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Could AI Help Bust Medicaid Scammers? Minnesota May Find Out

Minnesota’s governor wants to crack down on Medicaid fraud with the help of artificial intelligence. The idea comes at a time when much of the country is struggling to convict and recover money from Medicaid scammers.

Open bottle of pills on hundred-dollar bills
As the Minnesota Attorney General investigates how a felon convicted of a second-degree murder charge may have bilked the state’s Medicaid program out of more than $7.3 million by impersonating his mother to run a fraudulent home- and community-based services health business, the state’s top leadership is calling to use AI as a weapon to detect fraud.

At the start of the year, Gov. Tim Walz proposed a $54 million legislative package to prevent, detect, investigate and penalize fraud in state programs.

Part of his proposal is to use artificial intelligence to detect and prevent fraud, specifically with a pilot that analyzes data to help detect and flag payment anomalies for Medicaid providers through the Department of Human Services.

“As long as there have been programs aimed at helping people, there have been fraudulent actors looking to steal from those who need them most. Our job is to stay one step ahead of them. We’re coupling new tools, like AI, with old-fashioned police work, to slam the door shut on theft,” said Walz in a press release. “Minnesotans rightly have no tolerance for misuse of taxpayer dollars. This plan directs every single state agency to work together to better prevent, detect, investigate and punish fraud.”

WHY MEDICAID?


Catching people who are cheating the Medicaid system has been proving to be a challenge in recent years: While the number of investigations into fraud conducted by state Medicaid Fraud Control Units has increased, the number of convictions has remained fairly steady.
The national Medicaid fraud investigations versus conviction rate fell from 10 percent in 2010 to 6 percent in 2023; as investigations have increased, conviction numbers have mostly been stagnant.

In Minnesota specifically, the amount of fraudulent money recovered by the state has been turbulent, but declining in recent years. In 2023, the state recovered about $6 million, the second-lowest amount since 2010.
Meanwhile, the amount of money the state spends on Medicaid has continued to increase, more than doubling from 2010 to 2023. In 2023, Minnesota spent $19 billion on Medicaid.

HOW CAN AI HELP?


The governor’s plan is to detect and flag anomalies for Medicaid providers, meaning an AI system would likely be trained to identify unusual or suspicious patterns in billing and payment data.

Suspicious patterns could include:
  • Billing for an excessive number of services: Flagging providers who bill for significantly more services than their peers
  • Billing for unnecessary or inappropriate services: Flagging claims for services that are not medically necessary or do not align with the patient's diagnosis
  • Billing for services not rendered: Flagging claims for services that were never actually provided
  • Unusual billing patterns or trends: Flagging providers whose billing practices deviate significantly from established norms or show sudden, unexplained changes
In an interview with Government Technology, Commissioner of Minnesota IT Services (MNIT) Tarek Tomes explained that this use case aligns with the state’s AI strategy of leaning into less controversial use cases that don’t reinvent any wheel, as many private-sector financial institutions already use similar technology.

“In our private lives, if we have suspicious credit card transactions, we generally get a text message asking, ‘Is this really you?’" said Tomes. “So using AI and machine learning to really look at patterns — both successful and unsuccessful patterns of transactions, and to be able to flag transactions for further review or further investigation is going to be a really important capability to add to those areas in government that have high transactions where financial benefits are paid out.”

At this point, it’s a waiting game until April or May to see if the AI pilot will be approved in the state’s budget. In the meantime, Tomes said MNIT is researching vendors and the capabilities they provide, especially in terms of low-fidelity prototypes.

If the pilot funding gets a green light from lawmakers, human beings will still play an essential role in the fraud detection process, investigating the flagged transactions for actual evidence of wrongdoing or fraud.

“It’s an ability to use these really great capabilities to summarize and flag, but then the human being is still in the loop of decision-making and review. It’s a really good opportunity to marry those two together in a very responsible way,” said Tomes.

WHAT ELSE IS MINNESOTA DOING WITH AI?


The governor’s proposal for an AI pilot aligns with the work the state has been doing in the last two years in artificial intelligence.

Last fall, MNIT announced the selection of Ted Goessling as its first director of artificial intelligence, a role that will collaborate with state agencies to create ethical governance frameworks for AI tools. Goessling worked nearly 15 years at MNIT before being promoted to the role.

“He’s just incredible, he understands this space really well,” said Tomes. “From a leadership perspective, we’re really positive and bullish on the opportunity that this represents.”

Goessling leads the Transparent Artificial Intelligence Governance Alliance, and his team implemented the state’s first Public AI Services Security Standard and organized workshops to enhance AI usage among state employees.

“I do think that the work we’re doing related to artificial intelligence and fraud, and the pre-emptive nature of that emerging space in government is going to be really exciting and new,” said Tomes. “With that comes a lot of opportunity and the chance to do something that is very, very different and add a new capability that I think is really going to serve the executive branch well.”
Nikki Davidson is a data reporter for Government Technology. She’s covered government and technology news as a video, newspaper, magazine and digital journalist for media outlets across the country. She’s based in Monterey, Calif.