Medicaid Improper Payments Versus Fraud: Read the Audit Before the Headline

Medicaid improper payments measure whether payments meet program requirements. A False Claims Act case follows a false bill or statement and who knew it. If you work in billing, eligibility or plan operations, you may know why the record says something different from what happened. That is where we start with you: the payment, the supporting record and the decision behind it.

What Is the Medicaid Fraud Rate?

The national figure commonly called the Medicaid fraud rate is the payment-error estimate from the Centers for Medicare & Medicaid Services’ Payment Error Rate Measurement program. Its fiscal 2025 estimate was 6.12%, representing $37.39 billion in the federal share, up from $31.10 billion a year earlier. The largest part of that estimate came from records too incomplete to establish whether payment requirements were met.

77.17%

of fiscal 2025 Medicaid improper payments resulted from insufficient documentation.

CMS, Fiscal Year 2025 Improper Payments Fact Sheet

The estimate measures payment problems across a program. An insider can explain who created a false record, what it concealed and how it brought money into the business.

What Is an Improper Payment?

An improper payment fails the program’s payment requirements. The Centers for Medicare & Medicaid Services includes overpayments, underpayments and payments for which the reviewer received too little information to decide whether the payment was proper.

That last category matters to anyone who works with Medicaid records. A claim may lack the documentation supporting the service. An eligibility file may lack the required verification of income.

The useful question for an insider is why the support failed. The session note, the eligibility verification and the payment instruction each describe a different part of the transaction. We examine that connection with you. Where someone knowingly changed the record to obtain payment, the original record and the instructions behind the change can give the payment error a much more specific explanation.

How Payment Error Rate Measurement Produces the Rate

The Payment Error Rate Measurement program combines sampled reviews of fee-for-service payments, managed-care payments and eligibility. CMS uses a three-year rotation of approximately 17 states per cycle. The fiscal 2025 headline combines reviews from 2023, 2024 and 2025.

The Centers for Medicare & Medicaid Services explanation of the method describes a statistically valid random sample and weights the national results by state program size.

Fee-for-service review examines claims and their support. Managed-care review examines the state’s payment to the plan. Eligibility review examines the person’s qualification for coverage and the required verification. A payment can encounter problems in both the claims and eligibility reviews, so the overall rate adjusts for that overlap.

Why Managed Care Reports Zero

The managed-care component checks whether the state processed its payment to the plan correctly. The CMS rolling rates report 0.00% for that component in each of 2023, 2024 and 2025.

In 2022, just over 75 percent of Medicaid beneficiaries received coverage through managed care, according to the Government Accountability Office’s June 2025 review. Under capitation, the state generally pays the plan a fixed monthly amount for each enrolled beneficiary to cover a set of services. The payment follows enrollment. The plan’s payments to doctors, hospitals and other providers sit further down the payment chain.

That review explains where the measurement stops. The Centers for Medicare & Medicaid Services checks sampled state payments against the state’s Medicaid information system and the plan contract. Payment Error Rate Measurement leaves the plan’s payments to providers outside that review. The medical necessity of those services and whether patients actually received them sit outside it too.

That boundary matters to an employee who sees false service reports inside a managed-care plan. The state can process the monthly payment correctly while a separate record describes care the patient never received. We would hardly call checking the transfer a review of the treatment. The patient is at the other end of the payment chain.

Who Is Cheating Whom?

The 1999 report Controlling Fraud and Abuse in Medicaid: Innovations and Obstacles, sponsored by the Health Care Financing Administration, captured a distinction raised in seminars with state officials:

The report described the second problem as diversion of capitation money away from care. That distinction tells us whose records to examine: a provider’s bill to the plan, or the plan’s own reports and decisions about the care it owes.

Why the Rate Changes

Changes in the requirements being reviewed can change the measured rate. The Centers for Medicare & Medicaid Services attributed the increase in the fiscal 2025 estimate to the unwinding of pandemic flexibilities, including eligibility redeterminations and provider revalidation requirements that resumed in April 2023.

For an eligibility or enrollment employee, this is familiar ground: which verification the state required, when it required it and whether the file supports it. Bring back a check, and the review can find what it previously passed over.

What an Audit Can Show an Insider

An audit can identify the healthcare claim line, supporting record or allocation method that failed review. The insider may know how that record was produced, who challenged it and why the same practice continued. Those details connect an audit finding to the decisions inside the organization.

Applied Behavior Analysis Audits Follow the Practitioner and the Session Note

The HHS Office of Inspector General audits of applied behavior analysis payments in Indiana, Wisconsin, Maine and Colorado each found at least one improper or potentially improper claim line in every sampled enrollee-month. Each state sample contained 100 enrollee-months.

The Wisconsin audit called for documentation explaining treatment-protocol changes and verification of the rendering provider’s specialty level. The Indiana audit called for review of the prior-authorization contractor’s procedures. Session notes and signatures recur across the audits.

These are concrete provider billing questions. Who performed the session? What work did the note describe? Which practitioner and units appeared on the claim? An employee who knows that the billing identity changed can connect the payment to the person who actually did the work. We follow that connection through the records with you.

School Audits Follow the Sample and the Payroll

School administrative claiming uses random-moment time studies to classify sampled staff activities and allocate payroll costs to Medicaid. The payment calculation therefore depends on which activities enter the sample and how someone codes the responses.

In its 2018 review of state agencies’ random-moment sampling, the HHS Office of Inspector General found problems with the methodologies in all ten agencies examined. A separate New Jersey audit found that a contractor changed school employees’ time-study responses to describe Medicaid services when the original responses described unrelated activities.

That is a comparison a school employee or billing contractor can recognize: the answer the employee gave and the answer used to claim payment. For a school finance insider, the original response, the later coding and the instructions for changing it can explain how the claim grew.

The Wisconsin Refund Recommendation Remained Unimplemented

The Wisconsin ABA audit recommended a $12,287,252 federal refund and separately identified $62,334,835 for further review as potentially improper. Those labels describe different decisions: money recommended for return and money requiring additional review.

As of September 6, 2026, the refund recommendation remained unimplemented. We want to know what happened after the auditors asked for the money back. If you know why an identified overpayment was kept, that is a decision we can examine with you.

The Complaint Described an Audit That Missed the Service

A whistleblower’s complaint against Molina Healthcare of Illinois alleged that the plan kept seeking Medicaid payments after a required nursing-facility care program ceased. The complaint quoted an executive describing the limits of routine audits:

The disputed program provided care in skilled nursing facilities. The whistleblower alleged that the plan left that service unreplaced while seeking payment and renewal. The alleged gap was specific enough to name, yet the quoted testimony described quarterly reviews that passed over it.

For a health care plan insider, the contract, service records and reports sent to the state can answer the question the routine review missed. That is the value of knowing the operation from inside.

Are There Reliable Measures of Fraud Against Medicaid?

National measures describe payment errors and enforcement outcomes, each with a defined scope. Payment-error estimates describe reviewed payments and projected findings. Audit refund recommendations describe money an agency says should be returned. Settlements describe what defendants agree to pay.

The agencies do work beyond the payment-error estimate. The Government Accountability Office describes separate Centers for Medicare & Medicaid Services audits that examine managed-care provider payments and identify overpayments for recovery. An error-rate review and an investigation can therefore reach different parts of the same payment chain.

An insider’s False Claims Act case follows the particular false payment claim and the knowledge behind it. A whistleblower case under the False Claims Act can pay a reward of 15% to 30% of what the government recovers. The opportunity begins with what you know about the claim, the care or the report that secured payment.

You Know Why the Record Changed

If you know who changed a claim, a time-study response or a plan report to secure Medicaid payment, speak with our whistleblower experts about what happened. We work beside you to build the case around that decision and bring in Medicaid fraud whistleblower lawyers who understand provider billing and managed-care payments. Bring us what you know, and we will work with you to build your strongest Medicaid whistleblower case and stay beside you through it.