New Jersey Medicaid Program Fails Fraud Test

Published November 17, 2011

New Jersey’s Medicaid program is lax when it comes to detecting and recovering fraudulent claims, resulting in higher insurance costs for citizens, according to two recent audits of the program.

The State Comptroller’s October audit of the program, which covers more than 1 million New Jerseyans, found the state’s largest Medicaid health maintenance organization, Horizon NJ Health, has done a poor job of pursuing and reporting fraud and abuse recoveries. According to State Comptroller Matt Boxer, Horizon recovered only $188,207 in improper Medicaid payments—less than one-tenth of one percent of the $1.3 billion Horizon receives annually from the state.

Closer scrutiny by Horizon might well have uncovered additional fraudulent claims, resulting in more money recovered by the state, Boxer concluded.

In the same month, a report from the auditor for the nonpartisan Office of Legislative Services blamed the state for overpaying for drug tests and hearing aids because it was not vigilant enough in overseeing Medicaid spending.

More Oversight Needed

Pete McAleer, spokesman for the State Comptroller, says the federal government has calculated at least 3 percent of the money spent by Medicaid nationally has been lost to fraud. During the past fiscal year, the New Jersey Office of the State Comptroller’s Medicaid Fraud Division recovered $116 million in improperly paid Medicaid funds.

“Our Medicaid Fraud Division has recovered fraud dollars from providers and recipients of Medicaid. Some of those providers include entities such as pharmacies, medical providers, and providers of medical equipment,” said McAleer.

“Anytime there are billions of state and federal dollars at stake, there is potential for abuse,” he added.

McAleer suggests policy changes may be needed to expand oversight.

“The Medicaid Fraud Division of the Office of the State Comptroller provides oversight and serves as a watchdog over providers and recipients of Medicaid services in order to ensure that those services are delivered in a quality manner and only to those who truly qualify for them. It does not have the authority to set policy,” McAleer explains.

Fraud Growth Expected

Paul Tyahla, executive director for the Common Sense Institute of New Jersey, a public policy think tank located in Randolph, says Medicaid fraud is a significant problem in New Jersey and across the nation, and it will only grow over time.

“The existence of fraud indicates cracks within the system that will be made wider. In New Jersey, the Patient Protection and Affordable Care Act will make up to 500,000 additional residents eligible for Medicaid. The problem of Medicaid fraud will grow as a result, and fraud must be addressed in the context of a larger discussion about how the state pays for care for its poorest residents,” says Tyahla.

The most interesting finding in the Controller’s report, says Tyahla, is that Horizon reported only 14.1 percent of its fraud and abuse recoveries to the Department of Human Services. The underreporting means New Jersey paid an artificially high rate to the four Medicaid HMO providers, and it shows the ‘multiplier effect’ of what should be a simple reporting error, he explained.

“The State Comptroller has identified a main problem as the understaffing of the division of Horizon responsible for overseeing Medicaid. The federal government helped prove that enforcement is lax when it tripled monies recovered through Medicaid fraud largely by increasing funding for fraud detection,” he said.

Efforts in Other States

Tyahla says there are innovative ways to reduce Medicaid costs already underway in places such as Georgia and Rhode Island.

“Moving healthy adults and healthy kids into a managed care program can provide better health outcomes at a reduced cost, and a well-designed Accountable Care Organization can fundamentally change the fee-for-service model that helps drive costs skyward,” Tyahla said.

In addition, “Asking public employees to pay more for their own health insurance is the right thing to do, but it does not make the cost of that insurance much cheaper. To do that, we need fundamental changes to the way we fund health care in the United States, and those conversations are not happening in the mainstream of American political debates,” he said.