Federal Government estimates of fraud, abuse, and inefficiency in the medicaid system range around $3 billion out of a total annual cost of $19 billion. The abuses range from the establishment of medicaid mills which conduct unnecessary examinations in order to siphon off millions of medicaid dollars to the practice of factor markups where an independent factor buys up medicaid claims at a discount, pads them, and collects from the federal government. Nursing homes frequently cut back on patient services to increase profits, charge personal expenses to medicaid, hire incompetent, cheap labor, and continue medicaid billing for patients who have been discharged or who have died. A monitoring system established in 1974 by the Department of Health, Education, and Welfare found that states were doing nothing to discourage frauds. Convictions were few, possibly because medicaid fraud is a misdemeanor punishable by up to 1 year in prison and a $10,000 fine. Recent reform legislation introduced by Senator Herman Talmadge proposes: (1) the installation of a Medical-Care fraud unit in every U.S. Attorney's office and each state agency administering medicaid; (2) conviction of medicaid fraud should be made a felony punishable by up to 2 years in prison and a $25,000 fine; (3) specific performance criteria from states to follow in administering medicaid and periodic on-site evaluations of how they are conforming to these standards should be established, with loss of medicaid matching federal funds for those states not in compliance.