Medicaid PI units: Best practices for working with MCOs


Posted October 1st, 2015


Team discussing program


States are increasingly turning to MCOs to reduce Medicaid costs and provide better patient care. However, when it comes to program integrity (PI), states haven’t developed a consistent approach on how to best divide the work between state PI teams and MCO internal compliance and investigative organizations.

The HHS Office of Inspector General (OIG) consistently reports an overall lack of fraud referrals from Medicaid MCOs, noting that many managed care entities have no incentive to make fraud referrals because their contracts don’t allow them a share of fraud-related recoveries or include consequences for failing to refer fraud.1  Instead, many MCOs simply remove fraudulent providers from their networks. Still others simply ignore providers with inefficient practices, because MCOs must have enough providers in their network to meet coverage requirements for medical specialties.


Approximately 71 percent of Medicaid beneficiaries are enrolled in MCO programs, while the most costly patients — the elderly and disabled — remain in traditional fee-for-service (FFS) programs.2


To address these challenges, CMS proposed modernizing Medicaid managed care regulations and aligning them more closely with Medicare plans.3 Under the recommendations, announced in May 2015 and at this writing in public comment, Medicaid MCOs will be required to take steps to strengthen Medicaid managed care PI, such as:

  • Reporting identified and recovered improper payments and potential fraud, waste and abuse, including those made to providers excluded from Medicaid participation
  • Developing a process for network providers to report and repay overpayments
  • Turning over the screening and enrolling of MCO network providers to the state to ensure providers meet state standards
  • Certifying that it has committed a “reasonably diligent review” of data, documentation and information submitted to the state4,5

These rules will evolve as they go through the CMS feedback and finalization process, but regardless of their final form, they will be pivotal in bringing clarity and consistency to the MCO PI process.

More data, more context, more value

Moving forward, it’s clear states will need to become much more involved in overseeing and measuring MCO PI. As MCOs and states adapt the predictive analytics tools being applied to FFS PI for use in MCO programs, communication must improve not only between MCOs and the state, but among competing MCOs.  MCOs can no longer operate in a vacuum.


Kentucky builds effective communications into MCO relationship

"Communication is the key to effective oversight. We meet with key officials from each MCO on a quarterly basis to review fraud cases and discuss important issues and trends. It’s another opportunity for us to monitor, educate and guide MCO activities.”6
— Veronica Cecil, Medicaid chief of staff and director of program integrity, Kentucky


Because predictive analytics tools and models become more accurate as they ingest more data and “learn” from it, states and MCOs will achieve the best results when they share flagged provider lists, claims information and other relevant data. MCOs may use different analytics technologies, but in partnership with the state and each other, they can develop solutions to pool claims, billing and provider data, adding more context that will enhance the value of their separate analytics solutions. It can be likened to creating a centralized fraud alliance among all stakeholders to promote transparency.

But getting MCO competitors to share — especially when they have little or no incentive to fight fraud — is no small feat. It’s a little easier in states with high percentages of Medicaid members enrolled in mature MCO programs. States that have made recent moves to managed care programs may have to experiment with ways to fast-track a spirit of cooperation among competing plans.

In the meantime, states can work to develop incentives and mandates, especially since the new CMS rules will eventually force their hand. Some of these “carrots and sticks” should encourage sharing of claims, billing and provider data among MCOs and the state.

As the new CMS MCO rules go through the review process, state PI and Medicaid fraud control units (MFCUs) must work to ensure they have enough resources to handle an influx of MCO fraud referrals. In addition, a referral process will need to be developed. For example, who will determine if the MFCU should investigate a lead? Will the PI unit be a clearinghouse for all leads, or will referrals go directly to the MFCU? Finally, the state will need to consider how to audit and measure the success of MCO PI efforts.

Best practices for working with MCOs

  1. Review the CMS proposed guidelines for Medicaid MCOs and begin planning to integrate them into state PI efforts.
  2. As the new CMS proposal suggests, require providers serving only MCO beneficiaries to enroll with the state so they can be vetted by the state and integrated into its auditing process.
  3. Work closely with your MCOs to develop efficient processes for fraud referral and auditing and monitoring their PI efforts.
  4. Develop a culture of cooperation among your MCOs and your agency to include regularly scheduled meetings, ongoing communication and collaboration.
  5. Encourage or even mandate the sharing of claims, provider and relevant external data.
  6. Partner with your MCOs to determine processes for the collective application of predictive analytics and other tools that reduce or prevent fraud, waste and abuse.
  7. Establish national and state-specific benchmarks for particular services. Compare your MCOs’ data submissions to these benchmark averages.
  8. Mandate that your MCOs submit their results on a monthly basis, emphasizing data transparency and data normalization across all MCOs.
  9. Rewrite your MCO contracts to clearly delineate responsibilities for fraud, waste and abuse activities, and to allow the state to investigate and act against providers if your MCOs don’t.
  10. Monitor underutilization of services, which not only impacts quality of care but also is a form of fraud often found in capitated environments.
  11. Ensure the state has enough resources to handle an increase in MCO fraud referrals.

To learn more about best practices in program integrity, read our handbook, “Identify, Predict, Prevent, Recover: A Handbook for Medicaid Program Integrity.”



  1. .http://oig.hhs.gov/oei/reports/oei-06-15-00010.pdf
  2. http://www.ncsl.org/research/health/confronting-costs.aspx
  3. http://www.cms.gov/Newsroom/MediaReleaseDatabase/Fact-sheets/2015-Fact-sheets-items/2015-05-26.html
  4. https://www.federalregister.gov/articles/2015/06/01/2015-12965/medicaid-and-childrens-health-insurance-program-chip-programs-medicaid-managed-care-chip-delivered
  5. http://medicaid.gov/medicaid-chip-program-information/by-topics/delivery-systems/managed-care/downloads/program-and-fiscal-integrity-improvement-and-alignment-fact-sheet.pdf
  6. All information from Veronica Cecil taken from phone interview conducted on April 30, 2015.



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