Auditor questions state health agency's Medicaid reporting

Legislative audit flags $33 million paid in 2004 as miscalculations of payment limits

Posted: Thursday, July 14, 2005

More than $33 million paid to hospitals by the state in 2004 has been flagged by auditors as miscalculations in Medicaid payment limits.

The state Department of Health and Social Services needs better internal controls over its Medicaid program, the largest federal program administered in Alaska, the legislative audit said.

Additionally, the audit cited problems in financial reporting by the health department for other federal assistance programs. Among the problems: revenue shortfalls, status reports, prescription drug payments and the charging of personal services. The report questions $41.9 million in costs claimed under U.S. Department of Health and Human Services assistance programs.

The findings are part of the state of Alaska Single Audit, released this week by the Division of Legislative Audit. The audit examined state compliance with federal laws and regulations in administering more than $2.6 billion in federal financial assistance programs in the fiscal year that ended June 30, 2004.

The bulk of the audit's recommendations targeted the health department. The department received nearly $975 million in federal assistance in 2004, the most of any state agency. Of that, Alaska was reimbursed more than $644 million for its Medicaid program, according to the audit.

The health department estimates that about 120,000 Alaskans, roughly 20 percent of the state's population, receive some form of Medicaid assistance.

The audit says state Division of Medical Assistance control over Medicaid payments had shown some improvement in 2004 over the year before, but overall "the effectiveness of its program integrity and utilization program declined."

Michael Marchand, a spokesman for the U.S. Centers for Medicare & Medicaid Services, which administers those programs, said he could not speak to specific points of the audit but that they are familiar complaints.

"We're aware of the issues highlighted in the single audit report and have been in contact with the state. These issues are similar to ones that we've identified at CMS," Marchand said.

Janet Clarke, assistant commissioner for the health department, said she agrees that there is room for improvement in administering the $1 billion Medicaid program.

But the department disagrees with many of the conclusions made and the costs questioned by the auditors.

"I don't think we have fundamental internal control problems or weaknesses. I think we have strong financial management," Clarke said.

The audit reports the health department in 2004 continued to miscalculate the Medicaid upper payment limit, which it had also done in 2003. The upper payment limit is the ceiling put on Medicaid payments to health providers and is calculated by using cost reports provided by hospitals.

Calculation errors resulted in the state paying $6.2 million to Alaska hospitals above their limits, the audit said. Also, hospitals were paid about $27.1 million based on 2003 calculations, which auditors said were flawed.

As a result, the audit flagged all $33.3 million in payments as questionable.

Clarke said there was no miscalculation and no overpayment by the state. The upper payment limit is calculated by the department at the beginning of the year, while the auditor analyzes results at year's end. It's a difference in philosophy; the department is looking forward while the auditor is looking back, she said.

"The guidance from the federal government on calculating the upper payment limit is not precise. It's open to interpretation," she said. "The legislative auditor believed there may have been a miscalculation in one fiscal year. For them to say there's questioned costs of this amount, I don't believe it's accurate at all."

Clarke said some recommendations, such as tighter controls over prescription drug payments and over allowable claims, have been dealt with or are being dealt with.

Others, she said, are more indicative of the federal government not wanting to pay the state as much as it should.

"Some of these disagreements are a state's rights issue on what we believe is adequate reimbursement," Clarke said.

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