Although jointly financed by the states and the federal government, Medicaid is administered directly by the states and consists of 56 distinct state-level programs. Within broad federal guidelines, each program establishes its own eligibility standards; determines the type, amount, duration, and scope of covered services; and sets payment rates. In general, the federal government matches state Medicaid spending for medical assistance according to a formula based on each state’s per capita income. In fiscal year 2004, the federal contribution ranged from 50 to 77 cents of every state dollar spent on medical assistance. For most state Medicaid administrative costs, the federal match rate is 50 percent. As program administrators, states have primary responsibility for conducting program integrity activities that address provider enrollment, claims review, and case referrals. Specifically, federal statute or CMS regulations require states to collect and verify basic information on potential providers, including whether the providers meet state licensure requirements and are not prohibited from participating in federal health care programs; have an automated claims payment and information retrieval system— intended to verify the accuracy of claims, the correct use of payment codes, and patients’ Medicaid eligibility—and a claims review system— intended to develop statistical profiles on services, providers, and beneficiaries to identify potential improper payments; and refer suspected overpayments or overutilization cases to other units in the Medicaid agency for corrective action and potential fraud cases, generally, to the state’s Medicaid Fraud Control Unit for investigation and prosecution. As noted in our 2004 report, states use a variety of controls and safeguards to stem improper provider payments. For example, states target high-risk providers seeking to bill Medicaid with on-site facility inspections, criminal background checks, and probationary or time-limited enrollment. States also reported using information technology to integrate databases containing provider, beneficiary, and claims information and to increase the effectiveness of their utilization reviews. Various states individually attributed cost savings or recoupments to these efforts valued in the millions of dollars. In contrast, CMS’s role in curbing fraud and abuse in the Medicaid program is largely one of support to the states. As we reported last year, CMS administers two pilot projects—one focused on measuring the accuracy of a state’s Medicaid claims payments (Payment Accuracy Measurement (PAM)) and the other focused on improper billing detection and utilization patterns by linking Medicare and Medicaid claims information (Medi-Medi). CMS also sponsors general technical assistance and information-sharing through its Medicaid fraud and abuse technical assistance group (TAG). In addition, CMS performs oversight of states’ Medicaid fraud and abuse control activities. (See table 1.) A wide disparity exists between the level of resources CMS expends to support and oversee states’ fraud and abuse control activities and the amount of federal dollars at stake in Medicaid benefit payments. In addition, CMS’s organizational placement of staff and lack of strategic planning suggest a limited commitment to improving states’ Medicaid fraud and abuse control efforts. The resources CMS devotes to working with states to fight Medicaid fraud and abuse do not appear to be commensurate with the size of the program’s financial risk. In fiscal year 2005, CMS’s Medicaid staff resources allocated to supporting or overseeing states’ anti-fraud and abuse operations was an estimated 8.1 FTEs—3.6 FTEs at headquarters and 4.5 FTEs in the regional offices. Staff at headquarters are engaged in arranging and conducting the on-site compliance reviews of states’ fraud and abuse control efforts and in information-sharing activities. Staff at the regional offices also participate in the state compliance reviews and respond to state inquiries. Canvassing the 10 regional CMS offices, we found that 7 regions each have a fraction of an FTE and the rest each have less than 2 FTEs devoted to providing assistance on fraud and abuse issues. For example, Region IV—which covers eight states and accounted for $33 billion of federal funds for Medicaid benefits in fiscal year 2004— reported having 1 FTE devoted to Medicaid fraud and abuse control activities. (See table 2.) For fiscal year 2006, CMS’s budget has no line item devoted to Medicaid fraud and abuse control activities. The project to estimate payment error rates known as PAM/PERM (required by statute) and the Medi-Medi pilot project (with benefits accruing to both programs) are financed through a statutorily established fund—the Health Care Fraud and Abuse Control (HCFAC) account. (See table 3.) The HCFAC monies from which these two projects are largely financed are known as “wedge” funds. As CMS’s distribution of these funds varies from year to year, the level of support for fraud and abuse control initiatives is uncertain and depends on the priorities set by the agency. For example, fiscal year 2005 funds allocated from the HCFAC account for PAM/PERM and Medi-Medi were less than half the funds allocated in fiscal year 2004. In contrast, Medicare fraud and abuse control activities at CMS are financed primarily through earmarked funds from another HCFAC component—the Medicare Integrity Program. CMS’s Medicaid compliance reviews are funded through a different source—HHS’s budget appropriation. In fiscal year 2004, the budget for this activity was $26,000, down from $40,000 in fiscal year 2003 and $80,000 in fiscal year 2002. The placement of Medicaid’s antifraud and abuse function in CMS’s organizational structure and a lack of stated goals and objectives suggests a limited institutional commitment to Medicaid fraud and abuse control activities. Currently, two different headquarters offices are charged with working with states on fraud and abuse issues. CMS’s Office of Financial Management staffs the PAM/PERM and Medi-Medi initiatives, while the Center for Medicaid and State Operations (CMSO) staffs the state compliance reviews and TAG functions. Under this organizational structure, the Medicaid fraud and abuse staff in CMSO are not in an optimal position to leverage the resources allocated to the office with responsibility for developing tools and strategies for combating fraud and abuse. As further evidence of the low priority assigned to Medicaid fraud and abuse control, the planning, outreach, and building of staff expertise lacks leadership continuity. From 1997 to 2003, the leadership and funding of CMS’s support for states’ antifraud and abuse efforts resided in a consortium of two regional offices. The consortium led a network of regional fraud and abuse coordinators and state Medicaid representatives, sponsoring telephone conferences and workshops, seminars, and training sessions aimed at sharing best practices for fighting fraud and abuse. Medicaid staff based at headquarters reported to a national network coordinator located at one of the consortium’s regional offices. With the retirement of the national coordinator in 2003, the consortium relinquished its leadership and funding role and the Medicaid antifraud and abuse activities were reassigned to CMSO without additional resources. Since then, no nationwide meetings with state program integrity officials have been held. At the same time, CMS lacks a strategic plan to drive its Medicaid antifraud and abuse operations. Goals for the long term, as well as plans on how to achieve them, have not been specified in any public department or agency planning documents. For example, HHS’s fiscal year 2004 performance and accountability report cited Medicaid’s high risk of payment errors as the department’s management challenge for fighting Medicaid fraud and abuse. To address this challenge, the report cited the PAM/PERM initiative for estimating payment error rates, as this activity is required in federal statute. But there was no mention of any other fraud and abuse support or oversight activities or goals. Similarly, the discussion of Medicaid program integrity in the Administration’s Budget for Fiscal Year 2006 covers activities to curb states’ inappropriate financing mechanisms but makes no mention of federal support or oversight of states’ fraud and abuse efforts. At the agency level, CMS officials were unable to provide any publicly available planning documents specifying short- or long-term Medicaid program goals that target fraud and abuse. The low priority given to CMS activities in support of states’ fraud and abuse control efforts is having serious consequences for current projects. CMS’s distribution of resources may require some activities to be scaled back and others to be eliminated. Specifically, the expansion of the Medi-Medi data match project has been slow, leaving potentially millions of dollars in cost avoidance and cost savings unrealized. This project enables claims data analysts to detect patterns that may not be evident when providers’ billings for either Medicare or Medicaid are viewed in isolation. For example, by combining data from each program, analysts can identify “time bandits,” or providers who bill for more than 24 hours in a single day. As of March 31, 2005, seven states with fully operational projects reported returns to the Medicaid and Medicare programs of $133.1 million in provider payments under investigation, $59.7 million in program vulnerabilities identified, and $2.0 million in overpayments to be recovered. In addition, 240 investigations had been initiated and 28 cases referred to law enforcement agencies. Two additional states, Ohio and Washington, have begun Medi- Medi projects that are expected to be operational later this year. Because of anticipated unmet funding needs, existing Medi-Medi data match activities are in jeopardy of being scaled back considerably. As CMS stated in its fiscal year 2005 second quarter report on Medi-Medi projects, “Eliminating certain Medi-Medi projects in their entirety and/or dramatically reducing the level of effort across all of the projects are among the approaches under consideration. Beyond FY 2006, the entire project will terminate if additional funding is not identified.” Agency officials noted that several additional states have expressed interest in participating but expanding the program to more states will not occur without a new allocation or realignment of resources. Plans for additional activities that involve coordination with Medicare have been put on hold, pending budget decisions.