07 Aug H.R.1 AND MEDICAID PAYMENT PREVENTION
Payment prevention is becoming a defining priority across Medicaid program integrity. Federal agencies continue to expand fraud enforcement, while Congress has strengthened financial accountability through the One Big Beautiful Bill Act (H.R. 1). Together, these developments reflect a broader shift in Medicaid—from emphasizing post-payment recovery to placing greater value on preventing improper payments before claims are paid. Although H.R. 1 never explicitly uses the phrase “payment prevention,” its provisions create stronger incentives for states and managed care organizations to make the right payment the first time.
For many Medicaid agencies and managed care organizations, improving payment integrity is no longer simply an operational objective—it is becoming a financial necessity as accountability becomes increasingly tied to payment decisions made at the time of adjudication.
Improper Payments Are Largely Administrative
Fraud remains an important concern, but it is not the primary source of Medicaid improper payments.
The Centers for Medicare & Medicaid Services’ (CMS) Payment Error Rate Measurement (PERM) Program has consistently reported that most Medicaid improper payments result from insufficient documentation, administrative errors, or eligibility verification issues—not confirmed fraud or abuse. CMS has repeatedly emphasized that the improper payment rate should not be interpreted as a measure of fraudulent activity.
Recognizing this distinction shifts attention toward the administrative processes responsible for most payment errors.
For more than two decades, the Government Accountability Office has maintained Medicaid on its High-Risk List because of persistent improper payment concerns. Despite expanded audits, oversight, and enforcement, many payment errors continue to originate from incomplete or inaccurate information used during eligibility verification, insurance validation, and claims processing rather than from intentional misconduct.
H.R. 1 Increases the Importance of Getting Payments Right
The One Big Beautiful Bill Act raises the financial stakes associated with Medicaid payment errors.
Beginning in federal fiscal year 2030, H.R. 1 limits the Department of Health and Human Services’ authority to waive repayments for certain excessive erroneous Medicaid payments while broadening the circumstances under which payments may be classified as erroneous. These changes increase financial accountability for states with elevated payment error rates and reinforce the importance of preventing errors before claims are paid.
The Bipartisan Policy Center provides a helpful summary of how H.R. 1 changes PERM accountability.
The legislation reinforces a simple reality: better payment decisions depend on complete and reliable eligibility and coverage information before claims are adjudicated.
Because Medicaid is the payer of last resort, agencies and managed care organizations must determine whether another insurer is responsible before paying a claim. Commercial insurance, Medicare, employer-sponsored health plans, TRICARE, and other liable third-party coverage all influence whether Medicaid should pay or defer payment.
If that information is incomplete or outdated, Medicaid may pay claims another insurer should have covered. Although those payments may later be recovered, PERM evaluates whether the original payment decision was correct at the time of adjudication. Recoveries generally do not eliminate the improper payment determination.
As a result, reliable eligibility information, comprehensive third-party liability (TPL) data, and effective coordination of benefits (COB) processes have become increasingly important to Medicaid payment integrity.
Recovery Remains Essential—but Prevention Is More Effective
Post-payment recovery continues to play a critical role in protecting Medicaid resources.
Medicaid Fraud Control Units investigate fraud, pursue enforcement actions, and recover billions of taxpayer dollars each year. Those activities remain indispensable to program integrity.
Recovery, however, is inherently reactive because it begins only after an improper payment has already occurred.
Preventing payment errors before claims are paid is generally more efficient than identifying, investigating, and recovering them months or years later. Every avoided improper payment reduces administrative costs, improves audit performance, minimizes recovery efforts, and allows agencies to devote more resources to administering Medicaid rather than correcting preventable mistakes.
Better Information Leads to Better Decisions
Better payment decisions begin with better information.
Many traditional third-party liability programs continue to rely on monthly or quarterly eligibility files to identify other insurance coverage. While these approaches remain valuable, they cannot always capture coverage changes that occur between reporting cycles. As a result, Medicaid may pay claims that should have been billed to another insurer.
To address this limitation, Medicaid agencies and managed care organizations are increasingly adopting technologies that continuously validate eligibility information and identify liable third-party coverage before claims are adjudicated.
Automated Algorithmic Analysis and Insurance Discovery Engines (AAAIDE), including those developed by Syrtis Solutions, continuously analyze eligibility and insurance coverage data to identify active commercial insurance, Medicare, TRICARE, and other liable third-party coverage that may not appear in traditional eligibility files. By providing more complete and current information before payment, these technologies strengthen payer-of-last-resort compliance while helping organizations reduce avoidable improper payments.
Additional modernization initiatives include:
- Automated verification using trusted federal, state, and commercial data sources.
- Continuous validation of TPL and COB information throughout the claims lifecycle.
- Real-time identification of newly discovered, updated, or previously unknown insurance coverage before adjudication.
- Greater interoperability among Medicaid, Medicare, commercial insurers, and other authoritative data sources.
A Fundamental Shift in Medicaid
Payment prevention is becoming the foundation of the next generation of Medicaid program integrity. As H.R. 1 increases accountability for erroneous payments, agencies and managed care organizations that invest in better data, modern verification technologies, continuous insurance discovery, and stronger TPL and COB processes will be better positioned to reduce improper payments, strengthen compliance with Medicaid’s payer-of-last-resort requirements, improve audit performance, safeguard taxpayer resources, and support the long-term sustainability of the Medicaid program.