U.S. Attorney Ron Machen Jr.'s dogged investigation of D.C. Mayor Vincent Gray's 2010 mayoral campaign has already hit pay dirt. Machen uncovered an illegal shadow campaign operating right out of Gray's campaign headquarters that spent $653,000 in undisclosed contributions to help the mayor get elected. But as bad as that is, this sordid tale could wind up as a footnote to a much larger scandal involving widespread Medicaid fraud.

The shadow campaign was allegedly funded by Jeffrey Thompson, the majority owner of D.C. Chartered Health Plan Inc. Chartered is paid $322 million annually to process Medicaid claims for about 110,000 low-income D.C. residents. Thompson's home and offices were raided March 2 by federal agents, who also ordered D.C. Attorney General Irvin Nathan to retain all documents relating to Chartered, which has held the city's largest contract for more than a decade.

An audit released that same month by D.C. Inspector General Charles Willoughby found 78,361 examples of overpayment to other private medical providers, including $663,000 the D.C. Department of Health Care Finance paid in Medicaid benefits to people who were dead and nearly $4 million to those lacking valid Social Security numbers. This led investigators to conclude the District had been overbilled $22.6 million in 2009 alone. That audit didn't even cover D.C.-owned facilities or managed-care contractors like Chartered.

In 2008, Thompson was forced to pay a $12 million penalty for overbilling Medicaid -- the city's largest source of federal funds. Four years later, his company still retains the city's largest contract.

City council members have not exactly been zealous about oversight of Thompson's company and its role in overbilling Medicaid, but they have been happy to cash his campaign checks. As the Washington City Paper's Alan Suderman first reported, nearly every council member received campaign donations from Thompson's extensive network. That includes donations from Jeanne Clarke Harris, the third person close to Gray to plead guilty to violating campaign finance laws.

Fallout from Gray's shadow campaign scandal runs deep, but we may have only seen the tip of the iceberg. In May, we called for an audit of payments to Chartered. It's looking like a better idea with every day this scandal deepens.