puzzle made of dollar bills with a magnifying glass on the puzzle
Credit: Images of Money, Flickr Creative Commons

Medicaid could have paid hundreds of millions too much for patient care, welfare payments and children’s health while underpaying recipients for food stamps.

By Rose Hoban

A new report from State Auditor Beth Wood finds the Department of Health and Human Services continues to struggle with monitoring federal programs, complying with federal and state regulations and paying providers of care.

According to the audit, released Monday morning, the state’s Medicaid program may have overpaid providers by as much as $835 million and the federally funded State Children’s Health Insurance Program by as much as $81 million.

State Auditor Beth Wood
State Auditor Beth Wood

DHHS officials contend the audit’s estimates are overstated.

“It isn’t someone sending in fake claims where there was something done that wasn’t provided,” said Medicaid head Dave Richard. “It’s not something where somebody jacked up a rate that was inappropriately paid.”

This is the first year in which Wood’s office is calculating possible monetary projections to go along with annual federal compliance audits.

Job’s not finished until the paperwork’s done

In the fiscal year ending June 30, 2015, the department processed more than 127 million payments for services, totaling about $11 billion in state and local dollars. At the time, Medicaid covered health care for about 1.8 million children, some of their parents, people with disabilities and low-income seniors receiving long-term care.

Auditors looked at a sample of 396 payments out of those 127 million claims and found that 50 of the claims had overpayments totaling $4,288.

When extrapolating out that rate of excess payment over the entire program, Wood maintained “the likely total errors are $835 million,” with a range of as high as $1.2 billion and as low as $492 million.

Richard argued the number is more an accounting issue than money that’s available to be taken back from providers. He said the audit reflects things like the absence of documentation submitted by the tens of thousand of providers who deliver Medicaid services.

“If they don’t provide us with documentation immediately, it doesn’t mean that they didn’t provide that service as intended; we believe that service was provided,” Richard said. He pointed out that it’s difficult to get all of the programs’ providers to fill out every form correctly in a timely manner.

But if all the documentation isn’t complete, payment could be improper, the state auditor contended.

Richard also claimed these kinds of documentation issues are “the issue that every state agency in the country faces.”

According to a release from DHHS, the department will “continue its efforts to educate providers about documentation standards and will target education and training to specific provider types if they are consistently having issues.”

Dave Richard headshot
Dave Richard heads North Carolina’s Medicaid program

Richard argued that part of the number came from a time lag created by changes in policy, and that those issues get resolved over time.

Lawmakers often ask for changes to Medicaid rates paid to providers and then book those savings into the state budget. But it can take up to a year, or more, for federal officials to approve these state plan amendments; meanwhile, the state continues to pay providers at the old, higher rate.

Sometimes the state attempts to recoup those payments already made to providers after the new rates get approved. That was the case in early 2015, when the state attempted to recoup a year’s worth of payments from thousands of primary care providers up to a year after they’d delivered care.

According to the audit, these types of errors due to retroactive rate changes, along with “improper payment methodology,” could comprise as much as $72 million of the $835 million total.

Get a PERM

Richard argued a better measure of how North Carolina’s Medicaid program was doing comes from a federal Payment Error Rate Measurement, or PERM, audit done every three years, where investigators compare states to one another.

In that audit, Richard noted, other states had an 8.2 percent average error rate, whereas North Carolina’s rate was only 6.7 percent. Nonetheless, that could represent up to $500 million in potential payment errors.

He also said North Carolina’s error rate is improving year over year.

“We always want to improve. But I want to be clear that we’re not outliers in this process in North Carolina,” Richard said.

In their response to the audit, agency officials also cited PERM data as evidence of lower overpayments to providers in the State Children’s Health Insurance Program, or SCHIP. Wood’s analysis said compliance, documentation and rate-change issues under that program mean DHHS potentially overpaid about $81 million.

One issue cited throughout the agency’s response to the audit is that when a provider overbills by an amount less than $150, DHHS does not routinely pursue the money.

“Due to the extensive appeal rights afforded providers when the Department seeks to recoup overpayments collection for an error less than $150.00, [it] has the potential to cost the Department in excess of $500.00,” the response reads.

Many of the billing problems cited by the auditors were for overpayments less than that amount. But with 127 million claims paid out, that could quickly add up.

Not just Medicaid

The audit also found continuing problems generated by the state’s NC FAST enrollment and management information system. The computer system is intended to make it easier for county social service workers to enroll recipients in a variety of benefit programs, but since early 2014 there have been problems with payments from the Supplemental Nutrition Assistance Program, or food stamps.

During the 2015 fiscal year, NC FAST processed about $2.4 billion in payments to 1.2 million North Carolina households. Wood found the system overpaid some recipients, sent duplicate payments to some and underpaid others. In all, the errors accounted for about $352,000 in mistaken payments.

Wood also cited documentation and security problems in the NC FAST system, some of which, “due to their sensitivity, are reported to the Department by separate sensitive letter.”

Payments made in 2 percent out of 972 cases for Temporary Assistance for Needy Families, commonly known as welfare, found overpayments.

“Even though sample results identified only $16,872 in questioned costs, if tests were extended to the entire population, questioned costs could be significant to the program,” Wood wrote.

The audit also found continued problems in payments made by vocational rehabilitation programs run by the state, including failure to “support accurate and timely eligibility determinations for the program,” errors in claims processing and mistakes in calculating payments that could total as much as $4.7 million.

In response to the issues in the vocational rehabilitation program, the agency noted that in a 2013 audit the error rate was 39 percent, but that “for SFY 2015 the error rate has been drastically reduced to 5.6 percent in a larger sample.”


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2 replies on “Audit Shows Continued Compliance Problems at DHHS”

  1. Thank you for your article; it is much more informed, and nuanced, than what was reported in the N&O. At the risk of repeating a bit of what you reported, I would like to add some insight to it.

    I have read the actual audit report. As you stated, DHHS processed 127 million payments during 2015. The auditors looked at a sample of 396 of them. Yep, four hundred claims payments, out of over a hundred million of them. The auditors found $4,288 in problematic payments, out of $11 billion in payments. That’s right: they found about four thousand dollars, out of billions of dollars. They then extrapolated the $4,000 into eight hundred million dollars, as you reported. Now, that 396 claims may actually be a statistically-valid sample size, and if so, extrapolation is a valid tool. But everyone needs to be clear about this: the auditors did not find millions of actual specific dollars, they found four grand. This is not an opinion; folks can read the audit report to see for themselves.

    Now let’s look at the type of findings. The majority of dollars were in two categories. First, about 50% of the dollars were errors related to “insufficient or improper documentation to support the services rendered.” That does not mean there was any definitive over-payment. It does not mean that the services were found to have been not rendered; it does not mean that the services were necessarily over-priced; it does not mean that the beneficiary should absolutely not have received the services. It means, in effect, that the paperwork (electronic or otherwise) was screwed up or not totally complete. Which is something that should be addressed. But it is not something that is clearly indicative of massive over-payments. The doctors and other providers may not have submitted all the paperwork that the auditors wanted; that does not mean that all those dollars were bogus (or even that a majority of them were).

    Second, about 30% of the dollars were errors related to “providers ineligible to render the services.” Again, this does not necessarily mean that the services were not provided, or that they were over-priced, or that the beneficiary should not have received services. Again, it is something that should be addressed, but it is not something that is clearly indicative of massive over-payments. Regulations require that doctors and other providers under Medicaid must “be enrolled as participating providers.” Sometimes this enrollment expires and needs to be renewed. Dealing with this paperwork (and providing documentation to auditors, as in the issue above) are parts of the reasons many doctors don’t want to participate in the program (for which they often get paid their lowest rates).

    Auditors sometimes like to show what may appear to be dramatic findings, as a way of making a name for themselves, etc. This can be in conflict with clearly laying-out to the auditor’s constituents (in this case, the taxpayers) what the realistic significance of the findings are. State departments of government are often constrained from properly rebutting such findings, especially if the findings may be technically correct in some narrow perspective.

    I see little in the audit report that points definitively to amounts that would never have been paid under a perfectly-run system. For anyone that is doubtful of this, please read the actual report. Mostly it appears to be items that would likely have eventually been paid anyway, after issues were cleared-up. For example, under a perfect system, most of the time, if a provider was ineligible, then either another provider would have been found (and the same services then delivered), or the provider would have eventually become eligible (and after a delay, the same services would have been delivered). The audit report does not say that the amounts highlighted by the auditors would never have been paid, which is to say, that total agency expenditures would have been less by that large amount, if all was running perfectly. There were indeed a few items that did reflect actual true over-payments, and these were largely items that DHHS was already working on retrieving (prior to the audit), with the exception of some trivial amounts that were deemed more expensive to chase than they were worth.

    Yes, some things need to be worked on. It is a very large, complex system. But this report does not clearly demonstrate massive outpourings of wasted dollars. It is unfortunate that it is being characterized in that way in some media reports.

    Lastly, all of this pertains to what is referred to as “fee-for-service” medical payments, wherein the state has to make and monitor every payment to every provider. North Carolina is already in the process of evolving from that methodology to a “managed care” model, wherein the state will no longer have to make every such payment, and payment errors to providers largely become the problem of a type of professional medical insurance corporation, which performs as a sort of “middle-man.” In this new model, which is spreading across the country, any losses due to real provider over-payments generally become a loss to the middle-man, not to the state taxpayers. The effort by NC DHHS to evolve to that method was already under-way before the audit results were announced. And this relevant point appears to be lost in portraying the situation.

    This is not a simple situation, nor a black and white one. There are a lot of bright, well-intentioned people working hard to make this work well. And most of them are likely not able to speak out clearly about such politically-sensitive matters. Folks, please reserve a bit of skepticism when you see fantastical headlines with no real counter-points. For as with so much of life these days, there may well be another side to the story.

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