Medicaid payment integrity remains a significant challenge as federal oversight continues to focus on reducing improper payments and improving payment accuracy. An August 2026 report from the U.S. Department of Health and Human Services Office of Inspector General (HHS OIG) found that HHS did not fully comply with federal improper payment requirements for fiscal year 2025, highlighting the continued need for stronger controls across the Medicaid program.
The HHS OIG audit evaluated HHS compliance with the Payment Integrity Information Act of 2019 (PIIA), which establishes federal requirements for identifying, reporting, and reducing improper payments.
Medicaid remains an OMB-designated high-priority program due to its susceptibility to significant improper payments. According to the report, the Medicaid improper payment rate increased from 5.09% in FY2024 to 6.12% in FY2025.
The OIG concluded that HHS had not demonstrated sufficient improvement in Medicaid payment integrity and had not met certain requirements related to its improper payment reduction target.
Improving Payment Accuracy Requires Addressing Root Causes
The report emphasizes the importance of addressing the underlying causes of improper payments rather than relying solely on measuring them after they occur.
HHS OIG recommended strengthening corrective action plans for Medicaid and CHIP by identifying root causes and implementing actions capable of producing sustained improvements in payment integrity.
For Medicaid programs and managed care organizations, this creates an important distinction between detecting improper payments and preventing them.
Post-payment recovery remains an essential component of program integrity. However, when an avoidable payment can be identified before adjudication, preventing the payment offers an opportunity to protect Medicaid funds before recovery becomes necessary.
This distinction is particularly important as Medicaid programs look for ways to reduce their reliance on retrospective recovery. Medicaid improper payments and the high cost of traditional pay-and-chase processes demonstrate why moving payment integrity controls earlier in the claims lifecycle can provide a more effective approach to cost containment.
COB and TPL Are Important Components of Payment Integrity
Coordination of benefits (COB) and third-party liability (TPL) represent one area where stronger pre-payment controls can support payment accuracy.
According to CMS guidance on Medicaid COB and TPL, Medicaid is generally the payer of last resort. States are required to take reasonable measures to identify third parties that may be legally responsible for a beneficiary’s healthcare costs and ensure available third-party resources meet their payment obligations before Medicaid pays whenever appropriate.
The challenge is maintaining accurate third-party coverage information.
Commercial insurance can change as members gain or lose employer-sponsored coverage, change health plans, or experience other coverage changes. When Medicaid systems contain missing, inaccurate, or outdated insurance information, claims may be adjudicated without complete visibility into another payer’s responsibility.
This creates an opportunity to move payment integrity controls earlier in the claims lifecycle.
Moving Payment Integrity From Recovery to Prevention
CMS distinguishes between two important approaches to Medicaid third-party liability: cost avoidance and pay and chase.
Under CMS guidance on third-party liability, when a potentially liable third party is known, states generally seek to have that third party pay before Medicaid. This is known as cost avoidance. When Medicaid has already paid a claim and subsequently discovers another liable payer, the state seeks recovery through a process commonly known as pay and chase.
Both approaches have a role in Medicaid program integrity, but they operate at different points in the payment lifecycle.
When third-party coverage can be identified before adjudication, cost avoidance provides an opportunity to prevent an unnecessary Medicaid expenditure altogether. Pay-and-chase recovery provides an important safeguard when coverage is discovered after payment.
The strongest approach combines both.
Strengthening Medicaid Payment Integrity at the Point of Payment
The OIG’s FY2025 findings reinforce the need for Medicaid payment integrity strategies that do more than identify errors retrospectively.
As states and health plans work to improve payment accuracy, greater emphasis should be placed on technologies and processes that provide better information at the time a payment decision is made.
For COB and TPL, this means improving visibility into active third-party coverage and integrating that information into pre-payment workflows.
Syrtis Solutions supports this approach through real-time, prospective cost avoidance technology that helps Medicaid programs and managed care organizations identify third-party insurance coverage before claims are paid. Incorporating more accurate coverage information into claims adjudication can strengthen payer-of-last-resort compliance, increase cost avoidance, and reduce unnecessary Medicaid expenditures.
Medicaid payment integrity requires a comprehensive strategy that combines effective post-payment recovery with stronger pre-payment controls. As federal scrutiny of improper payments continues, improving data accuracy, identifying third-party coverage earlier, and preventing avoidable payments before they occur will be increasingly important to protecting Medicaid funds.
