Medicaid Program Integrity: State and Federal Efforts to Prevent and Detect Improper Payments
Released: 2004-08-18T00:00:00

Letter

Background

The Medicaid program is one of the largest social programs in the federal budget, and one of the largest components of state budgets. Although it is one federal program, Medicaid consists of 56 distinct state-level programs created within broad federal guidelines and administered by state Medicaid agencies. Each state develops its own Medicaid administrative structure for carrying out the program. It also establishes eligibility standards; determines the type, amount, duration, and scope of covered services; and sets payment rates. Each state is required to describe the nature and scope of its program in a comprehensive plan submitted to CMS, with federal funding depending on CMS’s approval of the plan.

In general, the federal government matches state Medicaid spending for medical assistance according to a formula based on each state’s per capita income. The federal contribution ranges from 50 to 77 cents of every state dollar spent on medical assistance in fiscal year 2004. For most state Medicaid administrative costs, the federal match rate is 50 percent. For skilled professional medical personnel engaged in program integrity activities, such as those who review medical records, 75 percent federal matching is available.

States and CMS share responsibility for protecting the integrity of the Medicaid program. States are responsible for ensuring proper payment and recovering misspent funds. CMS has a role in facilitating states’ program integrity efforts and seeing that states have the necessary processes in place to prevent and detect improper payments.

With varying levels of staff and resources, states conduct Medicaid program integrity activities that include screening providers and monitoring provider billing patterns. CMS requires that states collect and verify basic information on potential providers, including whether they meet state licensure requirements and are not prohibited from participating in federal health care programs. CMS also requires that each state Medicaid agency have certain information processing capabilities, including a Medicaid Management Information System (MMIS) and a Surveillance and Utilization Review Subsystem (SURS). The SURS staff use claims data to develop statistical profiles on services, providers, and beneficiaries to identify potential improper payments. They refer suspected overpayments or overutilization cases to other units in the Medicaid agency for corrective action and potential fraud cases to their state’s Medicaid Fraud Control Unit for investigation and prosecution. Medicaid Fraud Control Units can, in turn, refer some cases to the HHS OIG, the Federal Bureau of Investigation (FBI), and the Department of Justice for further investigation and prosecution.

Provider Schemes and Improper Billing Siphon Medicaid Dollars

State Medicaid programs have experienced a wide range of abusive and fraudulent practices by providers. States have prosecuted providers that bill for services, drugs, and supplies that are not authorized or are not provided. States’ investigators have also uncovered deliberate provider upcoding—billing for more expensive procedures than were actually provided—to increase their Medicaid reimbursement. In some cases, they have prosecuted providers for marketing irregularities, such as offering cash, free services, or gifts to induce referrals. While the covert nature of these schemes makes it difficult to quantify the dollars lost to Medicaid fraud or abuse, recent cases provide examples of substantial financial losses. As shown in table 1, these range from a nearly $1.6 million state case that involved billing for transportation services never provided and deliberate upcoding to a $50 million nationwide settlement with a major pharmaceutical and equipment supplier over illegal marketing practices.

States Report a Variety of Approaches to Prevent and Detect Improper Payments

States take various approaches to conducting program integrity activities that can result in substantial cost savings. Tightened enrollment controls allow states to more closely scrutinize those providers considered to be at high risk for improper billing. Through provider screening, stricter enrollment procedures, and reenrollment programs, states may prevent high-risk providers from enrolling or remaining in their Medicaid programs. Some states require providers to use advanced technologies to confirm beneficiary eligibility before services are rendered. States also use information systems that afford them the ability to query multiple databases efficiently in order to identify improper claims and types of providers and services most likely to foster problems. In addition, state legislatures have assisted their Medicaid agencies by directing that certain preventive or detection controls be used, or by broadening the sanctions they can use against providers that bill improperly.

Most States Tighten Enrollment Controls to Keep Abusive Providers Out of Their Programs

In general, states target their program integrity procedures to those providers that pose the greatest financial risk to their Medicaid programs. They may focus on types of providers whose billing practices have exhibited unusual trends or that are not subject to state licensure. States may also focus on individual providers that have been excluded from the program in the past or for other reasons. For such providers, most states impose more rigorous enrollment checks than the minimum required by CMS. Expanded measures applied to high-risk providers include on-site inspections of the applicant’s facility prior to enrollment, criminal background checks, requirements to obtain surety bonds that protect the state against certain financial losses, and time-limited enrollment. Thirty- four of the states that completed our inventory reported using at least one of these enrollment controls.

On-site Inspections

Twenty-nine states reported conducting on-site inspections for providers considered at high-risk for inappropriate billing before allowing them to enroll or reenroll in their Medicaid programs. Such visits help validate a provider’s existence and generate information on its service capacity. Illinois and Florida officials reported that performing on-site inspections of some providers’ facilities is a valuable part of their statewide Medicaid provider enrollment control efforts.

For each targeted provider group, Illinois Medicaid staff inspect the facilities, inventory, and vehicles (in the case of nonemergency transportation providers). Officials told us that their on-site inspections prevented 49 potential providers that did not meet requirements from enrolling. By not approving these providers to bill Medicaid, Illinois officials estimated that the state avoided a total of $1 million in potentially improper payments for 2001 and 2002.

Florida uses a contractor to conduct on-site inspections of potential providers. Since April 2003, Florida Medicaid officials have required its contractor to randomly select and inspect 10 percent of all new applicants, including pharmacies, physicians, billing agents, nurses, and other types of providers.

Criminal Background Checks and Surety Bonds

Thirteen states reported that they conduct criminal background checks for certain high-risk providers rather than relying solely on applicants’ self- disclosures. These background checks entail verifying with law enforcement agencies the information given in provider enrollment applications regarding criminal records. As of December 2003, states conducting criminal background checks included New Jersey (for employees of pharmacies, clinical laboratories, transportation services, adult medical day care, and physician group practices), Wisconsin (for employees of licensed agencies, such as home health care agencies), and Illinois (for employees of nonemergency transportation providers).

Four states that conduct criminal background checks also have the authority to require surety bonds for the targeted providers. Surety bonds, also known as performance bonds, protect the state against financial loss in case the terms of a contract are not fulfilled. Florida officials established a $50,000 bonding requirement for durable medical equipment (DME) suppliers, independent laboratories, certain transportation companies, and non-physician-owned physician groups. In Washington, home health agencies must be Medicare-certified to participate in the state’s Medicaid program. Medicare requires a surety bond of $50,000 or 15 percent of annual Medicare payments to the home health agency based on the agency’s most recent cost report to CMS, whichever is greater.

Probationary and Reenrollment Policies

Twenty-five states require all of their Medicaid providers to periodically reapply for enrollment. This process allows state officials to verify provider information such as medical specialty credentials and ownership and licensure status. Eleven states reported having probationary and time- limited enrollment policies specifically for high-risk providers, with reenrollment requirements ranging from 6 months to 3 years. Examples of their probationary and reenrollment policies follow: California officials estimated avoiding over $200 million in Medicaid expenditures in state fiscal year 2003 by increasing scrutiny of new provider applications and placing providers in provisional status for the first 12 to 18 months of their enrollment. Those who continue to meet the standards for enrollment and have not been terminated are converted automatically to enrolled provider status. In Illinois, nonemergency transportation providers are on probation for the first 180 days of their enrollment. Medicaid officials explained that this probationary period gives the state time to monitor the provider’s billing patterns and conduct additional on-site inspections, as needed. They said that any negative findings uncovered during the probationary period would result in a provider’s immediate termination without cause, meaning the provider could not grieve the termination decision.

Nevada officials reported that certain types of providers located in the state—including dentists, DME suppliers, and home health agencies—are permitted to enroll for only a 1-year period and must reapply each year to continue billing Medicaid. Out-of-state providers are limited to a 3-month enrollment period and must reapply to continue to bill the Nevada program.

Wisconsin officials reported that the state requires nonemergency transportation providers to reenroll annually, while all other types of providers must submit new enrollment applications every 3 years.

Some States Have Strengthened Controls to Avoid Paying Inappropriate Claims

Many states deter fraud, abuse, and error by using advanced technologies and keeping their provider rolls up to date. States seek to enhance program integrity activities by investing in information technologies that enable them to preauthorize services and improve their data processing capabilities. They also contract with companies that specialize in claims and utilization review—analyses of claims to identify aberrant billing patterns—to augment their in-house capabilities. In addition, nearly all states take steps to eliminate paying claims billed under unauthorized provider numbers.

Using Advanced Technology

Most states use advanced technology to prevent improper payments by requiring providers to validate beneficiary eligibility before services are rendered. For example, 32 states use online systems that require pharmacies to obtain state approval confirming a beneficiary’s eligibility before filling a prescription. Using a different technology, New York implemented a system that stores information on the magnetic strip of a beneficiary’s Medicaid card, which also includes the beneficiary’s photo. By swiping the card, providers are able to verify eligibility before providing a service.

In another application, New York uses technology to track prescribing patterns and curb overutilization. New York officials told us that physicians ordering drugs and medical supplies must use the state’s interactive telephone system to obtain payment authorization numbers. This system leads physicians through a menu-driven series of questions about patient diagnosis and treatment alternatives before an authorization number is given. Officials estimated that during the 6-month period from April to September 2003, the state saved $15.4 million by using its interactive phone system for prior approvals.

In addition to verifying beneficiary eligibility and controlling utilization, many states also use technology to better target their claims review efforts. Of the 47 states that completed our inventory, 34 reported targeting their reviews to claims from high-risk providers. These reviews entail verifying the appropriateness of the services billed by, and payments made to, a provider within a certain period. Twenty-one of the 34 states reported using advanced information technology to more effectively pinpoint aberrant billing patterns. These states developed data warehouses to store several years of information on claims, providers, and beneficiaries in integrated databases, and they use data-mining software to look for unusual patterns that might indicate provider abuse. Additional software detects claims with incongruous billing code combinations. For example, a state can link related service claims, such as emergency transportation invoices and hospital emergency department claims for the same client. States that use these technologies to enhance their targeted reviews include the following: New York officials reported that targeted reviews of claims submitted by part-time clinics, mobile radiology service providers, midwives, and physician assistants saved an estimated $24.9 million in state fiscal years 2002 through 2003.

Ohio officials reported that targeted reviews by Ohio’s in-house utilization review staff saved an estimated $14 million in state fiscal years 2000 through 2002.

Texas officials reported recouping over $18.9 million in state fiscal year 2003. Officials also noted that the state’s targeted reviews and queries enabled them to identify weaknesses in state payment safeguards. For example, the state identified hospital “unbundling”—billing separately for services that were already included in a combined reimbursement— through its analysis of claims data.

Some states rely on contractors to supply claims review expertise that either is lacking in-house or that supplements existing staff resources. Of the states completing our national inventory, 24 states use contractors to review Medicaid claims either before or after payments are made. Colorado used contractors to increase the volume of claims reviewed. Kansas reported that its contractor’s 2003 review of hospital inpatient claims resulted in recovering over $4.7 million. North Carolina officials estimated that since 1999, the state’s contractors’ reviews of inpatient claims resulted in an estimated 4-to-1 return on investment.

Purging Inactive Billing Numbers

Out-of-date information increases the risk that Medicaid will pay individuals who are not eligible to bill the program. For instance, in California, individuals were found to have falsely billed the Medicaid program using the provider billing numbers of retired practitioners. Forty- three states reported that, at a minimum, they cancel or suspend inactive provider billing numbers. For example: New Jersey deactivates billing numbers that have been inactive for 12 months. To reactivate their numbers, providers must submit their requests using their office letterhead. If a number is reactivated and there is no billing activity within 6 months, New Jersey will again deactivate the number.

North Carolina notifies providers with billing numbers that have been inactive for 12 months before taking any action. The state terminates the number if the provider does not respond within 30 days and updates the state’s provider database each month, listing which billing numbers have been terminated.

In Some States, Legislative Initiatives Have Played an Important Role in Medicaid Program Integrity Efforts

Many states have made Medicaid program integrity a priority, either through directives to employ certain preventive or detection controls or by expanding enforcement authority to use against providers that bill improperly. In some states, legislative initiatives have encouraged Medicaid program integrity units to adopt information technology; in others, legislation has expanded Medicaid agencies’ authority to investigate providers and beneficiaries and impose sanctions. Of the states that completed our inventory, 24 reported having legislation mandating sanctions against fraudulent providers or beneficiaries. Examples of legislative activities from 2 states are as follows: New Jersey: Under a 1996 law, all licensed prescribers and certain licensed health care facilities are required to use tamper-proof, nonreproducible prescription order blanks. State Medicaid officials estimated annual savings of at least $6 million since the law’s implementation in 1997. The law also made prescription forgery a third-degree felony.

Texas: In September 2003, Texas law consolidated responsibility for Medicaid program integrity in the Office of Inspector General in the Health and Human Services Commission and funded 200 additional positions to investigate Medicaid fraud. The legislation also expanded the state’s powers to conduct claims reviews, impose prior authorization and surety bond requirements, and issue subpoenas. The law also required that the state explore the feasibility of using biometric technology—such as fingerprint imaging—as an eligibility verification tool. Texas budget officials estimated that over a 2-year period, net savings would exceed $1 billion.

CMS Has Activities to Support States’ Program Integrity Efforts but Conducts Little Oversight

CMS has provided states with information, tools, and training to improve their Medicaid program integrity efforts. The agency has funded a pilot that measures payment accuracy rates and another pilot that analyzes provider billing patterns across the Medicare and Medicaid programs. In addition, CMS has facilitated states’ sharing of information on program integrity issues and related federal policies. Also, CMS has conducted occasional reviews of state program integrity operations. However, these reviews are infrequent and limited in scope.

CMS Fielding a Multiyear Pilot to Measure Medicaid Payment Accuracy Rates

CMS is conducting a 3-year Payment Accuracy Measurement (PAM) pilot to develop estimates of the level of accuracy in Medicaid claims payments, taking into account administrative error and estimated loss due to abuse or fraud. At its conclusion, in fiscal year 2006, PAM will become a permanent, mandatory program—to be known as the Payment Error Rate Measurement (PERM) initiative—satisfying requirements of the Improper Payments Information Act of 2002. Under PERM, states will be expected to ultimately reduce their payment error rates by better targeting program integrity activities in their Medicaid programs and the State Children’s Health Insurance Program (SCHIP) and tracking their performance over time.

PERM is intended to develop an aggregate measure of states’ claims payment errors as well as error rates for seven health care service areas— inpatient hospital services, long-term care services, independent physicians and clinics, prescription drugs, home and community-based services, primary care case management, and other services and supplies. CMS proposes developing annual national error rate estimates from rates developed by one-third of the states rather than requiring each state to compute an error rate each year. CMS further proposes that in the 2-year period after a state determines its error rate, the state develop and implement a plan to address the causes of improper payments uncovered in its review.

CMS is in the third and final year of PAM. Each year, CMS tested various measurement methodologies and expanded participation to additional states. CMS used information from the 9 states participating in PAM’s first year, fiscal year 2002, to help refine the measurement methodologies for subsequent years. CMS also constructed a single model to be used by all 12 states participating in the second year of PAM, which began in fiscal year 2003. Those states that reported on Medicaid fee-for-service payment accuracy had rates ranging from 81.4 percent to 99.7 percent. Sources of inaccurate payments included incomplete documentation of a service, inappropriate coding, clerical errors, as well as provision of medically unnecessary services. In PAM’s final year, fiscal year 2004, the 27 participating states will include in their claims reviews payments made under SCHIP and verification of recipient eligibility, among other things. Beginning in fiscal year 2006, the PAM pilot will transition into the PERM initiative to produce both state-specific and national estimates of Medicaid program error rates.

Although state responses to CMS’s pilot were generally positive, program integrity officials raised concerns about the cyclical nature of the permanent program. Officials in several states—including Illinois, Louisiana, and North Carolina—indicated concern that the 3-year cycle presents significant staffing challenges. They contend that it is impractical for a state to employ sufficient staff, with the necessary expertise, to perform these functions only once every 3 years. Officials in other states, such as New York and Washington, expressed concern that the measurement effort might result in diverting staff from ongoing, and potentially more productive, program integrity activities. In its April 2004 final report on the second year of the pilot, CMS identified high state staff turnover and limited availability of medical records as obstacles that kept some states from completing their pilots on time.

CMS Pilot Links Information on Providers That Bill Both Medicare and Medicaid

In another effort to support states’ program integrity activities, CMS facilitates the sharing of health benefit and claims information between the Medicaid and Medicare programs. For example, it arranged for state Medicaid agency officials to gain access to confidential provider information contained in Medicare’s restricted fraud alerts (a warning against emerging schemes), provider suspension notices, and databases. One of the Medicare-Medicaid information-sharing activities is a data match pilot that received funding from several sources. The purpose of this state-operated pilot is to identify improper billing and utilization patterns by matching Medicare and Medicaid claims information on providers and beneficiaries. Such matching is important, as fraudulent schemes can cross program boundaries.

CMS initiated the Medicare-Medicaid data match pilot in California in September 2001. CMS estimated that in its first year, the pilot achieved a 21-to-1 return on investment, with about $58 million in cost avoidance, savings, and overpayment recoupments to the Medicaid and Medicare programs. In addition, over 80 cases were opened against suspected fraudulent providers. For example, the pilot identified the following: One provider billed more than 24 hours a day. Although the Medicare claims alone were not implausible, once the Medicare and Medicaid dates of service were matched, the provider showed up as billing for more than a reasonable number of hours in a day.

Several providers serving beneficiaries eligible for both programs purposely submitted flawed Medicare bills, received full payment from Medicaid based on the denied Medicare claims, then resubmitted corrected Medicare bills and were paid again.

In assessing the results of the California pilot, CMS officials noted challenges that delayed implementation for about a year. These included time-consuming activities such as negotiating data-sharing agreements with the contractors that process Medicare claims and reconciling data formatting differences in Medicare and Medicaid claims. CMS officials believe that these challenges were largely due to the novel nature of the effort and that implementation should proceed more smoothly in other states. In fiscal year 2003, CMS expanded the data match pilot to six additional states: Florida, Illinois, New Jersey, North Carolina, Pennsylvania, and Texas.

CMS Arranges Teleconferences for States to Share Information on Program Integrity Issues

CMS also sponsors a Medicaid fraud and abuse technical assistance group (TAG), which provides a forum for states to discuss issues, solutions, resources, and experiences. TAG meets monthly by teleconference and convenes annually in one location. Each of four geographic areas— Midwest, Northeast, South, and West—has two TAG delegates from state Medicaid program integrity units who participate in the teleconferences. Any state may participate in the teleconferences and 18 do so regularly. Delegates discuss concerns raised by the states in their geographic regions and convey information on agenda items to their states. For example, state officials told us that they have discussed issues such as new data systems and other fraud and abuse detection tools.

TAG members also use this forum to alert one another to emerging schemes. In one instance, TAG members discussed a drug diversion operation involving serostim—a drug used to treat AIDS patients for degenerative weight loss—from a Pennsylvania mail-order pharmacy. Serostim—which costs about $5,000 for a month’s supply—was being sold to body builders to enhance muscle tissue. According to New York officials, over a 2-year period, the state’s Medicaid expenditures for serostim increased from $4 million to $50 million. Following this discovery, several states, including New York, instituted prior authorization policies for the drug.

In addition, states use TAG to communicate and propose policy changes to CMS. For example, through TAG, the states proposed that CMS modify the federal 60-day repayment rule. This rule implements a statutory requirement that state Medicaid agencies refund the federal portion of any identified overpayments within 60 days of discovery, except in cases where providers or other entities have filed for bankruptcy or gone out of business. Some states participating in TAG contend that complying with the 60-day repayment rule discourages states from pursuing complex cases for which recoveries may prove difficult and instead gives them an incentive to focus on easy overpayment cases. CMS has supported and endorsed legislative proposals to amend the statute in the case of overpayments resulting from fraud or abusive practices, proposing that the federal share be returned 60 days after recovery versus 60 days after discovery. However, CMS’s efforts to change the policy have not been successful.

CMS Conducts Few On- site Reviews of State Program Integrity Activities

CMS officials point to compliance reviews of the states’ program integrity activities as the agency’s principal means for exercising oversight. CMS conducts on-site reviews to assess whether state Medicaid program integrity efforts comply with federal requirements, such as those governing provider enrollment, claims review, utilization control, and coordination with each state’s Medicaid Fraud Control Unit. Such on-site reviews typically last 5 days and are announced 30 days in advance. If reviewers find states significantly out of compliance, they may revisit the states to verify that they have taken corrective action. However, teams conducting these reviews do not evaluate the effectiveness of state activities on reducing improper payments.

Staffing and funding constraints have limited this oversight effort. From January 2000 through December 2003, CMS completed reviews of 29 states. At its current pace of conducting eight state compliance reviews each year, CMS would not begin a second round of nationwide reviews before fiscal year 2007. CMS officials explained that the agency can conduct only eight reviews per year, given the resources allocated for Medicaid program integrity. For fiscal year 2004, CMS allocated eight staff nationally—about four full-time equivalent (FTE) staff in headquarters and four FTEs distributed across the agency’s 10 regional offices—and an operating budget of $26,000 for overseeing the states’ Medicaid program integrity activities, including the cost of conducting compliance reviews. This level of funding represents a $14,000, or 35 percent, decline from the previous year. At the peak of its funding in fiscal year 2002, CMS’s operating budget for these activities was about $80,000. According to agency officials, the size of the federal Medicaid program integrity group relative to its responsibilities has resulted in its use of Medicare’s program integrity resources to help implement pilot projects and conduct technical assistance activities.

From the states’ perspective, compliance reviews have provided useful information for identifying needed areas of improvement and potential best practices. For example, Michigan officials told us that after CMS’s review, they took steps to strengthen their provider enrollment activities. In another state, CMS discovered numerous areas of noncompliance. The state agency’s provider enrollment processes did not require applicants to disclose prior criminal convictions or business ownership and control. The state agency also did not investigate potential instances of fraud and abuse identified by its SURS unit or beneficiary complaints, or make the required referrals to the state Medicaid Fraud Control Unit. As a result of these findings, CMS required the state to develop a corrective action plan. About a year later, the review team revisited the state and learned that it had begun to implement corrective actions.

CMS has pointed to its compliance reviews of the states’ program integrity activities as providing the agency with information on the states’ strengths and vulnerabilities to improper payments. However, as we reported in February 2002, these structured site reviews focus on state compliance and do not evaluate the effectiveness of the states’ fraud and abuse prevention and detection activities for reducing improper payments.

Concluding Observations

The varied and substantial cases of Medicaid fraud or abuse that have been uncovered around the country reaffirm the need for Medicaid agencies to safeguard program dollars. Such losses have prompted program integrity units and legislatures in many states to take active roles in prevention and detection efforts. In their attempts to limit improper payments, states have pursued a broad range of methods, such as tightened provider enrollment and advanced claims review techniques. As some states report identifying substantial cost savings, further enhancements in program integrity activities are likely to generate positive returns on such investments.

At the same time, there may be a disparity between the level of CMS resources devoted to Medicaid program integrity and the program’s vulnerability to financial losses. On its current schedule for conducting state program integrity compliance reviews, CMS will not obtain a programwide picture of states’ prevention and detection activities more than once every 6 years. Moreover, because these reviews are limited in scope, CMS does not evaluate states’ effectiveness in addressing improper payments. In addition, findings from the payment accuracy pilot indicate a need for CMS to further enhance state efforts to prevent and detect payment errors.

Agency Comments and Our Evaluation

In written comments on a draft of this report, CMS officials took issue with our observation that the level of resources devoted to federal oversight of states’ program integrity activities may be inconsistent with the financial risks to the program. They pointed out that the agency’s program integrity work should be viewed as part of its broader financial management of state Medicaid programs. Officials noted that 65 financial management staff in CMS regional offices review Medicaid expenditures, conduct financial management reviews, provide technical assistance to states on financial policy issues, and analyze state cost allocation and administrative claiming plans. Officials also stated that the agency expects to hire 100 new Medicaid financial management staff this fiscal year and has contracted with HHS OIG to perform additional auditing. (See app. II.)

We commend CMS for the actions it has begun to take to address its Medicaid financial management challenges. As we have reported in recent years, CMS had fallen short in providing the level of oversight required to ensure states’ Medicaid financial responsibility. When fully implemented, CMS’s efforts to increase the number of staff dedicated to reviewing the states’ financial management reports should help it strengthen the fiscal integrity of Medicaid’s state and federal partnership.

However, financial management and program integrity, while related functions, are not interchangeable. Financial management focuses on the propriety of states’ claims for federal reimbursement, such as the matching, administrative, and disproportionate share funds that CMS provides the states. In contrast, program integrity—the focus of this report—addresses federal and state efforts to ensure the propriety of payments made to providers. Unlike the commitment to expand resources for Medicaid financial management activities, CMS has not indicated a similar commitment to enhancing its support and oversight of states’ program integrity efforts.

CMS officials also provided technical comments, which we incorporated into the report where appropriate.

As agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days after its date. At that time, we will send copies of this report to the Secretary of HHS, Administrator of CMS, appropriate congressional committees, and other interested parties. In addition, this report will be available at no charge on GAO’s Web site at http://www.gao.gov. We will also make copies available to others upon request. If you or your staff have any questions about this report, please call me at (312) 220-7600. Another contact and key contributors to this report are listed in appendix III.

Appendix I: States’ Approaches to Medicaid Program Integrity

Appendix I: States’ Approaches to Medicaid Program Integrity A surety bond may protect the state against certain financial losses.

A data warehouse stores information on claims, providers, and beneficiaries in an integrated database.

Data mining is the analysis of large databases to identify unusual utilization patterns.

Data matching and modeling are techniques that allow comparisons of providers within specialties to determine normative patterns in claims data so that aberrant patterns can be identified.

Smart technology is software that analyzes patterns in claims data and feeds the information back into the system to identify new patterns.

A drug formulary is a list of prescription medications approved for coverage.

National Association of Surveillance and Utilization Review Officials.

Appendix II: Comments from the Centers for Medicare & Medicaid Services

Appendix III: GAO Contact and Staff Acknowledgments

GAO Contact

Acknowledgments

In addition to the contact named above, Enchelle Bolden, Helen Chung, Hannah Fein, Shirin Hormozi, and Geri Redican made key contributions to this report.