Department of Health and Human Services 
OFFICE OF 
INSPECTOR GENERAL 
MEDICAID 
Post Payment Safeguards 
JUNE GIBBS BROWN 
Inspector General 
JULY 2000 
OEI-05-99-00072  OFFICE OF INSPECTOR GENERAL 
The mission of the Office of Inspector General (OIG), as mandated by Public Law 95-452, is to 
protect the integrity of the Department of Health and Human Services programs as well as the 
health and welfare of beneficiaries served by them.  This statutory mission is carried out through a 
nationwide program of audits, investigations, inspections, sanctions, and fraud alerts.  The 
Inspector General informs the Secretary of program and management problems and recommends 
legislative, regulatory, and operational approaches to correct them. 
Office of Evaluation and Inspections 
The Office of Evaluation and Inspections (OEI) is one of several components of the Office of 
Inspector General.  It conducts short-term management and program evaluations (called 
inspections) that focus on issues of concern to the Department, the Congress, and the public.  The 
inspection reports provide findings and recommendations on the efficiency, vulnerability, and 
effectiveness of departmental programs. 
OEI's Chicago Regional Office prepared this report under the direction of William C. Moran, 
Regional Inspector General and Natalie A. Coen, Deputy Regional Inspector General.  Principal 
OEI staff included: 
REGION  HEADQUARTERS 
John M. Traczyk, Project Leader  Jennifer Antico, Program Specialist 
To obtain copies of this report, please call the Chicago Regional Office at 312-353-4124. 
Reports are also available on the World Wide Web at our home page address: 
http://www.hhs.gov/oig/oei/  E X E C U T I V E   S U M M A R Y  
PURPOSE 
This is the last of three reports describing Medicaid program safeguards.  This report 
discusses post payment safeguards.  The first report discusses proactive safeguards and 
the second describes claim processing safeguards.  This report is intended to provide 
information about and increase awareness of Medicaid post payment safeguards.  Post 
payment safeguards ensure that claims have been properly processed and adjudicated. 
POST PAYMENT SAFEGUARDS 
Remittance Notices furnish providers with information about services billed to Medicaid

using their name and provider number.  Medicaid providers are asked to report any

discrepancies.  Unfortunately, remittance notices are sometimes diverted to billing

companies or persons unknown to the provider.

Explanation of Benefits are sent to select Medicaid patients.  They provide patients with

information about providers who billed Medicaid for services provided to them.  Patients

are asked to verify that they have used or received the services billed to Medicaid.

Post Payment Reviews/Audits and Sampling are used to measure claim payment

accuracy, identify incorrectly paid claims, identify problematic policies and procedures and

provide feedback on the effectiveness of proactive and claims processing safeguards. 

Allegations of Fraud and Abuse are handled differently by each State we visited. 

Information is not uniformly captured; therefore, comparing data on Medicaid fraud and

abuse efforts is difficult. 

Payment Error Rates are used by some States to identify policy vulnerabilities and claims

processing vulnerabilities. 

OPPORTUNITIES FOR IMPROVEMENT 
Based on our prior studies and information gathered during this study, we encourage 
States to consider the following opportunities for improving program safeguards: 
<<	 Improve provider remittance notice procedures.  Current procedures do not 
always ensure that providers receive remittance notices.  Some States believe that 
some remittance notices are diverted to third parties and never seen by the 
provider whose billing number was used to generate the claim. 
<<	 Improve provider education.  Every provider should understand that they will be 
held financially (and, in some cases, criminally and civilly) liable for any Medicaid 
program financial losses stemming from misuse of their provider number. 
1 
Post Payment Safeguards  OEI-05-99-00072  <	 Use valid sampling techniques to improve post payment audits.  Using valid 
sampling enables States to accurately project the total payment error and 
overpayments made to a provider. 
<	 Ensure that some providers selected for post payment review are chosen at 
random.  Random selection can have a deterrent effect on fraudulent and abusive 
billing and enables States to identify problematic providers who have circumvented 
their program safeguards. 
<	 Document educational contacts stemming from post payment audits. 
Recording education contacts helps establish that a provider have been made 
aware of unacceptable billing practices. 
<	 Improve their surveillance of providers found to have billing problems. 
States should verify that a provider has corrected unacceptable billing practices 
and has not simply found a way to circumvent Medicaid safeguards. 
<	 Work with Health Care Financing Administration (HCFA) to establish 
uniform definitions for audits, edits, reviews, claim counts, rejects, etc.. 
Clarifying these terms should allow the States and HCFA to compare and contrast 
efforts in safeguarding Medicaid. 
<<	 Improve the handling of fraud and abuse allegations.  Their should be written 
procedures for uniform handling of suspected fraud and abuse situations identified 
by Medicaid employees and subcontractor employees. 
<<	 Develop training to help their employees and subcontractors identify 
potential fraud and abuse issues.  Training would help ensure proper disposition 
and handling of allegations and help ensure proper referral of cases for in depth 
investigation. 
<	 Collect better data on payment error rates.  Error rate data can be used to 
identify and address problematic providers, poor policies and vulnerable 
procedures. 
We intend to do additional in depth studies on post payment safeguards used by States. 
AGENCY COMMENTS 
The HCFA believes that the opportunities for improvement described in this report provide 
valuable information that will be shared with the State Medicaid programs. 
2 
Post Payment Safeguards  OEI-05-99-00072  T A B L E   O F   C O N T E N T S  
PAGE 
EXECUTIVE SUMMARY

INTRODUCTION  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  4

POST PAYMENT SAFEGUARDS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  6

Remittance Notices  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Explanation of Benefits  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Post Payment Reviews/Audits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Sampling Methodologies 
Provider Education 
Verification of Compliance 
Allegations of Fraud and Abuse  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Payment Error Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

OPPORTUNITIES FOR IMPROVEMENT  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  12

AGENCY COMMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  14

APPENDIX A  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  15

3 
Post Payment Safeguards  OEI-05-99-00072  I N T R O D U C T I O N  
PURPOSE 
To provide information about and increase awareness of Medicaid post payment 
safeguards. 
BACKGROUND 
Medicaid is a health insurance program for certain low income and needy people.  Within 
Federal limits, each State decides eligibility, benefit coverage, administrative practices, 
reimbursement and operational resource requirements.  About 70 cents of every Medicaid 
dollar goes to institutional providers (hospitals, nursing homes).  Thirty cents pays for 
non-institutional services (physician services, laboratory and radiology).  Federal law 
requires States to pay for services provided by certain institutional providers and non-
institutional providers.  State may elect to offer additional services such as dental care, 
podiatry care and prescription drugs just to name a few. 
The Health Care Financing Administration (HCFA) is responsible for administering 
Federal matching funds to the States and for legislation and regulations affecting Title 
XIX (commonly referred to as the Medicaid program).  The HCFA also provides 
guidelines, technical assistance and periodic assessments of State programs.  More than 
36 million recipients are enrolled in Medicaid.  In 1991, 90 percent of these recipients 
were enrolled in fee-for-service (FFS) programs.  By 1998, the number of recipients in 
FFS had decreased to 46 percent and enrollment in managed care plans increased to nearly 
54 percent.  Nearly $169 billion was spent by the Federal Government and the States on 
Medicaid benefits in Fiscal Year 1998. 
States are required by legislation to make every effort to eliminate waste and illegitimate 
program expenditures.  States are required to develop payment safeguards designed to 
protect their Medicaid funds from unscrupulous and fraudulent providers. 
4 
Post Payment Safeguards  OEI-05-99-00072  METHODOLOGY 
We visited or interviewed over the telephone State agencies responsible for administering 
the Medicaid program in the following eight States: 
California  Florida  Illinois 
Louisiana  Maryland  Oregon 
Pennsylvania  Texas 
These States were selected for site visits because they account for nearly half of all 
Medicaid expenditures.  They were also chosen for their geographic location.  Our site 
visits were conducted during the spring of 1999.  During our visits, we discussed program 
safeguards used by each States Medicaid program.  We spoke to State Agency officials 
and, when appropriate, to State subcontractors. 
We did not discuss payment safeguards used by managed care organizations and State 
pharmacy programs.  Our discussions focused on Medicaid fee-for-service program 
safeguards.  We have not attempted to assess the effectiveness of each safeguard. 
This report is the last of three reports on Medicaid program safeguards.  The first report 
discusses proactive safeguards, those measures taken to prevent fraud, abuse and waste 
before a claims is ever submitted for payment.  The second discusses pre-payment/claim 
processing safeguards. 
The primary purpose of these reports was to compile a catalog of program safeguards 
used by State Medicaid programs.  Every effort was made to prepare a comprehensive and 
complete list.  Some disagreement as to what constitutes a program safeguard may exist 
and some safeguards may have been overlooked.  Fragmentation of responsibility in many 
State Medicaid programs often makes it difficult to reach all of the people responsible for 
Medicaid program safeguards.  Consequently, States, their subcontractors and others may 
have information about other safeguard measures not mentioned in this report. 
5 
Post Payment Safeguards  OEI-05-99-00072  P O S T   P A Y M E N T   S A F E G U A R D S  
Unlike other safeguards used by State Medicaid programs, post payment safeguards do 
not prevent patients from receiving excessive or medically unneeded services and they do 
not prevent erroneous payments from being made to providers.  Often referred to as the 
pay and then chase method, post payment safeguards examine the accuracy of payments 
that have already been made to providers.  Providers who have been paid incorrectly are 
notified and asked to refund the identified overpayment(s).  Providers with egregious 
claims activity may be referred for further investigation. 
REMITTANCE NOTICES 
State Medicaid program policies stipulate that payments can only be made to the actual 
provider of medical care and services.  Medicaid payments are made in the name of the 
provider and sent to a pay-to-address designated by the provider.  Payments can be 
directed to a billing agency, but the actual payment is made out in the name of the 
provider. 
Remittance notices play a key role in State post payment safeguards.  All of the States we 
visited send remittance notices to providers.  Remittance notices furnish providers with 
information about services billed to Medicaid using their provider number.  They provide 
specific information about patients, services billed, adjudication decisions and payments. 
Providers, who review their remittance notices, should detect additions, deletions and 
modifications of claims submitted to Medicaid using their provider number. 
Remittance notices, like payments, are often directed to someone other than the provider 
of care shown on the claim submitted for Medicaid reimbursement.  Several States told us 
that they have found cases where providers never saw the payments and remittance 
notices ostensibly issued to them.  Medicaid payments and remittance notices have been 
diverted to billing companies or addresses unknown to the provider whose billing number 
was used to generate claims. 
State Medicaid programs cannot identify billing agents and the providers who use their 
services.  Seven of the eight States in our sample do not contact providers to verify that 
they have actually authorized a billing agent/agency, clinic or other health provider to 
submit claims to Medicaid on their behalf.  Florida surveyed physicians and asked them to 
verify their clinic affiliations.  Analysis of the responses resulted in the termination of more 
than 100 clinics and physicians for irregular billing practices and projected savings of at 
least $15 million. 
6 
Post Payment Safeguards  OEI-05-99-00072  EXPLANATION OF BENEFITS 
Another post payment safeguard used by States is the Explanation of Benefits (EOBs). 
Unlike remittance notices, EOBs are sent to select Medicaid patients rather than to 
providers.  The EOBs provide patients with information about providers who billed 
Medicaid for services ostensibly provided to them.  Medicaid EOBs identify providers and 
provide information about the nature of services that were billed to Medicaid.  Medicaid 
patients are asked to verify that they have used the services of the provider and received 
the services billed to Medicaid.  Pennsylvania and Illinois follow up on all undeliverable 
EOBs to determine why they were returned. 
Not all Medicaid patients receive EOBs.  States are only required to send EOBs to a 
random sample of patients.  Some States target patients who received specific services 
(e.g., electrocardiograms, x-rays) or received services from a particular type of provider 
(e.g., podiatrist, dentist).  Other States send EOBs to all recipients when targeting specific 
services or providers.  In all cases, patients are asked to review the EOBs and notify the 
State Medicaid program of any discrepancies. 
Several States felt that EOBs were not an effective program safeguard.  States mentioned 
that patients often turn to providers if they have any questions or concerns about the items 
on their EOB.  They also mentioned that many patients cannot read or understand the 
EOB and that the overall response rate is low.  Nonetheless, all eight States in our sample 
conduct reviews to determine if a potential problem exists whenever a patient notifies 
them of a suspected billing discrepancy. 
POST PAYMENT REVIEWS/AUDITS 
State Medicaid programs are required to conduct post payment reviews.  In a perfect 
system, findings from post payment reviews would help State Medicaid programs: 
<  measure claim payment accuracy, 
<  identify incorrectly paid claims, 
<  identify problematic policies and procedures, 
<  identify providers who defraud or abuse the system, 
<  respond to problem areas and to formulate new policies quickly, 
<  provide feedback on the effectiveness of safeguards in the claims 
processing system, and, 
<  provide feedback to those persons responsible for proactive safeguards. 
States use post payment audits to identify problematic providers.  If problems are confined 
to a small number of providers, many Medicaid programs flag the provider and place them 
on prepayment review.  If the problems are wide spread, Illinois and Louisiana believe 
that redesigning program policies and procedures is more cost effective than monitoring 
each provider. 
7 
Post Payment Safeguards  OEI-05-99-00072  While States use different criteria for selecting providers for post payment review, most 
select providers whose practice differs substantially from that of their peers.  These 
outliers have been  the primary focus of most State post payment efforts.  Most States 
compare providers by specialty and location.  They review data on use of specific 
diagnostic codes, procedures, numbers of patients, prescriptions and other criteria when 
deciding which providers to review.  Florida, Illinois, Louisiana and Texas also review 
providers whose practice patterns are near the norm for their peer group. 
All of the States we visited rely on their Survey and Utilization Review Subsystem 
(S/URs) to target some, or all, providers for post payment audit.1  The S/URs is an 
integral part of each States Medicaid safeguards.  Some States claim that the parameters 
built into S/URs are not easily changed and the system is only capable of producing 
standardized reports and, in itself, does not provide adequate tools to address todays 
sophisticated fraud and abuse schemes.  Despite such feelings about S/URs, six of the 
States we visited do not appear ready to change to neuro networks and other detection 
systems. 
Some States have downloaded claim information to personal computers.  They are using 
personal computer based S/URs to do ad hoc queries to refine and enhance their ability to 
identify providers and areas for more in-depth post payment study.  Some States have 
enhanced their personal computer capabilities by combining S/URs with decision support 
systems.  These programs allow States more flexibility in analyzing claim data.  This in 
turn helps them to better focus their post payment reviews. 
Each State Medicaid program conducts their post payment reviews/audits differently. 
Some States only audit 10 claims per provider, some focus on specific procedures billed to 
Medicaid, others use random sampling to produce results that can be projected to the 
universe and a few sample all claims, or target certain procedures for review. 
Onsite visits to providers selected for post payment review/audit are rare.  Most requests 
for needed audit information are handled by mail.  In most States, onsite visits to providers 
are made only when the State determines that a serious problem may exist.  When States 
do make onsite visits, they often notify the provider in advance as to which patient records 
they will review during their visit. 
Of our eight States, Louisiana is the only one that routinely makes unannounced visits to 
providers selected for post payment review.  During the onsite visit they obtain medical 
records and other documentation needed to determine whether the claim was paid 
correctly.  Louisiana conducts nearly all of its post payment reviews by going onsite to 
1  The S/URs is a sub component of the Medicaid Management Information System (MMIS). The 
S/URs examines paid claims and produces pre-formatted management reports that identify billing patterns 
which may be problematic. 
8 
Post Payment Safeguards  OEI-05-99-00072  review and copy patient records.  Providers are not notified as to which records will be 
reviewed.  Louisiana believes that their onsite visits help them to identify bogus providers 
and deters providers from creating or modifying records required for post payment 
reviews. 
Post Payment Sampling Methodology 
Three States we visited do not use sampling methods to select claims for post payment 
review/audit.  These States claim that projections based on sampling do not hold up to 
court challenges.  Consequently, these States do not extrapolate the  results of their post 
payment audits to the universe of claims.  Providers are only asked to repay Medicaid the 
specific amounts identified during post payment review as incorrectly paid.  This often 
results in a mere slap on the wrist because the number of claims reviewed during a post 
payment audit can be very small involving as few as 10 claims. 
Five of our States use random sampling techniques to project overpayments to the 
universe of claims submitted.  Some select a random sample of claims, and others use a 
random sample of patients seen by a specific provider.  Others select a sample of specific 
procedure codes, diagnostic codes, etc.  These States follow accepted sampling techniques 
and believe that legal challenges to their projects based on sampling will be upheld by the 
courts. 
Provider Education 
An integral part of the post payment review process involves provider notification as to 
the results of the post payment review.  State notices to providers contain information 
about the outcome of the Medicaid audit, identify incorrectly paid services and provide 
information about the underlying laws, regulations and policies that govern payment. 
States also advise providers of expected changes in their Medicaid billings that would 
ensure future compliance. 
All of the States we visited make educational contacts with providers whose claims were 
found to have been incorrectly paid.  States conduct their educational contacts at the 
providers office, over the telephone or through the mail.  Six of the States we visited 
claim that they document the content of their educational contacts by sending a letter to 
the provider.  Of the eight States, only Maryland mentioned that they save educational 
contact letters in the providers file.  They use these letters to establish that providers were 
contacted about unacceptable billing practices and that they were given information on 
how to correct their aberrant billing. 
Saving educational contact letters in the providers file enables Medicaid to determine how 
often they have asked the provider to correct their billing practices.  They are also useful 
in showing that a provider knew the law, regulations and policies but changed their 
behavior to avoid detection.  A State Medicaid program may need to use this 
documentation of provider contacts to justify a referral for criminal or civil investigation 
or administrative removal of the provider from their program. 
9 
Post Payment Safeguards  OEI-05-99-00072  Verification of Compliance 
Three of the eight States we visited, verify that providers have changed their billing 
behavior following notification that their past billing practices were unacceptable.  Some 
States simply examine information about the number of claims that edit for the specific 
problem.  Others not only examine edit counts but also conduct another claim audit to 
ensure that the past problems have been corrected and to ensure that the provider has not 
simply changed their billing to avoid detection. 
ALLEGATIONS OF FRAUD AND ABUSE 
States receive allegations of fraud and abuse from a number of internal and external 
sources.  Each of the States in our sample handles these allegations differently.  One State 
only records cases accepted for further investigation by its internal program integrity unit. 
Consequently, the State has no records that would indicate the total fraud and abuse 
workload addressed by its employees.  States that do keep records on all allegations 
appear to be in a better position to identify providers with multiple allegations.  These 
States are also in a better position to measure their fraud and abuse workload and the 
disposition of that workload. 
Processes used to control and resolve allegations of fraud and abuse appear weak.  Some 
States have not done a good job in educating their employees concerning fraud and abuse 
and the procedures for handling such complaints.  States appear to be out of the loop 
when it comes to fraud and abuse training and establishing criteria to ensure proper 
handling of such allegations.  At the 1999 National Health Care Anti-fraud and Abuse 
conference, only 10 States sent representatives.  Most State attendees were from State 
agencies other than Medicaid.  Only three States sent Medicaid personnel to the 
conference to learn about emerging fraud schemes and safeguards to protect their 
programs from such schemes. 
PAYMENT ERROR RATES 
Payment error rates include anything from inadvertent mistakes to outright fraud.  We 
know of no studies that have quantified what portion of the payment error rate is 
attributable to fraud.  Some States have, however, estimated provider billings for services 
that were insufficiently documented, medically unnecessary, incorrectly coded or non-
covered.  The prevalence of fraud in the State Medicaid programs remains unknown. 
10 
Post Payment Safeguards  OEI-05-99-00072  Three of the eight States we contacted had attempted to determine their Medicaid 
payment error rate.  All used a State Agency, independent of the Medicaid program, to 
estimate the overall claim payment error rate.  Initial estimates of payment error ran up to 
15 percent, considerably higher than final estimates which fell in the 3 to 5 percent range. 
States that have attempted to quantify their payment error rate do so by selecting a 
weighted sample using provider type and claims volume.  Their sample was drawn from 
the universe of fee-for-service providers and does not include managed care claims, 
pharmaceutical claims or long-term care claims. 
The remaining States have not conducted an independent audit of their Medicaid claims to 
determine payment accuracy.  They rely on post payment audits conducted by their claims 
processing department, program integrity unit or subcontractor to determine payment 
error rates.  In one State, the State comptroller uses statistical samples to determine 
whether providers (pharmacies, managed care organizations and long- term care facilities) 
have been correctly paid.  The comptroller does not assess the medical necessity of 
services provided but merely determines whether safeguards in the system work as 
intended. 
11 
Post Payment Safeguards  OEI-05-99-00072  O P P O R T U N I T I E S   F O R  
I M P R O V E M E N T  
Post payment safeguards examine the accuracy of claims that have already been processed. 
These safeguards have a sentinel effect and help deter provider fraud and abuse. 
Comparing data may result in an inaccurate picture of a States efforts to decrease claim 
payment errors and to prevent fraud and abuse.  Based on information obtained from this 
inspection and past studies, we encourage States to: 
Improve their provider remittance notice procedures. 
Some States believe that  some remittance notices are diverted to third parties and never 
seen by the provider whose billing number was used to generate the claim.  Current 
policies and procedures do not ensure that the provider will actually receive a remittance 
notice.  Providers, who do receive them, may not review them for accuracy.  The Florida 
Medicaid Agencys effort to verify physician practice address(es) and clinic affiliations 
uncovered provider number misuse, fraud and abuse.  Other States should consider a 
similar project not only to detect fraud and abuse but also to underscore provider 
responsibility to protect their billing number(s) and to review remittance notices.2 
Improve provider education. 
Every provider should understand that they will be held financially (and, in some cases, 
criminally and civilly) liable for any Medicaid program financial losses stemming from 
misuse of their provider.3 
Improve post payment audits. 
Selecting 10 claims for post payment review from a providers entire billing history may be 
a vulnerability.  States need to be aware that a problem found more than one claim when 
using very small sample sizes may indicate a more extensive problem and not simply 
random error.  States that find one or more problems in a small sample should expand 
their reviews and focus on the problem area(s). 
2  For more information see Medical Billing Software and Processes Used to Prepare Claims. 
OEI-05-99-00100 
3  Ibid. 
12 
Post Payment Safeguards  OEI-05-99-00072  Use valid sampling techniques. 
States that claim barriers exist to their use of random sampling should discuss those 
barriers with HCFA and other States.  Moreover, States might want to consider 
conducting a small probe sample before investing resources in a larger statistically valid 
sample that can be used to project overpayments. 
Ensure that some providers selected for post payment review are chosen at random. 
More emphasis should be placed on random selection and less focus on providers whose 
practice exceeds that of  their peers.  States should examine providers near their peer 
norm.  They should also review providers with little or no billing to determine if they are 
still a legitimate Medicaid provider.  Random selection can have a deterrent effect on 
fraudulent and abusive billing and enables States to identify problematic providers who 
have circumvented their program safeguards. 
Document educational contacts stemming from post payment audits. 
Problems found during claim reviews should be discussed directly with the provider either 
in person or over the telephone.  These conversations should be memorialized in a 
certified letter to the provider and a copy maintained in a specific State file.  This 
demonstrates that the provider was made aware of the problem(s) should additional action 
be required.4 
Improve their surveillance of providers found to have billing problems. 
States could conduct another audit to ensure that the provider corrected the unacceptable 
billing practices identified in the initial post payment audit.  These follow up reviews/audits 
could be used to ensure that the provider has indeed changed his billing practices and has 
not found a way to circumvent Medicaid safeguards. 
Work with HCFA to establish uniform definitions for audits, edits, reviews, claim 
counts, rejects, etc. 
Clarifying these terms should allow the States and HCFA to compare and contrast  efforts 
in safeguarding Medicaid. 
4  Additional information can be found in our report entitled, Carrier Fraud Units. 
OEI-05-94-00470. 
13 
Post Payment Safeguards  OEI-05-99-00072  Improve the handling of fraud and abuse allegations. 
Their should be written procedures for handling suspected fraud and abuse identified by 
Medicaid employees and subcontractor employees.  A single point within the State 
Medicaid program should be responsible for addressing fraud and abuse concerns raised 
by State Agency employees and their subcontractors. 
Develop training to help their employees and subcontractors identify potential fraud 
and abuse issues. 
Employees should be trained to recognize potential fraud and be able to differentiate fraud 
from abuse.5  Training should enable employees to determine if discrepancies on claims 
are material.  Erroneous claim information that does not affect payment probably is not 
fraud or abuse.  On the other hand, erroneous information that results in payment when 
the true information results in no, or a lower, payment may be significant.  Improved 
training would help ensure proper disposition and handling of allegations and help ensure 
proper referral of cases for in depth investigation. 
Collect better data on payment error rates. 
Some States have used payment error rate data to identify and address problematic 
providers, poor policies and vulnerable procedures.  Reliance on subcontractor measures 
of payment accuracy may be a vulnerability.  States should periodically conduct their own 
measures of payment error.  The States should also work with HCFA to establish criteria 
for classifying payment errors (i.e., medically unnecessary, service billed is greater/less 
than supported by the medical record, no documentation to support service, etc.). 
AGENCY COMMENTS 
We received comments on this report from HCFA.  The HCFA believes that the opportunities for 
improvement described in this report provide valuable information that will be shared with the 
State Medicaid programs.  The full text of HCFAs comments can be found in Appendix A. 
5  Additional information about processing allegations of fraud and abuse can be found in our 
report  entitled, Carrier Fraud Units. OEI-05-94-00470. 
14 
Post Payment Safeguards  OEI-05-99-00072  A P P E N D I X   A 
HCFA Comments on this Report 
15 
Post Payment Safeguards  OEI-05-99-00072  16 
Post Payment Safeguards  OEI-05-99-00072  17 
Post Payment Safeguards  OEI-05-99-00072  18 
Post Payment Safeguards  OEI-05-99-00072