OHIO'S MEDICAID PROGRAM WAS NOT COMPLYING WITH EITHER FEDERAL OR ITS OWN POLICIES. INCORRECT ELIGIBILITY CRITERIA AND PROCEDURES WERE USED WHICH RESULTED IN ABOUT 26,000 INELIGIBLES RECEIVING MEDICAID, AND THE DENIAL OF BENEFITS TO MANY WHO SHOULD HAVE BEEN ELIGIBLE. BECAUSE OF LACK OF CONTROLS, OHIO HAS PAID SOME PROVIDERS MORE THAN ALLOWED FOR FEDERAL SHARING. ALSO, BECAUSE OF THE METHODS USED TO SET FEE SCHEDULES FOR PROVIDERS, SOME TYPES OF MEDICAID BENEFITS MAY NOT HAVE BEEN READILY AVAILABLE TO RECIPIENTS. OHIO'S PROGRAM TO CONTROL THE USE OF INSTITUTIONAL SERVICES WAS DESIGNED PRIMARILY TO PREVENT A REDUCTION IN FEDERAL SHARING IN THE COSTS OF LONG-TERM CARE. OHIO HAS BEEN FOREGOING MANY QUALITY OF CARE AND COST CONTAINMENT BENEFITS. THE STATE'S PROGRAM OF USE CONTROL AND ABUSE DETECTION FOR AMBULATORY SERVICES HAS BEEN HAMPERED BY A LACK OF SPECIFIC CRITERIA REGARDING WHAT CONSTITUTES MISUSE OF THE MEDICAID PROGRAM. FURTHER, OHIO'S CLAIMS PROCESSING SYSTEM LACKED NEEDED EDITS AND CONTAINED IMPROPERLY PROGRAMMED EDITS. BOTH OF THESE CONDITIONS HAVE RESULTED IN IMPROPER CLAIMS BEING PAID. NEW COMPUTER PROGRAMS ADDED TO THE CLAIMS PROCESSING SYSTEM AND CHANGES TO EXISTING PROGRAMS HAVE NOT BEEN PROPERLY CONTROLLED OR TESTED, LEAVING THE SYSTEM VULNERABLE TO ERRORS AND EMPLOYEE FRAUD. MILLIONS OF DOLLARS COULD BE SAVED BY INCREASING PAYMENT RATES FOR SKILLED NURSING FACILITIES SO THEY WILL ACCEPT PATIENTS WHO PRESENTLY ARE FORCED TO REMAIN IN MORE EXPENSIVE HOSPITAL BEDS AND BY IMPROVING THE ADMINISTRATION OF PROGRAMS RELATED TO ELIGIBILITY DETERMINATIONS. THE STATE HAS IMPLEMENTED GAO'S PROPOSAL TO AUTOMATICALLY TERMINATE 4-MONTH MEDICAID EXTENSION CASES, WHICH SHOULD SAVE ABOUT $2.75 MILLION A YEAR. THE OHIO DEPARTMENT OF PUBLIC WELFARE'S RESPONSE TO THE REVIEW IS APPENDED. (AUTHOR ABSTRACT MODIFIED--RCB)