It was the U.S. House Committee on Oversight and Government Reform — not an act of Congress — that finally focused attention on a May 2012 OIG report warning of New York’s rate-setting methodology for beneficiaries with intellectual and development disabilities, with charges made that the state has overbilled the federal government $15 billion since 1991.

During a recent congressional hearing, John Hagg, director of Medicaid audits for the U.S. Department of Health and Human Services (HHS) Office of Inspector General, reported that New York claimed $2.27 billion ($1.3 billion of which was the federal share) in Medicaid reimbursements to pay for the state’s 15 operating developmental centers in 2009.

In referring to the OIG’s report of May 17, 2012, Hagg said New York did not base its payment methodology on costs.

“If New York had used actual costs in its rate-setting methodology, Medicaid reimbursements to the developmental centers could have been as much as $1.41 billion less in SFY 2009,” the OIG reported. “In turn, the federal government could have saved as much as $701 million in that year alone.”

Rather, New York, as allowed by law, uses a methodology that eliminates the link between actual costs and total reimbursement costs. The methodology was approved in 1991 and uses a trend factor and volume variance adjustment.  

According to Hagg’s written testimony, the rates were based on a two-year cycle. In first year of the cycle, rates were based on actual cost reports, with year-end volume variance adjustments, while in the second year, rates were based on the same cost reports but trended forward with a volume variance adjustment. The following year, the rates would be readjusted using new cost reports to restart the process. As a result, the OIG noted, there was a rapid increase in the rate once this amendment took effect.

Hagg said that in 2009, New York’s aforementioned claim of $2.27 billion in Medicaid reimbursement for the developmental centers had an actual cost of $578 million. Most of the difference between the actual costs and total Medicaid reimbursements is due to New York’s starting point in its rate-setting methodology.

In issuing its report, the committee wrote “these schemes are not new and are well-known.” The report attributed several studies from the Government Accountability Office (GAO) that detailed those and called for “the need for greater federal oversight over federal reimbursement of state Medicaid expenditures.”

Penny Thompson, the Centers for Medicare & Medicaid Services (CMS) deputy director for Children’s Health Insurance Program (CHIP) services, told committee members that her agency would take corrective action, according to news reports. Thompson reportedly said it would require “some considerable adjustment,” while acknowledging that HHS continues to work on a method to calculate future reimbursements.

“The total federal overpayment (in present value terms) between 1991 and 2011 was approximately $15 billion,” the committee noted in its report.

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Chuck Buck is publisher of RACmonitor.

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