Call it the fraud corollary: the bigger and more well-intentioned the government program, the more fraudsters it attracts.
Medicaid is one such program. Introduced in 1965, it provides critically needed health insurance to Americans who could not otherwise afford it. Today, more than 80 million Americans – low-income families, people with disabilities, seniors, and children – rely on Medicaid to provide medical and long-term care services.
Over the years, the cost of Medicaid has skyrocketed at both the federal and state levels, straining the program’s efficiency. Worse, unscrupulous medical practitioners and organizations have eroded the program’s continued viability through deceptive practices and improper payments, abusing Medicaid’s lax oversight mechanisms. The level of evident fraud is indicative of systemic failings, yet there is entrenched resistance to affect any reforms. The Functional Government Initiative’s (FGI) new report details numerous examples of fraud and several proposals on how to make Medicaid less vulnerable.
Fraud occurs across the country, and its perpetrators range from dishonest individuals to massive healthcare organizations. In December 2024, two individuals in Arizona admitted stealing almost $3.3 million from the Arizona Health Care Cost Containment System by billing for non-existent healthcare services. In Maryland, an individual forged records and stole the identities of patients and providers for more than five years to bill Medicaid $3.6 million for psychiatric rehabilitation services that were never provided. In June 2025, Hemal Patel was convicted in Pennsylvania for referring patients to home care agencies for a kickback, costing Medicaid over $1 billion.
Between 2019 and 2023, a network of behavioral health providers and sober living homes fraudulently billed Arizona’s American Indian Health Program more than $2.5 billion for services that were never provided. In fact, some facilities even allowed patients to continue using substances instead of providing proper treatment. In 2025, the Massachusetts Attorney General filed suit against CVS Health, for allegedly colluding with a discount card company to charge MassHealth, the state’s Medicaid program, more for prescription drugs than cash-paying customers.
All these examples spanned multiple years, clearly indicating there was not enough oversight. Faulty oversight was compounded by lax enforcement, as seen in the Arizona case, where only 5 percent of the misused $2.5 billion has been recovered. Perpetrators often exploited vulnerable groups such as Native Americans and immigrants. Finally, the CVS case shows institutional complicity, with corporations clearly using their institutional positions and knowledge to work the system. The recently passed One Big Beautiful Bill (OBBB) will help to reduce federal Medicaid outlays by $715 billion - $793 billion over the next decade, but this alone is not sufficient.
Medicaid must implement enhanced fraud detection to more quickly discover these schemes. Mandatory provider background checks followed by ongoing audits would help. The Centers for Medicare and Medicaid Services has only conducted audits in two of the last 10 years, diminishing the effectiveness and usefulness of audits. Applying the improper payment rate of 25 percent to the $4.3 trillion of federal Medicaid spending between 2015 and 2024, as much as $1.1 trillion could have been improperly paid due to lax oversight and few audits.
Medicaid eligibility must be tighter. Currently, it is very easy to qualify for Medicaid, even for those who should not be benefitting from the program. The OBBB establishes work requirements for those who can but currently choose not to work and do not have young dependent children or elderly parents in their care. Those people now have to either work, participate in a work training program, enroll in school, or volunteer for a minimum of 20 hours per week to receive Medicaid coverage. Furthermore, both states and recipients will now also have to verify their eligibility twice a year, which will help to further reduce fraud and waste. Finally, there must be a reassessment of reimbursement formulas and incentive structures. Currently, illegal immigrants are receiving Medicaid coverage, which was incentivized by the Biden administration. With both healthy Americans and illegal immigrants enrolled, the cost of the program was driven up and threatened the coverage of those who actually do qualify and need Medicaid.
Nobody is advocating ending Medicaid or leaving it worse off financially. Even under the reforms in the One Big Beautiful Bill, funding for Medicaid is projected to go upward year after year. However, without continued reforms, Medicaid will no longer be able to provide for the millions of Americans who truly need it. As long as the government provides safety nets like Medicaid, fraud will always be with us. But we can make it a lot harder to perpetrate and, in doing so, ensure Medicaid’s long-term viability.
Roderick Law is the communications director for the Functional Government Initiative.
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