Medicaid Drug Fraud

Medicaid prescription fraud is widespread in the United States, contributing significantly to the government's $5.5 billion tab for prescription drugs in 1991. For example, some pharmacists routinely pad customer prescriptions, keeping the extra drugs to sell or use themselves. Clinics inappropriately give Medicaid recipients completed prescription forms that are then traded for merchandise from local pharmacies or sold on the street to the highest bidder; some pills costing 50 cents at the pharmacy have been resold for as much as $85. A common scheme is the so-called "pill mill," in which doctors, clinic owners, and pharmacists conspire to defraud Medicaid by prescribing drugs solely to obtain government reimbursement. Patients are often in on the scam, allowing the use of their Medicaid numbers in exchange for kickbacks of cash or drugs. This organized network of physicians, patient brokers, and assorted middlemen frequently transferred money overseas via the notorious Bank of Credit and Commerce International. Recent initiatives in several states have shown signs of stemming these financial losses, but federal leadership and support is needed to ensure broader implementation of these initiatives. GAO summarized this report in testimony before Congress; see: Medicaid Drug Fraud: Federal Leadership Needed to Reduce Program Vulnerabilities, by Leslie G. Aronovitz, Associate Director for Health Financing Issues, before the Subcommittee on Human Resources and Intergovernmental Relations, House Committee on Government Operations. GAO/T-HRD-93-28, Aug. 2, 1993 (10 pages).

GAO found that: (1) prescription drug diversion is widespread and part of the overall Medicaid fraud problem because there are substantial economic incentives involved; (2) drug diversion persists because Medicaid agencies do not have systematic procedures or adequate staff to detect aberrant billing and referral patterns; (3) states have developed effective pursuit and punishment controls to combat drug diversion activities and overall Medicaid fraud; (4) preventive efforts have had limited success in deterring diversion activities; and (5) drug diversion remains widespread because of the lack of enforcement and litigation resources for diversion cases that are lengthy and often unproductive.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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