The Case for Program Integrity in Medicaid Managed Care | Part Eight

Unresolved and Unreported Investigations. A backlog of unresolved or unreported investigations may indicate insufficient SIU or subcontractor capacity, unclear investigative workflows, or lack of follow-through on overpayment recovery. In some cases, investigations could remain open past the period during which the MCO or subcontractor is permitted to recover payments (e.g., one year), resulting in missed recovery opportunities and cases aging out without action. Unreported investigations may also occur when subcontractors do not consistently share outcomes with the MCO or the state, limiting visibility into PI efforts.

Growth of an investigative backlog can be an indicator that there are gaps in MCO oversight. To mitigate these risks, the state should ensure that roles, accountability, and investigation timeframes are clearly defined, and that regular reporting requirements apply to both the subcontractor’s PI activities and the MCO’s oversight of those activities. Clear expectations and monitoring reduce the likelihood of case backlogs and support timely recovery and resolution.

Limited Cost Avoidance Activity. MCO contracts often require subcontractors to perform cost‐avoidance functions, such as prepayment claim reviews, particularly for providers identified as higher risk. These activities help prevent improper payments before they occur. When subcontractors do not perform sufficient prepayment review, the state is more likely to incur avoidable overpayments and rely instead on post‐payment recovery (“pay and chase”), which can place additional administrative burden on the program. Some subcontractors, including PBMs, may argue that the nature of their adjudication systems limits their ability to conduct prepayment reviews, which can lead to inconsistent cost avoidance practices across subcontractors.

To address these risks, states should periodically review and assess MCO and subcontractor compliance with cost‐avoidance expectations, including whether prepayment review activities are performed and appropriately documented. Contracts should clearly define cost avoidance requirements and documentation standards, and subcontractors should identify practical approaches to implement prepayment controls within their operational constraints. Ensuring that cost avoidance activities are consistently applied and monitored supports more effective program oversight and helps manage overall program costs.

Unwritten Expectations. States must include detailed and well-defined PI requirements in contracts with MCOs. Clear PI requirements should subsequently flow down to be incorporated in the MCOs’ contracts with their subcontractors. States will lack the necessary legal basis for enforcement with the MCO without documented requirements for MCO PI and FWA detection and prevention activities, Furthermore, in the absence of detailed contractual obligations, there can be no targets for recovery rates, no standard timelines, and no consistent resolutions, thereby causing investigations and PI activities that may exist to stall.

Over the course of our decades of experience supporting state managed care program oversight, we have observed numerous instances of these issues, highlighting the need for states to implement strong PI requirements for MCOs and their subcontractors that are both precise and actionable.

In our next post on these issues, we present a real-world example from one of our own engagements alongside our recommendations for tackling them.