On March 10, 2014, the Department of Health and Human Services (“HHS”) Office of Inspector General (“OIG”) released the State Medicaid Fraud Control Units (“MFCUs”) FY 2013 Annual Report. According to the Annual Report, the 50 State MFCUs recovered over $2.5 billion in FY 2013 for both criminal and civil cases; a large return for the combined federal and state expenditures of $230 million.

MFCUs investigate and prosecute Medicaid provider fraud and patient abuse and neglect in healthcare facilities or board and care facilities. As part of their Medicaid plans, all states (and the District) are required to operate a State MFCU or demonstrate to the HHS Secretary that operation of MFCU would not be cost effective and that other program integrity protections are in place. The MFCUs are funded through federal grants (75%) and states’ matching funds (25%).

In FY 2013, the 50 State MFCUs recovered nearly $1 billion in criminal recoveries and reported 1,341 criminal convictions. The number of criminal convictions remained relatively consistent in recent years and those related to fraud represented the majority, which involved a variety of provider types but most notably home health agencies. The criminal recoveries in FY 2013 exceeded the combined amount of recoveries from FYs 2010-2012 (approximately $700 million). According to the Annual Report, the joint state-federal investigation of Abbot Laboratories ($1.5 billion settlement) accounted for the bulk of the recoveries and resulted in the largest State MFCU criminal recovery in US history.

The MFCUs also recovered over $1.5 billion in civil settlements and judgments, reporting 879 civil settlements and judgments in FY 2013. The number of settlements and judgments was similar to the sum in FY 2012 (824) and in FY 2011 (907), but significantly fewer than in FY 2010 (1,090). The amount in civil recoveries in FY 2013 ($1.5 million) was relatively consistent with recoveries in 2010 and 2011 ($1.7 million and $1.5 million, respectively), with a noticeable exception in FY 2012 ($2.6 million) that the OIG attributed to “large global pharmaceutical cases settled that year.”

Additionally, as a result of MFCUs’ investigations, prosecutions and convictions, the OIG excluded 1,022 subjects from federally funded healthcare programs in FY 2013. If excluded, providers would not receive any federal payments for items or services furnished, ordered, or prescribed by that excluded individual or entity. This is the largest number of exclusions since FY 2010, which have remained stable and accounted for at least a quarter of all OIG exclusions in recent years.

In the Annual Report, OIG expressed MFCUs’ concern that Medicaid managed care organizations (MCOs), with which many states contract to provide or coordinate comprehensive health services for a fixed, prospective payment per each beneficiary, made few referrals relative to the large number of managed care beneficiaries in their states.

According to the Annual Report, MCOs were found to lack the incentive to detect and refer potential fraud because their contracts did not allow them to share in the fraud recoveries, and referrals and the supporting investigations were very time consuming. Meanwhile, there were no negative consequences of excluding providers from their networks instead. Further, based on survey results, the low rate of referrals from MCOs may have been attributable to: 1) managed care being relatively new for some state programs and MCOs were still developing and refining processes for fraud detection; 2) the small number of MCOs’ employees assigned to fraud prevention; or 3) the use of narrow interpretation of the provider activities that would constitute potential fraud and warrant referral.

Nonetheless, fraud prevention is an ongoing priority for the administration and under OIG’s FY 2014 Work Plan, the OIG developed a new initiative “to review States’ managed care plan reimbursements to determine whether… [MCOs] are appropriately and correctly reimbursed for services provided.” Moreover, on May 17, 2013, OIG issued regulations giving new authority to MFCUs for Medicaid data mining, which historically has been the responsibility of states’ Medicaid agencies. MFCUs now may submit plans to OIG for approval to receive federal matching funds for screening and analyzing state Medicaid data. As part of that approval process, OIG coordinates with Centers for Medicaid and Medicare Services (“CMS”), which oversees the Medicaid program at the federal level. Accordingly, MFCUs no longer have to rely solely on state Medicaid agencies for referrals.

Read the full MFCU Annual Report.