback statute and other  OIG  
enforcement authorities.  
    Report Template Update:  06-30-07 
  
   
E X E C U T I V E   S U M M A R Y  
  E X E C U T I V E   S U M M A R Y
OBJECTIVE 
 
To determine the extent to which Medicaid programs in five States paid 
noninstitutional fee-for-service claims for services provided to 
beneficiaries enrolled in capitated Medicaid managed care plans during 
the first quarter of fiscal year (FY) 2005. 
BACKGROUND 
The Centers for Medicare & Medicaid Services (CMS) estimates that 
over 65 percent of the Nations Medicaid beneficiaries received all or 
some of their health or mental health services through managed care 
in 2006. In capitated managed care arrangements, State Medicaid 
programs pay managed care plans a fixed rate per Medicaid beneficiary 
in exchange  for services included in the plan.  Except in limited 
circumstances specified  by the State (e.g., the beneficiary receives 
services outside the managed care plan coverage area), Medicaid 
programs should not pay claims for services that are included in 
capitated Medicaid managed care plans on a fee-for-service basis.  
Otherwise, Medicaid programs pay twice for the same serviceonce  
through the fee-for-service claim and once as a portion of the capitated 
payment.  We selected  five States for this review based on the 
percentage of the States Medicaid populations enrolled in 
managed care. 
FINDINGS 
In the first quarter  of FY 2005, Medicaid programs in four of the five  
States that  we reviewed erroneously paid nearly $864,000 for 
fee-for-service claims.  We identified 16,621  fee-for-service claims 
totaling $863,664 paid  in error for capitated  Medicaid managed care 
covered services in California, Missouri, New York, and Wisconsin during 
the first quarter of FY 2005.  The Federal share of these claims paid in 
error was $462,087.  Manual overrides of Medicaid automated payment 
system edits and faulty system logic contributed to the claims paid in 
error.    
An additional $974,006 was potentially  paid in  error in two States in 
the first quarter of FY  2005.   We identified an additional 
23,069 fee-for-service claims totaling $974,006 that appeared to be for 
services covered by capitated Medicaid managed care plans in California 
and Pennsylvania.  However, State staff indicated that determining 
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E X E C U T I V E   S U M M A R Y   
whether the claims were paid in error would require resource-intensive 
reviews of these claims, which could involve researching the Medicaid 
automated payment system edits applied to each claim, identifying any 
manual overrides of system edits, reviewing the claims payment history, 
and tracking systems processing logic.  Without this type of review, 
neither the Office of Inspector General nor State Medicaid agency staff 
could definitively determine  whether these fee-for-service claims were 
paid in error.    
RECOMMENDATIONS 
When Medicaid programs pay fee-for-service claims for services covered 
by capitated Medicaid managed care plans in error, they are essentially 
paying twice for the same services.  We identified approximately 
$1.8 million (i.e., State expenditures and Federal financial 
participation) in total Medicaid claims paid or potentially paid in error 
during a single quarter in the five States that we reviewed.  State 
Medicaid agency staff either acknowledged that these claims were paid  
in error, describing faulty system logic, edits, and manual overrides as  
reasons for these errors, or explained why determining whether claims 
were paid in error was not feasible.  These challenges point to  
vulnerabilities in claims processing.  Therefore, we recommend that 
CMS: 
Work with all States to reduce the vulnerability for erroneous fee-for-service 
Medicaid payments for services covered by capitated Medicaid managed 
care plans. CMS should issue guidance to States addressing Medicaid 
payment systems vulnerabilities, identifying erroneous payments, and 
developing payment systems to prevent payment errors. CMS could 
accomplish this through  disseminating information to State Medicaid 
agencies regarding the vulnerabilities that we identified; encouraging 
every State to examine existing Medicaid claims payment systems to  
identify potential errors and to determine whether errors identified are 
associated with State automated payment system logic, edits, and manual 
overrides; and providing technical assistance and information to State 
Medicaid agencies regarding the importance of developing Medicaid claims  
payment systems that will enable State Medicaid agency staff and 
external reviewers to  more easily identify and prevent fee-for-service  
payments for services covered by capitated Medicaid managed care plans.   
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E X E C U T I V E   S U M M A R Y   
Take appropriate action to collect overpayments associated with Medicaid 
claims paid in error from States.  OIG will forward to CMS the identified 
erroneous fee-for-service claims information needed to take appropriate 
action. 
AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL  
RESPONSE 
In its written comments, CMS agreed with the recommendation 
contained in the draft report.  CMS recognized the importance of  
ensuring that erroneous payments are eliminated to the fullest extent 
possible.  CMS offered  as context the small amount of erroneous claims  
that we identified and the complexity of the States Medicaid managed 
care programs that we reviewed.  However, the claims paid in error 
demonstrate how these complex programs can lead to the vulnerabilities 
identified. CMS noted in its comments that for many situations cited in 
the report, States should have been able to control erroneous  payments 
with edits in their payment systems. OIG is now recommending that 
CMS collect overpayments associated with the claims paid in error from 
the States.   
To address the OIG recommendations, CMS will remind States of the 
importance  of eliminating erroneous payments and recommend that 
States make any necessary edits to their payment systems at the next 
Medicaid Managed Care Technical Advisory Group call.  Additionally, 
CMS will work with States to voluntarily collect the overpayments 
associated with erroneous fee-for-service payments.  
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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 
  
Four of the five States Medicaid programs paid fee-for-service 

claims in error  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  6 
  
Two State Medicaid programs may have paid additional claims 

in error  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  8 
  
 
 
R E C O MMEN D A T ION S  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  10 
  
Agency Comments and Office of Inspector General Response . . .  11 

 
 
APPENDIXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  12 
  
A: 	Totals by State of Medicaid Managed Care Enrollment 

and Fee-for-Service Paid Claims for Medicaid 

Beneficiaries Enrolled in Capitated Managed Care
 
During the First Quarter of FY 2005. . . . . . . . . . . . . . . . . . . .  12 
  
B:	  Examples of Services Excluded From Capitated Medicaid    
          
Managed Care in the Five States. . . . . . . . . . . . . . . . . . . . . . .  13 
  
C:	  Agency Comments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  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  
OBJECTIVE 
To determine the extent to which Medicaid programs in five States paid 
noninstitutional fee-for-service claims for services provided to 
beneficiaries enrolled in capitated Medicaid managed care plans during 
the first quarter of fiscal year (FY) 2005. 
BACKGROUND 
States and the Federal Government jointly fund medical and 
health-related services for low-income individuals, families, the elderly, 
and disabled who meet State and Federal eligibility criteria through 
State Medicaid programs.  States have the option to provide Medicaid 
services to eligible beneficiaries solely on a fee-for-service basis, through 
managed care arrangements, or through both fee-for-service and 
managed care arrangements.  Over the past 10 years, beneficiary 
enrollment in Medicaid managed care plans has increased.1  The 
Centers for Medicare & Medicaid Services (CMS) estimates that over 
65 percent of the Nations Medicaid beneficiaries received all or some of 
their health or mental health services through managed care in 2006.2  
In capitated Medicaid managed care arrangements, State Medicaid 
programs pay managed care plans a fixed rate per Medicaid beneficiary 
in exchange for services included in the plan.3  Except in limited 
circumstances specified by the State (e.g., the beneficiary receives 
services outside the managed care plan coverage area), Medicaid 
programs should not pay claims for services that are included in 
capitated Medicaid managed care plans on a fee-for-service basis. 
 
1 2006 Medicaid Managed Care Enrollment Report, Managed Care Trends, p. 3.  
Available online at 
http://www.cms.hhs.gov/MedicaidDataSourcesGenInfo/04_MdManCrEnrllRep.asp#TopOfPa
ge.  Accessed on June 1, 2007. 
2 2006 Medicaid Managed Care Enrollment Report, Medicaid Managed Care 
Penetration Rates, p. 5.  Available online at  
http://www.cms.hhs.gov/MedicaidDataSourcesGenInfo/04_MdManCrEnrllRep.asp#TopOfPa
ge.  Accessed on June 1, 2007. 
3 Although States utilize a variety of managed care arrangements to provide Medicaid 
services to eligible beneficiaries (e.g., capitated managed care, primary care case 
management), this evaluation focused strictly on services provided through capitated 
Medicaid managed care.    
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I N T R O D U C T I O N   
Otherwise, Medicaid programs pay twice for the same serviceonce  
through the fee-for-service claim and once as a portion of the capitated 
payment. 
Medicaid programs are responsible for ensuring the integrity of all 
Medicaid paid claims.4  In processing claims for services provided to 
Medicaid beneficiaries, States automated claims payment systems 
should first determine whether beneficiaries are  enrolled in capitated  
Medicaid managed care plans.  For  beneficiaries enrolled in capitated 
Medicaid managed care  plans, States automated claims payment 
systems should determine whether the beneficiaries plans cover the 
services or whether the claims are appropriate for fee-for-service 
payments. States Medicaid automated payment systems should deny 
fee-for-service claims for services covered by the  capitated Medicaid 
managed care plans unless beneficiaries and services meet 
State-specified conditions that allow the beneficiaries to receive the 
services outside of the managed care plans.   
Prior Office of Inspector General Work  
An Office of Inspector General (OIG) study published in February 
2003 identified approximately $4 million in erroneous fee-for-service 
Medicaid payments in the State of Florida for services covered by a 
capitated Medicare managed care plan.  These errors occurred because 
the States Medicaid automated payment system was not updated to 
reflect the enrollment of dually eligible Medicaid beneficiaries in 
managed care.5  A September 2003 OIG study found that the State of 
Ohio made fee-for-service Medicaid payments for services that capitated 
Medicaid managed care plans covered.6  The study revealed that 
systems processes designed to prevent fee-for-service payments for 
managed care enrollees had been bypassed, resulting in $1 million in 
erroneous payments between July 2000 and June 2001.  
 
4 Social Security Act  1902a(37)(B), 42 U.S.C.  1396a. 
5  Medicaid Fee-for-Service Payments for Dually Eligible Medicare Managed  Care  
Enrollees, A-04-02-07007, February 2003. 
6  Review of Medicaid Fee-for-Service Payments for Beneficiaries Enrolled in Medicaid  
Managed Care,  A-05-02-00079, September 2003. 
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I N T R O D U C T I O N
   
METHODOLOGY 
Scope 
We selected five States for this review:  California, Missouri, New York, 
Pennsylvania, and Wisconsin.  State selection was based on the States 
Medicaid populations relative to  the percentage of their Medicaid 
beneficiaries enrolled in managed care.7  Table 1 below provides an 
overview of Medicaid  enrollment, expenditures, and  number  of Medicaid  
managed care plans in the five States.8  Because of the large number of 
fee-for-service claims processed in each State and to ensure  a more  
manageable scope, we included only outpatient fee-for-service payments 
in this review.  Fee-for-service payments for services provided by 
pharmacies, in hospitals, and in long term care and other institutional 
settings were excluded from this review. 
 
Table 1:  State  Medicaid  Facts for Fiscal  Year 2005 
 
  Percentage of  
Number of  
Medicaid   Medicaid  
Medicaid   Medicaid  
 State  Beneficiaries   Expenditures  
Population   Managed  
Enrolled in   (in billions) 
  Care Plans 
Managed Care  
 
California  3,355,339  50.49  $33.6  46 
 
Missouri  469,808  44.17  $6.5  9 
 
New York  2,606,291  61.83  $42.7  76 
 
Pennsylvania  1,248,390  75.35  $15.7  29 
 
Wisconsin  386,037  45.38  $4.7  41
 
   Total  8,065,865  $103.2  201 
Source:  Medicaid Managed Care Enrollment Report. 
 
7  2004 Medicaid Managed Care Enrollment Report, Medicaid Managed Care Program 
Summary,  pp. 2154.  Available online at 
http://www.cms.hhs.gov/MedicaidDataSourcesGenInfo/04_MdManCrEnrllRep.asp#TopOfPage. 
Accessed on May 30, 2007. 
8 See Appendix A for an overview  of Medicaid  managed care enrollment and  
fee-for-service paid claims for Medicaid beneficiaries enrolled in managed care during the 
first quarter of FY 2005. 
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Data Collection 
Beneficiaries  Enrolled in Capitated Medicaid Managed Care Plans. From  
each of the five States Medicaid Management Information  Systems 
(MMIS), we obtained Medicaid eligibility data for beneficiaries enrolled 
in capitated managed care plans at any time during the first  quarter 
of FY 2005. The beneficiary information included, at a minimum, each 
beneficiarys unique Medicaid identification number, date of birth, dates 
of Medicaid eligibility, county codes, managed care plan identifier, and 
beginning and ending dates of managed care  enrollment. 
Medicaid Fee-for-Service Claims. For each of the five States, we obtained  
the adjudicated Medicaid fee-for-service paid claims files from the 
States MMIS for all services performed in noninstitutional settings 
during the first quarter of FY 2005.  The adjudicated paid claims files 
included, at a minimum, each beneficiarys unique Medicaid 
identification number, procedure code, procedure description, provider 
type, date of service, service category, diagnosis code, place of service, 
unit of service, amount  billed to Medicaid, an indication of whether the 
claim was paid or denied, any Medicaid paid amount, and the date of  
payment. 
Data Analysis 
Fee-for-Service Claims for Services Covered by Capitated Medicaid  
Managed Care Plans. For each of the five States, we identified all 
fee-for-service claims that Medicaid  paid for services provided to 
beneficiaries who were enrolled in capitated Medicaid managed care 
plans during the first quarter of FY 2005. To do this, we identified 
beneficiaries enrolled in Medicaid managed care and the beginning and 
ending dates each beneficiary was enrolled in Medicaid managed care.   We 
then used each beneficiarys unique Medicaid identification number to 
identify fee-for-service claims that fell on or between the beginning and  
ending dates of managed care enrollment. 
 
We obtained information from each State about the services that the 
capitated Medicaid managed care plans covered. If a managed care 
plan excluded a service (i.e., did not cover the service), we considered  
fee-for-service to be an appropriate method  of payment for that service 
and did not question the fee-for-service payment.  Examples of services 
excluded from capitated Medicaid managed care coverage in  these five  
States are summarized in Appendix B. 
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For the remaining fee-for-service claims that fell within periods when 
beneficiaries were enrolled in capitated Medicaid managed care plans, 
we worked with multiple individuals in each States Medicaid agency to  
interpret complex eligibility and claims data, program and managed 
care policy,  and managed care plan coverage information to identify 
fee-for-service claims paid: 
   correctly and why,9 and 
   in error and why. 
Federal and State Shares of Fee-for-Service Claims Paid in Error. We calculated 
the Federal and State shares of fee-for-service claims paid in error for each 
of the five States. We  calculated these amounts by multiplying the 
expenditures for payments determined to be paid in error in each State by 
the Federal medical assistance percentage (FMAP) rate established 
specifically for that State. The FMAP rates for the five States reviewed  
varied between 50 percent and 61.15 percent as specified in Table 2 on 
page 6.  
 
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. 
 
9 States used data and information not available to us to determine whether the 
remaining fee-for-service claims were paid in error (e.g., beneficiaries were enrolled in 
waivers or State programs that enabled them to receive specific services covered by  
managed care plans on a fee-for-service basis and State-approved manual overrides of  
States Medicaid automated payment systems).  
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  F I N D I N G S  
In the first quarter of FY 2005, Medicaid  We identified 
programs in four of the five States that we   16,621 fee-for-service claims 
reviewed erroneously paid nearly   totaling $863,664 for capitated 
Medicaid managed care 
$864,000 for fee-for-service claims 
covered services in California, 
Missouri, New York, and Wisconsin.  These claims were identified from 
nearly 8.5 million fee-for-service claims for services provided to 
beneficiaries enrolled in capitated Medicaid managed care plans during 
the first quarter of FY 2005.  Medicaid staff from the four States 
acknowledged that these fee-for-service claims  were paid in error  
because the services were included  in the capitated rates paid to the 
Medicaid managed care plans.  We analyzed  the erroneously paid  claims 
data to determine trends and/or service categories associated with the 
payments made in error  across the four States; however, errors were  
not concentrated in any particular service categories (e.g., case 
management, dental screenings, laboratory services, organ transplants, 
and substance abuse treatment).  A  summary of the fee-for-service 
claims paid in error in each of the four States is provided in Table 2. 
 
 
Table 2:  Medicaid  Fee-For -Service  Paid Claims  Paid  in Error During the 
 
First Quarter  of  FY 2005 
 
Number of   FMAP  
St ate  Claims  Total Payments  (percent)  State Share  Federal  Share 
 
CA  2,343  $115,296  50.00  $57,648  $57,648 
 
MO  1,657  $270,409  61.15  $105,054  $165,355 
NY   12,597  $476,713  50.00  $238,357  $238,357 
W I  24  $1,246  58.32  $519  $727 
To tal  16,621  $863,664  $401,578  $462,087 
So urce:   Office  of Inspector General analysis  of reimbursed  claims, 2007. 
California.  We identified 2,343 Medicaid claims totaling $115,296 paid in 
error for medical supplies that capitated Medicaid managed care plans 
covered.  State Medicaid agency staff acknowledged that these claims 
were paid in error as a result of issues in their States Medicaid  
automated payment system.  They reported that they had previously 
identified 186 of these claims paid in error, had implemented edits to 
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FF II NN DD II NN GG
  SS  
prohibit erroneous payments for these services in the future, and were  
in the process of recouping the erroneous payments. 
Missouri. We identified 1,657 Medicaid claims totaling $270,409 paid  
in error. Of these claims, 1,573 were for dental services totaling 
$267,480. These errors resulted from inappropriate manual overrides of  
the States Medicaid automated payment system edit designed to 
prevent fee-for-service payments for services covered by capitated 
Medicaid managed care. Additionally, 84 claims totaling $2,928 were 
paid for services provided to newborns whose Medicaid eligibility files 
had not been updated at the time  of claims processing. State Medicaid 
agency staff reported that payments for services to newborns under 
these circumstances are not unusual and that the State has processes in  
place to recoup erroneous payments made on behalf of newborns.   
However, the edits established for detection of inappropriate claims did 
not reject these 84 claims. As a result of our review, the State Medicaid  
agency provided formal training to fiscal agent staff regarding payment 
of claims for dental services and instituted an additional level of review 
for services provided to newborns.   
New York.   We identified 12,597 Medicaid claims totaling $476,713 paid 
in error.  Although State Medicaid agency staff indicated that some  of 
the errors were due to problems with the States Medicaid automated  
payment system, they were unable to explain why other claims were  
paid. Our review found that 3,357 of these claims were for physical and 
mental health services provided in a clinic or an office and 296 were for 
dental services. The remaining claims were for a variety of other  
services. As a result of our review, the State Medicaid agency staff 
informed us  that our evaluation better prepared them to respond to 
Payment Error Rate Measurement program questions.10  
Wisconsin. We identified 24 Medicaid claims totaling $1,246 paid in 
error. State Medicaid agency staff indicated that these claims were paid 
because the beneficiaries managed care plan designations had not been  
updated to the appropriate file in the States automated Medicaid  
payment system at the time of claims processing.  
 
10 Beginning in FY 2007, States were required to conduct eligibility reviews of both  
Medicaid and State Childrens Health Insurance Programs beneficiaries and report 
payment error dollar amounts every 3 years. 
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FFF III NNN DDD III NNN GGG SSS  
An additional $974,006 was potentially paid in  We identified an additional 
error in two States in the first quarter of FY 2005  23,069 fee-for-service claims 
totaling $974,006 that appeared to 
be for services covered by capitated Medicaid managed care  plans in 
California and Pennsylvania.11 However, State Medicaid agency staff 
were unable to confirm whether these fee-for-service claims were paid in 
error without conducting a detailed, resource-intensive claims-level 
review. Staff from one State estimated that some claims could take up 
to 1 hour per claim to review. Further, State staff indicated that a 
review of these claims could involve researching system edits applied to 
each claim, identifying any manual overrides of automated payment 
system edits, reviewing the claims payment history, and tracking 
payment system processing logic. Without this type of review, neither 
OIG nor State Medicaid agency staff could determine the reasons 
fee-for-service claims were paid, or whether these payments were for  
services covered by capitated Medicaid managed care plans. The 
number of paid claims and amount of fee-for-service payments made by 
each State are outlined in Table 3.   
 
 Table  3:  Medicaid  Fee- for- Service Reimbursed Claims During the 
3 -month Period (October 1 through December 31, 2004) Requiring              
 
Claims-Level Review 
 
Number of   FMAP  
 State  Claims   Amount Paid  (percent)  State Share   Federal Share 
 
CA  6,789  $453,554  50.00  $226,777  $226,777 
 PA  16,280  $520,452  53.84  $240,241  $280,211
    Total  23,069  $974,006  $467,018  $506,988 
Source: Office  of Inspector General analysis of reimbursed claims, 2007. 
 
California. We identified 6,789 Medicaid fee-for-service claims totaling 
$453,554 that data indicated were for services covered by capitated 
Medicaid managed care plans. State Medicaid agency staff indicated 
that delays in entering Medicaid beneficiaries managed care enrollment 
information into eligibility records may have caused the States 
Medicaid automated payment system to allow these payments. State 
 
11 Medicaid expenditures reported include both State Medicaid expenditures and  Federal 
financial participation based on the Federal medical assistance percentage for each State. 
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F I N D I N G S  
Medicaid agency staff also indicated that some of these paid claims may 
have been for services provided to beneficiaries who moved  or traveled  
outside of managed care plan coverage areas but that a great deal of 
manual processing would be required to definitively determine the 
reason(s) for the payments. 
Pennsylvania.  We identified 16,280 Medicaid fee-for-service claims 
totaling $520,452 that data indicated were covered by Medicaid 
managed care.  State Medicaid agency staff stated that these paid  
claims would require service record/claims-level research to determine  
claim liability.  Services generally associated with these claims 
included clinic visits, office visits, and laboratory services.   State 
Medicaid agency staff offered no possible reason(s) for payment of these 
claims. 
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  R E C O M M E N D A T I O N S  
When State Medicaid programs pay fee-for-service claims for services 
covered by capitated Medicaid managed care in error, they are 
essentially paying twice for the same services.  We identified  
approximately $1.8 million in Medicaid claims paid or potentially paid  
in error during a single quarter in FY 2005 in five States.   
 	  California staff identified faulty system logic as the reason for 
some payment errors but were unable to provide the reason(s) for 
other payments without conducting a resource-intensive 
claims-level review.    
 	  Missouri staff identified inappropriate manual overrides of a  
payment system edit as the reason for payment errors.   
 	  New York staff could not determine the reason(s) fee-for-service 
claims were paid in error.   
 	  Pennsylvania staff could not definitively determine if the claims 
we identified were paid in error or explain why these payments 
were made.   
 	  Wisconsin staff identified delays in updating automated payment 
system files  as the reason for the payment errors.  Prior OIG 
studies similarly identified erroneous fee-for-service payments for 
beneficiaries enrolled in capitated Medicaid managed care.  
Because of States responsibilities to ensure the integrity of the 
Medicaid program coupled with the vulnerabilities identified in this 
review, we recommend that CMS: 
Work With all States To Reduce the Vulnerability for Fee-for-Service 
Medicaid Payments for Services Covered by Capitated Medicaid Managed 
Care Plans 
CMS should issue guidance to States addressing Medicaid payment 
systems vulnerabilities, identifying erroneous payments, and 
developing payment systems to prevent payment errors. CMS could 
accomplish this through: 
 	  disseminating information to State Medicaid agencies regarding 
the vulnerabilities that we identified (e.g., faulty system logic, 
edits, and manual overrides); 
 	  encouraging every State to examine existing Medicaid automated  
payment systems to identify and correct potential errors and 
determine whether errors are associated with State payment 
system logic, edits, or manual overrides of system edits; and  
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R	 E C O M M E N D A T I O N S  
	   providing technical assistance and information to State Medicaid 
agencies regarding the importance of developing payment systems 
that will enable State Medicaid agency staff and external 
reviewers to more easily identify and prevent fee-for-service  
payments for services covered by capitated Medicaid managed 
care plans. 
Take Appropriate Action To Collect Overpayments Associated With 
Medicaid Claims Paid in Error From States  
OIG will forward to CMS the identified erroneous fee-for-service claims 
information needed to take appropriate action. 
AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL  
RESPONSE 
In its written comments, CMS agreed with the recommendation 
contained in the draft report.  CMS recognized the importance of  
ensuring that erroneous payments are eliminated to the fullest extent 
possible.  CMS offered  as context the small amount of erroneous claims  
that we identified and the complexity of the States Medicaid managed 
care programs that we reviewed.  However, the claims paid in error 
demonstrate how these complex programs can lead to the vulnerabilities 
identified. CMS noted in its comments that for many situations cited in 
the report, States should have been able to control erroneous  payments 
with edits in their payment systems. OIG is now recommending that 
CMS collect overpayments associated with the claims paid in error from 
the States.   
To address the OIG recommendations, CMS will remind States of the 
importance  of eliminating erroneous payments and recommend that 
States make any necessary edits to their payment systems at the next 
Medicaid Managed Care Technical Advisory Group call.  Additionally, 
CMS will work with States to voluntarily collect the overpayments 
associated with erroneous fee-for-service payments.  The full text of 
CMSs comments can be found in Appendix C.   
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  A P P E N D I X   A
Totals  by  State  of Medicaid Managed Care Enrollment and Fee- for- Service  Paid Claims for  Medicaid  
Beneficiaries Enrolled in  Capitated Managed Care During the First Quarter of FY 2005 
State  California  Missouri  New York  Pennsylvania  Wisconsin 
Total Number of  fee-for-service  (FFS)  
58,395,029  5,347,527  26,675,253  4,000,981  1,658,891 
claims 
Number  beneficiaries enrolled in  
3,355,339  469,808  2,606,291  1,248,390  386,037 
Medicaid managed care  
Percentage of  FFS claims  associated  
with beneficiaries enrolled  in  Medicaid   4.5  5.4  11.1  50.8  36.0 
managed care  
Number of FFS  claims for beneficiaries  
2,650,924  290,873  2,957,743  2,030,780  596,502 
enrolled in  Medicaid managed  care 
Number of FFS  Medicaid paid  claims  
determined appropriate  for  
2,641,792  289,216  2,945,146  2,014,500  596,478 
beneficiaries enrolled in Medicaid  
managed care 
Number of FFS  Medicaid claims  
confirmed paid in error for beneficiaries   2,343  1,657  12,597  N/A*  24 
enrolled in  Medicaid managed  care 
Medicaid expenditures for FFS  
Medicaid claims confirmed paid in  error  
$115,296  $270,409  $476,713  N/A*  $1,246 
for  beneficiaries enrolled in Medicaid  
managed care 
Number of FFS  claims requiring           
6,789  0  0  16,280  0 
claims-level review  
Medicaid expenditures for FFS  
Medicaid claims for  which no  $453,554  0  0  $540,452  0 
determination could be made 
Source:  Office  of Inspector General analysis of  2006 Medicaid  Managed Care  Enrollment  Report and reimbursed claims, 2007. 
*Pennsylvania  Medicaid State Agency Staff were unable to identify claims paid in error without conducting  claim-level  reviews. 
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  A P P E N D I X   B
Examples of Services Excluded From Capitated Medicaid Managed 
Care Coverage in California, Missouri, New  York, Pennsylvania, and 
Wisconsin 
The following State summaries provide examples of services generally 
excluded from capitated Medicaid managed care plans in each of the 
five States during the review period.  We determined that the services  
excluded often varied among States, by managed care plan, and by 
beneficiaries counties of residence. 
California  
Capitated Medicaid managed care plans in California generally 
excluded dental services, HIV/AIDS waiver services, alcohol and 
substance abuse services, and services provided  by the Indian Health 
Service or a Federally Qualified Health Center from plan coverage.  
Some California managed care plans also excluded other services, such 
as specialty mental health services,  treatment for tuberculosis, major 
organ transplants, dental screenings, vision, acupuncture, chiropractic 
care, personal care, case management, education assessments, lead 
screening, adult day health care, and services provided in a Federal or 
State hospital. 
Missouri  
Capitated Medicaid managed care plans in Missouri excluded:  physical, 
speech, and occupational therapy;  organ transplants; community 
psychiatric rehabilitation; comprehensive substance abuse treatment 
and rehabilitation; targeted case management for mental health; and 
mental health outpatient care for children in State custody or foster 
care or receiving adoption assistance. 
New York  
Capitated Medicaid managed care plans in New York excluded  
orthodontic services and the majority of mental health and alcohol and  
substance abuse treatment services.  The State does, however, have a 
prepaid mental health plan that covers a limited  range of mental health 
services.   
Pennsylvania  
Capitated Medicaid managed care  plans in Pennsylvania generally 
excluded services provided through the Pennsylvania Departments of 
Education and Mental Retardation, medical foster care or  a medical 
assistance waiver, early intervention  services, and lead testing provided 
by the Pennsylvania Department of Health.   
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A P P E N D I X   B  
Wisconsin  
Capitated Medicaid managed care plans in Wisconsin generally 
excluded family planning, prenatal care, school-based services, specific 
types of case management, audiology, chiropractic services, eyeglasses, 
hearing aids, hospice, laboratory tests and x rays, pharmaceuticals, 
ambulance transportation, and prosthetics. 
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  A P P E N D I X   ~   C
AGENCY COMMENTS 
 
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A P P E N D I X   ~   C  

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  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. 
Deborah Walden served as the team  leader for this study.  Other 
principal Office of Evaluation and Inspections staff from the  Kansas 
City regional office who contributed to the report include Amber Meurs, 
Elander Phillips, and Brian Whitley; other central office staff who 
contributed included Kevin Manley and Barbara Tedesco. 
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