TEXAS INVESTIGATION

Texas Medicaid Fraud: A Third Case Study in Systemic MCO Oversight Collapse **Comprehensive Investigation Report | January 2026** --- ## Introduction: The Pattern Repeats When investigators began examining Minnesota's $9 billion Medicaid fraud scandal in 2020, they discovered something unexpected. The fraud wasn't primarily about individual criminals exploiting gaps—it was about a systematic collapse of oversight built into the managed care organization structure itself. The same institutions designed to prevent fraud were profiting from it. Two years later, investigators found the identical pattern in California. A different state, different criminal networks, different political context, but the same structural vulnerabilities. The same MCO oversight gaps. The same low recovery rates. The same political donations preceding favorable treatment. Now Texas reveals something more troubling: this is not a problem with individual states or specific MCOs. This is how the entire Medicaid managed care system operates nationwide. Texas Medicaid demonstrates this pattern with particular clarity. The state's massive $41 billion annual healthcare system, channeling 97 percent of its Medicaid beneficiaries through just 16 managed care organizations, has created conditions nearly identical to Minnesota and California. And the results are predictable: an estimated $4 billion in annual fraud losses, recovery rates between 5 and 15 percent of what was stolen, and political protection mechanisms that keep both fraudsters and negligent MCOs operating without meaningful accountability. This is not an isolated scandal. This is how the system works.

## Part One: The Texas Medicaid Structure and Its Fatal Vulnerabilities
### How Texas Medicaid Works (And Where It Breaks Down)
To understand how $4 billion in fraud slips through Texas's oversight system each year, you first need to understand how Texas chose to structure its Medicaid program. This choice created the vulnerabilities that fraud exploits. Texas serves approximately 3.8 million Medicaid beneficiaries. Rather than have the state directly manage healthcare payments, Texas contracted with 16 Managed Care Organizations to handle these beneficiaries and their healthcare claims. This outsourcing model seemed efficient at first—private companies would manage risk better than government bureaucrats, the theory went. Competition between MCOs would drive down costs and improve outcomes. What actually happened was different. By routing 97 percent of Medicaid beneficiaries through MCOs, Texas created a situation where detection and enforcement of fraud became the MCOs' responsibility. And MCOs face a fundamental incentive problem: they profit from fraud-inflated cost bases. Higher medical spending means higher capitation payments, higher profits, and larger margins. Finding and preventing fraud reduces their revenue. The four major MCOs operating in Texas are Centene's Superior HealthPlan (serving 1.24 million beneficiaries), Amerigroup through Elevance (965,000 beneficiaries), UnitedHealthcare, and Molina (268,000 beneficiaries). These organizations collectively control approximately $35 to $40 billion in annual capitation payments from the state.

### The CMS Audit That Proved the System Fails
In July 2025, the Centers for Medicare and Medicaid Services conducted a Focused Program Integrity Review of Texas Medicaid. This federal audit examined four major MCOs and documented eight significant observations about fraud detection failures. The findings were systematic and damning. First, CMS found that no MCO maintained proper staffing ratios for their Special Investigative Units relative to their member populations. Fraud detection units were understaffed, which meant that even obvious suspicious patterns went unexamined. When a unit is supposed to investigate fraud for a million beneficiaries but has only a handful of investigators, most fraudulent claims slip through simply because there are not enough people to look at them. Second, CMS discovered that Texas state law conflicted with federal payment suspension rules. This created a situation where even when MCOs identified fraud, they could not properly suspend payments to fraudsters. As a result, the state's Medicaid Fraud Control Unit has not requested a single payment suspension since 2015. This is extraordinary—it means for a decade, even when fraud was identified, the system had no mechanism to stop payments to confirmed fraudsters. Third, and perhaps most revealing, CMS found that all four major MCOs failed to conduct unannounced site visits to healthcare providers. Unannounced site visits are a basic fraud detection tool. You send someone to a clinic, pharmacy, or hospice without warning to verify that the business actually exists, that it has the staff it claims to have, and that it is actually delivering the services it is billing for. These visits catch obvious fraud—phantom clinics, clinics with no medical staff, hospices that bill for thousands of patients but operate from a single apartment. Texas MCOs were not doing this before the pandemic and, according to CMS, had never done it. Fourth, CMS observed that MCOs had no requirement to verify that beneficiaries actually received the services they were billing for. This is stunning in its implications. A healthcare system can bill for services without any mechanism to confirm the services were actually delivered. Finally, CMS noted that the Texas Health and Human Services Commission Office of Inspector General does not track referrals from MCOs to the state's Medicaid Fraud Control Unit. This means the state has no visibility into what fraud MCOs are catching, whether they are catching fraud at all, or whether fraud detection is happening. None of these observations resulted in formal findings of non-compliance. CMS issued them as "observations" and moved forward without requiring specific remediation.

### The Recovery Rate: Pennies Recovered From Billions Stolen
The consequence of these structural failures shows up most clearly in one number: the recovery rate. When an MCO identifies fraud, how much of the fraudulent money does it recover? The answer reveals the entire system's dysfunction. Wellpoint Texas processes $12.8 billion in medical claims annually. Through its fraud detection efforts, it recovered $426,467. That is a recovery rate of 0.003 percent. To put this in perspective, if someone stole $1 million, Wellpoint would recover $30. Amerigroup identified $26.8 million in overpayments over three years. It recovered $5.5 million, a 20.5 percent recovery rate. That means 79.5 percent of the fraud it identified—money it knew was stolen—never came back to the state. Superior HealthPlan identified $13.6 million in overpayments but recovered only $3.1 million, a 22.8 percent recovery rate. Again, the majority of identified fraud was never recovered. These numbers represent identified fraud. For every dollar of fraud that an MCO identifies and documents, four dollars remain undetected. The system catches a small fraction of what is stolen, and even for what it catches, it recovers only a portion. Parkland Community Health Plan conducted 12 preliminary investigations of fraud. Federal requirements state these investigations must be completed within 15 working days. Parkland met this deadline zero times. When you aggregate these recovery rates across all MCOs and compare them to estimates of total Medicaid fraud in Texas, the picture becomes clear: the state recovers between 5 and 15 percent of what is stolen. For every $100 in fraud, Texas recovers $5 to $15. The remaining $85 to $95 remains in the hands of fraudsters.