Medicaid Fraud Control

by Tom Yamachika, President, Tax Foundation Hawaii

Medicaid is a joint federal and state government health insurance program that helps provide medical coverage for people with low incomes and limited resources. Medicaid is basically a federal program that states can opt into by setting up a program that complies with federal rules.  In return, the federal government provides significant funding for the program.

One of the federal requirements is that the participating state have resources in place to identify and prosecute those who are trying to abuse the Medicaid system.  Hawaii has a Medicaid Fraud Control Unit that is established under the Department of Attorney General.

Our MFCU has been having some issues.  Recently, Vice President J.D. Vance pilloried the State, calling Hawaii’s Medicaid fraud enforcement a “complete disgrace” – “Not a single indictment, not a single conviction, because the administrators of the Hawaii program just don’t take it seriously,” he said.

On the next day, the Inspector General of the Department of Health and Human Services wrote to our Attorney General, Anne Lopez, to announce that our MFCU was being decertified.  Decertification endangers the ability of the State to receive federal funding for not only the MFCU but also its entire Medicaid program.

The Feds cited, and our AG did not dispute, that MFCU obtained zero indictments and zero convictions in calendar years 2021 through 2025.

They also described, in their letter, that our MFCU’s problems date back more than a decade.  They mentioned that Office of Inspector General personnel conducted on-site interviews and investigations of our MFCU in 2014 and 2019, on both occasions identifying what they called serious performance deficiencies.  They mentioned that they worked with our MFCU to come up with a corrective action plan and implement it, but the unit’s performance still was not up to snuff.

Indeed, the unit may have been having some problems way before then.  A Hawaii Supreme Court opinion in State v. Sword, 68 Haw. 343 (1986), told the story of a psychologist that was indicted on 32 counts of Medicaid fraud in 1984.  The State’s theory was that the psychologist was treating his patient without a proper medical referral.  But, after evidence came out in the trial showing that the patient in fact had obtained a proper referral, the State changed theories and persisted with the prosecution because the referral was late.  The jury acquitted Dr. Sword of 31 of the 32 counts, and the Hawaii Supreme Court tossed out the conviction of the one remaining count because of the prosecution’s switcheroo.  (This seemed like a weak case to begin with.  Luckily the good doctor is still practicing on one of our neighbor islands, and hasn’t decided to go to the airport with a one-way ticket out of here.)

On the same day that the MFCU decertification was announced, the Governor’s Office issued a release saying that he would create an “independent Medicaid Fraud Strike Force” within our Department of Human Services, the mission of which is to “help identify waste, fraud and abuse, recommend corrective actions, assist in the recovery of taxpayer dollars where appropriate and strengthen systems designed to protect Medicaid recipients and public funds.”

We are hopeful that this episode will serve as a wake-up call.  We cannot be complacent.  There are bad actors out there.  If they aren’t caught, they will make life more difficult and more expensive for the rest of us law-abiding folks.