News: CJ Exclusives

Campbell: “Most Damaging Audit”

Report suggests NC Medicaid program may have awarded hundreds of millions of improper reimbursements

Calling it “the most damaging audit” issued in his nearly 12 years as state auditor, Ralph Campbell on Tuesday released a scathing review of the North Carolina Division of Medical Assistance’s misuse of more than $1 billion in the Medicaid program.

As much as $414 million in improper Medicaid reimbursements may need to be repaid to the federal government.

Auditors, as part of their annual study of how the state spends federal dollars, zeroed in on the Disproportionate Share Hospital Program within Medicaid, because of federal concerns about fraud and misuse in the reimbursement program. DSH is designed to reimburse hospitals that serve larger numbers of poor patients than other hospitals.

Auditors found that the Division of Medical Assistance had surrendered control of the DSH program to Carolinas Medical Center near Charlotte, the hospital that benefits most from the program, and to the hospital’s lawyer. The division allowed the hospital and lawyer, Wendell Ott of Greensboro, to design the repayment formula used for hospitals in North Carolina, analyze cost data, and gather the cost data from other hospitals.

“We are talking about more than just conferring with the vendor,” said Wesley Ray, a deputy auditor.

Campbell said that Carolinas Medical Center received 18 percent of all DSH money, and that all six hospitals represented by Ott received 48 percent, or $655 million, of the total $1.3 billion in DSH payments.

“This was clearly a scheme that existed for a number of years, going back to 1997,” Campbell said at a press conference Tuesday. He said he would refer the report to federal, state, and local investigative authorities to determine whether laws were broken.

Carolinas Medical Center and two other hospitals also formed a “liaison committee” between the division and 41 public hospitals to distribute Medicaid disproportionate share funds, which Campbell said was an apparent violation of federal laws. The payments should have been made directly to the hospitals, he said.

The payment system also allowed legal, banking, and other fees to be deducted before the funds were distributed to hospitals. Auditors also found that outdated information was being used to calculate some Medicaid payments to hospitals. The outdated information led to overpayments to those facilities.

“We have grave concerns about the way the Division of Medical Assistance has operated the Medicaid program,” Campbell said. “All business dealings with hospitals and other Medicaid providers must be conducted at arm’s length, and the Division must regain full operational control of the programs.”

During the press conference Campbell emphasized that the federal government has growing concerns about states engaging in illegal schemes in order to obtain Medicaid reimbursements.

“Over the last decade…some states have found ways to inappropriately leverage federal funds,” Campbell said in a quote of a January 2003 U.S. General Accounting Office report. “Although (agency officials) and Congress have acted to curb certain financing schemes, states have found new statutory and regulatory loopholes to create the illusion that they have made large Medicaid payments to certain health care providers in order to generate excessive federal matching payments. Some of the schemes have cost the federal government several billions of dollars each year.”

According to auditors, the division was supposed to perform “cost settlements” or negotiations to compare actual and estimated costs within 12 months of cost data being submitted by hospitals to the division. But auditors found that no cost settlements have been performed since 1996. Without the cost settlements, hospitals could have been overpaid or underpaid for their Medicaid costs.

Hospitals that were ineligible for DSH payments received them anyway, auditors found, and required information from providers such as ownership, third-party arrangements, and any criminal convictions was not gathered. There were a number of other findings related to recordkeeping in the division that could have affected payments made to hospitals and other Medicaid providers. Auditors concluded that the internal control environment within the department was seriously deficient, and allowed questionable practices to continue for years.

Carmen Hooker Odom, secretary of the Department of Health and Human Services, objected to many of the audit’s findings, including the claim that payments were made to ineligible hospitals. DHHS also questioned why Campbell, after auditing Medicaid for the past 10 years, only now discovered that the division failed to obtain required information from providers enrolled in the program.

Campbell admitted that his office doesn’t “uncover every scheme in every audit,” but was unrestrained in his critique of the handling of the Medicaid program.

“Of real concern to us was an attitude that obviously existed in the Division for several years that it could do whatever it wanted, regardless of federal rules and regulations,” Campbell said. “That attitude, which goes to the heart of many of the problems we uncovered, must be reversed. The very least that taxpayers expect is that agencies will follow the rules in how they spend the funds they are given.”