The U.S. Department of Health and Human Services (HHS) Office of Inspector General (OIG) reports criminals are diverting federal and state payments intended for Medicaid and Medicare providers. Criminals impersonating hospital providers have targeted the Medicare and Medicaid programs by submitting fraudulent electronic funds transfer (EFT) authorization requests to Medicare administrative contractors and state Medicaid agencies.
Large losses have resulted from EFT fraud. Fraudsters have also gained access to email accounts to target the HHS grant Payment Management System (PMS), leading to millions of dollars in further losses during 2023.
Between 2020 and 2022, EFT frauds targeted at least 4 Medicare administrative contractors and 22 state Medicaid agencies. These fraud schemes have diverted at least $26.5 million from the Medicare and Medicaid programs. More recently, fraudsters who were able to gain unauthorized access to email accounts carried out a scheme that targeted the HHS PMS, leading to further millions in losses during 2023:
Federal watchdog warns fraudsters diverting taxpayer money from Medicare and Medicaid
The schemes targeting contractors and state agencies diverted nearly $27 million from the federal health programs that have been a target for fraudsters.
By Steven Richards - March 7, 2025As the Trump administration and Elon Musk’s Department of Government of Efficiency (DOGE) target expansive federal programs to eliminate waste, fraud and abuse, the Health and Human Services Department Inspector General identified a significant fraud scheme to divert funds from Medicare and Medicaid programs.
The inspector general says individuals impersonating hospital providers targeted contractors and state agencies administering federal programs by submitting false “electronic funds transfer authorization requests,” resulting in the diversion of nearly $27 million from the programs.
Last month, according to The Wall Street Journal, DOGE employees were working on site at the Centers for Medicare and Medicaid Services, combing through payment and contracting systems with a focus on identifying waste and fraud. Elon Musk, who is leading the effort to streamline the federal bureaucracy and reduce bloated programs, as a special White House employee, said that he suspects his team will identify significant fraud in the federal healthcare programs.
“Yeah, this is where the big money fraud is happening,” Musk posted to his X social media platform, formerly known as Twitter before it was acquired by the tech billionaire.
Two-thirds of HHS departments were aware of fraud
The inspector general warned that the fraudulent schemes it identified show the Medicare and Medicaid system is at risk for exactly the kinds of fraud and waste that DOGE is targeting. “There is a potential for large losses associated with electronic funds transfer fraud, given how widely electronic funds transfer transactions are used within the healthcare industry,” the HHS OIG said in its report.
The OIG continued, “Recently, fraudsters who were able to gain unauthorized access to email accounts targeted the HHS grant Payment Management System, leading to millions of dollars in losses in 2023.”
Two-thirds of Medicare and Medicaid “payors”—which include Medicare Administrative Contractors, State Medicaid agencies, and Medicaid Managed Care Organizations—reported that they were aware of being targeted by the EFT fraud schemes detailed by the inspector general. Half of those targeted reported that the fraud schemes resulted in lost funds, which not every agency reported. The payors told the inspector general’s office that fraudsters targeted their systems through email phishing attempts, impersonation attacks, and insider threats.
Of those payors that reported financial losses from the EFT fraud, they reported losses ranging from $140,000 to $1 million, according to an OIG’s survey. The inspector general warned that the “full extent of EFT fraud could be more extensive,” especially if the payors’ detection systems are not sophisticated enough to detect the schemes.
The OIG specifically sounded the alarm that because of the vast sums of money flowing through the Medicare and Medicaid programs, increases the risks of fraud. Roughly 25% of American receive health insurance from the Center for Medicare and Medicaid and the agency’s expenditures represented 22% of the United States’ total spending, clocking in at about $1.5 trillion.
Beyond the EFT fraud identified by the inspector general, the Medicare and Medicaid systems are presumed ripe for a DOGE review seeking to eliminate waste, fraud and abuse.
Last year, the Justice Department announced the 2024 National Health Care Fraud Enforcement Action, bringing charges against 193 total defendants accused of participating in various schemes that resulting in $1.6 billion in government losses, some of which came from Medicare and Medicaid programs. The charges were leveled against “76 doctors, nurse practitioners, and other licensed medical professionals” spread across the United States for the schemes.
Nightmare scenarios uncovered
The DOJ said that in one of the largest cases, four individuals in Arizona allegedly filed $900 million in fraudulent claims to Medicare for an unnecessary surgical procedure used on patients, the Justice Department said. Two defendants were paid $600 million by Medicare for the procedures, averaging $1 million per patient. The defendants, who owned wound care companies in the state, received more than $330 million in illegal kickbacks as part of the scheme.
In another case, a nurse practitioner in Florida allegedly prescribed over 1.5 million pills of Adderall and other potentially addictive stimulants across the country unlawfully in collaboration with digital technology company Done Global Inc. The DOJ alleges the arrangement allowed patients to continue to obtain Adderall under an “auto-refill” policy without further interactions with the prescriber, as required.
Last year, a Government Accountability Office report found that both Medicare and Medicaid were susceptible to payment errors that could account for $100 billion in losses in 2023. That figure represents 43% of improper payments reported government-wide.
The HHS OIG recommended that CMS:
1) Engage Medicare Administrative Contractors on improving security measures.
2) Share information with State Medicaid agencies to help improve security measures.
3) Support periodic information sharing to mitigate evolving threats of electronic funds transfer fraud schemes.
CMS did not explicitly state its concurrence or nonconcurrence with the first two recommendations; OIG altered these recommendations slightly to clarify OIG’s intent. CMS did not concur with the third OIG recommendation.
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