Analysis on GAO Report: $102 Million Spent on Auditing Fees to Identify Less Than $20 Million in Overpayments

The Federal Government Accountability Office (GAO) has determined that a program to fight fraud in the Medicaid health system for the poor has cost the federal taxpayers at least $102 million in auditing fees since 2008 while finding less than $20 million in overpayments.

The Medicaid Integrity Group (MIG), established by CMS as part of its Medicaid Integrity Program (MIP) as required by the Deficit Reduction Act of 2005 (DEFRA or DRA), has taken three different approaches since establishing the National Medicaid Audit Program (NMAP). Until the DEFRA, Medicaid program oversight had been primarily a state function. The MIP faced a daunting task: policing the Medicaid programs of all 50 states and the territories. In carrying out the NMAP, the MIG has used test audits, Medicaid Statistical Information System (MSIS) audits, and collaborative audits.

For all three types of audits, federal contractors conducted post-payment reviews, meaning that they reviewed supporting medical documentation related to Medicaid claims that had already been paid (so-called “pay and chase).

The key differences between the three types of audits are the data sources used to identify audit targets and the roles assigned to the various states and contractors chosen to perform the audits.

In June 2007, the MIG hired a contractor to conduct test audits in five states. Working with the MIG and the states, the contractor audited twenty seven providers, and twenty-seven test audits were conducted on hospitals, physicians, dentists, home health agencies, medical transport vendors, and durable medical equipment providers. The audit targets were developed by using each state’s Medicaid Management Information System (MMIS), which is a Medicaid claims processing and information system used for management, oversight and reporting of state’s Medicaid program operations and costs.

In December 2007, the MIG implemented Medicaid Statistical Information System (MSIS) audits by hiring separate review and audit contractors for each of five geographic areas of the country. MSIS is a national eligibility and claims database used by CMS to analyze Medicaid program characteristics and utilization of services, and to generate reports on national Medicaid populations and expenditures. MSIS is a subset of MMIS and these audits were conducted over a wider geographic area, with 44 states having had MSIS audits, compared with the small number of states selected for test audits. The GAO report found that the MSIS audits were not well coordinated with the states, and even diverted resources from the states’ own program integrity efforts. The MSIS audits used separate contractors and the MSIS data to generate potential targets and the MIG chose the specific providers to be audited. According to the GAO report, the return on MSIS audits was significantly lower than other approaches, and the MSIS audits identified potential overpayments for much smaller amounts; half of the MSIS audits were for potential overpayments of $16,000 or less, compared to a median of about $140,000 for test audits.

In January 2010, the MIG launched collaborative audits where MMIS data is used but state resources and expertise are leveraged to identify audit targets. These audits had a median of about $600,000 in overpayments found.

According to the GAO report, from June 2007 through February 2012, payments to the federal contractors for test/MMIS, MSIS, and collaborative audits totaled $102 million. These contractor payments account for more than 40 percent of all of the MIG’s yearly expenditures on Medicaid program integrity activities. The GAO concluded that the total cost of the NMAP is likely greater than $102 million because that figure does not include expenditures on the salaries of MIG staff that support the operation of the program. In any event, these audits have identified less than $20 million in overpayments.

The complete report is available here.  For more information, please contact the author, David R. Ross.