Audit flags $2.4B in 'improper' Medicaid, CHIP payments; Michigan cries foul

Beth LeBlanc
The Detroit News

The state of Michigan is pushing back on audit findings estimating the Department of Health and Human Services made about $2.4 billion in improper payments to Medicaid and Child Health Insurance Program recipients. 

The state is alleged to have paid out roughly $1.5 billion in improper payments to beneficiaries who weren't eligible and another more than $800 million to recipients whose case files were missing documentation of eligibility, according to Auditor General Doug Ringler's office

But the state said the audit's totals, extrapolated from a sampling of about 220 recipients, are "grossly inflated" due to faulty math and the fact that many of the recipients the audit deemed ineligible were actually just mis-categorized as to the type of assistance they were eligible for. 

"MDHHS has substantial concerns with the extrapolation methodology used by the (Office of Auditor General)," said Lewis Roubal, chief deputy director for opportunity for the Department of Health and Human Servic. "There are numerous extrapolation methodologies that could be used by an auditor during an audit and MDHHS believes the methodology the OAG used exacerbated 'potential' estimates of excess payment."

Michigan Department of Health and Human Services building in Lansing

The audit report released Friday included a random sampling of 147 Medicaid payments and 70 CHIP payments paid between Oct. 1, 2018 and Sept. 30, 2019. The state served about 2.9 million people that fiscal year between its Medicaid and CHIP program.

The audit found about 16, or 11%, of the Medicaid payments were made for individuals not eligible for the "type of assistance" category they were filed under and 23, or 33%, of the CHIP recipients were not eligible for the type of assistance category they were registered under. 

The audit estimated that, were those percentages extrapolated out to encompass all Medicaid and CHIP payments in that time period, the numbers would have resulted in improper payments totaling $1.45 billion in Medicaid and $64 million in CHIP. 

Those missing documentation accounted for 9, or 6%, of Medicaid recipients and 9, or 13%, of CHIP recipients, totaling $817 million in improper Medicaid payments and $89 million in improper CHIP payments when extrapolated for the whole, according to the audit report.

The audit marked the improper payments as a "material condition" — one of the more serious findings an audit can uncover — while also concluding about $12.6 billion, or about 84%, of total payments were issued appropriately. 

"MDHHS indicated it did not properly consider all available information when determining beneficiary eligibility because of system issues and staff actions," the audit said. "MDHHS also indicated internal control was not always sufficient to ensure documentation was retained."

But the department in its response said the totals arrived at by auditors were inflated and voiced as much to Ringler's office before the conclusion of the audit in an attempt to to outline the problem ahead of the report. 

The state argued many of those reviewed by the auditor were Medicaid eligible even if they were misclassified as to the "type of assistance" for which they were eligible. At most, that discrepancy would lead to a slight variance in the federal match for the recipient, not a conclusion of ineligibility that would disqualify the entire benefit as an improper payment.

The disqualification of the entire benefit as an improper payment — instead of the difference between federal match rates — "resulted in a significantly inflated estimate which exacerbated the estimate made through the OAG's extrapolation methodology," the department said in its response. Any audit by the Centers of Medicare and Medicaid would have zeroed in on the difference between the federal match rates, not thrown out the total amount, the state argued.

The auditor's office stood by its findings and responded that it had decades of experience auditing Medicaid programs. Even after hearing the state's argument, there was insufficient evidence to establish eligibility for those the department flagged, the audit report said. 

Federal regulations, the audit said, "indicate an eligibility error exists when the department assigns an incorrect (type of assistance)."

The department also pushed back on a number of "reportable conditions" flagged in the audit report that indicated inadequate verification of Social Security numbers, immigration status, overlaps with Medicare coverage, or the eligibility of individuals receiving Supplemental Security Income.

System changes to ensure better classification of the "type of assistance" for which a claimant is eligible were implemented in April 2021, correctly routing all new cases to the right assistance categories, the department said. Existing cases are expected to be updated "during a 12-month period following the end of the public health emergency."

"The efforts we have underway to improve this program and its activities are not necessarily a direct result of audit activity and do not mean that MDHHS agrees with all components of a finding," the department said in its response.

"MDHHS can disagree with the OAG's methodology, interpretation of policy, and determinations on particular cases without conceding our commitment to continuous improvement."