Pennsylvania Medicaid Fraud Shows System Flaws

Published May 1, 2009

A survey of Pennsylvania’s Medicaid system by state Auditor General Jack Wagner has found at least $3.3 million in benefits were provided over three years to residents who do not qualify for the program.

Auditors found the Pennsylvania Department of Public Welfare, which administers the state’s Medicaid program, erroneously approved benefits for 1,600 of 11,700 randomly selected Medicaid recipients between January 2005 and March 2008, a 13.6 percent error rate.

Fraud ‘Underestimated’ in Report

Experts said the high error rate was proof of the need to overhaul the Medicaid program.

An almost 14 percent error rate “shows Medicaid needs fundamental reform,” said James Capretta, a fellow in the Ethics and Economics Program at the Ethics and Public Policy Center in Washington, DC.

Wagner said the report may have understated the amount of fraud. Auditors recorded the fraud only in the limited number of cases they examined, meaning taxpayer dollars erroneously spent on Medicaid were likely to be “significantly larger” than the $3.3 million noted in the report.

State auditors cited public employees at Pennsylvania’s Department of Public Welfare for repeatedly failing to follow procedures designed to weed out Medicaid fraud.

‘Not an Isolated Incident’

The fraud found in Pennsylvania’s Medicaid system is “hardly an isolated incident,” said Diana Furchtgott-Roth, director of the Center for Employment Policy and senior fellow at the Hudson Institute in Washington, DC.

“Medicaid fraud is notorious across the country,” said Furchtgott-Roth. “Further, expanding Medicaid makes more fraud like this more possible because it increases Medicaid’s budget substantially.”

Failure to Check Eligibility

The Medicaid errors resulted from the department’s failure to consistently review changes in benefit recipients’ income, age, disability, or family status, according to auditors.

Benjamin Zycher, a senior fellow at the Manhattan Institute’s Center for Medical Progress and president of Benjamin Zycher Economics Associates, said the department’s failure to screen for benefit eligibility should not come as a surprise.

“Most bureaucracies want bigger budgets, so increasing enrollments is something that they pursue,” Zycher said.

The problem can be traced back to flaws in Medicaid’s design, says Capretta.

“The fundamental problem in Medicaid is that the program provides strong incentives for states to push costs onto the federal budget,” Capretta said. “The [federal government] pays 57 percent [of Medicaid costs], on average, [which] seriously weakens incentives for states to police this well.”

“Fraud like that shown in Pennsylvania, while serious, is not the biggest problem Medicaid faces,” noted Joseph Coletti, fiscal and health care policy analyst with the John Locke Foundation in North Carolina.

“The groups and services Medicaid covers affect cost more than waste and fraud, and even drive some of each of those. However, in looking at changing how Medicaid pays for things [and diminishing fraud and lowering costs], you have to be careful that you don’t lead to even more spending by making Medicaid more appealing to the public,” Coletti said.

Thomas Cheplick ([email protected]) writes from Massachusetts.