June 18--TRENTON -- For a cash-strapped state looking to pay the bills without raising taxes, one solution is as simple as this: Don't waste so much money on the single biggest item in the budget.

Nearly $4 billion in the proposed $32 billion state budget, roughly $1 of every $8 being spent, is devoted to the Medicaid health insurance program for people with lower incomes. And that doesn't include the roughly equal sum the federal government contributes to that tab.

With national estimates of fraud in the Medicaid program ranging from a low of 3 percent to perhaps exceeding 10 percent, some state lawmakers are looking at the state's Medicaid fraud inspector to step up efforts that began in earnest three years ago and amounted to $116 million in improper payments recovered last fiscal year.

One conservative estimate is that $300 million in Medicaid spending is lost to fraud a year, said Sen. Robert Gordon, D-Bergen, who recently held a hearing to examine New Jersey's prevention efforts.

"Many of us still have grave concerns when we see such large amounts of our budget moving through a program and hearing national statistics indicating a relatively high proportion are fraudulent," Gordon said. "It looks as if there's just a lot that we're not capturing."

"Certainly this whole subject is going to remain a priority item, simply because of the dollars involved," Gordon said. "It really is a huge amount of money, 14 percent of the budget this year, and an area that presents great opportunities for savings and opportunities to redirect those dollars into quality of care."

New Jersey established the position of Medicaid inspector general in March 2007, but the office was slow to get off the ground.

It took 14 months for then-Gov. Jon Corzine to nominate Mark Anderson, then an assistant federal prosecutor in Philadelphia with experience in health-care and Medicaid fraud, for the post. Anderson wasn't confirmed by the state Senate until December 2008; the office began operating in March 2009.

In 2010, Gov. Chris Christie signed a law transferring those functions to the Office of the State Comptroller, which created a Medicaid fraud division directed by Anderson. The office also examines abuse of the FamilyCare and charity care programs; in fiscal 2011, it calculated that its recoveries and cost savings combined amounted to $326 million.

Anderson said his division currently is working more than 200 active investigations and more than 20 ongoing audits. Between 75 percent and 90 percent of fraud is believed to be committed by health-care providers, such as by billing for tests not performed, so a majority of that work is focused on things such as pharmaceutical, adult medical day care, laboratory and durable medical equipment providers. But his office also checks on the eligibility of individuals applying for programs such as FamilyCare, to make sure their incomes are actually low enough to qualify for assistance.

In addition to following up on tips, Anderson's staff mines data for unusual claim patterns -- including, with the help of a subcontractor, working on predictive modeling to identify the possibility for fraud before it happens.

Anderson said snuffing out fraud at lower amounts as it begins, or even before it happens if the predictive modeling works, might be better than recovering large amounts of money after it's been flying out the door.

"If you analogize it to a disease, if you catch that disease early, stage 1 prior to stage 4, you have a better chance of keeping the person healthy. So here the person is the Medicaid program itself, to keep it healthy," Anderson said. "If we're constantly doing pay and chase, we'll be doing that forever. If we don't come up with more preventive ways to keep the money from going out the door, we'll be a dog chasing its tail.

"Sometimes we applaud the person who recovers $400 million on a recovery but goes back 15 or 16 years. But the government, state and federal, lost that money for 15 or 16 years," Anderson said. "If we focus on stopping fraud and abuse at $4,000, before it could have grown into something bigger, that's actually a better issue. The government's not out that money for as long a period of time, and we prevent something from getting into what I called analogously a stage 4 problem."

The Office of the State Auditor recommended the creation of the Medicaid inspector general. State Auditor Stephen Eells said it is needed in part because the state had traditionally been soft on its Medicaid providers, even those who'd been acting badly.

"We have been very, very friendly in the past to our providers, very, very lenient, and enforcement is one of those areas," Eells said. "There have been providers who have violated contract terms, and we've been very lenient with them and not holding them to the enforcement piece of their contracts. I think some have taken advantage of that, and that's where you're going to get some of your improper payments and the fraud.

"Maybe we just need to be a little bit tighter with the verbiage that goes into the contract," Eells said. "No matter what you write into the contract, you're going to need a department behind it to enforce it."

Eells said his office hasn't yet examined the effectiveness of the Medicaid fraud office.

"While it's new, I feel it's had to have had some impact," Eells said. "It's not something we as the Office of State Auditor have done an audit of and measured whether we think it's had a dollar impact. I can only go by what I've read and the work that they have completed."

Gordon said changes on the horizon for the Medicaid program may make the problem even more difficult to address. Federal health-care reforms, if fully implemented, could add as many as 800,000 people to Medicaid. And the state is also planning to move more Medicaid enrollees out of fee-for-service plans into managed care, whose fraud-prevention efforts have been questioned by state auditors.

Anderson said New Jersey is one of the few states contractually allowed to investigate inside managed-care networks.

And Kathy Runkel, associate vice president of corporate investigations for Amerigroup, said there are ways in which New Jersey is ahead of other states in combating fraud, such as group meetings organized by Anderson's office in which information is shared among insurances companies and cooperation in detecting problems promoted. In other states, companies are reluctant to share information, she said.

"When I go to Mark Anderson's meeting every month, I'm sitting there and say, 'Dr. Jones is billing AmeriGroup this way.' The other MCOs (managed care organizations) look at their data, we come back together and go, 'Wow, we really have a problem,'" Runkel said. "Or Horizon might say, 'I had an issue with that two years ago. He's not billing me like that anymore.' So if he's billing AmeriGroup that way, there's our intent. That's how we collaborate and coordinate. There's a lot of things that New Jersey is doing that I'll tell you is way ahead of the pack."

Michael Symons: 609-984-4336; msymons@njpressmedia.com

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