NC auditor: catching Medicaid cheats falls short

The Associated Press

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RALEIGH, N.C. (AP) — Companies hired to help find waste, fraud and abuse in North Carolina's Medicaid program are recovering far less in overpayments than had been projected, the state auditor's office said Thursday.

Software provided by IBM Corp. and SAS Institute Inc. was projected to uncover improper payments amounting to $81 million, state Auditor Beth Woods's office said, but the IBM contract resulted in $427,000 recovered and the SAS deal recovered zero by the end of January.

The state Department of Health and Human Services said its employees needed time to get up to speed with the software, but that the digitized watchdog efforts will pay big returns later.

On Wednesday, hours before the auditor's report was released, the state agency responsible for more than $12 billion in state and federal Medicaid spending reported it referred 35 cases of questionable billing by outpatient behavioral health providers to the state Attorney General's office for possible prosecution. The agency credited the IBM software with detecting cases which DHHS said represented $21 million.

DHHS spokeswomen Chrissy Pearson said details of cases turned over to the prosecutor are confidential, but at least one of the flagged health-care providers involved millions of dollars. The software is able to find questionable billing patterns that humans can't among the 88 million Medicaid claims the state agency processes each year, Pearson said.

"North Carolina is the first state to use the IBM software to track down Medicaid fraud," DHHS said in a statement. "The program can detect billing behaviors that suggest fraud, and can point to other related providers that may be abusing the Medicaid program."

The auditor's office — the state's watchdog of public resources — said it looked at contracts that paid $23 million over 19 months ending in January to IBM, SAS, Public Consulting Group Inc., and Health Management Systems Inc. The audit found that DHHS managers were deficient in assuring that objectives of the IBM, SAS and Public Consulting Group contracts were achieved.

IBM was paid $6 million and its software had been projected to recoup $54 million in fraudulent or abusive practices by health care providers. As of January, providers flagged by IBM's software had repaid $426,756, the report said.

DHHS credits its use of IBM's software for detecting dozens of credible allegations of fraud turned over to prosecutors. Those cases will save money by deterring others from bad billing practices, the agency said in response to the auditor's report.

The $2 million paid to SAS had been estimated to save the Medicaid program at least $27 million annually, but the audit found that no funds had been recovered and no fraudulent activity identified.

DHHS said the SAS software is designed to prevent people who aren't entitled to Medicaid help from enrolling in the government program that pays health-care costs for the poor and disabled. The shift to preventing fraud rather than paying medical bills and then chasing after people who wrongly benefitted "will yield significant savings for the Medicaid program," DHHS said.

SAS spokesman Trent Smith said the company's tracking system at DHHS was not operational during the period the auditors examined. Auditors said the contract signed in December 2010 missed completion milestones and was not fully operational until this March, though the company was paid the full amount of the $2 million contract. The software has started to generate fraud leads since then, Smith said.

Adam Linker, a health policy analyst at the left-leaning North Carolina Justice Center in Raleigh, said the auditor's report is focusing on a discrepancy between expected return and reality that may look very different in a few years.

"You're going to have years down the road where you probably return a lot more than you estimated and you're going to have lean years where you don't get as much as you estimated," Linker said. "You would expect those lean years to be up front when you're learning the system and also learning how to ferret out fraud."

The state health agency also contracted with Public Consulting Group to conduct post-payment reviews of Medicaid providers that have demonstrated questionable billing practices. The company was paid $3.2 million during the audit period, the report said. The company's work identified about $38 million in questionable billing that could be recouped, auditors said, but DHHS has only been able to collect $3.7 million.

The fourth vendor, Health Management System, saved taxpayers far more than it was paid. The company was hired to uncover whether medical bills could be turned over to a beneficiary's insurers or others before being paid by Medicaid. The company recovered $158 million and was paid $15 million during the audit period, the report said.


Emery Dalesio can be reached at

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