How Medicaid funding flows through Minnesota

ST. PAUL, Minn. (FOX 9) - Minnesota has been in the national spotlight for months because of the massive amount of fraud uncovered in numerous Medicaid programs. Gov. Tim Walz now wants to eliminate Managed Care Organizations from the state's Medicaid system to combat fraud.

Big picture view:

As Minnesota scrambles to respond to alarming levels of Medicaid fraud, most of the criticism has focused on Gov. Walz and the state’s Department of Human Services (DHS), which is undergoing audits, pausing payments and re-certifying providers.

But the state agency does not provide most Medicaid services.

In Minnesota, 80% of Medicaid is administered by Managed Care Organizations (MCOs) like the now-shuttered UCare.

RELATED: Walz wants to eliminate Managed Care Organizations from Medicaid system

How Medicaid Money Flows 

What we know:

Medicaid funding flows through an alphabet soup of agencies and organizations.

Billions of dollars from the federal government’s Centers for Medicaid and Medicare Services (CMS) goes to the state’s Department of Human Services (DHS) and then to Managed Care Organizations (MCOs) that are contracted by the state.

The MCOs, like UCare, then pay or reimburse private companies, hospitals and clinics that provide Medicaid services.

Under this arrangement, providers submit claims directly to the MCOs — not DHS — for the services they provide.

MCOs have paid out more than $6 billion combined in Medicaid claims since 2018, according to data obtained by the FOX 9 Investigators.

The largest MCO in Minnesota was UCare before it was taken over by the state last year due to massive losses.

UCare's Medicaid payments more than doubled before the insurer's demise.

Why you should care:

Since UCare and other MCOs control such large sums of Medicaid funding, they have long been considered to be the first line of defense when it comes to preventing fraud.

"They decide whether the money goes out the door," said Nicholas Wanka, director of the Medicaid Fraud Control Unit at the Attorney General’s Office. "By the time we're involved, the money is already out the door."

RELATED: UCare’s Medicaid payouts more than doubled before insurer’s downfall

MCOs and DHS are the only entities that can freeze Medicaid funding because of suspected fraud.

To better understand how private insurers manage Minnesota’s safety net, the FOX 9 Investigators spent months conducting interviews with legal experts, reviewing state contracts and analyzing hundreds of court records involving Medicaid fraud.

Most of the cases involved UCare, which is now being absorbed by Medica.

What they're saying:

Both companies did not respond to repeated requests for comment about their role in detecting Medicaid fraud.

MCOs have their own investigators and are obligated to report credible fraud allegations to DHS.

A former state prosecutor said MCOs are also incentivized to prevent fraud because they are paid capitation rates, which are upfront, set amounts of money to cover the future cost of care for its members.

If they don’t stop fraud, they lose money.

"It surprises me particularly given the added incentive that MCOs have that in some of these larger type cases they weren't able to identify that (fraud) earlier," said Steve Forrest, a former prosecutor with the Medicaid Fraud Control Unit at the Attorney General's Office.

"Somebody at one point didn't either see codes being entered or claims being paid for that didn't make sense, upticks in claims that didn’t make sense and flag that before money went out the door."

Forrest would not comment on specific investigations.

But he said many red flags were missed because of a well-intentioned effort to increase access to healthcare.

"And so the mechanisms that would be otherwise put in place to prevent fraud weren't there. And there are all sorts of what I would characterize as relatively easy fixes," Forrest said.

Note: This story is part of a series from the FOX 9 Investigators focusing on the state's response to Medicaid fraud.