With a looming economic recession and state budget crunches coinciding with increasing Medicaid costs, fraud and abuse systems play a vital role in detecting patterns of fraud, controlling costs and recovering monies. Excessive financial losses due to improper payments cost the Medicaid program billions each year and inhibits utilizing funding for program improvements.

According to an article in CNSnews.com, the Government Accountability Office (GAO) reported that last year the Medicaid and Medicare programs made approximately $23.7 billion in improper payments. This includes $12.9 billion from Medicaid and $10.8 billion from Medicare. Fiscal year 2007 was the first year that Medicaid submitted an estimate of its improper payments, in compliance with the audit requirements under the Improper Payments Information Act of 2002. The Office of Management and Budget has reported that total federal spending for Medicaid in 2007 was $190.6 billion and $370.7 billion for Medicare.

On June 26, 2008 the Senate Committee on Appropriations released a budget markup including $25 million annually for anti-fraud and abuse activities for the Centers for Medicare and Medicaid Services (CMS). Reportedly there were no discretionary funds for these activities in fiscal year 2008. By September 30th of each year the Department of Health and Human Services, Office of Inspector General must submit a report on fraud activities, results of those activities, amount of funding for each activity and an estimate of savings for each activity. Depending on how CMS chooses to utilize the funding, states may directly or indirectly benefit.

Fraud and abuse systems identify and deter abuse to ensure the state's limited resources are spent on individuals' truly eligible and not unauthorized persons. These systems are strategic components of a state's Medicaid Management Information System (MMIS) architecture and have no additional costs, other than paying the vendor a cut of the collected savings. Recovered money can be used to improve the Medicaid program, potentially increase enrollment or even balance state budgets. As states work to comply with federal legislation and control growing costs these systems will remain a crucial component of Medicaid program integrity efforts.