Medicaid Managed Care Organizations Program Integrity Efforts

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Medicaid is Washington’s largest public assistance program, providing health insurance for more than one in four Washingtonians. In fiscal year 2022, federal and Washington state funds for Medicaid spending totaled more than $17.6 billion.

The Health Care Authority (HCA) contracts with five managed care organizations (MCOs) to provide health services to people enrolled in Medicaid. Among the MCOs’ contractual responsibilities are efforts to ensure the integrity of the Medicaid program. Each company must make sure it pays the right dollar amount to the right provider for the right reason. Their program integrity efforts are intended to prevent fraud and other improper payments. Doing so helps ensure that taxpayer dollars are available for delivering necessary care. By making only correct payments to providers, strong program integrity efforts can also help reduce overall medical costs. Those costs are an important factor in setting premium rates for the MCOs.

This audit is the second performance audit focusing on Medicaid program integrity. It follows a report issued in 2021 that focused on HCA's Division of Program Integrity.

Read a two-page summary of the report.

Read the 2021 report on this topic.

Report Number 1033443 Report Credits

Key results

Managed care provides services to about 85 percent of the 2.3 million Medicaid enrollees in our state. In the past fiscal year, each of the state’s five contracted managed care organizations received at least $1 billion in premiums. One company received several times that amount. This performance audit examined how HCA and the MCOs ensure accurate encounter data. This data describes each and every encounter between a patient and health care provider. The data is then reported to the state’s insurance actuary.

We found HCA and the three contracted MCOs in the audit had taken key steps to prevent fraud and to ensure they used accurate data about patient care and its costs. This audit also looked for opportunities to improve MCO program integrity efforts and HCA’s related oversight. The audit’s key results included:

  • MCOs took key steps to prevent fraud and improve encounter data
    • Additional leading practices could strengthen these efforts
  • HCA has strengthened its oversight of MCO efforts since our previous audit
    • However, we identified three areas for improvement: performance measures, information verification and formal processes for penalties

Background

In fiscal year 2022, managed care accounted for about half of all Medicaid spending, with roughly $9.7 billion paid to the five MCOs. (The remainder was paid to fee-for-service providers.) In this audit, we examined how the state ensures that sufficient program integrity efforts are in place and encounter data is complete and accurate. We focused on the three MCOs responsible for 77 percent of Medicaid enrollees (as of May 2023): 

  • Molina Healthcare of Washington
  • Community Health Plan of Washington
  • UnitedHealthcare of Washington

HCA pays each MCO a monthly premium for each person enrolled with them. In exchange, the MCOs must provide covered services for all enrollees and comply with HCA’s contracts. MCOs must send HCA encounter data, which details all services provided. Encounter data is also one factor used in calculating the premiums paid to the MCOs each month.

MCOs took key steps

The three audited MCOs followed all contractually required program integrity practices to identify potential fraud or other improper payments. They also applied most of the leading practices we identified during our research. All three MCOs used basic data analytics, such as identifying outliers that could indicate fraud or other improper payments. Two of the MCOs used advanced predictive analytics, which uses historical data to flag possibly fraudulent activity. However, they could strengthen program integrity efforts by applying additional data analytics recommended by leading practices.

The audited MCOs had many tools and processes in place to ensure complete and accurate encounter data. All of them monitored encounter data they submitted to HCA. Additionally, during the audit period, one conducted its own internal audits that retrospectively compared provider claims to encounters. Finally, all audited MCOs used automated system checks to screen encounter data for complete and accurate information before they submitted it to HCA.

Practices to strengthen MCO efforts

The program integrity efforts taken by audited MCOs could be strengthened by applying additional data analytics that are recommended by leading practices. While MCOs’ procedures included key overpayment reporting requirements, HCA did not verify the completeness of these reports. Overpayment recoveries are considered in the rate setting process. This means that incomplete or inaccurate information could affect the accuracy of premium rates.

Improving HCA oversight

HCA has increased efforts related to oversight of managed care program integrity efforts and incorporated related requirements into its contracts. These requirements touch on issues ranging from the penalties for MCO contract noncompliance to documentation and communication. However, adding performance measures specific to MCO program integrity efforts to its contracts would offer additional assurance that MCOs meet expectations.

HCA had many practices in place to monitor MCO encounter data, but could improve information verification. We found contracts incorporated most required and leading practices around encounter data, but lacked performance targets for key encounter data fields. For example, unacceptable rates of error for missing data, record rejections and duplicate records. HCA also validated encounter data in multiple ways, such as through automated system checks recommended by CMS. In addition, HCA regularly compared encounter records to MCO reported information, however, managers did not request supporting documentation for reported paid claim amounts.

HCA implemented many monitoring and communication practices to ensure accurate encounter data submissions. In addition, HCA can impose financial penalties against MCOs that do not meet contractual obligations, but lacked documented policies for doing so, which could lead to penalties being applied inconsistently.

Recommendations

This report offered a robust set of recommendations to help HCA improve their processes around program integrity. They will especially help ensure accurate information is used to establish the premiums paid by the state. Each improvement in a large, complex system can yield substantial rewards. In the case of Washington’s managed care model, we see the potential for significant gains.

Several of our recommendations addressed the need for clearer contractual expectations and stronger provisions to ensure MCOs meet program integrity expectations. We also addressed the lack of targeted error rates for key encounter data fields. In addition, recommended HCA develop processes to verify the completeness and accuracy of MCOs’ reported information. Finally, we recommended the agency formalize its process for applying financial penalties in a policy or written procedure.