Lawmakers Seek to Close Medicaid Fraud Loopholes

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By Nathaniel Weixel

Sept. 11 — There are too many loopholes in the Medicaid program for fraudulent providers or beneficiaries to exploit, and legislation is needed to ensure those loopholes are closed, House lawmakers said during a hearing Sept. 11.

During the Energy and Commerce health subcommittee hearing, lawmakers discussed six bills targeted at strengthening Medicaid program integrity and closing eligibility loopholes that have allowed individuals with significant resources to qualify for program benefits. If enacted, lawmakers said, the bills would save taxpayers hundreds of millions of dollars while making Medicaid more transparent and accountable.

“Both federal and state governments play critical roles in oversight of program integrity efforts. While I believe states are—and should be treated as—full partners in the program, the reality is that Congress has a duty to expect the best from states and take commonsense steps to help prevent fraud, waste, and abuse at systemic level,” subcommittee chairman Joseph Pitts (R-Pa.) said.

Lottery Winners

While most of the bills had bipartisan support, the committee's ranking member, Rep. Frank Pallone Jr. (D-N.J.), said he was concerned that one piece of legislation (H.R. 2339) would undermine coverage for millions of low-income individuals by changing the Medicaid eligibility standards. The bill is intended to allow states to consider monetary winnings from lotteries (and other lump sum payments) as if they were obtained over multiple months, even if they were obtained in a single month.

Pitts noted that under current Medicaid regulations, irregular income received as a lump sum is counted as income only in the month received. As a result, multi-million-dollar lottery winners have been allowed to retain taxpayer financed Medicaid coverage, he said. But Pallone said proposals that are supposed to address Medicaid lottery winners “are completely unnecessary from a practical perspective. We have several checks in place and states already have the authority they need.”

OIG Work

Other legislation under consideration by the committee would build off work from the Health and Human Services Office of Inspector General. For example, one bill (no number) would ensure providers with terminated Medicaid contracts are removed from the program.

Under the Affordable Care Act, if a provider's Medicare contract is terminated for cause (fraud, quality or integrity issues), states must also terminate that provider's Medicaid participation. John Hagg, director of Medicaid audits at the OIG, told the House panel states haven't been doing this. According to Hagg, an OIG investigation found 12 percent of providers terminated for cause from individual state Medicaid programs in 2011 were still participating in Medicaid as of Jan. 1, 2012.

The legislation would require state Medicaid and Children's Health Insurance Programs to report providers terminated for cause to the Centers for Medicare & Medicaid Services. It would also require providers participating in Medicaid or CHIP managed care to be enrolled with the state.

U.S. Territories

Another piece of legislation (H.R. 3444) would encourage territories to invest in the creation of Medicare Fraud Control Units. MFCUs operate in 49 states and the District of Columbia, but not in North Dakota or any of the territories. Under the Medicaid statute, all states, D.C. and the five U.S. territories—are required to have a MFCU.

Hagg said the territories don't operate such units because of the nature of territory Medicaid funding—there's a capped amount to provide both beneficiary services and most administrative costs. The bill, introduced by Pitts and Rep. Susan Brooks (R-Ind.) would exempt federal funding for the fraud control units from the territories’ Medicaid funding cap. Hagg said he expects the bill would remove the disincentive territories currently face.

To contact the reporter on this story: Nathaniel Weixel in Washington at

To contact the editor responsible for this story: Brent Bierman at


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