[UPDATED at 5 p.m. ET]

Despite receiving billions of dollars in taxpayer money, Medicaid insurers are lax in ferreting out fraud and neglect to tell states about unscrupulous medical providers, according to a federal report released Thursday.

The U.S. Health and Human Services’ inspector general’s office said a third of the health plans it examined had referred fewer than 10 cases each of suspected fraud or abuse to state Medicaid officials in 2015 for further investigation. Two insurers in the program, which serves low-income Americans, didn’t identify a single case all year, the report found.

Some health plans terminated providers from their networks for fraud but didn’t inform the state. The inspectors said that could allow those doctors or providers to defraud other Medicaid insurers or other government programs in the same state.

In addition, some insurance companies failed to recover millions of dollars in overpayments made to doctors, home health agencies or other providers. The inspector general said insurers stood to benefit financially from this because higher costs can justify increased Medicaid rates in the future. (The report didn’t name specific insurers or states.)

Medicaid plans “are required by law to find fraud and abuse and to share information with states,” said Meridith Seife, a deputy regional inspector general in New York and a co-author of the report. “We are concerned anytime we see evidence that managed-care organizations are not doing that in a rigorous way. There’s a lot of taxpayer dollars at stake.”

In general, Medicaid has struggled for years with poor oversight and billions lost to improper payments, drawing regular scrutiny from federal auditors but little improvement. Authorities have found clinics overprescribing opioids to Medicaid patients and doctors running pill mills. Hospitals and other providers have falsified Medicaid claims, paid illegal kickbacks for patient referrals and billed for unnecessary services.

Health insurers serve about 55 million Medicaid patients across 38 states, and play an increasingly vital role in running the giant public insurance program. States generally split the cost of Medicaid with the federal government.

One in 5 Americans is on Medicaid and enrollment is poised to rise even further as more states consider expansion under the Affordable Care Act. About 75 percent of Medicaid patients are part of a privatized system in which managed-care companies are paid fixed fees per patient to coordinate their care. Big, publicly traded companies such as UnitedHealth, Anthem and Centene dominate the business. In some states like California, evidence shows the funding often flows to the plans with little oversight, sometimes regardless of their performance.

These companies tout their expertise at spotting suspicious billing patterns and chasing down criminals using sophisticated data mining, but the inspector general found that their fraud-fighting results don’t always match the rhetoric.

Andy Schneider, a former federal health official and now a research professor at Georgetown University’s Center for Children and Families, said the lack of reporting to states is “a big problem.”

“If states don’t know a provider has ripped off the managed-care organization, how can they protect other state programs or insurers from that behavior?” he said.

Last year, new Obama-era rules went into effect that seek to strengthen fraud-detection efforts in Medicaid managed care. For now, the Trump administration has endorsed those changes.

Last month, the administration said they would monitor state compliance and conduct more audits. 

“With historic growth in Medicaid comes an urgent federal responsibility to ensure sound fiscal stewardship and oversight of the program,” Seema Verma, administrator of the Centers for Medicare & Medicaid Services, said in a statement last month.

In a May 17 response to the inspector general, Verma cited the Obama administration’s managed-care rules and she agreed with nearly all of the recommendations the inspector general made to help remedy the problems.

In the report, the inspector general’s office examined data from the health plan with the largest Medicaid spending in each of the 38 states with managed care. Inspectors also conducted interviews with officials and insurance companies in five states. Among the findings:

• The 38 plans received $62.2 billion in federal and state money in 2015. That represents about a quarter of the $236 billion Medicaid plans received that year. That figure has grown to nearly $300 billion last year, or about half of Medicaid spending overall.
• The health insurers identified $57.8 million in overpayments related to fraud or abuse during 2015. Health plans only recovered $12.5 million, or 22 percent, of those overpayments. (Four of the health plans found no such overpayments all year.)
• Insurers performed better on erroneous billing and other overpayments not related to fraud. Health plans collected 68 percent of the $831.4 million they identified in 2015.

Insurance industry officials said health plans take their responsibility to protect the Medicaid program seriously and that the new rules at the federal level should address any shortcomings.

Jeff Myers, chief executive of Medicaid Health Plans of America, an industry trade group, said the problems identified by the inspector general’s office may not reflect health plan performance as much as differing approaches to state oversight and what information was required to be reported in 2015.

“The report suggests that, because there isn’t a massive reporting of cases, managed-care organizations are not adequately protecting the program. I don’t think that’s true,” Myers said. “The other limitation of the study is that most of these issues have in fact been addressed by the Medicaid managed-care rule.”

Myers pushed back on the inspectors’ suggestion that insurers are purposely ignoring wasteful spending in order to boost their own revenue and profits from states.

“States look very seriously at ways to reduce Medicaid spending because every dollar spent on Medicaid is a dollar not spent somewhere else,” Myers said.

Some health-policy experts said the federal report reflects the insurance industry’s resistance to what it perceives as meddling in its private business even though plans are participating in a public program. “This kind of behavior, like not reporting bad actors, is totally consistent with their broader philosophy of ‘It’s my money and let me run my business,’” said Schneider, the former federal official.

Christopher Koller, former Rhode Island health insurance commissioner, said states bear the responsibility to address these problems in their contracts with health plans.

“This is one more example of how state oversight can often be insufficient,” said Koller, president of the Milbank Memorial Fund, a foundation focused on health policy. “States who think they can outsource all of the work to the private-sector ‘experts’ are not serving their citizens well.”

In 2015, the 38 health plans examined by inspectors collectively took 2,668 corrective actions, such as payment suspensions, against providers suspected of fraud or abuse, according to the report.

Eighteen health plans canceled contracts for a total of 179 providers “for cause” in 2015. Three of those insurers said they didn’t typically notify the state of provider terminations.

Now the new Medicaid regulations require insurers to notify states about providers’ terminations and other changes in their status, according to the report.

This story was produced by KFF Health News, which publishes California Healthline, an editorially independent service of the California Health Care Foundation.

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Cost and Quality Health Industry Insurance Medicaid HHS Insurers