CONGRESSIONAL INTEREST IN MEDICARE AND MEDICAID HAS RESULTED IN HARSHER PENALTIES, ALTHOUGH SEVERE SANCTIONS ARE PRESENT IN EXISTING STATUTES. OVERUTILIZATION OF SERVICES IS THE MOST COMMON ABUSE, PARTICULARLY BY HEALTH CARE ENTITIES SHARING THE SAME BUILDING. ABUSE CASES ARE OFTEN SETTLED OUTSIDE THE FORMAL REGULATION PROCESS AND SANCTIONED BY EXCLUSION FROM THE PROGRAM OR CESSATION OF PAYMENTS. ALTHOUGH SOME POTENTIAL FRAUD SITUATIONS ARE IDENTIFIED IN REGULATIONS, THEY ARE AS VARIED AS HUMAN IMAGINATION. EXISTING PENALTIES INCLUDE HEAVY FINES, IMPRISONMENT, LOSS OF ASSETS, AND REVOKING PROFESSIONAL LICENSES. BECAUSE MEDICAID FRAUD CAN BE INVESTIGATED CONCURRENTLY BY FEDERAL AND STATE AGENCIES, IT IS DIFFICULT TO DETERMINE THE EXACT PENALTIES THAT COULD BE IMPOSED. STATES HAVE THEIR OWN LAWS FOR MEDICAID FRAUD, BUT FEW CASES HAVE BEEN PROSECUTED. THE ALLEGATION OF FRAUD CAN SEVER PAYMENTS TO A HEALTH CARE FACILITY, ENDANGERING ITS FINANCIAL POSITION, AND THIS HAS RAISED LEGAL QUESTIONS INVOLVING DUE PROCESS. THE SOLUTION TO THE PROBLEM IS NOT MORE PENALTIES, BUT COORDINATION AND UPGRADING OF INVESTIGATIONS. THE ARTICLE WAS PREPARED BEFORE NEW FEDERAL STATUTES WERE ENACTED AND CONTAINS ONLY A BRIEF SUMMARY OF THESE AMENDMENTS. THE APPENDIXES CONTAIN A CHART OF APPEAL PROCEDURES FOR A HEALTH CARE FACILITY AND A LIST OF STATUTES UNDER WHICH MEDICARE/MEDICAID FRAUD AND ABUSE CAN BE PROSECUTED. (MJM)