For most of Medicaid’s history, eligibility was treated as an administrative gate: applicants submitted paperwork, caseworkers processed it, and oversight happened later — if at all — through audits and fraud investigations conducted long after the money had gone out the door. That model is disappearing. Driven by mounting federal pressure to curb improper payments, states are rebuilding eligibility into a strict, front-loaded, compliance-driven process. For long-term care providers, who serve one of Medicaid’s most expensive populations, the shift is already changing how quickly residents get approved and how much documentation it takes to get there.

Rising Scrutiny on Medicaid Eligibility

Improper Medicaid payments have become a top-tier federal concern, and long-term care sits squarely in the crosshairs. It is among the highest-cost categories of federal spending in the program, which makes it a natural target when Washington looks for accuracy and savings. States are under more pressure than ever to demonstrate payment accuracy, and that pressure flows straight to providers in the form of higher compliance expectations.

The National Improper Payment Problem

The Centers for Medicare & Medicaid Services (CMS) measures payment accuracy through its Payment Error Rate Measurement (PERM) program. The headline numbers have swung dramatically in recent years, climbing above 15 percent in 2022 and over 20 percent in 2021, then falling to roughly 5 percent in 2024 and about 6 percent in 2025 as pandemic-era flexibilities were unwound.

One nuance is essential: most improper payments are not fraud. The large majority stem from missing or insufficient documentation — a caseworker failing to record which data source verified an applicant’s income, for example — rather than from money paid to ineligible people. CMS itself stresses that an improper payment rate measures procedural compliance, not fraud. But eligibility errors remain a major contributor, and with billions of federal dollars on the line, states are being pushed hard to strengthen verification at the front end.

From Reactive to Proactive Oversight

The clearest sign of the change is the move away from catching problems after the fact toward preventing them before a payment is ever made.

The traditional model was reactive: investigations opened only once fraud was suspected, post-payment audits reviewed claims after adjudication, and recovery of improper payments happened months or years later.

The emerging model is proactive: eligibility is verified before approval, data is matched automatically across agencies, asset checks run on every applicant through Asset Verification Systems (AVS), and investigations are designed to stop improper payments before they occur rather than claw them back afterward.

The Federal Drivers Behind the Shift

Several forces converged to accelerate this change. When the pandemic-era continuous coverage protections ended in 2023, states were required to redetermine eligibility for millions of enrollees. That “unwinding” revealed that large numbers of payments were being made not because of fraud, but because of unresolved eligibility issues — and federal guidance has emphasized accuracy and compliance ever since.

CMS reinforces this through two long-standing tools: PERM audits, which estimate improper payment rates on a three-year, rotating-state cycle, and Medicaid Eligibility Quality Control (MEQC) reviews, which require states to examine their own eligibility determinations. On top of that, the U.S. Government Accountability Office (GAO) has kept Medicaid on its “High-Risk List” for more than two decades, a designation that keeps the program under sustained congressional scrutiny.

The newest, and arguably most consequential, driver is financial. Recent federal budget legislation will, beginning in late 2029, require states whose eligibility error rates exceed a set threshold to repay the federal share of the excess, while narrowing the waivers that previously softened those penalties. In other words, eligibility accuracy is being converted from a reporting metric into a direct financial liability for states. That is the structural reason proactive enforcement is here to stay.

Illinois: An Early Indicator of What’s Coming

If you want to see where this is heading, look at Illinois. The state has embraced the proactive model aggressively, routing a high volume of LTC eligibility cases to its Office of Inspector General (OIG) for financial review. The practical effects are familiar to anyone who has filed an Illinois LTC application recently: intensive document scrutiny, broad and detailed verification requests, higher denial rates, and notably longer approval timelines. State audit findings and long-running litigation over processing delays underscore how much friction this adds.

Eligibility rules are federal, but enforcement intensity is set state by state, and Illinois shows how far a state can push verification within the same federal framework. For providers operating elsewhere, it is a preview of pressures that are likely to spread.

Technology Driving the Next Wave

States are not doing this with clipboards. The new enforcement posture is powered by technology: electronic asset verification, AI-assisted fraud detection, and real-time data matching against Social Security, IRS, and property records. Automated flags now surface questionable cases before approval rather than after, which means more applications are being scrutinized and held earlier in the process.

What This Means for Providers

For long-term care providers, the consequences are concrete:

• Longer eligibility timelines, as cases route through additional verification and review.

• Heavier documentation requirements, with less tolerance for gaps.

• More financial scrutiny of applicants’ assets and transfers.

• A greater need for specialized eligibility expertise — the days of treating Medicaid intake as routine paperwork are ending.

Illinois may be an outlier today, but it is a credible indicator of the national direction of travel.

What Providers Should Do Now

Preparing for this environment is less about any single fix than about treating eligibility as a core compliance and revenue-cycle function. Here are seven concrete moves that providers should consider:

1. Treat intake as a compliance function. Dedicate trained staff to Medicaid eligibility or partner with a specialized eligibility vendor. The clerical, “fill-out-the-form” approach no longer survives the level of scrutiny states now apply.

2. Front-load documentation. Collect five years of financial records, asset and transfer documentation, and identity and income verification at intake, before the state asks. Assume an asset-verification check will run on every applicant.

3. Tighten the pre-admission financial screen. Assess each prospective resident’s Medicaid-eligibility risk before admission, so the facility isn’t carrying long, unfunded stays while a determination drags on.

4. Plan cash flow around longer approval windows. Model the revenue-cycle impact of determinations that now pend for months, and build reserves or interim strategies so a slow approval doesn’t become a financial emergency.

5. Actively manage pending applications. Assign clear ownership, respond to every state request immediately — missed deadlines can trigger automatic denial — and keep a documented record of every submission.

6. Set expectations with families early. Explain timelines, look-back scrutiny, and documentation demands up front, and encourage early elder-law or Medicaid-planning consultations to avoid penalty-period surprises.

7. Watch your state’s trajectory. Track your state’s PERM eligibility error rate and enforcement posture. With financial penalties arriving for states, Illinois-style intensity may be closer than it looks.

The Bottom Line

As federal pressure to reduce improper payments intensifies, now backed by real financial penalties for states, Medicaid eligibility is shifting from an administrative function into a strict, compliance-driven process. The states that adapt early and the providers that prepare will be best positioned for what comes next.

Prepare Your Facility with Richter

As eligibility verification grows more demanding, managing a rising volume of applications, renewals, denials, and deadlines while keeping pace with complex, state-specific rules pulls valuable administrative time away from what matters most: your residents. Richter's experienced Medicaid eligibility specialists work as an extension of your team, handling everything from initial eligibility screening and end-to-end application management to renewal monitoring and state hearing assistance for appeals. The result is fewer interruptions to resident coverage, less uncompensated care and bad debt, and greater financial stability for your facility, so you can focus on care rather than paperwork. To learn how Richter can streamline Medicaid eligibility for your long-term care facility, click here.

To learn more about Richter’s accounting, outsourced revenue cycle management or reimbursement consulting services, contact us at info@richterhc.com or click here to schedule a conversation.

Sources

• Centers for Medicare & Medicaid Services — PERM and MEQC programs; FY2024 and FY2025 Improper Payments Fact Sheets (cms.gov)

• U.S. Government Accountability Office — Medicaid High-Risk List and program integrity reports (gao.gov

• Supplemental Appropriations Act of 2008 (P.L. 110-252), Section 1940 of the Social Security Act — mandated Medicaid Asset Verification Systems

• HHS Office of Inspector General reports on Medicaid program integrity

• Illinois Office of the Auditor General — performance audit of Medicaid LTC eligibility determinations

• CMS unwinding guidance (2022–2024) on eligibility redeterminations

Richter partners exclusively with long-term post-acute care providers to deliver tailored, high-impact solutions across clinical, financial and operational domains. Our team of more than 90 healthcare consultants brings real world industry expertise to help leadership teams improve compliance, strengthen financial performance, optimize revenue cycle management, streamline EHR and PointClickCare systems and manage Medicaid eligibility with confidence. Acting as a trusted extension of your organization, we provide personalized guidance, expert-led enablement and end-to-end support that reduces complexity while driving measurable growth. With a focus on sustainable outcomes that strengthen clinical quality, financial stability and operational efficiency, while reducing risk and advancing resident care excellence, Richter empowers skilled nursing communities, senior living providers, home health and hospice organizations to achieve long-term success in today’s complex healthcare landscape.