Medicaid Fraud: Who’s in on the Act and How They’re Getting Away With It

A single mom with five kids living in Brooklyn with no income on record and struggling to make ends meet sounds like an eligible candidate for government subsidy programs. She signs up for the SNAP (Supplemental Nutrition Assistance Program) and Medicaid for herself and her children and gets government assistance to help cover her rent.

But in reality, she’s married, her husband has an all-cash business, which allows her to rake in thousands of dollars a month via welfare programs and remain undetected by the government.

Todd Spodek says this scenario is common, and that people try to milk entitlement programs all the time.

Spodek, an attorney at New York City-based Spodek Law Firm, represents fraudsters like the client he described above, when they finally get busted for Medicaid fraud. The defense attorney says he sees the “crème-de-la-crème” of Medicaid fraudsters, and that New York City is one of the biggest hubs for both Medicaid and Medicare schemes in the nation.

“There are savvy individuals out there—I see clients get married under religious law and not under New York state law, and they wind up scamming the government time and time again,” he says.  “In New York, we are knee-deep in fraud.”

A National Concern

The federal government is projected to lose $19.6 billion in “improper payments” under the Medicaid program. Accurate fraud figures can be hard to calculate since  improper payments aren’t necessarily fraudulent--they could be due to an error either by the government or recipient. Fraud estimates for fiscal year 2014 are up from last year’s $17.4 billion, but down from 2010’s $22.5 billion estimation of improper payments.

Federal Medicaid Spending is projected to be $298 billion in 2014, and Medicare is projected to be $603 billion. The SNAP program cost $79.9 billion in 2013.

The federal government estimates it loses nearly $60 billion a year to both fraud and waste within its Medicare program. The White House requested $389 million to fund the Department of Health and Human Services’ Office of the Inspector General in an attempt to better curb waste in the 2104 budget.

Earlier this week, the Departments of Justice and Health and Human Services touted its beefed up efforts to combat health-care fraud nationwide. The team recovered $4.3 billion in taxpayer dollars in 2013, and $19.2 billion over the last five years. Both the FBI and DOJ were not available for interview at press time.

And just last week, the Washington D.C. U.S. attorney’s office announced the largest health-care fraud takedown in the history of the District. The multi-year effort led to more than 20 arrests and schemes involving millions of dollars in fraud, kickbacks and false billings in the home health-care services field throughout the nation’s capital.

Ron Machen, U.S. attorney for Washington, D.C., says there were more than 200 enforcement agents spread out across the region, and were tipped off to the scheme when certain agencies requesting 300% more than other Medicaid beneficiaries over the past several years.

“We were wondering what the reason was for such a skyrocket in growth,” Machen says. “We used wires, cover agents and beneficiaries to uncover them.”

And what they found was eye-opening, he says. The investigation busted personal care assistants misrepresenting the amount of time they spent with beneficiaries.

“The reason it was ripe for fraud is that the beneficiaries would fill out bogus time sheets and submit them to home care agencies,” he says. “They would say they were being seen by assistance for up to eight hours a day, when the personal care assistants were never seeing them.”

The beneficiaries were elderly, disabled and low-income, he says, and recruiters would offer them kickbacks of $200 a week and coach the patients on what to say if someone asked about their work.

Eligibility and Expansion under the Affordable Care Act

The Affordable Care Act expanded Medicaid eligibility requirement to those making up to 133% of the federal poverty level, or about $15,850 a year. The law leaves it up to states as to whether or not to expand their Medicaid programs—25 states and the District of Columbia have done so.  By opting in, the government pays 100% of the expansion, and funding then drops to 90% by 2020.

The Congressional Budget Office estimates the number of Americans on Medicaid will hit 8 million this year, thanks to the expansion, including those who were previously eligible for care.

Timothy Jost, professor at Washington and Lee University School of Law, says the ACA expansion streamlines eligibility for parents, children and pregnant women, because it calculates based on modified adjusted gross income (MAGI). There are no asset requirements for people in this category, meaning you can own cars, homes and still apply and qualify for Medicaid.

This “aligns eligibility requirements under new Medicaid programs with traditional requirements for Medicaid coverage for long-term care,” Jost explained in an email message. “Assets are irrelevant under MAGI categories, I believe, because the administrative costs of investigating the assets of individuals who apply for Medicaid because they have very low incomes would be unreasonable, given the few very-low income individuals with significant assets.”

He says on the flip side, critics say this is why the program enables fraudsters.

“Although the problem is probably overblown, there is a long-standing concern that middle-class individuals might divest themselves of assets to become eligible for nursing home coverage,” he says. “There may be a few people who take advantage of these programs, but the real problems with Medicare and Medicaid fraud are elsewhere with providers and insurers,” he points out, like the bust seen in D.C.

Spodek says the fact that there are no asset caps on eligibility is concerning, and one of the reasons the program is so rife with scammers.

“I have seen people live in million dollar apartments, on the books, while on Medicaid,” Spodek says. “The burden is on you to provide information [in New York] and recertify every year. The whole thing is not scrutinized. If it turns out you weren’t eligible, you just owe a tremendous amount of money.”

When asked how the ACA will factor into the big-picture of putting a cap on fraud in the Medicaid system, Machen declined to comment. But he did say national agencies are realistic about what is going on and are continuing coordinated efforts to reel it in.

“The program is big—but it’s all about controls,” he says of the national Medicaid system. “We are interested in weeding out fraud, and sure there are questions about what you can do to sure up internal controls, but we do have people who need these services and are vulnerable.”