Knowledge and Insights

The Risk of Medicaid Recovery Audits

In the health and human services sector, the years-long transition in the provider claims payment system – from contracted cost to fee-for-service reimbursement – is nearly complete.  One question that provider agencies now directly billing Medicaid are asking is: “When will we start seeing recovery audits?”  While recovery audits within waivered services in the State of New Jersey generally have not occurred, at some point, they will.  Medicaid claim reimbursement is a higher risk audit area and, therefore, subject to more scrutiny.  Although the primary responsibility for ensuring proper payments from Medicaid to providers lies with the states, the Centers for Medicare & Medicaid Services (CMS) play a significant role in supporting states’ efforts and holding them accountable through appropriate oversight and increased transparency.

Under the Trump Administration, there is a focus on improving the collection of overpayments that result from states’ payments for ineligible beneficiaries. The CMS works to reduce erroneous and inappropriate payments, and risks, and develop effective program integrity controls to ensure funds are used to serve their intended purpose. Approximately one year ago, the CMS announced new initiatives to strengthen Medicaid program integrity -through greater transparency and accountability, better data, and innovative and robust analytical tools.

In conjunction with the Medicaid initiatives, the CMS Administrator unveiled three pillars to be used to guide the CMS: flexibility, accountability and integrity.  The Medicaid program’s integrity strategy includes more effective audit and oversight functions, increased beneficiary eligibility oversight, and intensified enforcement of compliance with federal rules.  The CMS has been conducting audits of state beneficiary eligibility determinations in those states identified as high-risk based on previous Office of the Inspector General audits to hold states accountable for more accurate eligibility determinations.

Data optimization is the trick to obtaining better health outcomes and improving program integrity, performance and financial management.  A new system, the Transformed Medicaid Statistical Information System (T-MSIS), has been developed to assist with the collection of utilization and claims data, as well as other Medicaid program information.  T-MSIS monitors key information to enable states to operate more effectively and reduce costs.  Ultimately, this data will be used to detect fraud, waste and abuse.

In addition, the Payment Error Rate Measurement (PERM) program, which was developed to measure improper payments, identifies an error rate based on the review of data relating to beneficiary eligibility.  This error rate is not a fraud rate, but rather a measurement of payments that did not meet statutory, regulatory or administrative requirements.  In 2019, the CMS, through the PERM program, will report the (improper) payment rate for people who are improperly enrolled in the Medicaid program.  In conjunction with these tactics, it has engaged in various education and training activities to deter improper payments.  It will continue to focus on looking for new areas of Medicaid vulnerability and opportunities to support states’ efforts to meet high standards, and to work with the states to protect the Medicaid program and ensure beneficiaries receive appropriate payments.

There’s no telling if or when your provider agency may be audited. However, your risk increases with incidents of claims billing errors, which can result from inadequately trained staff and lack of knowledge of CMS rules and notifications. By putting proper and effective internal controls, monitoring, and billing and operational procedures in place today, you can improve compliance and limit your exposure for improper payments.  If you have any questions about your organization, fee-for-service billing and Medicaid recovery audits, contact me at or 609-689-9700.