New York’s Medicaid Oversight Lapses: $10 Million in Claims Flagged Amid Mounting Federal Funding Pressures 

A newly released audit from the New York State Comptroller has identified vulnerabilities in the Medicaid program’s third-party liability and coordination of benefits (COB) processes, flagging $10.2 million in claims that require further scrutiny. While the flagged amount represents a fraction of New York’s $93-billion Medicaid program—serving 8.4 million residents in FY 2025—the findings arrive at a precarious moment. 

Federal reforms enacted under the 2025 budget reconciliation law are projected to significantly reduce federal Medicaid support. According to the State Comptroller’s Enacted Budget Report, New York faces an estimated $13.5 billion annual fiscal impact from reduced federal matching funds and required state backfilling. This intensifies pressure on the state to close any internal gaps that could invite sanctions or additional federal oversight. 

New York Medicaid operates as a payer of last resort, reimbursing residual obligations only after Medicare or commercial insurers adjudicate claims. Correct use of Claim Adjustment Reason Codes (CARCs)—specifically, CO 45 for amounts Medicaid does not cover, versus PR 45 for patient responsibility potentially eligible for Medicaid payment—is central to accurate COB processing. Mislabeling insurer liability as patient responsibility can generate improper payments and, effectively, double reimbursement. 

Audit Methodology 

The Comptroller’s office reviewed claims from December 2020 to May 2024 containing PR 45 adjustments, which are automatically paid in eMedNY without front-end validation. Investigators identified 69,166 claims totaling $10.2 million that met this criterion. 

To determine whether systemic errors existed, auditors selected a risk-based, non-statistical sample of 58 claims. Review of electronic remittance advice (ERAs) and coordination documentation revealed issues in all sampled claims. Although a 100% error rate suggests structural vulnerabilities, the audit emphasizes that not all 69,166 claims are necessarily improper—only that further targeted review is warranted. 

This methodology aligns with standard state audit practice, focusing on high-risk categories rather than attempting comprehensive claim-by-claim verification across millions of transactions. 

Key Findings 

Across the 58-claim sample, auditors confirmed $1.778 million in improper payments, concentrated in two areas: 

1. Medicare Advantage Coding Error ($1.775 million) 

An internal coding issue at a Medicare Advantage plan affected 17 claims for dual-eligible beneficiaries. Providers received inflated PR 45 amounts that should have been adjudicated as CO 45 (contractual obligations not payable by Medicaid). 

• DOH has already voided or adjusted six of these claims, recovering $861,296. 

• The remaining 11 claims—representing $914,030—are pending recovery actions. 

2. Missing Documentation ($3,220) 

For 41 claims submitted by seven providers, required ERAs or supporting COB documentation were absent. eMedNY’s design currently permits data entry without mandatory documentation uploads—an issue the DOH acknowledged and committed to addressing. 

Although $1.778 million is small relative to total Medicaid spending, the pattern mirrors earlier findings: 

• $93.7 million in improper payments tied to overlapping Medicaid–Essential Plan coverage (June 2025). 

• Up to $2.7 billion in out-of-state managed care premium payments (September 2025). 

Together, these audits highlight recurring verification and systems-integration challenges within the Medicaid program. 

Management Response and Corrective Actions 

DOH spokeswoman Cadence Acquaviva stated that the department “takes the Comptroller’s findings seriously” and will coordinate with the Office of the Medicaid Inspector General to review and recover improper payments. 

Initial corrective steps include: 

• updating PR 45 logic within eMedNY to prevent the specific Medicare Advantage coding error from recurring; 

• reprocessing affected claims; 

• reviewing the full 69,166-claim population using risk-based and automated methods. 

The Comptroller issued three formal recommendations: 

1. Recover overpayments from the 58 sampled claims—particularly the $914,030 unresolved. 

2. Conduct targeted reviews of the larger claim pool, potentially leveraging AI-based anomaly detection. 

3. Strengthen eMedNY controls, including required documentation uploads and automated CARC consistency checks. 

DOH indicated that a full systems update may take several months. 

Policy Implications 

The audit arrives as New York braces for substantial reductions in federal Medicaid support. 

• The State Comptroller and Governor Hochul estimate a $13.5 billion annual impact from federal policy changes, driven primarily by reforms to provider taxes, state financing arrangements, and federal matching formulas. 

• The New York State Association of Counties (NYSAC) has separately projected up to $70 billion in cumulative losses over 10 years, depending on how federal restrictions are implemented—placing counties, safety-net hospitals, and community providers at heightened financial risk. 

• The Kaiser Family Foundation (KFF) warns that New York could see increases in uninsured rates if the state cannot fully compensate for lost federal funds. 

CMS’s November 18, 2025, guidance on restrictions to provider tax usage increases the urgency of ensuring that claims processing—especially COB—is error-free. Repeated audit findings may expose the state to reduced matching rates or enhanced federal oversight. 

Providers, represented by the Medical Society of the State of New York, have expressed concerns about administrative complexity within eMedNY, while equity advocates warn that funding erosion could deepen disparities in access to care. 

What Comes Next 

For New York’s Medicaid providers—from Bronx FQHCs to Hudson Valley hospitals—the audit reinforces the need for: 

• strict CARC accuracy; 

• maintenance of complete remittance documentation; 

• internal audits to preempt state or federal recoupments. 

States nationally can draw broader lessons: automated validation, consistent documentation standards, and coordinated cross-payer data exchange are essential to protecting Medicaid integrity under tightening federal constraints. 

If implemented effectively, the Comptroller’s recommendations could help New York recoup improper payments, modernize eMedNY, and prepare for the financial shock of reduced federal support. In a period of historic funding uncertainty, strengthening internal controls becomes not only a compliance requirement but a strategic necessity for preserving Medicaid’s role as the state’s central equity mechanism. 

Sources: 

Office of the New York State Comptroller. “Medicaid Program: Inadequate Oversight of Third-Party Cost-Sharing Claims Led to Overpayments.” November 5, 2025. https://www.osc.ny.gov/state-agencies/audits/2025/11/05/medicaid-program-inadequate-oversight-third-party-cost-sharing-claims-led-overpayments 

Albany Times Union. “New York let $10M in improper Medicaid payments slip through, audit says.” November 11, 2025. https://www.timesunion.com/capitol/article/new-york-medicaid-overpayment-21162678.php 

Office of the New York State Comptroller. “Improper Medicaid Payments During Permissible Overlapping Medicaid and Essential Plan Coverage.” June 4, 2025. https://www.osc.ny.gov/state-agencies/audits/2025/06/04/improper-medicaid-payments-during-permissible-overlapping-medicaid-and-essential-plan 

Daily Gazette. “State audit identifies $1.7M in Medicaid overpayments.” November 6, 2025. https://www.dailygazette.com/news/govt_politics/state-audit-identifies-1-7m-in-medicaid-overpayments/article_ff93b271-fb22-485e-94e0-25a3f48dabe8.html 

New York State Department of Health. “Following Devastating Federal Funding Cuts, New York State Takes Action to Preserve Coverage.” September 10, 2025. https://www.health.ny.gov/press/releases/2025/2025-09-10_federal_funding_cuts.htm 

New York State Association of Counties. “What Federal Medicaid Cuts Could Mean for Counties.” 2025. https://www.nysac.org/news/posts/what-federal-medicaid-cuts-could-mean-for-counties/ 

Office of the New York State Comptroller. “Medicaid Program – Improper Premium Payments Made on Behalf of Managed Care Members Residing Outside the State.” September 9, 2025. https://www.osc.ny.gov/state-agencies/audits/2025/09/09/medicaid-program-improper-premium-payments-made-behalf-managed-care-members-residing 

Congress.gov. “H.R.1 – 119th Congress (2025-2026): One Big Beautiful Bill Act.” 2025. https://www.congress.gov/bill/119th-congress/house-bill/1 

Kaiser Family Foundation. “How Will the 2025 Reconciliation Law Affect the Uninsured Rate in Each State?” August 20, 2025. https://www.kff.org/uninsured/how-will-the-2025-reconciliation-law-affect-the-uninsured-rate-in-each-state/ 

Medical Society of the State of New York. “Response to DiNapoli Medicaid Audit.” November 7, 2025. https://www.mssny.org/news/2025/11/07/response-to-dinapoli-medicaid-audit/ 

Center for Children and Families. “CMS Issues New Guidance on H.R. 1’s Restrictions on State Use of Provider Taxes to Finance Medicaid.” November 18, 2025. https://ccf.georgetown.edu/2025/11/18/cms-issues-new-guidance-on-h-r-1s-restrictions-on-state-use-of-provider-taxes-to-finance-medicaid/ 

New York Health Foundation. “Medicaid in 2025: A Look at the Year Ahead.” January 29, 2025. https://nyhealthfoundation.org/wp-content/uploads/2025/01/NYHealth-Event-Deck-1.29.25.pdf