David R. Hancox

Audit Advisor, Litigation Support (Expert Witness) & International Speaker

NY Medicaid Fraud Inspector General – Good Auditor or Obsolete Audit Methods?

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Crain’s New York Business.com  reported this week that New York’s Medicaid Inspector General has been asked to resign within 30 days by New York’s Governor. I’m deeply concerned about this firing and its impact on  the auditing profession.

New York’s Medicaid program is the most expensive in the nation at $52.8 billion a year. Inspector General Jim Sheehan and his staff reportedly recouped more than $1 billion in improper payments and fines since he took the job in 2007. Mr. Sheehan’s tactics though have enraged many in the hospital and nursing home arena, sparking legislative hearings in 2010 by now-former Long Island state Sen. Craig Johnson.

Crain’s reported, “Those Mr. Sheehan crossed have been quick to say they will not be sorry to see him go. Their main criticism is that, unlike health insurance companies, he treats all payment errors as fraud or abuse. Insurers who find such errors typically have only 60 days to recover their money and do not impose penalties during that time.” For instance, in testimony at the legislative hearing, a nursing home lobbyist said he had seen $700 mistakes turn into $500,000 bills from the Office of the Medicaid Inspector General.
“If I were appointing his successor I’d look for someone who was not a punitive nit-picker, someone who would do the job without the ‘gotcha’ attitude,’” said Neil Heyman, president of the Southern New York Association, a nursing home group.
Crain’s said, “Mr. Sheehan’s position has been that there is nothing wrong with treating any accounting error as “Medicaid abuse” or with using extrapolation to estimate how much that error should cost the facility that made it.”
So who is right?
In my mind, there is a big distinction between errors and fraud. One you fix. The other you prosecute.
Auditors have to be very careful to be sure the elements of fraud exist. The act must be deliberate and designed to deceive. Most people define health-care fraud as “the intentional misrepresentation of a material (important) fact submitted on, or in support of a claim for payment of a health-care insurance claim, or the theft of money or property belonging to a health plan or health insurance company.”[1]
I talked with staff in the Medicaid Inspector General’s Office to find out if in fact there was any validity to the concerns of the health care providers subject to review by the Inspector General’s Office. My sense is obsolete audit methodologies may have been used. From what I understand, too often, auditors relied on a sample of transactions and assessed whether those transactions complied with all requirements. When a problem was found, they would project the finding to the population (statistical sampling) and assess a dollar amount against the provider.
This is an acceptable audit methodology and is defined in the auditing literature. It also is a dying methodology that has been replaced by more sophisticated data analysis and data mining techniques that examine the whole population of transactions and draws conclusions on the specific identifiable transactions that are fraudulent or in error. It may be combined with statistical sampling in limited situations when the number of exception transactions is exceedingly large.
For example, when I was leading the New York State Comptroller’s Medicaid audit team, we analyzed a database of sex offenders, compared it to the Medicaid client database and sought out all of the sex offenders on Medicaid who were getting erectile dysfunction drugs (i.e. Viagra). Using data analysis, we did not have to look at a sample of transactions and extrapolate to the population. We knew exactly how many and who were getting these drugs. Sex offenders getting Viagra was not right, but it wasn’t fraud. The problem was fixed when the federal government banned these drugs from the Medicaid program based on our audit.
Using mapping software, we could narrow down clients going to Medicaid providers who were coming from locations that were not reasonable. We could also track where prescription drugs were being filled to assess reasonableness. This technique has been expanded to other areas and proven quite fruitful as a fraud tool. Many of these transactions turned out to be fraudulent.
Using more modern techniques, the Medicaid auditors in the State Comptroller’s Office were able to find close to $2 billion in improper payments – about double the $1 billion found by the Inspector General. The Comptroller’s auditors are in a significantly smaller audit shop, but more successful because of the cutting edge techniques they use.
I’m concerned about the firing of Mr. Sheehan. If the firing is not properly explained and justified, it creates an environment of fear that will cause future auditors not to aggressively pursue the cheaters we know exist in the State’s Medicaid program.
If the Inspector General used obsolete audit techniques that unnecessarily penalized Medicaid providers, shame on him. If he was using cutting edge techniques and going after the true cheaters and they simply don’t like it, shame on them.
I respectfully ask Governor Cuomo to more fully explain the need for the resignation of New York’s Medicaid Inspector General. As a former prosecutor of Medicaid fraud when he was Attorney General, Governor Cuomo has an appreciation for the challenges confronting auditors and prosecutors in doing what’s right.

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Audit Advisor, Litigation Support (Expert Witness) & International Speaker

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