Audit: State overspent Medicaid budget by $1.4B

Review finds bloated costs, violation of law

lbonner@newsobserver.comJanuary 31, 2013 

  • Audit highlights Medicaid budget development and administration practices may not comply with state laws meant to ensure agency and legislative accountability. Legislators wanted the Medicaid office to stop carrying debt to the next fiscal year, but the office did it anyway, by holding on to $131.8 million in federal money in 2012. Administrative costs are high compared to other states that spend about the same. One reason may be that a high amount of administrative money is spent in state Department of Health and Human Services offices other than the Medicaid office. The Division of Medical Assistance does not issue readily understandable and timely Medicaid performance reports to government officials who oversee the Medicaid program. Medicaid spends more than budgeted on contracted administrative work and interagency transfers due to an apparent lack of oversight.

— A state audit of the $13 billion Medicaid budget revealed a rat’s nest of problems from overspending, bloated administrative costs and violations of the law.

Gov. Pat McCrory used the audit to hit on his “broken government” theme and the need for repairs.

“As we know, across the state, people are hurting,” McCrory said. “We want to make sure that the money that’s supposed to help people is going to them, not to the administrative cost.”

In the last three years, the state has overspent its Medicaid budget by more than $1.4 billion, state Auditor Beth Wood said during a press conference Thursday morning on the Dorothea Dix campus to announce the findings.

Administrative spending is 38 percent higher compared to the average of nine states with Medicaid programs of similar size, Wood said, or $180 million more than the average.

In one example of bad budgeting, the state Medicaid office withheld $131 million that was owed to the federal government, though the legislature disallowed the practice and the Office of State Budget and Management warned the Medicaid office not to hold onto the money. The audit says the Medicaid chief business operations officer told auditors that “legislative leadership” knew the Medicaid office withheld the money, so department officials thought it was OK. The audit did not refer to the business officer, Steve Owen, by name, and did not identify the legislative leaders who knew.

Owen was in budget meetings Thursday and not available for comment. Wood said in an interview that she did not know who was at fault for the failure to obey the law or heed the budget office directive.

Dr. Aldona Wos, secretary of the state Department of Health and Human Services, said at the news conference that the agency will change the way it operates. “Cost overruns will not be tolerated and will not be acceptable,” she said. “There’s a budget for a reason.”

The state and federal governments share the cost of Medicaid, the health insurance program for the poor and disabled that covers about 1.5 million people in North Carolina. Of the budget overruns totaling $1.4 billion, the state was responsible for $375 million. The state spends about 15 percent of its annual budget on the program.

Medicaid overruns vexed legislative budget writers the past few years because they keep finding money to fill holes. Budget shortfalls even got a Medicaid director, Dr. Craigan Gray, fired last year. The division is now headed by Carol Steckel, a former director of the Center for Health Care Innovation at the Louisiana Department of Health and Hospitals, who was appointed last month.

The Federal health law

The audit results come as the legislature is in the midst of distancing the state from some of the main provisions of the federal health care law. The state is on track to prohibit the state program from adding more recipients, as the law allows. About 500,000 more people would be eligible for Medicaid under the new law. The federal government would pay 100 percent of the cost for most of them for the first three years.

McCrory said he will use the audit results as he writes his budget, but he did not say how. He left open the possibility that he would support expanding Medicaid, but said it shouldn’t happen before problems identified in the audit are fixed.

Using the audit findings as a reason not to expand Medicaid is an excuse, not a good argument, said Adam Linker, a health policy analyst for the N.C. Justice Center, an organization that advocates for poor and working class people.

The legislature made unrealistic budget demands, Linker said. “If you can’t meet them, it’s not necessarily their fault.”

An economic analysis by REMI, Inc., performed for the state Department of Health and Human Services, said expanding Medicaid would create 25,000 jobs by 2016. An N.C. Institute of Medicine report says the state would save $65.4 million over eight years if more people enroll in Medicaid as the federal law allows.

But Senate leader Phil Berger, an Eden Republican, said the audit confirms that the state cannot handle a bigger Medicaid program.

Billing system overruns

Wood’s office has released a series of audits critical of DHHS and Medicaid in the last 13 months that include an examination of cost overruns and delays for a new Medicaid billing system, and a review of fraud detection software. An examination of the state’s, vaunted, home-grown Medicaid managed care program, Community Care of North Carolina, may be next to go through an audit. Wood said her office was talking with the legislature’s program evaluation office about which of them would take a closer look at the program.

Community Care has been praised for years for improving patient health while controlling costs, but the audit released Thursday started to poke holes in that narrative.

“Recent budget actions by the General Assembly have assumed that the model saves significantly on Medicaid expenditures,” the audit says. “However, North Carolina’s Medicaid cost per eligible (person) is higher than any other state in Region IV and is higher than the national average. The question should arise, if CCNC saves significantly on Medicaid expenditures, why does North Carolina spend so much more on Medicaid than comparable states?”

Sen. Pete Brunstetter, a Winston-Salem Republican and one of the legislature’s chief budget writers, said legislators wanted the audit to help fix the problem of Medicaid overspending.

Medicaid may be headed for another deficit this year, Brunstetter said, because it appears the state is spending at a faster rate than last year.

“Any appearance that we’re on track is a bit illusory,” he said.

Bonner: 919-829-4821

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