Gary Alexander: How $700M was stolen from Indiana’s neediest

Medicaid, the nation’s largest public welfare program, is meant to finance medical and long-term-care services to the most vulnerable. It has devolved, however, into a breeding ground for fraud, waste and political corruption. A recent whistleblower lawsuit brought by two former state officials, John McCullough, previously director of program integrity for Indiana Medicaid, and James Holden, chief deputy and general counsel for the Indiana state treasurer, alleges that Indiana’s Medicaid program was defrauded of more than $700 million by hospitals and managed care companies, with the state’s officials succumbing to political pressure to turn a blind eye.

To pour salt on the wound, the whistleblowers allege that, after ignoring errors and clear evidence of fraud, the state’s Medicaid director accepted a job with one of the very entities named in the lawsuit.

Indiana’s scandal reflects a broader national problem. According to McCullough and Holden’s lawsuit, improper payments, including duplicate payments and payments for deceased individuals totaling $724 million from 2015 to 2020 were ignored by the state’s Medicaid office. They allege that political pressure from hospitals and managed care companies influenced officials to stop efforts to recover these funds, contributing to a $1 billion Medicaid shortfall.

The consequences of turning a blind eye to fraud, errors and budget mismanagement are already affecting the most vulnerable. Low-income elderly individuals and people with disabilities, who depend on Medicaid for home and community-based care, are experiencing service reductions while thousands of intellectually disabled residents remain on wait lists. The lawsuit claims that state officials knowingly failed to recover hundreds of millions in improper payments. These are funds that could have helped reduce the budget shortfall and ensure that the most vulnerable received the services they need.

Meanwhile, to make matters worse, the Affordable Care Act’s expansion of Medicaid in Indiana has added more than 600,000 able-bodied recipients to the Medicaid rolls, who take resources from the most vulnerable.

Fraud and mismanagement aren’t the only concerns with Medicaid. The political revolving door between state government and the health care industry is a major problem. In 2017, a Medicaid director came from a major Indiana health law firm and, after leaving in 2023, quickly joined a hospital chain involved in a lawsuit. This clear conflict of interest undermines public trust and contributes to the abuse of the system, as officials who once regulated Medicaid later work for the industries they were overseeing.

The Medicaid system, both in Indiana and nationwide, urgently needs reform. States often make decisions using federal tax dollars with little incentive to ensure efficient spending. Misallocated funds tend to benefit local industries, while taxpayers across the country bear the financial burden. This environment encourages waste, fraud and abuse, leading some governors to treat federal Medicaid funds as economic stimulus.

Several critical steps must be taken to restore integrity to Medicaid and improve services for the most vulnerable. First, states must take steps to eliminate fraud, with recovery efforts prioritized regardless of political influence. The technology to identify improper payments is available, but government officials must demonstrate the political will to act on findings of waste and fraud. If officials knowingly fail to address identified fraud or overpayments, they should face immediate removal from their positions.

Second, it is unconscionable that Indiana Medicaid prioritizes able-bodied adults with higher federal funding rates over individuals with disabilities and children. Indiana has been compensating providers and managed care organizations more for the expansion population, which puts traditional recipients at a disadvantage—and this must stop.

The revolving door between Medicaid offices and the health care industry must be firmly shut to prevent conflicts of interest. Regulators should be held accountable and barred from easily transitioning into roles with companies that receive Medicaid funds. A mandatory five-year waiting period for government officials before accepting positions in the industries they once oversaw would protect public trust and ensure that the focus remains on vulnerable populations rather than private-sector profits.

Medicaid has been plagued by fraud, mismanagement and political corruption, benefiting powerful insurers and hospital systems while neglecting the disabled. The $724 million in fraudulent overpayments uncovered in Indiana could have been used to support those in need and alleviate the burden on taxpayers. Instead, political actors and industry lobbies have allowed these issues to persist.

Urgent reforms are needed to eliminate fraud, restore accountability and refocus Medicaid on its original intent to serve the most vulnerable.•

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Alexander is the director of Paragon Health Institute’s Medicaid and Health Safety Net Reform Initiative. He served as Pennsylvania and Rhode Island’s secretary of health and human services.