THESE SENATE HEARINGS FOCUSED ON FIVE STATES: CALIFORNIA, NEW JERSEY, MICHIGAN, ILLINOIS, AND NEW YORK. NEW YORK WAS ANALYZED IN DEPTH BECAUSE IT HAS THE LARGEST MEDICAID PROGRAM, ACCOUNTING FOR ALMOST 25 PERCENT OF TOTAL MEDICAID OUTLAYS DESPITE HAVING ONLY 9 PERCENT OF THE COUNTRY'S POPULATION. MOREOVER, THE NEW YORK MEDICAID SYSTEM HAS BEEN RIDDLED WITH PROBLEMS THROUGHOUT ITS 10 YEARS OF OPERATION, AND THERE SEEMS TO BE A RELATIONSHIP BETWEEN THE MISMANAGEMENT OF THE PROGRAM AND THE CITY'S CURRENT FISCAL CRISIS. THE INVESTIGATION INVOLVED A REVIEW OF FORMAL FEDERAL, STATE AND LOCAL AGENCY REPORTS AND RECORDS OF VARIOUS AGENCIES. INTERVIEWS AND WRITTEN QUESTIONNAIRES WERE SENT TO PUBLIC OFFICIALS AND HUNDREDS OF PHYSICIANS. VISITS TO MEDICAID MILLS WERE MADE, WITH INVESTIGATORS POSING AS BENEFICIARIES PRESENTING THEMSELVES FOR TREATMENT. IN ADDITION, INVESTIGATORS POSED AS OSTENSIBLE BUYERS AND OPERATORS OF MEDICAID MILLS, AND MONITORED THE OPERATIONS OF A STOREFRONT MEDICAL CLINIC. THE RESULTS OF THESE EFFORTS ARE PRESENTED STATISTICALLY, FOLLOWED BY AN OUTLINE OF THE PRACTITIONER ABUSES IN MEDICAID MILLS, THEIR OPERATIONS QUALITY OF TREATMENT, AND FRAUDULENT PRACTICES SUCH AS FEE SPLITTING AND PERCENTAGES LEASES. MEDICAID MILLS ARE UNCOMMONLY PROFITABLE, EVEN THOUGH AT LEAST HALF THE AMOUNT PAID TO DOCTORS AND OTHER PRACTITIONERS WORKING IN MILLS DOES NOT GO FOR PROVISION OF SERVICES BUT IS BLED OFF IN FACTORING CHARGES, KICKBACKS, RENT, AND FINDERS FEES. LESS THAN ONE THIRD OF THE MILLIONS FLOWING THROUGH MEDICAID MILLS GOES FOR THE PROVISION OF HEALTH SERVICES FOR THE ELDERLY AND THE POOR. AN EVALUATION OF PAST STUDIES AND REPORTS NOTES THAT THE PROBLEMS IN THE NEW YORK PROGRAM HAVE BEEN KNOWN FOR 10 YEARS BY BOTH POLICYMAKERS AND LAW ENFORCERS. OVER THE SAME PERIOD, NEW YORK CITY INCURRED AN UNNECESSARY DEBT OF $1 BILLION DUE TO FRAUD AND ABUSE BY MEDICAID PRACTITIONERS, A SUM EQUAL TO THE BUDGET DEFICIT WHICH BROUGHT THE CITY TO THE BRINK OF BANKRUPTCY. AN ATTEMPT IS MADE TO ADDRESS THE QUESTION OF RESPONSIBILITY FOR THE SERIOUS AND PROTRACTED ABUSES REVEALED HERE. IT IS URGED THAT A CENTRAL MEDICAID FRAUD AND ABUSE UNIT AND THE OFFICE OF INSPECTOR GENERAL IN THE DEPARTMENT OF HEALTH, EDUCATION, AND WELFARE BE IMMEDIATELY ESTABLISHED TO COORDINATE THE ATTACK AGAINST FRAUD AND ABUSE. A LIST OF NAMES AND ADDRESSES OF PHYSICIANS WHO RECEIVED MORE THAN $100,000 FROM MEDICAID DURING 1974, AND THE CORRESPONDENCE OF SENATOR FRANK E. MOSS WITH NEW YORK PUBLIC OFFICALS ARE APPENDED. (MRK)