The Department of Health and Human Services (HHS) Office of Inspector General (HHS-OIG) has released its Fiscal Year (FY) 2014 Annual Report (Report) on the performance of the Medicaid Fraud Control Units (MFCUs) (OEI-06-15-00010, April 2015). Although the MFCUs reported another strong year in civil recoveries, criminal recoveries were significantly lower than last year, when the MFCUs reported the largest monetary criminal recovery in U.S. history, resulting from a joint state-federal investigation of a pharmaceutical manufacturer for unlawful promotion of a prescription drug. The Report notes two areas of concern (discussed below):

1. The inadequate implementation of the Affordable Care Act’s “credible allegation of fraud” payment suspension authority; and
2. The continuing lack of referrals for state Medicaid managed care fraud investigations.

Who Are the MFCUs?

As part of their State Medicaid plans, all states must operate a MFCU or convince HHS that it is not cost-effective to do so and that other fraud protections are in place. In FY 2014, 49 states and the District of Columbia had MFCUs. HHS-OIG oversees the MFCUs and administers grants that provide federal funding for MFCU operations. Federal funding reimburses 75% of operating costs, while the remainder is contributed by the states.

The MFCUs investigate allegations of fraud as well as allegations of patient abuse and neglect. MFCUs may receive funding for investigating abuse and neglect matters in Medicaid-funded health care facilities, such as nursing homes, as well as in “board and care” facilities, such as assisted living facilities, which may not be funded by Medicaid. A proposal in the President’s FY 2015 Budget includes a proposal to expand the abuse and neglect authority to home and community-based services. MFCUs are also involved in global settlements, which are civil false claims act cases brought by the federal Department of Justice and involving a group of state MFCUs.

The Reported Results

The Report credits the MFCUs with 1,318 convictions in FY 2014 (1,341 convictions in FY 2013), mostly relating to fraud matters. Recoveries from the criminal convictions totaled nearly $300 million (compared to $1 billion in FY 2013), which resulted in the exclusion of 1,337 providers from participation in the federal health care programs. The Report also notes 874 civil settlements and judgments, with a total recovery of $1.7 billion. (FY 2013 recoveries from the 879 civil cases totaled more than $1.5 billion.)

As with last year’s report, pharmaceutical manufacturers represented the biggest source of recovery, with $1,285,025,189 in civil recoveries, or 52 % of civil settlements and judgments (but with no criminal convictions or recoveries reported in FY 2014). With respect to facility fraud, substance abuse treatment centers reflected the largest civil recoveries, at $26,118,710. In the category of “medical support,” the Report indicates that home health care aides contributed $12,533,282 in criminal recoveries (accounting for 30 % of criminal convictions), while home health care agencies were credited with civil recoveries of $186,651,599. Pharmacy recoveries were $22,482,173 on the civil side (10 % of civil settlements and judgments), and $3,754,868 on the criminal side. Laboratory recoveries for civil settlements and judgments were also significant, at $12,919,426 (with no criminal recoveries). There were 64 convictions of physicians, 56 convictions of counselors/psychologists, and 19 convictions of dentists. There were 3 convictions of billing companies, and 4 convictions of managed care organizations. Criminal convictions relating to patient abuse and neglect accounted for 27 % of all convictions, including aggravated assaults, injury to elderly or disabled persons, and theft of patient funds.

Payment Suspensions for Credible Allegations of Fraud

The Affordable Care Act (ACA) provided authority for the suspension of payments to a Medicaid provider or supplier based upon a “credible allegation of fraud”, for which an investigation is pending, unless the State Medicaid agency determines there is good cause not to suspend payment (such as putting the provider or supplier on notice that there is an investigation). The MFCUs pay a key role in suspension actions, inasmuch as the State Medicaid agency is expected to refer the credible allegation to its MFCU, or another law enforcement agency, for potential investigation. The MFCU can accept, or decline, the referral. If the MFCU declines the referral, the Medicaid agency cannot impose the suspension unless it can make a referral to some other law enforcement agency (or the Medicaid agency has some other authority it can use for the suspension).

As described in the Report, prior to the ACA, Medicaid authority allowed a payment suspension based upon “suspected” fraud. The Report notes that State Medicaid Agency Program Integrity Units and MFCUs reported a reduction in referrals for investigation after the ACA change to “credible allegation of fraud.” The MFCUs also reported that payment suspensions “can complicate investigations” while the provider or supplier pursues administrative or judicial remedies to challenge a suspension or investigation. As OIG summed up the situation in the Report, “OIG has ongoing work in this area.”

Managed Care Entity Referrals

As with last year’s report, the small number of managed care cases for investigation of fraud drew the OIG’s attention. According to the Report, the MFCUs noted that managed care entities lacked the incentive to detect and refer cases, and in fact may have an incentive not to do so because (1) they may lose money if their contracts do not allow them to share in fraud-related recoveries; and (2) their contracts typically do not include negative consequences for a lack of fraud referrals. The Report notes that as of January 2015, over half of all Medicaid beneficiaries were receiving their care through managed care entities. The Program Integrity Units and the MFCUs indicated they expected that the increased prevalence of managed care will exacerbate the lack of referrals from State Medicaid agencies.

The Report serves as an annual reminder that Medicaid enforcement efforts continue to supplement the government’s fraud-fighting efforts on the Medicare front. Medicaid compliance must remain an area of focus for providers, suppliers, and vendors (specifically including pharmaceutical manufacturers and others in the chain of distribution of prescription drugs to Medicaid beneficiaries).