I often pass this case out the first day of class to get students comfortable talking in class. The case covers cost-based Medicaid nursing home reimbursements, which are managed by individual states but funded about equally by each state and the federal government. In the state in which the case is situated, there were few rules about allowable costs and the Governor did not believe the state should interfere with private enterprise. The state had not audited nursing homes for seven or eight years. Over time, the nursing homes became increasingly aggressive in billing the state for high and possibly unallowable costs. Nursing homes billed the state and were reimbursed for items such as educational trips to Hawaii, house boats, mobile homes, high-end automobiles (Mercedes, BMW, and Rolls Royce), high salaries for relatives, and high payments to relatives for items such as lease and service contracts.
The case is easy to understand and most students participate in the discussion. It can be used to discuss why we have accounting rules and audits. It can also be used to discuss why cost-based reimbursement is so complex and why contracts between a governmental unit and private enterprise are so difficult to control; thus leading to an understanding of why alleged fraud is so common. The case takes 10 minutes to read and can be used for a 30-90 minute discussion.