Under Pressure, New York Dials Back Medicaid Audits

Published May 3, 2012

As Medicaid continues down a fiscally unsustainable path, states are searching for ways to lessen waste, fraud, and abuse in the system. The state of New York employed aggressive fraud-prevention efforts, but objections from providers have caused the state to alter its approach.

In 2006, Republican Gov. George Pataki created the Office of the Medicaid Inspector General to crack down on misspending. The federal government granted the state $1.5 billion for the new office to investigate provider practices, which the state had to match in recouped funds.

Pataki’s successor, Democrat Gov. Eliot Spitzer, appointed James Sheehan as Inspector General in 2007 to begin investigating providers in order to meet that federal target—and within four years the threshold was met. But following provider complaints, and with the support of legislators, Democrat Gov. Andrew Cuomo dismissed Sheehan from his position last year.

Providers Chased Inspector Out

According to Avik Roy, a senior fellow at The Manhattan Institute, this type of pushback from providers is not unprecedented.

“Anti-fraud efforts are not simple, and any time state governments or federal try to be stringent on fraud, there are upset providers. Some legitimately feel as if they’re getting hassled and are being presumed guilty, and then there are those who actually do pad their expenses to get more money,” Roy said. “For those providers, that is an important part of their business model, so they’re going to resent any effort by the government to crack down on that.”

Less Adversarial Audits

Now the administration has a new approach to auditing, according to James Introne, New York’s Deputy Secretary for Health.

“An audit need not be an adversarial enterprise,” said Introne. “To the extent that an audit turns into an adversarial affair, it may not be conducted properly. An audit is successful when people agree.”

Though this approach may please providers, Roy says this new view is a “cave-in.”

“Anytime you have government funding of health care, there is going to be waste and fraud because everyone in the system, providers and government, have incentives to allow fraud and waste to happen.”

Introne says there is less provider misspending than there was five years ago. Yet he concedes many audits Sheehan started before his dismissal remain unaddressed. 

Systemic Fraud Problem

Although many politicians talk a good game on waste and fraud issues, the systemic problem is able to survive because of political realities, Roy says.

“Politicians and government officials have no incentive to root out fraud and abuse, because eliminating it means investigating and hassling their constituents: doctors and hospitals who game the system by prescribing unnecessary treatments or by improperly diagnosing patients in order to reap richer reimbursements,” Roy said.

Roy argues structural improvements are needed to track where dollars go.

“Taiwan’s Medicare system extends a credit card, or smart card, to every system participant,” Roy said “A system like ours that is paper-based is limited in its ability to review cases before they go out. This issue needs to be addressed with better technology.”