California Over Charged Federal Medicaid by $20.3 Million in 2010

This post was authored by NCPA research associate Belinda Silva.

A Federal investigation discovered California withdrew more funds from its Medicaid account than justified. The state also obtained funds for expenditures it failed to report. Even after a direct demand from the Feds, California has yet to take appropriate corrective actions for the $20.3 million overcharge. Instead, state agency staff moved federal funds from other accounts, erroneously claiming those actions satisfied the shortfall.

On December 17th, the Office of Inspector General (OIG) released results from an audit performed on California’s Federal Medicaid account. The investigation was sparked by an earlier audit of state Medicaid programs for 2011 after a Federal audit showing $1.3 billion in federal over-funding nationally.

In order to fund Medicaid programs, states anticipate the federal portion and submit quarterly grant requests. These funds are administered by the Centers for Medicare & Medicaid Services (CMS) and held in a Payment Management System (PMS). The states then withdraw these federal funds throughout the quarter. At the end of each quarter, states reconcile the account by either refunding back to or withdrawing from the federal account to cover verifiable expenses. They then submit a Quarterly Medicaid Statement of Expenditures for the Medical Assistance Program, federal form CMS-64. In the case of California’s PMS account, fiscal year 2010 shows a discrepancy of $20.3 million.

Specifically, the OIG found the California Department of Health Care Services (DHCS) withdrew more funds from its Federal PMS account than expenditure reports support and it obtained funds for expenditures not reported. It also found the state did not take appropriate corrective actions for the $20.3 million.

Additionally, $88.5 million of expenditures are reported on the state’s 2010 CMS-64, although $80 million of adjustments reducing expenditures are not. Lastly, DHCS failed to withdraw Federal funds from the appropriate accounts. The OIG found the state regularly used the current fiscal year PMS account, rather than the account for the year correlating with their reports. This practice caused annual account balances to be incorrect.

Following the investigation the OIG issued the following recommendations to California:

1. Refund to the Federal Government $20,340,232 that was not supported by net expenditures.
2. Work with CMS to resolve the $88,465,923 of expenditures and $80,004,306 of reported adjustments for FY 2010.
3. Ensure that it obtains funds only for reported net expenditures.
4. Implement policies and procedures to resolve differences between the amounts awarded and obtained and the reported expenditures.
5. Ensure that it can support the amounts it withdraws from its PMS accounts and reports as adjustments.
6. Ensure that it reports the appropriate amounts.
7. Strengthen procedures to obtain funds from the appropriate PMS accounts.
8. Review the amounts it obtained from PMS accounts for FY 2011 and later years to determine whether they were supported by net expenditures and refund any amounts that were not adequately supported.

In response, the state agency agreed with OIG’s recommendations #1 through #2, and $6 through #8.

Yet, as of the release of the OIG’s investigation report, California had not addressed recommendation #5, and it had not refunded the Federal government the $20.3 over-draw. Instead, and without evidence of approval by CMS, the state transferred funds from other PMS accounts associated with years 2009, 2011, and 2012. Effectively, the state paid back the Federal government with its own money.

In addition, the state’s response to recommendation #4 failed to satisfy the OIG. During the investigation, OIG reviewed reconciliation procedures, including those implemented in March 2012. The OIG responded to DHCS claim of procedural improvements stating, “We reviewed all of those during our audit and determined that they were not adequate to prevent the issues identified in our report.”

As of yet, California has not improved processes in areas of concern, accounted for millions of dollars in Federal Medicaid funds, or offered any assurance the U.S. taxpayers will not continue to be burdened by the incompetence of government agencies with union protection against any measure of performance accountability. The final sentence of the OIG report does give some measure of comfort this will not conveniently go away:

“After reviewing the State agency’s comments, we maintain that our findings and recommendations are valid.”

This post was authored by NCPA research associate Belinda Silva.

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