Audit alleges possible fraud at state agency

Posted: Wednesday, December 12, 2001

A new audit says the state Division of Senior Services may have committed fraud by inappropriately allocating $120,000 in Medicaid dollars.

The report by the state Division of Legislative Audit said the agency approved double payments to some assisted-living homes from 1996-2001 and excused the illegal activity by saying the homes needed the extra money to care properly for their elderly clients.

A top state official called the accusation shocking and harsh and accused the auditor of "jumping to conclusions." The auditor failed to substantiate the finding of fraud, said Jim Duncan, commissioner of the state Department of Administration, which oversees the Division of Senior Services, or DSS.

"There was no attempt by staff to intentionally deceive or misrepresent anything," said Duncan in a written response to the auditor.

The auditor referred the findings to the Medicaid Fraud Control Unit, a state ethics investigator and the state Department of Law for further investigation.

The findings stem from an audit of assisted-living homes and a program called respite care, which provides public funding for alternate caregivers so primary caregivers can take a break.

Seniors in assisted-living homes with fewer than 17 beds are eligible for respite care to relieve the staff, but the respite payments are supposed to go to alternate caregivers outside the homes, said Audit Manager Dane Larsen.

DSS is not allowed to pay a home to give primary and alternate care to the same client, but the agency did it anyway, Larsen said. Medical records and DSS staff notes indicate employees knew the practice was illegal but authorized the double payments so the homes would have more money, he said.

The agency "approved of double billings," and tried to justify the activity by saying the homes needed additional money to provide essential services to Alaska seniors, the audit said.

DSS "appears to have defrauded the state and federal governments to fill this perceived need," according to the audit.

Duncan, the commissioner, strongly disputed the findings and credited DSS for taking the lead in preventing misuse of respite funds.

Duncan found five instances in the past six years when DSS paid assisted-living homes to give primary and alternate care to their clients. Although Larsen said the double payments violated Medicaid regulations, Duncan interpreted the code differently and argued the practice was not illegal.

However, DSS employees realized the practice was not prudent and voiced their concerns, he said. Although DSS employees believed the homes were using the respite payments to hire alternate caregivers as required under the respite program, they pushed for a policy to ban the double payments to prevent potential misuse of the funds, said Duncan, noting the policy was adopted in 1999.

All but one of the double payments cited in the audit happened before the policy was put in place, and the one that slipped through was corrected seven days later, he said.

The policy, adopted before the auditors began their investigation, proves the agency was working to protect the integrity of the respite care program, he said.

"When we found there was a concern we corrected it, and we put a policy in place to stop it," Duncan said.

Larsen cited DSS staff notes to help bolster the allegation of possible fraud while Duncan cited the notes to undermine the charge. Both sides declined to release the notes, saying the information was confidential.

The state Department of Health and Social Services also reviewed the records and concluded the double payments did not amount to fraud. John Sherwood said the records show DSS employees believed the homes would use the respite payments to hire extra help.

"When we looked at the record, we did not see any particular effort to deceive or commit fraud on the part of the Division of Senior Services staff," said Sherwood, a manager for Health and Social Services, which administers the Medicaid program.

Medicaid is a state and federal program that helps pay for health care for the needy, aged, blind and disabled, and for low-income families with children.

The audit also found a few instances in which assisted-living homes collected respite payments for clients even though another facility was providing the service. Duncan said that happened five times in the past six years but attributed it to an accounting error by the homes.

Kathy Dye can be reached at

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