Medicaid audits: What value-based care leaders need to know

If your organization is in value-based care, chances are you’re juggling multiple lines of business, including Medicare Advantage, Medicaid managed care, Medicare Shared Savings, and possibly even fee-for-service. But here’s the trap many leaders fall into: focusing all compliance energy on Medicare Advantage, while leaving other contracts exposed.

 

And that’s a costly mistake. Medicaid now covers more than 80 million Americans and commands billions of federal and state dollars. With that scale comes risk, and CMS is making it clear: Medicaid oversight is accelerating, and the liability is real.

Why Medicaid audits matter more than ever

 

For years, Medicare Advantage carried the reputation of being the “audit-heavy” program. Medicaid? Not so much. But those days are gone.

 

According to the FY 2023 Medicare and Medicaid Program Integrity Report to Congress, CMS has doubled down on program integrity efforts across Medicaid, increasing audits, tightening data analysis, and collaborating with state agencies to flag irregularities earlier. The emphasis is clear: documentation quality and coding accuracy are under a microscope.

 

Meanwhile, the OIG’s 2024 Annual Report on Medicaid Fraud Control Units highlights just how effective these units have become:

 

• • MFCUs recovered $3.46 for every $1 spent in FY 2024
  • 1,151 convictions, with 817 for fraud and 334 for patient abuse or neglect
  • $1.4 billion recovered, split between $961M in criminal cases and $407M in civil recoveries
  • 1,042 individuals or entities excluded from federally funded programs

 

Those numbers send a powerful message: Medicaid oversight is not only aggressive but also financially effective. States see the ROI, and the federal government is pushing even harder for accountability.

 

In other words, Medicaid audits are here to stay, and they’re only getting sharper.

 

The high stakes of documentation

 

So, what’s really at risk when a Medicaid audit lands on your desk? Let’s start with the most obvious: money.

 

If CMS or a state Medicaid unit determines that documentation doesn’t support the services billed, they can and will recoup payment. The FY 2023 integrity report underscores that improper payments in Medicaid remain a persistent problem, estimated in the tens of billions annually.

 

But it’s not just about clawbacks. Providers face:

• • Civil and criminal liability for fraudulent or negligent documentation.
  • Exclusion from Medicaid and other federal programs effectively cutting off access to millions of patients.
  • Contractual consequences with payers, who may impose stricter terms after audit findings.
  • Reputation risks, especially for large health systems or provider groups, are highlighted when compliance failures make headlines.

 

The key takeaway: in Medicaid, documentation isn’t just compliance—it’s currency. Every claim you submit is only as strong as the notes, assessments, and coding that back it up.

 

Common pitfalls providers face in Medicaid audits

 

Even the most well-intentioned providers can get caught in audit traps. Here are some of the most common pitfalls:

1. Insufficient documentation for diagnoses

 

Auditors don’t just want to see a code; they want to see the complete MEAT framework: was the condition Monitored, Evaluated, Assessed, and Treated? A diagnosis code without corresponding clinical evidence is a red flag.

2. Copy-paste and template overuse

 

EHR shortcuts may speed things up, but they often introduce inconsistencies. Auditors are skilled at spotting cloned notes or vague templates that don’t demonstrate patient-specific care.

3. Failure to recapture chronic conditions

 

In Medicaid populations, chronic conditions drive both risk adjustment and reimbursement. When providers fail to consistently re-document ongoing conditions each year, risk scores drop, and auditors notice the discrepancy between claims and medical necessity.

4. Improper billing for services

 

From upcoding visits to billing for services not fully performed, small slips can cascade into major audit findings. RACs (Recovery Audit Contractors) in Medicare laid the groundwork for this scrutiny, and Medicaid audits follow similar patterns.

5. Neglect and abuse reporting

 

As the OIG data shows, a significant share of Medicaid-related convictions is tied not just to fraud but also to patient abuse or neglect. Documentation gaps in these sensitive areas can escalate beyond financial penalties to criminal charges.

 

Each of these pitfalls may look small in isolation, but in an audit, they add up fast. Unsupported diagnoses, cloned notes, or missed chronic conditions don’t just put revenue at risk. They undermine compliance and trust. The good news is, these gaps are preventable. With the right safeguards in place, providers can turn documentation from a liability into a strength and avoid seeing these pitfalls show up in their own audit findings.

 

The Role of AI in Navigating Medicaid Audits

 

AI and workflow automation are not a cure-all, but they are becoming essential tools to help organizations reduce audit exposure. 

 

We already mentioned that in value-based care, the core focus is on Medicare Advantage, but the reality is that most organizations do not serve MA members exclusively. They also have Medicaid, MSSP, or commercial populations. Compliance gaps in these programs can trigger both financial and reputational fallout, and these risks often extend across the entire enterprise. The question is, can AI help in those cases, too?

What AI can realistically do

 

Modern AI tools can scan progress notes shortly after they are written and flag common gaps. If a condition like diabetes with neuropathy is documented without evidence of evaluation or treatment, the system can prompt the clinician to add exam findings or reference a lab. When data connections are in place, the tool can also pull in recent labs or specialist notes so the chart reflects the complete clinical picture. This is not a replacement for coding staff or compliance reviews, but it gives providers a chance to correct gaps before an encounter turns into an audit risk.

Consider a scenario

 

Imagine a provider group with a strong Medicare Advantage compliance program but only light oversight of its Medicaid charts. During a routine visit, a clinician documents “diabetes with complications” but leaves out today’s A1c results and a clear plan. In a practice with a strong MA compliance program, this gap would be flagged, since diabetes is part of CMS’s HCC model. An AI sidecar reinforces that process by prompting the clinician to add the most recent lab and note the plan for foot care. The clinician updates the note in less than a minute. That simple prompt prevents an unsupported diagnosis from being billed, which reduces risk if the chart is later pulled in a Medicaid audit.

 

Why it matters for value-based care

 

On its own, that one chart might look minor. But scaled across thousands of visits, these gaps create liability in Medicaid, even as the organization thinks its value-based strategy is centered on MA. The truth is that regulators and payers do not care which line of business a gap appears in. A documentation failure is still a compliance failure. AI helps close those small but costly gaps, protecting revenue not just in Medicaid but across the broader set of contracts that most value-based providers manage.

 

What this means for value-based care leaders

 

In these cases, Medicaid audits serve as a reminder that every line of business is interconnected. Few organizations operate in a single silo.

 

Consider this scenario. A large provider group focuses heavily on its Medicare Advantage population, where risk adjustment drives financial performance. Their compliance program, training efforts, and internal chart reviews are all built with MA in mind. But this same group also serves a sizable Medicaid population through a state-managed care plan. When the state conducts a Medicaid audit, the reviewers uncover that several chronic conditions, such as hypertension, COPD, and diabetes, were coded without sufficient documentation. Claims are denied, clawbacks are issued, and the organization suddenly faces millions in repayment demands.

 

The ripple effect reaches far beyond Medicaid. Leadership must divert resources away from population health initiatives to cover compliance costs. Coders and clinicians spend time responding to audit requests instead of supporting proactive documentation improvement. Revenue losses strain the group’s ability to invest in care coordination and social determinants of health programs that benefit patients across all contracts. Even Medicare Advantage payers begin to scrutinize whether similar documentation gaps exist in MA charts.

 

This is why Medicaid matters in the context of value-based care. It is not because Medicaid reimbursement alone defines the model, but rather because the reality of modern healthcare is that most organizations manage multiple programs simultaneously. Weakness in one line of business exposes liability across the enterprise. Regulators, payers, and the public do not separate the lines the way providers do. To them, a compliance failure is a compliance failure.

 

For value-based leaders, the lesson is clear. You cannot build a sustainable care model on a foundation where one line of business is left exposed. Audit readiness across all contracts, whether Medicare Advantage, Medicaid, ACO, or commercial, is essential to protecting revenue, maintaining trust, and keeping your value-based strategy on track.

 

The takeaway: Turning audit risk into an opportunity

 

Medicaid audits may feel like a looming threat, but they’re also an opportunity. They’re a wake-up call to modernize documentation, close compliance gaps, and align coding with true patient complexity.

 

For directors of population health and risk adjustment, the path forward is clear: pair ongoing education with AI-powered workflow tools that make compliance second nature. The organizations that succeed won’t just avoid clawbacks, they’ll be better positioned to thrive in value-based care.

 

Your documentation is your defense. And with the right tools, it can also be your advantage.

 

If your organization is preparing for Medicaid audits or already feeling the pressure of documentation demands, now is the time to act. Explore how AI-powered compliance tools can protect revenue, reduce provider burden, and keep you ahead of audit risks. Get a demo with DoctusTech today.