Medicaid Fraud Primer: Medicaid vs. Medicare, Federal Charges, Investigations, Evidence, Schemes, and Defenses
Under the Trump Administration’s stated emphasis on combating fraud, waste, and abuse in federal programs, Medicaid fraud has moved to the forefront of law-enforcement priorities. The Administration has publicly committed to aggressive oversight of Medicaid spending, expanded use of data analytics, and closer coordination between DOJ, HHS-OIG, and state partners to identify perceived program abuse.
For providers and executives, that policy posture has concrete consequences: more audits, more subpoenas, more parallel civil and criminal investigations. As a result, Medicaid investigations increasingly present not only reimbursement risk but serious criminal exposure and False Claims Act liability. It is therefore essential to understand the governing law, enforcement theories, and potential defenses.
1. What Is Medicaid?
Medicaid is a joint federal-state program authorized under Title XIX of the Social Security Act. It provides medical assistance to eligible low-income individuals and defined vulnerable populations. It is not a single national benefit plan. Instead, each state (and the District of Columbia) operates its own Medicaid program under a state plan approved by the federal government.
Key structural features that matter in enforcement matters:
Federal-state funding structure: The federal government reimburses states for a percentage of program costs (FMAP).
State administration: Coverage rules, reimbursement methodologies, and documentation standards are largely state-specific.
Managed care dominance: Many beneficiaries receive care through Medicaid managed care organizations (MCOs), creating additional layers of contractual and evidentiary complexity.
Provider enrollment and disclosures: Ownership, control, revalidation, and exclusion disclosures are frequent enforcement hooks.
From a defense perspective, Medicaid’s decentralized structure is often a legal pressure point. Record retention and claims data fidelity varies widely across the states. Some states are on par with Medicare’s documentation. Others are a far cry from it. An unclear data set or tacit approval of a providfer’s practices by a Medicaid program provides extensive room for defense arguments in an investigation and at trial.
2. Medicaid vs. Medicare: Differences That Drive Legal Risk
Medicare (Title XVIII) is a primarily federal program for seniors and certain disabled individuals. Medicaid is jointly funded but state-administered. That distinction produces several legally meaningful consequences:
Rule variability: Medicaid billing and coverage rules differ by state and even by MCO. That variability supports defenses based on ambiguity in the rules, lack of fair notice, and good faith interpretation of otherwise ambiguous rules.
Enforcement pipelines: Medicaid matters frequently originate with state agencies, MFCUs, or MCO audits before escalating to federal law-enforcement and prosecutors.
Data complexity: Managed care encounter data, capitation models, and delegated vendors complicate loss amounts (or damages in the FCA context), and the materiality of any alleged false or misleading representation.
3. What Is “Medicaid Fraud”?
There is no single “Medicaid fraud statute” under federal law. The term encompasses alleged conduct involving:
False or inflated claims to Medicaid for covered services
Billing for medical services not rendered
Lack of medical necessity in the purported medical services
Kickbacks to patients and other medical providers
Misrepresentations to Medicaid in enrollment and certification documents
Identity misuse (billing for services without the patient’s approval, knowledge or authorization)
False documentation in medical files (papering a file to fraudulently support the claimed condition or service)
In defending against a Medicaid fraud case, the critical questions that must be immediately answered are:
What rule governs the alleged conduct?
Is that rule clear and mandatory or merely guidance?
What mental state must be proven?
Was the alleged representation false and material?
What is the alleged loss amount in the criminal context or damages in the FCA context?
4. Who Investigates Medicaid Fraud?
Medicaid fraud investigations run across the state and federal law-enforcement apparatus. These agencies often work in partnership with each other.
Federal entities
Department of Justice (DOJ): Cases are prosecuted either at local USAOs, out of DOJ’s Fraud Section or a partnership between the two.
HHS Office of Inspector General (HHS-OIG): HHS-OIG agents historically take the lead in investigating Medicaid fraud on the federal level.
Federal Bureau of Investigation (FBI): FBI agents often partner with agents from HHS-OIG to investigate Medicaid fraud.
IRS-Criminal Investigation (IRS-CI): IRS-CI agents partner with other federal agents where there is a potential tax violation to accompany the healthcare fraud investigation.
Drug Enforcement Administration (DEA): DEA agents are involved in a Medicaid investigation if there is a controlled-substances angle to the investigation, i.e., potential diversion of controlled substances.
State entities
State Medicaid agencies
Medicaid Fraud Control Units (MFCUs): MFCU agents are often embedded as Task Force Officers with the FBI and partner with the FBI to investigate Medicaid fraud cases.
Private actors feeding investigations
Medicaid MCOs and their SIUs
Audit contractors
Data analytics vendors
Whistleblowers (qui tam relators)
Parallel proceedings are common. A single dataset may support a criminal case, an FCA case, and an administrative overpayment demand simultaneously.
5. How Medicaid Fraud Is Charged Federally
An indictment for Medicaid fraud can involve any combination of federal charges. These indictments generally charge between 5-10 federal offenses.
Criminal federal statutes in a Medicaid fraud indictment
18 U.S.C. § 1347 – Healthcare fraud
18 U.S.C. §§ 1341, 1343 – Mail and wire fraud
18 U.S.C. §§ 1349, 371 – Conspiracy
42 U.S.C. § 1320a-7b(b) – Anti-Kickback Statute
18 U.S.C. § 1035 – False statements in healthcare matters
18 U.S.C. §§ 1956–1957 – Money laundering
18 U.S.C. § 1028A – Aggravated identity theft
Civil enforcement mechanisms for Medicaid fraud matters
False Claims Act (31 U.S.C. §§ 3729–3733)
Civil monetary penalties
Exclusion proceedings
State false claims acts
Licensing Board discipline
Most major cases involve coordinated civil and criminal investigations, even if only one track becomes public.
6. Anti-Kickback Statute (AKS) Exposure in Medicaid Investigations
Although Medicaid is administered by the states, it is indisputably a “federal healthcare program” for purposes of the federal Anti-Kickback Statute (AKS), 42 U.S.C. § 1320a-7b(b).
Many Medicaid investigations—particularly those involving marketing relationships, referral sources, vendors, or financial arrangements—are driven less by billing theories and more by kickback-based conduct.
Why AKS matters in Medicaid cases
The AKS makes it a felony to knowingly and willfully offer, pay, solicit, or receive any remuneration—directly or indirectly, overtly or covertly—to induce or reward referrals or utilization of items or services reimbursable by a federal healthcare program, including Medicaid.
In practice, this means that conduct which might otherwise appear to be a business or contractual dispute (e.g., marketing arrangements, consulting agreements, vendor discounts, or referral relationships) can become the core criminal theory in a Medicaid case.
AKS allegations in a Medicaid investigation are particularly fraught because they often serve as a gateway theory for additional exposure:
Criminal AKS charges
Criminal healthcare fraud charges
Civil False Claims Act liability based on “tainted claims”
Civil monetary penalties
Mandatory exclusion from federal healthcare programs
State licensing consequences
Common AKS fact patterns in Medicaid investigations
Federal prosecutors and enforcement agencies routinely rely on the AKS in Medicaid matters involving:
Patient brokering arrangements (payments per Medicaid beneficiary recruited)
Marketing or “outreach” agreements tied to the volume or value of referrals
Sham consulting agreements with physicians, therapists, or community organizations that disguise payments for referrals
Free services or staffing provided to referral sources (care coordinators, administrative support, etc.)
Below-market rent or free office space provided to referral partners
Transportation, gift cards, or incentives offered to Medicaid beneficiaries
Vendor arrangements (billing companies, labs, transportation providers) structured to share revenue for claims submitted on behalf of Medicaid beneficiaries
Behavioral health and substance use treatment referrals, where MCO reimbursement is implicated
In many cases, the government’s theory is not that services were not provided, but that the referral stream itself was unlawfully induced, rendering every downstream claim allegedly “tainted.”
AKS and the False Claims Act in Medicaid cases
One of the most consequential developments in healthcare enforcement is the statutory linkage between the AKS and the False Claims Act.
Under 42 U.S.C. § 1320a-7b(g), claims “resulting from” an AKS violation are deemed false or fraudulent for purposes of the FCA. The connection between the AKS violation and the claimed payment is a rapidly evolving area of the law.
How AKS evidence is developed in Medicaid investigations
AKS theories are usually built from:
Contracts between providers and marketers, consultants, or referral sources
Financial records showing payments tied to volume of patients referred or revenue from paid claims
Internal emails discussing growth targets, patient acquisition, or referral sources
Text messages describing “per head” arrangements
Testimony from cooperating employees or business partners
MCO audit findings related to referral patterns
AKS cases often rely less on claims data and more on the true nature of business relationships and intent evidence.
Common defenses in Medicaid AKS cases
AKS cases are highly fact-specific and open to a number of critical defenses. Common defense themes include:
Lack of intent: The AKS requires proof that remuneration was offered or paid knowingly and willfully to induce referrals. Poor contract drafting is not a crime.
Commercial reasonableness: Many arrangements reflect legitimate business purposes unrelated to referrals.
Fair market value disputes: Government experts frequently mischaracterize valuation issues.
Safe harbor analysis: While failure to meet a safe harbor is not per se illegal, many arrangements substantially comply with safe harbor principles.
Causation challenges in FCA cases: The government must still prove that specific claims actually “resulted from” the alleged kickback.
Why AKS exposure often drives charging decisions
In Medicaid enforcement cases, AKS allegations frequently become the strategic centerpiece of the government’s case because they:
Are easier to explain to juries than coding or medical necessity disputes
Allow prosecutors to avoid technical billing arguments
Provide a bridge to massive FCA damages theories
For that reason, any Medicaid investigation involving marketing, referrals, vendor relationships, or compensation structures must be evaluated through an AKS lens from the outset.
7. Common Types of Medicaid Schemes Charged Federally
There is no one-size-fits-all Medicaid fraud case. Each investigation turns on its own facts, governing state rules, alleged intent, and evidentiary record. For these reasons, outcomes can vary dramatically even among superficially similar matters. Common Medicaid fraud cases include alleged conduct for:
Phantom billing (services never rendered)
Upcoding and unit inflation
Medical necessity disputes framed as fraud
Kickbacks and patient brokering
Behavioral health and community-based services billing
Transportation (NEMT) and DME billing patterns
Pharmacy and prescribing-related theories
Enrollment and ownership misrepresentation
Managed care encounter data inflation
Critical to all of these alleged schemes is evidence of wrongful intent. This intent is often proven in modern cases through electronic messages, such as iMessages, SMS messages, and communications on ephemeral messaging platforms, like Signal or WhatsApp. These messages are often used to present what prosecutors call a “snapshot” of wrongful intent.
8. Evidence in Medicaid Investigations: What Is Used, How It Is Collected, and By Whom
Medicaid cases are document-driven. Patient files and billing data are the foundational pieces of any Medicaid investigation. Understanding the evidentiary construction of a Medicaid case is critical to mounting an effective defense.
Claims and billing data
Collected by: State agencies, MCOs, HHS-OIG, DOJ
Used to identify statistical outliers and billing patterns
Vulnerabilities: poor peer groups, flawed extrapolation, loss of clinical nuance
Medical records and EHR data
Obtained via subpoenas, CIDs, search warrants, or third-party production
Used to build a case alleging a lack of medical necessity or falsified documentation
Medical necessity cases are difficult to prove, as it is inherently subjective. These cases are susceptible to arguments about the subjectivity of medical judgment.
Internal communications
Emails, chats, texts, audit reports
This evidence is often used to prove a critical issue in Medicaid cases: wrongful intent.
Financial records
Bank records, invoices, ownership distributions
Used to prove a profit motive or a kickback arrangement
Vulnerabilities: misinterpretation of banking records or reliance on an incomplete picture of the financial dealings
Witness testimony
Employees, patients, contractors, relators, cooperating witnesses
Susceptible to cross-examination on credibility issues (offers of leniency, threats of retaliation, the prospect of financial rewards, and a potential reduced sentence)
Vulnerabilities: bias, lack of expertise, unreliable recollection
Digital forensics
Device extractions (cell phones), server logs, metadata
Collected via search warrants or third-party providers
Vulnerabilities: overcollection errors, misinterpretation, chain-of-custody issues
9. Common Defenses in Federal Medicaid Fraud Matters
Defenses in Medicaid fraud cases are highly fact-intensive and will turn on detailed analysis of claims data, medical records, communications, billing practices, and the defendant’s actual intent rather than abstract legal theory alone. Nonetheless, common defenses include the following:
Lack of intent
Criminal cases require proof of wrongful intent, often willfulness or knowledge that the alleged conduct violated a known legal duty. Poor documentation or administrative error is not fraud.
Rule ambiguity and a good-faith interpretation
Medicaid rules are fragmented and often unclear. Ambiguity undermines falsity. A good-faith interpretation of ambiguous Medicaid rules is a powerful defense because it undermines the government’s ability to prove knowing falsity and willful intent, particularly in complex and state-specific regulatory schemes.
Materiality
Materiality is frequently disputed in Medicaid fraud cases because the government must show that the alleged misrepresentation had the tendency to influence the program’s payment decision, not merely that a technical rule was violated. Defendants often challenge materiality by showing that the state agency or MCO continued to pay claims despite knowledge of the alleged issue, or that the requirement was treated as non-essential in practice.
Causation and AKS “taint” theories
The government must still prove that remuneration actually induced referrals or claims.
Reliance on legal advice (where appropriate)
Advice of counsel can be a potent defense in Medicaid fraud cases because it directly undermines willfulness when a defendant can show he or she fully disclosed the relevant facts to counsel and relied in good faith on legal advice. At the same time, the defense is strategically risky because it waives attorney–client privilege on the subject matter. Advancing an advice of counsel defense must be expertly navigated.
Good-faith provision of medical services
Services that were actually provided and beneficial undermine an attempt to frame a case in black-and-white terms.
Investigative errors and suppression
Attacking the underlying evidence through motions to suppress based on agent errors, and other issues, in the course of the investigation is a core defense tactic. Challenges to the underlying evidence involve attacking unlawful searches, overbroad subpoenas, flawed warrants, and improper data seizures. Successful suppression or exclusion of tainted evidence can materially weaken the government’s case, alter charging decisions or eliminate critical proof of intent or loss.
Frequently Asked Questions
Is Medicaid fraud always charged federally?
No. States prosecute many cases, but federal involvement is common when the alleged conduct involves a larger loss amount or involves sprawling conduct with numerous individuals or providers.
Can a billing dispute become criminal?
Yes. Prosecutors often attempt to convert documentation and coding disputes into intent-based narratives.
How can a civil healthcare or Medicaid fraud investigation turn into a criminal investigation?
A civil investigation can evolve into a criminal investigation when enforcement authorities develop evidence suggesting intentional fraud rather than mere regulatory noncompliance or overpayment. In healthcare and Medicaid matters, cases often begin as audits, overpayment reviews, or civil inquiries by agencies such as CMS, state Medicaid units, or contractors like UPICs and MACs. If those reviews uncover indicia of knowing misconduct—such as fabricated documentation, systematic upcoding, kickback arrangements, altered records, or deceptive communications—agencies may refer the matter to criminal investigators.
Referrals frequently go to the Department of Justice, the FBI, HHS-OIG, state Medicaid Fraud Control Units, or other law-enforcement partners. Once that occurs, the investigative tools and risks escalate significantly. Subpoenas may broaden, search warrants may be sought, cooperating witnesses may be developed, and parallel proceedings may begin. Importantly, the government is not required to notify a target when a matter crosses from civil to criminal, and conduct that seemed manageable in an audit context—such as informal interviews or document productions—can later carry serious criminal exposure. Early legal counsel is therefore critical whenever a civil healthcare investigation shows signs of potential criminal scrutiny.
Which agencies typically investigate?
DOJ, HHS-OIG, FBI, MFCUs, and often MCO SIUs.
What statutes are most commonly charged in a federal Medicaid case?
18 U.S.C. § 1347 (Healthcare fraud); 18 U.S.C. §§ 1341, 1343 (Mail and wire fraud); 18 U.S.C. §§ 1349, 371 (Conspiracy); 42 U.S.C. § 1320a-7b(b) (Anti-Kickback Statute); 18 U.S.C. § 1035 (False statements in healthcare matters); 18 U.S.C. §§ 1956–1957 (Money laundering); 18 U.S.C. § 1028A (Aggravated identity theft).
What is the mens rea for healthcare fraud under 18 U.S.C. § 1347?
To secure a conviction for healthcare fraud under 18 U.S.C. § 1347, the government must prove that the defendant acted knowingly and willfully and with specific intent to defraud a healthcare benefit program. This means the prosecution must establish that the defendant intentionally engaged in a scheme to deceive a healthcare benefit program in order to obtain money or property, and did so with awareness that the conduct was unlawful.
Importantly, negligence, mistake, or mere regulatory noncompliance is not enough. The statute targets deliberate fraud, not good-faith billing errors or reasonable disagreements over medical necessity or coding. For that reason, defenses often focus on good faith, lack of knowledge, reliance on billing professionals or consultants, ambiguity in complex billing rules, and the absence of intent to deceive.
How is the loss amount calculated in a federal Medicaid fraud case?
In federal Medicaid fraud cases, the “loss amount” is generally calculated under U.S.S.G. § 2B1.1 and represents the greater of actual loss or intended loss attributable to the alleged scheme. Prosecutors and agents typically begin with the total value of claims submitted to Medicaid during the charged period and then apply adjustments based on their theory of fraud. In some cases, the government asserts that the entire amount billed is loss (for example, where services are alleged to be wholly unnecessary or never provided). In others, the loss calculation turns on more granular issues, such as whether services were partially legitimate, whether claims were merely upcoded rather than entirely false, or whether statistical sampling and extrapolation is being used.
Common data sources include Medicaid claims data, billing records, provider enrollment files, medical charts, and payer edits. Defense counsel often challenges loss calculations by demonstrating medical necessity, establishing that services were actually provided, identifying methodological flaws in sampling or extrapolation, contesting assumptions embedded in government data analysis, and arguing that legitimate value must be credited against any alleged overpayment.
Loss amount is one of the most heavily litigated issues in healthcare fraud cases because it directly drives sentencing exposure and restitution.
What is the potential sentence for a conviction for Medicaid fraud?
The potential sentence for Medicaid fraud depends on the specific statutes charged, the scope of the alleged conduct, and the defendant’s criminal history. Federally, healthcare fraud under 18 U.S.C. § 1347 carries a statutory maximum of up to 10 years’ imprisonment per count, or up to 20 years if the offense results in serious bodily injury, and up to life imprisonment if death results. Other commonly charged statutes in Medicaid cases—such as wire fraud (18 U.S.C. § 1343), conspiracy (18 U.S.C. § 371 or § 1349), Anti-Kickback Statute violations (42 U.S.C. § 1320a-7b(b)), and false statements relating to healthcare matters (18 U.S.C. § 1035)—carry their own significant maximum penalties, often up to 5, 10, or 20 years per count.
In practice, sentencing is driven less by the statutory maximums and more by the advisory United States Sentencing Guidelines. Courts calculate an offense level based largely on the alleged loss amount, number of victims, sophistication of the conduct, role in the offense, and any obstruction or abuse-of-trust enhancements. That guidelines calculation can result in dramatically different ranges, from probation in low-loss cases to many years in federal prison in large, multi-million-dollar matters. Experienced defense counsel focuses on challenging the loss calculation, opposing unwarranted enhancements, and presenting mitigating evidence under 18 U.S.C. § 3553(a) to seek a sentence well below the advisory range.
Conclusion
Medicaid fraud enforcement is no longer a peripheral regulatory risk. It is a central priority in federal oversight of healthcare spending. With the Trump Administration’s renewed emphasis on rooting out fraud, waste, and abuse in government programs, agencies are investing more resources, using more sophisticated data analytics, and coordinating more closely with criminal prosecutors. That shift means providers, executives, and billing personnel face greater exposure from conduct that once might have been addressed through audits or administrative remedies alone. Compared to their state agency counterparts, federal investigations of Medicaid fraud are broader, penalties are steeper, and parallel civil-criminal proceedings are increasingly common. An experienced defense is therefore critical.
Questions? Scott Armstrong is a healthcare fraud defense attorney and Medicaid fraud defense attorney based in Washington, D.C., representing physicians, healthcare executives, medical practices, laboratories, billing companies, and healthcare organizations in high-stakes federal investigations and prosecutions. A former Assistant Chief in the DOJ Criminal Division’s Fraud Section, Scott Armstrong defends clients facing allegations and charges of Medicaid fraud, Medicare fraud, Anti-Kickback Statute violations, and False Claims Act violations. His practice focuses on matters investigated by DOJ, HHS-OIG, FBI, CMS, and state Medicaid Fraud Control Units, including defense against subpoenas, civil investigative demands (CIDs), target letters, grand jury investigations, and parallel civil and criminal cases.
