“States are abusing federal Medicaid policy. There is an enormous amount of waste, fraud and abuse in the program.”
– Brian Blase, President, Paragon Health Institute, as reported in Stat (January 6, 2025)
This falsehood is one premise for the proposals to cut federal Medicaid spending by $2.3 trillion (with a “t”) over the next 10 years now under discussion among House Republicans. The thinking goes: there’s so much waste, fraud, and abuse in the program that states can easily absorb the loss of over a quarter of their federal Medicaid matching payments simply by improving their management and cutting out the “fat.”
This premise is false, and the thinking is dangerously wrong.
This is the second of two blogs addressing this falsehood. The first focused on fraud against Medicaid, i.e., intentionally submitting false information to the program in order to receive payment, such as billing for services not furnished. Fraud is generally a criminal act. This blog focuses on waste and abuse, which are not.
CMS defines waste as overusing services or other practices that result in unnecessary costs to the program. It cites as examples when a provider prescribes more medications or orders more lab tests than necessary. CMS defines abuse as what happens when health care providers or suppliers perform actions that directly or indirectly result in unnecessary costs to the program, including “any practice that doesn’t provide patients with medically necessary services or meet professionally recognized standards.” As examples, a provider overcharges for services or manipulates billing codes to increase its reimbursement.
The line between waste and abuse is blurry, but in both cases, the result is unnecessary costs to Medicaid. Of course, the terms are not limited to Medicaid or Medicare or other health programs; they are applied to other government programs as well. GAO defines waste as squandering money or resources; it defines abuse as behaving improperly or unreasonably or misusing one’s position.
When Blase accuses states of “abusing” federal Medicaid policy, he appears to be referring to state methods for financing the costs of Medicaid. These methods, including raising revenues from taxes on providers, are approved by CMS under current law. Provider taxes are legitimate topics for policy debate—see this intellectually honest MACPAC analysis—but hardly qualify as “abuse”.
There is waste and abuse in Medicaid, just as there is in Medicare and in private health insurance.
Waste and abuse happen in Medicaid and Medicare and private health insurance, but they are very hard to quantify. One metric the federal government uses to assess how well its programs are administered is the rate of “improper payments.” These are payments that do not meet statutory, regulatory, or administrative requirements or that are made in an incorrect amount. As explained in the previous blog, Medicaid improper payments are not the same as fraud. Nor are they the same as waste or abuse. Some improper payments are lost to fraud, to waste, and to abuse. But most improper payments in Medicaid involve missing or insufficient documentation to support the payment that has been made. The Medicaid improper payment rate (5.09% in 2024) is not a fraud rate, a waste rate, or an abuse rate.
Waste can take many forms in a federal-state program like Medicaid. One example is unnecessary emergency room visits: beneficiaries seeking care in a hospital ER when the health care they need could be provided in a doctor’s office or a community clinic at much lower cost. The reasons for unnecessary ER visits are complex, ranging from the lack of access to effective primary care to housing instability and other social determinants. Federal Medicaid funds are available to states for interventions that reduce unnecessary ER visits, such as behavioral health crisis services.
Another example of waste in Medicaid is excessive state administrative spending. A prominent case in point: work reporting requirements in Georgia’s section 1115 demonstration. As my colleague Joan Alker has explained, the overwhelming majority of the state’s expenditures in the first two years of the demonstration went toward administrative and consulting costs, not to services for low-income Georgians. In December of 2024, Georgia’s Senators joined the Chair of the Senate Finance Committee in a request to GAO for an investigation of these excessive administrative and consulting costs. (A 2019 GAO report had flagged this issue in earlier state demonstrations of work reporting requirements).
There are checks on waste and abuse at both the state and federal level. The agencies that administer Medicaid—state Medicaid agencies on a day-to-day basis and CMS at the federal level—have the primary responsibility for identifying and reducing waste and abuse in the program. GAO, an arm of the Congress, and OIG, an Executive Branch agency, are both responsible for overseeing the administration of the program by CMS and state Medicaid agencies, for identifying waste and abuse in the program, and for making recommendations to CMS, state agencies, and the Congress for reducing federal monetary losses due to fraud, waste, and abuse. In many states, state auditors and state legislative committees perform a parallel oversight role.
Most state Medicaid agencies contract with managed care organizations to furnish covered services to enrollees. One reason for doing so is to eliminate the incentive inherent in fee-for-service Medicaid for providers to deliver more services than are medically necessary; by paying MCOs a fixed amount per member per month, states are no longer rewarding providers for volume, reducing waste stemming from the provision of excessive services. (How the MCOs choose to reimburse their network providers is another matter). Under their contracts with state Medicaid agencies, MCOs are responsible for helping ensure program integrity in Medicaid, including detecting fraud. (At the same time, MCOs bring their own program integrity challenges, notably with excessive denials of services).
The cuts in federal Medicaid spending under discussion among House Republicans dwarf the amounts of fraud, waste, and abuse in Medicaid. Contrary to Brian Blase’s falsehood, it is the proposed $2.3 trillion cut in federal Medicaid spending, not the amount of fraud, waste and abuse in Medicaid, that is “enormous.” $2.3 trillion is about 27 percent of the $8.6 trillion in federal Medicaid spending projected by CBO over the next ten years. While some states run more efficient Medicaid programs than others—no other state is wasting as much money on administering work reporting requirements as Georgia—and while all states could undoubtedly make their programs more efficient, there is no state that will be able to absorb a 27 percent cut in federal Medicaid matching payments over the next ten years by reducing waste, fraud, and abuse. It’s not even close.
State and federal agencies can and should reduce the amount of waste and abuse in Medicaid. MACPAC and GAO have each laid out recommendations for how to do so. Shifting hundreds of billions or trillions of dollars in Medicaid costs from the federal government to the states is not among those recommendations. There’s a simple reason for that: shifting federal costs to the states has nothing to do with reducing waste and abuse. It has everything to do with knee-capping the nation’s largest health insurer for children and families.
