Hoosier Hustlers: How $700M Was Stolen from Indiana’s Neediest

M edicaid, the largest public welfare program in the United States, is meant to finance essential medical services to the country’s most vulnerable populations. It has devolved, however, into a breeding ground for fraud, waste, and political corruption. A recent whistleblower lawsuit alleges that Indiana’s Medicaid program was defrauded of more than $700 million by hospitals and managed-care companies, with the state’s officials succumbing to political pressure to turn a blind eye. Shockingly, after ignoring clear evidence of fraud and errors, the state’s Medicaid director accepted a job with one of the very entities named in the lawsuit.

Indiana’s Medicaid scandal is not just an isolated case of alleged fraud; it is symptomatic of a broken system nationwide. According to the lawsuit, improper payments flagged by IBM Watson — ranging from duplicate claims to bills for services rendered to deceased individuals — were left unaddressed by the state’s Medicaid office. These payments totaled up to $724 million between 2015 and 2020. The whistleblower claims that political pressure from hospitals and managed-care companies influenced officials to curtail efforts to recover these overpayments, contributing directly to a $1 billion Medicaid shortfall in Indiana. The state’s managed-care companies even paid for Medicaid for people who were dead.

The consequences of turning a blind eye to fraud and errors and budget mismanagement are already affecting the most vulnerable. Low-income elderly individuals and children with disabilities, who depend on Medicaid for home and community-based care, are experiencing service reductions, while thousands of intellectually disabled residents remain stuck on wait-lists. The lawsuit claims that state officials knowingly failed to recover hundreds of millions in improper payments. These are funds that could have helped reduce the budget shortfall and ensure that the most vulnerable received the services they need. Meanwhile, to make matters worse, the ACA’s expansion of Medicaid in Indiana has added over 600,000 new recipients to the Medicaid rolls, most of whom are abled-bodied.

But fraud and mismanagement are not the only issues plaguing Medicaid. The political revolving door between state government and the health-care industry is a festering problem. The former Medicaid director, who was appointed in 2017, came directly from a major health-care law firm. After leaving the position in 2023, this individual quickly transitioned to a senior role at a hospital chain implicated in the lawsuit. This is not just an ethical concern, it’s a clear conflict of interest that erodes public trust in the system. When officials responsible for administering Medicaid later work for the very entities they were supposed to regulate, it is no wonder the program is rife with fraud.

The Medicaid system, both in Indiana and across the country, is in dire need of reform. States are making these decisions primarily with federal tax dollars because of an open-ended reimbursement structure and various state-financing schemes, such as provider taxes, which allow states to artificially inflate their Medicaid spending to receive more federal funds. As a result, there is often little incentive for states to ensure that these dollars are spent efficiently. When funds are misallocated, they largely benefit industries within the state, while the financial burden is shouldered by taxpayers across the nation. This creates ideal conditions for waste, fraud, and abuse to thrive, and it’s why many governors describe federal Medicaid funds as “stimulus.”

Several critical steps must be taken to restore integrity to Medicaid and ensure that it fulfills its intended purpose to furnish services for the most vulnerable.

First, fraud-detection systems must be rigorously enforced, with recovery efforts prioritized over political influence. The technology to identify improper payments is already available and has identified millions of dollars in potential overpayments. Government officials, however, must demonstrate the political will to act on these findings. If they knowingly fail to address identified fraud or overpayments, they should face immediate removal from their positions.

Second, the Medicaid funding formulas must be overhauled. It is unconscionable that federal dollars prioritize able-bodied adults over the poorest and most disabled. States should receive higher reimbursements for serving the most vulnerable populations, not for expanding services to those who are more capable of self-sufficiency. The current funding structure is not only unjust but also unsustainable.

Third, the revolving door between Medicaid offices and the health-care industry must be firmly closed. It is essential that individuals in regulatory positions be held accountable and prevented from easily transitioning between overseeing Medicaid and later working for industries that benefit from its funds. To safeguard public trust, a mandatory five-year waiting period should be enforced for any government official before they can accept a position in a company or institution that they previously oversaw funding for. The integrity of our government relies on eliminating these conflicts of interest, ensuring that the focus remains on protecting vulnerable populations and not on private-sector profits.

Let’s face it: Medicaid has been hijacked by fraud, mismanagement, and political corruption. While politically powerful insurers and hospital systems reap the benefits of Medicaid expansion, the intellectually disabled sit on waiting lists, neglected by the very system meant to help them. The $724 million in fraudulent overpayments uncovered in Indiana could have gone a long way toward addressing the needs of these individuals and helping the taxpayers that foot the bill. Instead, political actors and industry lobbies have allowed the problem to fester. Medicaid needs urgent reform to root out fraud, restore accountability, and, most importantly, ensure that it fulfills its original intent to serve the nation’s most vulnerable.