." " I DRAFT 'The Preventiogr and Control of Fraud: ABSTRACT A Case Study or the Medioeid Program This report presents four case studies describing the efforts in the states of California, Michigan v Vermont and Washington, to control and prevent fraud in the Medicaid program. The focus of each case study is on the information needed (1) to detect accurately patterns of misutiliza U.on of Medicaid funds by health care providers; and (2) to prosecute those cases where . investigation establishes that a pattern of potentially . fraudulent activity eXists. This is the second of two reports • that examine the need f~r information in the prevention and Joseph C. Calpin control uf fraud in government benefits programs . •. Frank C. Jordan., Jr . U.S. Department of Justice National Institute of JUstice This document has been reproduced exactiy as received from the November 1981 person or organization originating it. Points of view or opinions stated In this documen~ ~re tho.s,e of the authors and do not necessarily JustIce.repr~sent the offICIal posItIon or pOlicies of the National Institute of Permission to reproduce this copyrtg'tm;!d material h'3s been granted by PubIic Domain/LEAA MTR-S1 \V271 Bureau of Justice Stat1stics to the National Criminal Justice Reference Service (NCJRS). ~urther reprodu~tion outside of the NCJRS system requires permis­ sIon of the cO~'Jler. SPONSOR: Bureau of Justice Statistics CONTRACT NO.: 80-BJ·CX-0017 AC' PROJECT NO.: 19060 . ~ QUlSl'rlONS DEPT.: W·ll • -~"...-...,~.. ' . ..... , • Approved ror publk rclClM; dislribulioft unlimiled • In I) The MITRE CorpQration Metrek Division ~ .. 1820 Doilcy Madiscn Boulc';atd ~lcLc:1n. Vir{linia ~I02 ~ iii DRAFT Preceding page' blank r r TABLE OF CONTENTS Page LIST OF ILLUSTRATIONS EXECUTIVE SUMMARy zi ziii 1. INTRODUCTION 1-1 1.1 The Prevention 'and Control of Fraud 1.2 The Lack of Information 1-1 1.3 The Present Study 1-2 1-3 1.3.1 The First Phase 1.3.2 The Second Phase 1-4 1-5 1.4 ,Purpose and Qrganization of This Report 1-6 2. THE MEl) ICArD PROGRAM: FRAUD--ITS CO~'T.ROL AND PREVENTION 2-1 2.1 The Medicaid Program 2-1 2.1.1 Medicaid Legislation 2-2 2.1.2 The Administration of the Kedicaid Program 2-4 2.1.3 Medicaid Fraud 2-5 2.2 The Medicaid Management Information System 2-7 2.2.1 The Direct Operations Subsystems 2.2.2 The Management and Administrative 2-8 Reporting SubsY8t~ 2.2.3 The Surveillance and Utilization 2-12 levi_ Subsystem 2.2.4 The Review Process for C•• es Suspected 2-13 of Involving Fraud 2-16 2.3 The State Medica1dFraud Control Unit 2-16 2.3.1 lunding 2.3.2 Operational and Organizational Requirements 2.3.3 Over81sht It v " Preceding page (blank !ABLE OF CONTENTS TABLE OF CONTENTS (cont) (cont) Page Page i I 1! 4.1.2 3. CALIFORNIA The Management and Administrative leporting Syctem 3-1 ", I iii I 4.1.3 4-4 3.1 The Identification of The Surveil lanes and Utilization Review Suspected Cases: SURS!MMIS 'Of System 3-1 4-5 3.1.1 The lunagement l\nd Administrative 4.2 The Processing and Review of Suspected Cases: The Reporting Subsystem 3-3 Medicaid Monitoring and Compliance Division 3.1.2 The Advanced Surveillance and 4-8 Utilization Review Subsystem (ADSURS) 3-3 4.2.1 Case Processing Operations 4.2.2 The Review Process 4-10 ~.2 4-12 The Processing and Review of Suspected Cases: 4.2.3 The Need for Coordination The Audits and Investigations Division 4.2.4 "4-13 3-5 The Availability of Fraud-Related Data 4-13 3.2.1 Surveillance and Utilization Re.view Branch 3-5 4.3 The Investigation and Prosecution of Suspected 3.2.2 Investiga '~ions Branch Cue,.: 3.2.3 Audits Branch 3-8 The Medicaid Fraud Unit 4-17 3.2.4 3-11 The Impact of Legislative and Regulatory 4.3.1 Objectives of the Medicaid Fraud Unit Guidelines on Fraudulent Activities 3-11 4.3.2 Legislative Authority 4-1~ 4.3.3 4-19 3.3 Staffing and Funding The Roles of the Fiscal Intermediary Management '4.3.4 The Detection of Medicaid Fraud 4-19 and Kedi-Cal Operations Divisions 4-20 3-13 4.3.5 Investigation and Pro~ecution 3.4 The Investigation and Prosecution of Suspected 4.3.6 Caseload 4-25 Cases: The Medi-Cal Fraud Unit 4-26 3-,f) i 4.3.7 Statistics legarding Fraud ~-/'. ,, ~ 4-26 I 3.4.1 Organization and Staffing ii 4.4 3.4.2 Prosecution Statutes !J-17 Liaison B.etween the Medicaid Monitoring and 3-17 Compliance Division and the Medicaid Fraud Unit 3.4.3 The Case Classification Proc.ess 4.5 Conclusion 4-30 3.4.4 3-20 Statistics Regard1ug Fraud 3-22 4-31 3.4.5 Fraud Prevention and Control: Programmatic .5. VElUI)NT and Itegulatory Sources of.R:l.sk 3-24 5-1 5.1 The Identifica~lon of Suspected Cases: 3.S Liaison Between the California Department SURS/MHIs 5-2 of Health ~'. Services and the Medi-Cal Fraud Unit 5.1.1 3.6 Conclusion 3-26 The Medicaid Claims Processing System 5-2 3-28 5.1.2 The Management and Administrative 4. MICHIGAN I'porting Subsystem \\5-5 4-1 5.1.3 The Surveillance and Utilization leview Subsystem 4.1 The Identification of Suspected Cases: 5-5 SURS~IIS 4-1 4.1.1 The Direct Operations Systems 4-3 <,~ \ vii :i,:.,~~~~o<)T~ ... F~- •• ,. - _ .... ..,.,.,..,'._ "'_ •• _~ ___ ,,", ... ..,,,,,. _~,. _ L_............... -, ~ ".,-~-.~.""______ .. - ~_~ ________________ ___..._L__=~~::::=~_._....:....:'.::~m~="~=~~~=c.-:::.:;.. -.. ::::::... ··"'= .. -.~,== ...' .. i~··- ..'··-iiiiS ..·-.,·"·~··,--.-,.-= .. ·-=~-=---=.x.,.,-=- .. ~-____________~_~ ________ _ .-:' ,~:-'!:"":.";-.! .• :....!:: _~." .7,-_ .... , •.'K~";',.·;,:t."~~.·."'.-"'$-< ... ,_, .• ""~"-.., - _" ._.~,,~,~, ........., _ _ .".. _ •..•• L~~~~~ ____--.L.:~~~~~ :\.... -.-~:~ ;:;:::""""~-"'=="-, 'C • '_'="_"~"_""'~_'''''''~''~_ ... _ .... "...... _____~ ___ .___ ~_ , i , i , '····\···'r '1 ~ : ,I 1..,.,', f i iii" LIST OF ILLUSTRATIONS ji TABU: NUMBER ~ J~ j 3-1 Costs Incurred by the Medi-Cal Fraud Unit 3-19 I 3-2 ~ Medi-Cal Fraud Unit Investigations Opened f • and Closed by Provider Type 3-23 . , 4-1 Number and Types of Providers Reviewed in , . " I Fiscal Year 1979-1980 by Category of Provider 4-14 I 4-2 Number of Providers Selected for Case AnalYSis I in Fiscal Year 1979-1980 by Category of Providers 4-15 4-3 Action Taken Against Providers in Fiscal Year 1979-1980 by Category of Provider 4-16 4-4 Initial DispOSition of Cases Referred to the Medicaid Fraud Unit (MFU) in Terms of the Type of Referral by the Medicaid Monitoring and Compliance Division (MMCD) 4-18 4-5 Categories of Providers Under Investigation by the Medicaid Fraud Unit in Terms of Source of Referral 4-6 Categories of Providers Under Investigation by the Medicaid Fraud Unit in Terms of Referral within the Division of Social Services 4-24 4-7 DispoSition of Cases by Fiscal Year 4-27 4-8 Summary of Transaction Statistics Reported by Medicaid Fraud Unit 4-29 FIGURE NUMBER 2-1 A Model Medicaid Management Information . ,." i System 2-9 3-1 California Department of H~.• l th Services 3-2 3-2 Audits and Investigations Division of the California Dep~rtment of Health Services 3-6 , I 3-3 '-iscal Intermediary Management Division of the • CalifC!:ru1a Department of Health Services 3-14 3-4 The Medi-Cal Operations Division of the California Department of Health Ser1ices 3-15 3-5 Organizational Chart: Medi-Cal Fraud Control Unit 3-18 4-1 Organizational Chart of the Department of {] Social Services, State of Mich1gan~?,'2 ":~--- Preceding page blank .! , EXECUTIVE SUMMARY LIST OF ILLUSTRATIONS (conc) A. INTRODUCTION FIGURE NUMBER MOre and more, the problem of fraud in government programs aud - operatioes has become the concern of federal, state, and local 4-2 The Surveillance and Utilization Review agency administrators and policymakers. To date, most System Operated by the MMIS Analysis and anti-fraud strategies have been largely r~active-in-nature; however, attempts are now being made to move toward the Development Division 4-6 4-3 Organiza tional Chart of the Med:f.caid Honi toring .. development of more pro~ctive.fraud prevention strategies which and Compliance Division, Bureau of Health are deSigned to identify and correct program weaknesses as well' Services ReView, Medical Services Administration as detect the occurrence of fraud. Efforts have been initiated 4-4 4-9 to develop vulnerability assessments (i.e., the identification The General Analysis Flow Chart 4-11 5-1 Vermont Medicaid Organizational Rel~tionship of the susceptability of agency programs to fraud), telephone Chart "hotlines", and computer-aided detec·tion techniques. However, a 5-11 6-1 Office of Special Investigations, Medicaid major obstacle has been the lack of timely, accurate, and comprehensive data needed by government agencies to: Fraud Control. Unit (MFCU), State of Washington 6-13 6-2 Medicaid Fraud Control Unit Case Processing 6-15 • specify the nature and extent of fraud in government programs and, thereby, • facilitate the ~stematic development, implementation, operation, and evaluation of proactive strategies and techniqu~s fb~ the prevention and control of fraud. B. PURPOSE OF STUD! Recognizing that accurate and reliable information is required tc d.evelop effective and efficient anti-fraud strategies, MITRE . has undertaken a study sponsored by the Department of Justice's (DOJ) Bureau of Justice Statistics (BJS) to determine: 1.1 ., ,\\ • what information is currently available about the nature and scope of fraud 1~ government p?ograms; • what data bases and information systems have been developed to define the nature And extent of fraud; and • what issues DUst be resolv~d in order to improve current knowledge regarding fraud.