Texas Medicaid Managed Care Organizations: A Case Study

The following is a summary of both the state’s and Community First Health Plan’s (“Community First”) rights and responsibilities under the Texas Medicaid Managed Care rules with respect to audits and overpayment recoupments. We have attempted to address the various issues and questions that have been raised by SPA.

I. Medicare managed care organizations.

In Texas, most Medicaid services and all Children’s Health Insurance Programs (“CHIP”) services are delivered through managed care. The Texas Health and Human Services Commission (“HHSC”) contracts with state-licensed managed care organizations (“MCOs”), and pays them a monthly amount to coordinate health services for Medicaid or CHIP members enrolled in their plans. The MCOs contract

establish and maintain a special investigative unit (“SIU”) to investigate cases of suspected fraud, waste, and abuse (“FWA”) by recipients and providers in the Medicaid program; and

B. develop and annually submit for approval a plan describing how it will prevent and reduce FWA. The HHSC-OIG is authorized to approve each MCO’s annual plan. (1 TAC §353.501) HHSC requires its MCOs to continuously monitor compliance as well as investigate possible non-compliance, and has given the SIUs wide latitude to carry out those responsibilities. Specifically, an MCO must implement the following on-going procedures to detect possible FWA: (1) audits to monitor compliance and to assist in detecting and identifying program violations and possible FWA overpayments; (2) monitoring of service patterns; (3) hotline or other reporting mechanism; (4) random payment review of providers’ claims; (5) edits or other evaluation techniques; (6) routine validation of MCO data; and (7) verification that members actually received the services. (1 TAC

The Provider Manual explains that the function of SIU/Coding and Compliance is to implement Community First’s FWA plan and to assist in detecting and identifying possible Medicaid program violations and FWA overpayments. (Provider Manual, p. 129) Coding and Compliance performs its audits through:

A. data matching - using available sources including the AMA and CMS, Community First compares procedures, treatments and other billed services for reasonableness; and

B. trending and statistical analysis -Community First provides its vendor, EDI Watch, with three years of electronic claims data, which EDI Watch processes on a quarterly basis. Coding and Compliance then applies edits, flags, and fraud rules to build routine activity profiles, and conducts statistical analysis of that information to identify unusual trends (i.e.; high percentages of flags, utilization, and/or potential overpayments) in weekly, monthly, and yearly patterns (1) across all claims, (2) within a particular list or group of providers, and (3) for a particular provider or patient. (Provider Manual, pp.