State Medicaid Fraud Crackdowns Now Qualify for Federal Funds

State Medicaid fraud prevention programs now have the ability to receive federal funding to identify fraud through data mining, according to a new final rule from the Office of the Inspector General of the Department of Health and Human Services.

The new rule amends a provision in HHS regulations that barred state Medicaid Fraud Control Units (MFCU) from using federal matching funds to identify fraud through screening and analyzing state Medicaid data.

The programs can now obtain a waiver from the ban if they submit a proposal for how they’ll coordinate the data mining with state Medicaid agencies, establish communication with the agencies for up-to-date interpretations of state-specific Medicaid regulations, and train Medicaid fraud-control unit staff on the skills needed for data mining. 


“Data mining” refers to the practice of electronically sorting Medicaid claims through statistical models and intelligent technologies to uncover patterns and relationships in Medicaid claims activity and history to identify unusual utilization and billing practices that could be fraudulent. 

“This practice of relying on the State Medicaid agency has placed the sole burden of identifying potentially fraudulent practices using data mining on the State Medicaid agencies and has required MFCUs to remain highly dependent on referrals from State Medicaid agencies and other external sources,” says the OIG. 

However, as state MFCUs ramp up efforts to pursue and reduce Medicaid provider fraud, the OIG is now permitting federal financial participation in covering the costs of defined data mining activities, effective June 17, 2013. 


Allowing MFCUs to receive federal funding to data mining will enable them to better use their resources and take “full advantage” of their expertise in detecting and investigating Medicaid fraud vulnerabilities, says the OIG. 

The effort to recover funds lost through Medicaid fraud will raise about $72 million between 2014 and 2023, according to budget estimates, but will cost about $12 million to implement. 

The OIG also finalized requirements for MFCUs to report the costs and results of approved data mining to the OIG each year. 

Read the final rule

Written by Alyssa Gerace