News: CJ Exclusives

Audit Could Hasten Cost-Cutting Medicaid Reforms, Experts Say

State could use outside vendors to make sure recipients are eligible for benefits

A national health policy analyst says a recent state audit showing the N.C. Department of Health and Human Services misspent $835 million on Medicaid could motivate legislators to accelerate cost-cutting reforms in the government’s program for the poor, elderly, and disabled.

“The audit points to some important gaps in both eligibility and basic management in removing people or providers that shouldn’t be there,” said Josh Archambault, a senior fellow at the Florida-based Foundation for Government Accountability who has researched Medicaid eligibility and overpayment errors across the nation.

Federal regulators “allow a certain amount of error, but as taxpayers we should expect a very high standard,” Archambault said. “In the private sector, these sorts of performances would be unacceptable.”

In a national context, North Carolina is “quite average, sadly, in how much money is expected to be wasted,” Archambault said. “Hopefully. the department and the governor’s office are committed to really cracking down on that as quickly as possible.”

Gov. Pat McCrory’s office did not respond to a request for comment for this story.

North Carolina’s Medicaid system historically has experienced major cost overruns, Archambault said. He credits the McCrory administration for some improvements, “but it was a pretty low bar to begin with.” The state has stabilized a system that was in crisis, he said, but “the department needs to get to where they’re being proactive in searching for more cases of waste, fraud, and abuse.”

He said his organization has met with some legislators about better ways to verify the eligibility of Medicaid recipients, and expects further conversations this year “to see what the appetite is like.”

The Office of State Auditor on April 4 released results of the DHHS audit. There were 35 negative findings involving many of the state’s social welfare programs.

Many of the findings cited DHHS for not getting sufficient documentation to verify expenses or eligibility for both providers and participants, and improperly calculating benefits. The audit said misdirected expenses drive up costs, and prevent offering additional services that could have helped those in need.

Failure to review reports, submit complete and accurate reports, obtain necessary approvals for program changes, or communicate benefits and eligibility changes to participants were among other findings in the audit, which repeatedly cited DHHS for failure to correct problems identified in past audits.

Of 396 Medicaid cases reviewed by auditors, 13 percent contained overpayments. Projected across the entire Medicaid population, “the likely total errors are $835 million,” the audit stated.

Dave Richard, DHHS deputy secretary for medical assistance, said the department is “absolutely” committed to addressing audit findings. “But we also recognize that in a system as large as we are, there are reasons that are inherent” that errors occur.

He said the federal Centers for Medicare and Medicaid Services judges North Carolina’s overpayments against those in 17 peer states. The average error rate in those states averaged 8.2 percent, compared to North Carolina’s 6.7 percent. North Carolina’s rate was lower than 11 peer states.

The state audit attributed $763 million of the estimated $835 million to payment errors and retroactive rate changes, a finding DHHS disputed. A DHHS recalculation totaled $690 million, not $763 million.

Sometimes DHHS disagrees with audit findings because the agency has backup information to justify payments that auditors do not have, Richard said. In some instances, auditors’ findings become “a little less objective” because they don’t work routinely with providers, and might be unaware that some providers require longer processing and verification because they are unfamiliar with the claims-filing process.

Richard said DHHS does not correct some past audit findings immediately because the audits are done retroactively. By the time the audits are finished and the reports are released, a new fiscal year may have begun.

Changes by the General Assembly reducing Medicaid reimbursement rates result in some overpayments, but those overpayments are not errors, Richard said. DHHS must wait for permission from the federal government to make the reimbursement changes, and then program the changes into the computer system to recoup the money.

“I’m most upset” that some providers didn’t have proper credentials to provide services for which they were paid, Richard said. He pledged “a significant reduction in that in future years,” but said most of the issues were “different than fraud.” Providers could be unaware certifications lapsed, or mistakenly thought they had proper certification.

The audit found instances in which DHHS did not recover small overpayments. Richard said under state law, DHHS is generally prevented from pursuing reimbursement for overpayments of less than $150 because going through the appeals process could cost the state $500.

Some participants in Medicaid and other social programs whose circumstances had changed and should not have been eligible for the programs were not dropped from the rolls and had their benefits extended automatically because county social services employees who administer the state-supervised program had been overwhelmed with backlogs of applications to extend benefits.

The volume of automatic extensions is dropping, and with a few exceptions should be eliminated by the end of the year, Richard said. DHHS and the General Assembly are discussing tools counties could use to require greater scrutiny of applicants who wish to renew eligibility. Richard said the state’s NC Tracks system can cross-check Medicaid and food stamp recipient files for discrepancies during eligibility redeterminations.

Archambault cautioned that “if you’re just automating your current checks that you’re doing manually … it’s quicker, sure. You’re saving on administrative costs.” But more thorough investigation could determine, for example, if an applicant is ineligible for benefits in North Carolina because she has assets in another state.

“Other states are using third-party vendors to check eligibility or help check eligibility, or do redeterminations more quickly,” Archambault said. “It’s like [performing] a national credit check without building an IT system. … North Carolina is not currently doing that, so it’s an opportunity” to deliver more savings.