Hawaii's fight against Medicaid fraud plagued for over a decade

Behind the verbal sparring last week between federal and state officials over policing Medicaid fraud, data shows Hawaii's recent record on the subject is in some respects worst in the nation.

In each of the last four years, Hawaii's Medicaid Fraud Control Unit has produced no indictments and no convictions for fraud — something no other state has done.

The unflattering score doesn't completely define the achievements of Hawaii's MFCU. But it does reflect the trouble the unit within the state Department of the Attorney General has had for over a decade internally and with state partners also policing local fraud in the massive federal health insurance program.

According to a 2019 report by the Office of Inspector General at the federal Department of Health and Human Services, Hawaii's MFCU had "low case outcomes" and operational issues from 2016 to 2018.

And the 2019 analysis followed a similar one in 2015 that examined operations from 2011 to 2013 and raised concerns about the ability of Hawaii's MFCU to carry out its statutory functions and meet program requirements.

"We found that the Unit had a number of operational deficiencies," the 2015 report said.

The Hawaii unit took corrective actions after the 2015 and 2019 reviews, but since 2022 the volume of Medicaid fraud indictments and convictions dropped from few to none.

Fraud unit tasks

MFCUs are tasked with pursuing suspected civil and criminal Medicaid fraud by providers and administrators in addition to cases of abuse and neglect of Medicaid beneficiaries and residents of board and care facilities.

However, the units don't investigate or prosecute fraud committed by Medicaid beneficiaries unless the beneficiary is colluding with a provider.

About 387,000 residents are enrolled in Medicaid under Hawaii's branded Med-QUEST program, which is run by the state Department of Human Services and last year cost $3.2 billion, mostly funded by federal taxes.

The size of Hawaii's MFCU staff, which includes investigators, auditors and attorneys, has fluctuated between 16 and 13 since 2011. Currently, there are 15 employees, up from 14 last year, though three positions out of 18 authorized are vacant and under recruitment.

The federal government pays for 75% of the operation, which this year is budgeted to cost $3.9 million, including $976,489 from the state.

To investigate and prosecute Medicaid fraud, Hawaii's MFCU relies on teamwork from DHS and five managed-care organizations in the state — AlohaCare, HMSA, Kaiser Permanente, 'Ohana Health Plan and UnitedHealthcare Community Plan — all of which have special investigative units to identify and investigate potential fraud and abuse.

Managed-care organizations refer suspected wrongdoing to DHS, which also receives complaints from the public and is supposed to analyze state Medicaid data. DHS has a responsibility to conduct preliminary investigations from referrals and suspicious data, and then refer credible cases to the fraud unit.

The HHS Office of Inspector General reviews and recertifies every state's MFCU annually and reports results, including abuse case results and settlement and judgement awards. The office also periodically does more rigorous routine or targeted on-site assessments.

Chronic woes

From 2011 to 2013, Hawaii's MFCU produced nine Medicaid fraud indictments or convictions, including zero indictments and one conviction in 2011.

As part of a periodic on-site study of Hawaii's MFCU in 2015, federal officials found serious deficiencies after observing operations, reviewing files and interviewing staff and other stakeholders. Problems included having only two of seven investigators as long-term employees, not having an auditor, operating without written policies and procedures, and lack of a required employee training plan.

"Furthermore, the Unit did not regularly communicate with federal law enforcement agencies, it worked cases outside of its grant authority, and it did not exercise adequate fiscal control of its resources," the report said.

Christopher D.W. Young, the unit's director at the time, largely concurred with the findings and committed to improving operations in accordance with recommendations.

Then-Attorney General Doug Chin also said in a response letter, "We believe that, once fully implemented, our actions will satisfy your objectives."

In 2015, Hawaii's MFCU produced two fraud indictments and four convictions, followed by six fraud indictments and four convictions in 2016.

By January 2017, federal inspectors concluded that their corrective action plan had been implemented, and a new Hawaii MFCU director also took over.

Yet the HHS Office of Inspector General found reason to examine Hawaii's Medicaid fraud unit again in 2019, based in part on a combined 25 fraud indictments and convictions from 2016 to 2018 that were part of what the regulator described as low case outcomes compared with other similarly sized MFCUs.

The 2019 report recognized that Hawaii's MFCU produced 33 civil settlements and judgments and was obligated to receive $4.3 million from defendants in all cases from 2016 to 2018.

The report, however, noted that $4.1 million of the $4.3 million was from "global" settlements or judgments derived from work involving the U.S. Department of Justice and a group of state MFCUs coordinated by the National Association of Medicaid Fraud Control Units.

Additionally, the report said only 10 of 331 Hawaii MFCU cases for the same three years weren't global civil fraud cases.

Support challenges

Problems with Hawaii's MFCU, according to the 2019 inspection, had a lot to do with referrals, staff turnover and community resistance.

The report said DHS, as the expected predominant source of fraud referrals to the MFCU, was making relatively few, including only nine from 2013 to 2015.

According to a 2014 federal review of DHS Medicaid operations cited in the 2019 Hawaii MFCU report, a DHS Medicaid program integrity unit had three full-time staffers, didn't adequately mine data and didn't routinely conduct preliminary investigations or refer suspected fraud cases to the MFCU.

The federal reviewers also faulted the fraud unit for conducting insufficient outreach to generate and encourage referrals of suspected fraud from the public and other stakeholders, and for not meeting regularly with DHS or managed-care organizations.

"We found that the lack of regular meetings constituted a missed opportunity for the MFCU to educate (DHS) about its role and provide guidance on the information needed in fraud referrals," the report said.

Another problem with referrals cited in the report was too many bad ones related to Medicaid beneficiary abuse and neglect.

As part of its role policing such treatment, the MFCU relies on DHS' Adult Protective and Community Services Branch for referrals. But the report said branch staff didn't screen public complaints for credibility or in many cases for complete information before forwarding them to the MFCU, unlike most states.

So the fraud unit received thousands of complaints unsuitable for investigation that diverted resources from work on cases with substantial potential for criminal prosecution, according to the report, which said less than 5% of 5,948 such complaints received from 2016 to 2018 led to an MFCU investigation.

Other MFCU troubles had to do with staff turnover. The report said that from 2017 to 2018, four of six investigators retired or resigned, including two who played key roles in fraud investigations, leaving a knowledge and training gap.

During the 2019 on-site assessment, there were five new investigators and five active fraud cases, the report said.

Community resistance was another factor in the unit's low fraud caseload, according to the report, which said MFCU staff cited a tendency for some stakeholders to protect others, including service providers, from law enforcement.

"In interviews, MFCU staff reported that there is a 'cultural resistance' to reporting providers in Hawaii," the report said. "Staff explained that many communities on the Hawaiian Islands are small and isolated, with limited access to providers, which sometimes makes people less willing to report provider fraud."

Steps forward and back

Federal reviewers concluded that the DHS Adult Protective and Community Services Branch reformed its poor referral procedures and that the MFCU from 2020 to 2022 had implemented recommended corrective actions.

A bright spot was noted in 2019 when Hawaii's MFCU reported obtaining four fraud convictions, including one resulting in a $3.8 million recovery.

But then fraud indictment and conviction volume fell to zero in 2020 before rebounding to four convictions and one indictment in 2021 before four straight years of none.

Landon Murata, a former prosecutor who began leading Hawaii's MFCU in 2021, told Hawaii News Now in 2022 that much of the slump was due to investigation work being hampered by COVID-19 pandemic lockdowns at healthcare facilities.

"We have a lot in the pipe," he told the broadcast news station, referring to active cases. "I assure you that."

Federal data show the number of Hawaii MFCU open investigations at year's end had grown from 64 in 2015 to 488 in 2019, and peaked at 685 in 2022. From 2023 to 2025, the total subsided to between 454 and 484.

Vice President JD Vance on Wednesday held a news conference in the White House to announce a nationwide crackdown on Medicaid fraud, and held out Hawaii as a gross example of poor MFCU work based on no indictments or convictions over the last few years.

Vance, who chairs an anti-fraud task force that President Donald Trump formed in March, said fraudsters in Hawaii effectively have had "free rein" from the state to commit as much Medicaid fraud as they want.

"That is a complete disgrace," he said. "They don't think that fraud is a big enough problem. They don't care about protecting resources, and they don't care about protecting that Medicaid program."

On Thursday, Hawaii Attorney General Anne Lopez disputed Vance's characterization of the state's effort to combat Medicaid fraud.

"Hawaii has not ignored Medicaid fraud," Lopez said in a statement. "We welcome accountability, but we will not allow the work of this unit to be mischaracterized as doing nothing."

The department led by Lopez pointed out that since 2021, Hawaii's MFCU has secured or helped secure judgments, settlements and recoveries in 25 cases amounting to $14.1 million.

Most of that sum, $11.1 million, was won in 2023 from four settlements and judgments not part of a multistate recovery and represented the biggest annual recovery in over a decade.

Since 2011, annual recoveries by Hawaii's MFCU included $5.1 million in 2012 representing the second-highest amount, and a low of $10,341 in 2024.

Vance, who also criticized MFCUs in California and New York, said letters were sent Wednesday to every state's MFCU asking that they show they are aggressively and effectively prosecuting Medicaid fraud and stating that if they don't, then their federal MFCU funding would be cut off.

The letter also warns that failure to achieve satisfactory results could lead to the loss of all federal funds for a state's Medicaid program.

"Some MFCUs have performed well and have been good stewards of the millions of taxpayer dollars they receive," said the letter signed by HHS Inspector General T. March Bell. "It has become clear, however, that many MFCUs have been happy to rake in taxpayer dollars without fighting fraud."

Meanwhile, the HHS Office of Inspector General already is working on another on-site review of Hawaii's MFCU that began in April and is expected to result in another report with recommended corrective actions that state officials say they will address.

"Together with the on-site team, the MFCU identified a number of challenges that have impacted its ability to initiate criminal charges and obtain convictions," Lopez's department said in a statement. "The MFCU is actively addressing this situation, including increased collaboration with the unit's state and federal partners to detect and investigate Medicaid and Medicare Fraud in Hawaii, accelerated recruitment of new investigators, and developing innovative tools for investigation."

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