For most of the half-century since Medicaid and Medicare were created, the federal government's main tool against improper payments was a model that auditors call pay-and-chase. A claim arrives, a payment goes out, and only later — sometimes years later — does the government attempt to recover the money. The Government Accountability Office has used the phrase since at least the late 1990s, and it has called the approach 'labor-intensive and time-consuming,' acknowledging that it 'typically recover[s] only a small fraction of the identified misspent funds.' Two decades of reform have tried to replace that model with prevention. The story of how — and how unevenly it has actually been adopted — is the most consequential program-integrity story in American government.

This is a plain-language explainer on a policy debate that does not get nearly enough attention in mainstream coverage — the slow rewrite of how the federal government and the states detect and prevent improper payments in Medicaid and Medicare. The shorthand for the model being rewritten is pay-and-chase. The model that is replacing it, slowly and unevenly, is prevention-based or prepayment program integrity. The numbers behind the shift are striking. The pace of adoption in many states, including Idaho, has lagged the federal evidence.

What "pay-and-chase" actually means.

The Government Accountability Office uses the phrase in its formal Medicaid integrity reports. The 2001 GAO report on state efforts to control improper Medicaid payments defined it cleanly:

"Prevention can help avoid what is known as 'pay and chase' in which efforts must be made to detect and attempt to recover inappropriate payments after they have been made. Such postpayment efforts are often costly and typically recover only a small fraction of the identified misspent funds."1

The same GAO report described pay-and-chase as "labor-intensive and time-consuming." The Centers for Medicare and Medicaid Services and the Office of Inspector General use the same shorthand. The Congressional Research Service has written that Medicare's "prompt payment requirements contribute to a vulnerability that has been described as a 'pay-and-chase' approach, whereby Medicare pays a claim and then has to recoup any improper payment."2

In other words: claim arrives, payment goes out, and only after the fact does the government try to figure out whether the payment was proper. If it was not, the government attempts to recover the money — often years later, often unsuccessfully, often from providers who have already moved on.

The numbers behind the model.

For Fiscal Year 2025, the most recent year for which CMS has published official Medicaid improper payment data, the figures are:

  • Estimated Medicaid improper payment rate: 6.12 percent.
  • Estimated Medicaid improper payment dollar amount: $37.39 billion.
  • Share of those improper payments due to insufficient documentation: 77.17 percent.
  • Share due to ineligible beneficiaries or non-covered services: roughly 15.6 percent.3

A few notes on what those numbers mean. First, CMS is explicit that improper payments are not the same thing as fraud. An improper payment is any payment that does not meet program payment requirements — which can include payments where the documentation was incomplete, where the beneficiary's eligibility was misclassified, or where the service was not covered. CMS notes that the 77 percent documentation-failure category is "generally not indicative of fraud or abuse" — it is a failure of record-keeping, not a failure of intent.

Second, the 6.12 percent rate is an estimate produced by the Payment Error Rate Measurement (PERM) program, which samples claims from approximately seventeen states per year on a rotating three-year cycle. The methodology is consistent over time but state-level PERM rates are not directly comparable to one another due to differences in state Medicaid program design.4

What happens when the government tries to chase the money.

The single most important number in this piece is the recovery rate. The OIG has tracked how much of identified Medicare overpayments are actually recovered. In a 2016 OIG audit of fiscal year 2014 data:

  • Zone Program Integrity Contractors referred $559 million in identified Medicare overpayments to Medicare Administrative Contractors for collection.
  • MACs sought to collect $482 million of that amount.
  • MACs collected $96 million — or about 20 percent of the amount sought.
  • Eighty percent of referred overpayment dollars went uncollected as of the audit cutoff.5

The 20 percent collection rate was an improvement on a prior baseline of about seven percent. Two decades of pay-and-chase practice produced a recovery rate that, even at its modern peak, leaves four out of every five dollars on the table. A separate OIG review of Medicaid third-party liability data from 1999 found a 17 percent recovery rate — $73 million collected on $440 million identified.6

"Fraudulent providers often bill large sums quickly, then disappear."
— Congressional Research Service, RL34217 (2007)

That single sentence from CRS explains why pay-and-chase has such a low ceiling. By the time a post-payment review flags a billing pattern, the money is gone, the provider is gone, and the legal pursuit is years of work for cents on the dollar.

The slow shift to prevention — what actually changed.

The reform pivot toward prevention was not a single bill or a single year. It was a sequence of policy moves stretched across more than two decades. The most important steps:

2001 — GAO sounds the alarm. The 2001 GAO report on Medicaid improper payments named pay-and-chase as a structural problem and called for prepayment review expansion. The report also documented that the Health Care Financing Administration — the CMS predecessor — was "moving toward more extensive use of prepayment reviews," but the pace was slow.1

2003-2009 — Recovery Audit Contractors. Congress authorized the Recovery Audit Contractor program in the 2003 Medicare Modernization Act, ran it as a demonstration through 2008, and put it in place nationwide in March 2009. RACs are post-payment review contractors, paid on contingency, who identify and correct improper Medicare payments after the fact. RAC was an incremental improvement on traditional pay-and-chase, not a replacement.7

2010 — the ACA paradigm shift. The Affordable Care Act and the Small Business Jobs Act of 2010 represented what Health Affairs called a "paradigm shift" away from pay-and-chase. The reforms gave CMS new authority to screen questionable providers before enrollment, to suspend payments to providers under investigation, and to temporarily halt new-provider enrollment in high-risk geographic areas. CMS also consolidated Medicare and Medicaid program integrity under a new Center for Program Integrity.8

2011 — the Fraud Prevention System. In 2011, CMS launched the Fraud Prevention System, a predictive analytics engine that screens every Medicare fee-for-service claim before payment, flagging suspicious billing patterns in real time. The first-year report to Congress documented $115.4 million in payments stopped, prevented, or identified — a return of $3 for every $1 spent.9 By Year 2, the figure had nearly doubled, and the FY 2013–2014 combined return on Medicare program integrity reached approximately $12.40 per $1 spent.10

2016 — Unified Program Integrity Contractors. In 2016, CMS consolidated the Zone Program Integrity Contractor and Medicaid Integrity Contractor programs into a single set of Unified Program Integrity Contractors, or UPICs. UPICs are the only CMS benefit-integrity contractors that cover both Medicare fee-for-service and Medicaid, and they operate in all five CMS jurisdictions.11

What prevention-first actually produces.

The clearest state-level demonstration of what prevention-first program integrity can produce is the New York Office of Medicaid Inspector General. In 2022, the most recent year for which OMIG has published a comprehensive annual report:

  • Total Medicaid program integrity savings and recoveries: $3.4 billion.
  • Cost-avoidance (prevention) — primarily prepayment claims reviews and insurance verification: more than $2.6 billion.
  • Post-payment recoveries — audits, investigations, and enforcement actions: approximately $819 million.
  • Prevention's share of total savings: approximately 76 percent.12

The arithmetic is straightforward. Roughly three-quarters of New York's Medicaid program integrity dollars came from stopping the wrong payment before it went out the door, not from chasing the money after the fact. Other state-level reforms — Texas's program integrity consolidation in 2003, California's provider screening expansion — show similar patterns at smaller scales.13

Roughly three-quarters of New York's Medicaid program integrity dollars came from preventing the wrong payment before it went out the door, not from chasing the money after the fact.

Idaho — what the most recent CMS review actually found.

The Idaho case is where the policy debate becomes uncomfortably specific. In May 2025, CMS released findings from a focused review of Idaho's Medicaid managed care program integrity oversight for fiscal years 2020 through 2022. The findings were unsparing:

  • Idaho had a "general lack of oversight of the MCOs" resulting in "low to no referrals of potential fraud" and "low reported overpayments."
  • Idaho failed to implement corrective measures identified in its 2018 program integrity review — meaning the same vulnerabilities the state had been warned about seven years earlier had not been resolved.
  • Idaho did not provide fraud, waste, and abuse training to its contracted MCOs during the entire three-year review period.
  • Idaho had no process to regularly analyze MCO encounter data for program integrity purposes.
  • The amount of overpayments recovered by MCOs was "drastically different" from what the state reported — a data reliability problem.14

The MCO-level fraud referral data in the report tells the same story. In three years of operating in Idaho's Medicaid managed care program, MCNA Dental made zero fraud referrals to the state. Optum Idaho made zero. Molina Healthcare made three. Only Blue Cross of Idaho — with 64 referrals over the same three-year span — operated anywhere near what CMS describes as a functional referral pipeline.

Idaho's PERM-based improper payment rate sits at roughly 18.7 percent — one of the highest in the country and more than three times the national average for FY 2024.15 CMS cautions that state PERM rates are not directly comparable, but the size of the gap is not a methodological artifact.

On the enforcement side, Idaho Attorney General Raúl Labrador noted in a May 2026 public letter that the Idaho Medicaid Fraud Control Unit recorded five indictments and roughly $900,000 in total recoveries in the most recent federal fiscal year, with the highest annual civil recovery in the past decade from the U.S. Attorney partnership. Tips and referrals to the MFCU jumped from 136 in 2024 to 219 in 2025.16 The enforcement pipeline is functioning at a small scale. The prevention pipeline is the gap CMS identified.

What the data adds up to.

The case for moving from pay-and-chase to prevention rests on five points that the public record establishes plainly:

  • Post-payment recovery rates are structurally low — 20 percent at the most recent measured peak, with seven percent as the prior baseline.
  • The largest share of improper payments is documentation failures, which prevention systems can address before payment but pay-and-chase systems only catalogue after the fact.
  • Prevention systems consistently produce returns of $3 to $12 per $1 spent, with state-level implementations like New York's reaching the higher end.
  • Fraudulent providers exploit the time lag inherent in pay-and-chase, billing quickly and disappearing before recovery can catch up.
  • States that have invested in prepayment review, provider screening, and encounter data analysis show measurably better integrity outcomes.

The countervailing realities — limited state capacity, political sensitivity around Medicaid administration, and the implementation cost of new claims-review infrastructure — are real, and they explain why adoption has been uneven. They do not change the underlying arithmetic.

Where this connects to operations.

The shift from pay-and-chase to prevention has direct implications for any organization that operates inside a state Medicaid program — particularly disability service providers, residential care operators, behavioral health agencies, and others working under managed care contracts. The expectations are migrating upward.

The realistic operational forecast for the next several years includes more prepayment claims editing, more provider enrollment screening, more documentation requirements on every claim, more encounter data scrutiny from MCOs, and more on-site visits and corrective action plans. Organizations that maintain continuous audit-readiness practices will weather the shift without much disruption. Organizations that still operate on the assumption that compliance happens once a year, in a sprint, are going to find the ground moving.

The Anazao Solutions policy and operations work is designed around exactly this transition. Survey-ready manuals, current policy version control, training records that match the policy, documented incident response, and a continuous monthly review cadence are the operating discipline the prevention-era regulator expects. The firm's Residential Habilitation policy manual and forms packet, the HIPAA Security Policy template, the documentation framework for managed care contracts — these are the artifacts of an organization that has decided to operate at the standard of the new program-integrity environment, not the old one.

The bottom line.

Pay-and-chase is not going away in a single year. It will not be eliminated as long as state agencies are required to pay clean claims promptly, and as long as enforcement remains an essential backstop. What is changing — slowly, unevenly, and at the federal pace — is the share of program integrity work that happens before the money moves. The data is clear on which approach produces better outcomes. The implementation gap is where the next decade of program integrity policy will be fought.

For organizations doing the operating work inside that environment, the implication is the one Anazao Solutions has spent the better part of a decade making to clients: the documentary record you maintain in the ordinary course of business is the only thing that holds up when the rules tighten. Build it now. Maintain it continuously. Treat the surveyor as a partner, not an adversary. The math has already decided which side of this debate is going to win.

Building stronger communities through stronger systems.

References

  1. U.S. Government Accountability Office, "Medicaid: State Efforts to Control Improper Payments Vary" (GAO-01-662, 2001). govinfo.gov.
  2. Congressional Research Service, "Medicare Program Integrity: Activities to Protect Against Improper Payments" (RL34217, October 2007). everycrsreport.com.
  3. Centers for Medicare and Medicaid Services, "Fiscal Year 2025 Improper Payments Fact Sheet" (January 15, 2026). cms.gov.
  4. Centers for Medicare and Medicaid Services, "Payment Error Rate Measurement (PERM)" program overview. cms.gov.
  5. HHS Office of Inspector General, "ZPIC and PSC Overpayment Referrals" (OEI-03-13-00630). oig.hhs.gov.
  6. HHS Office of Inspector General, "Medicaid Third-Party Liability Recovery" (OEI-03-00-00030). oig.hhs.gov.
  7. Health Affairs, "Eliminating Fraud and Abuse" health policy brief (July 2012). healthaffairs.org.
  8. Health Affairs (2012), same source as above — discussion of the ACA program-integrity authorities.
  9. Centers for Medicare and Medicaid Services, "Fraud Prevention System: First Implementation Year, Report to Congress." cms.gov PDF.
  10. Centers for Medicare and Medicaid Services, "FY 2013–2014 Annual Report on Medicare Program Integrity." CMS Annual Report PDF.
  11. HHS Office of Inspector General, "UPICs Hold Promise to Enhance Program Integrity Across Medicare and Medicaid, But Challenges Remain" (October 2022). oig.hhs.gov.
  12. New York Office of Medicaid Inspector General, "$3.4 Billion Saved and Recovered in New York's Medicaid Program in 2022." omig.ny.gov.
  13. U.S. Government Accountability Office, "Medicaid Program Integrity: State and Federal Efforts to Prevent and Detect Improper Payments" (GAO-04-707, 2004). govinfo.gov.
  14. Centers for Medicare and Medicaid Services, "Idaho FY2023 Focused Program Integrity Review Final Report" (May 2025). cms.gov PDF.
  15. Georgetown Center for Children and Families, "The Truth about Fraud Against Medicaid" (January 2025), citing CMS PERM data. ccf.georgetown.edu.
  16. Idaho Office of the Attorney General, "Labrador Letter: Medicaid Fraud Hurts Everyone" (May 29, 2026). ag.idaho.gov.