Auditor: Fraud detection program savings fall short

Posted July 26, 2012

Medicaid fraud
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— Computer systems designed to detect waste and fraud in North Carolina's Medicaid system do not always produce the savings promised by their makers, according to a report by the state auditor released today

For example, the state paid SAS Institute $2 million with a promise that their fraud detection software would identify at least $27 million in savings.

"As of the date of our audit, no funds have been recovered and no actual fraudulent activity has been identified," the audit report reads.

One contract with the Public Consulting Group did identify $38.5 million that should be recovered in over-payments. However, only $3.7 million of that had actually been recouped, and the auditor said the program has "not proven to be reliable, so the actual benefit being derived from the contract is unclear."

Systems deployed by IBM also came in for criticism. 

Beth Wood, the elected state auditor, said Medicaid officials should renegotiate the fraud detection contracts.

"If they didn't think they could ever get the 900 percent of 1,250 percent, then why are those terms in the contract? Why not renegotiate? Why not us get something back? Because they absolutely could not deliver," Wood said, adding, "When are you going to start holding their feet to the fire and getting what we paid for?" 

In the past, officials with the Department of Health and Human Services have praised the efforts put forward under the programs and have told both auditors and lawmakers that they need to be patient with the progress.

"North Carolina is leading the nation in innovative, sophisticated analysis of Medicaid billing, which has already helped us identify hundreds of millions in potential over-payments," DHHS spokeswoman Chrissy Pearson said in an e-mail. "These systems take time to implement, and after an intense start-up period, they are just beginning to show promise. DHHS has, in just two months, referred an unprecedented 35 cases to the Attorney General’s office and found $191 million in questionable payments."

State Auditor Beth Wood Audit: Medicaid fraud detection doesn't pay off

With regard to the SAS project, she said, their system didn't begin operations until the audit was concluded. 

Sen. Stan Bingham, R-Davidson, is co-chairman of the Senate committee that oversees health spending. He said lawmakers have been repeatedly "disappointed" by the departments fraud detection efforts. 

"It's probably the most serious problem we have," Bingham said.

Those missed targets contributed to $414.7 million in Medicaid shortfalls that the General Assembly had to fill this spring, he said.

Pearson says that's not so. Lawmakers, she said, set a target of $48 million in so-called "recoupments." The agency actually brought in more than $112 million.

Bingham said that the Legislature tried to be conservative in its estimates of the savings, but the actual savings to Medicaid have been below even those conservative projections.

"We need to look at numbers we realistically can depend on," Bingham said, adding that he and other lawmakers will be looking at this problem over the fall and winter. 

Person said the auditor's report and lawmakers overlook the value of the fraud detection systems that goes beyond the money they return to the state.

"The auditor’s report does not emphasize one crucial piece of information – the value of identifying fraudulent providers and stopping them from ever operating again," Pearson said. "Even if we don’t recoup all the money lost, it’s impossible to put a price tag on the deterrent effect of our efforts. We may never know just how many millions we will prevent from ever going out the door. This is the real value of the department’s fraud prevention programs."


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  • concernedcitizen20 Jul 27, 2012

    That is incorrect- the SAS software has been in service for several years. request a copy of the documents- they are public record.
    SAS is used in one area- IBM is used in another.

  • lovelarvae Jul 27, 2012

    "With regard to the SAS project, she said, their system didn't begin operations until the audit was concluded." -article

    This is a crucial piece of info that seems kind of understated in the article. So the audit found that prior to the implementation of the $2mil SAS software the current system was failing to find fraud. Now that the SAS software has been implemented, seems like we need to wait for the next audit to know if it actually finds any fraud or not.

  • westernwake1 Jul 26, 2012

    Sounds like N.C. was sold vapor-ware once again...

  • concernedcitizen20 Jul 26, 2012

    This was a total political deal- it involved "jobs" for NC and a promise not to move out of state or hire workers in India to do the labor. The VP at Saas is related to a former Governor and made this deal work politically. It was a pure pay for the service deal with no guarantee....

  • concernedcitizen20 Jul 26, 2012

    The DHHS send the data to Sas and they do some analytical analysis and provide data back to them.

  • kre2 Jul 26, 2012

    There ae three problems. #1 - SAS is involved. #2 - IBM is involved. #3 - Politicians are involved. Three strikes and you are out...more like we the public are not the money. Any time SAS is involved...look out. I am a programmer and SAS is nothing but problems. It had to be politicans that decided to use SAS, it certainly wasn't a choice of a smart individual.

  • lessismore Jul 26, 2012

    ss3510.... whocares that universal healthcare is available in every western industrial nation....this is America...we don't follow, we lead....until Obama got elected. Why should we do what everyone else is doing? If you think their system is better why don't you move instead of trying to change capitalism and the free market. Obama said that America is the greatest nation on the face of the earth...and he is here to change it...and you agree with him. Move to one of your socialist countries that is bankrupt.....and soon.

  • Fun Jul 26, 2012

    My biggest concern is greedy power money hungry government

  • shotgun_willie Jul 26, 2012

    Sounds like the state needs some SAS training. Or they could try the excuse that the software doesn't work!! Give me a break. It works for thousands of other businesses. It just requires qualified individuals to operate.

  • ss3510 Jul 26, 2012


    Universal Healthcare is available in EVERY Western Industrial Nation and they not only get better results than the U.S., it is cheaper.

    If fraud is pampant, it's because WE as a country are Greedy Capitalists.