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During its first decade, Medicaid, which was created in 1965, operated with few controls against fraud and without any specific state or federal law enforcement agencies responsible for monitoring criminal activity within the program. The need for the MFCUs came about when the public and Congress realized that too many nursing home patients were held hostage by the greed of a small number of facility operators and often dishonest health care practitioners who used the Medicaid program as their own private “ATM machine.”

Congressional investigations and hearings about the problem of health care fraud and abuse began in the early l970s. In l975, New York Governor Hugh L. Carey, with the support of Attorney General Louis J. Lefkowitz, appointed Charles J. Hynes as Special State Prosecutor for Nursing Homes, Health and Social Services, in response to a massive scandal in the state’s nursing home industry. This office was the first full scale comprehensive effort in the country to tackle Medicaid fraud. It was Special Prosecutor Hynes who suggested an outline for a proposal to establish state fraud control units, when he testified before Congress in 1976. Congressional Testimony

In 1977, Congress responded by enacting the Medicare-Medicaid Anti-Fraud and Abuse Amendments of l977, P.L. 95-142. The objective of these amendments was to ”strengthen the capability of the government to detect, prosecute, and punish fraudulent activities under the Medicare and Medicaid programs…” On October 27,1977, President Jimmy Carter signed the legislation which provided each state with the opportunity and resources to establish a Medicaid Fraud Control Unit to investigate and prosecute provider fraud and resident abuse. Section 17 provided 90 percent federal funding to the states for three years to establish and operate a Medicaid Fraud Control Unit. In l978, 17 Units were federally certified.

Congressional support of the MFCU program continued when in l980, the Omnibus Reconciliation Act, P.L. 96-499 provided permanent federal funding for the Units beyond the initial three year period. New Units would continue to be funded at rate of 90 percent for the first three years of a Unit’s existence and after that period, a Unit would receive permanent federal funding at a rate of 75 percent.

This funding formula allows the federal government to ensure that each Unit’s activities are devoted exclusively to investigating and prosecuting provider fraud, resident abuse and fraud in the administration of the Medicaid program. Federal financial participation for any one quarter may not exceed the higher of $125,000 or ¼ of one percent of the sums expended by the federal, state and local governments during the previous quarter in carrying out the state Medicaid program.

The MFCU program was voluntary until l995. Federal law now requires each state to have a MFCU unless the state can demonstrate to the satisfaction of the HHS Secretary that it has a minimum amount of Medicaid fraud and Medicaid beneficiaries will be protected from abuse and neglect. North Dakota has been granted a waiver and does not have a MFCU. The territories, while they receive Medicaid funds, do not have MFCUs.