Examining the Administration’s Failure to Prevent and End Medicaid Overpayments

Hearing Date: September 20, 2012 2:00 pm 2154 Rayburn House Office Build

I came to Washington to solve problems.  After nearly two years of being here, I realize how many people in this town would prefer to kick our country’s considerable challenges down the road instead.  But, today we have a real chance to address government failure head on and reign in abuse and mismanagement of one of the nation’s largest programs.

Today marks the Subcommittee’s fifth hearing this Congress examining waste, fraud, abuse, and mismanagement in the Medicaid program.  Each hearing has focused on specific instances when taxpayer resources were being misused within the Medicaid program. 

At the last hearing in April, we learned that Texas’s Medicaid program was spending more on braces than the rest of the country’s Medicaid programs combined.  We also learned that the Center for Medicare and Medicaid Services failed to detect hundreds of millions of dollars in fraudulent claims for years and that CMS only learned of these improper payments after an enterprising Texas journalist broke the story. 

Today’s hearing highlights another brazen example of government failure.  For decades, New York has received a windfall from federal taxpayers through Medicaid overpayments that are so large I needed to double and triple check with my staff that the information was accurate. 

In Arizona, skilled nursing facilities, which provide services comparable to New York’s developmental centers, receive about $200 per patient per day to treat patients.  Last year, New York’s developmental centers received over $5,000 per patient per day – a rate nearly 25 times greater than a comparable rate in Arizona. 

A report by the Health and Human Services Inspector General shows that these rates were ten times higher than rates received by private facilities in New York that perform similar functions.

Last year, taxpayers paid nearly $2.5 billion for about 1,300 patients residing in New York’s developmental centers.  To put this number in perspective, Medicaid’s spending on New York’s developmental centers alone exceeded the entire Medicaid budgets of 14 states.  Moreover, Kansas’s Medicaid program spends about as much to cover nearly 400,000 enrollees as New York’s developmental centers receive for their 1,300 residents. 

What do we know about these excessive payment rates?  We know the rates began to increase dramatically around 1990 as a result of New York proposals that were repeatedly approved by CMS. 

We know that the payment rate skyrocketed because the payment rate formula allowed the State-operated facilities to retain two-thirds of the total Medicaid reimbursement when an individual left the facility.  According to the HHS Inspector General, this meant taxpayers would pay twice for individuals who left developmental centers since most of them were transitioned into settings such as group homes, also financed by Medicaid.

We know that from 1990 to 2010 CMS never questioned the excessive rates, and the reimbursements continued flowing to New York State-operated developmental centers.  CMS did not even identify the overpayments until 2007 when they had reached over $3,700 per patient per day.  To make matters worse, we know that CMS failed to take any specific actions for three years after it identified the problem. 

In July of 2010, CMS chose to send a letter to New York officials only after a story appeared in the Poughkeepsie Journal about these excessive payment rates.  We know that these high payment rates caused New York to backtrack on its plan to close the developmental centers as the overpayments allowed the State to plug holes in its budget.  And we know that, as of three months ago, CMS was negotiating a plan with New York that would allow New York’s developmental centers to continue to receive billions in overpayments over the next five years. 

We also know that the excessive payment rates received by New York developmental centers break the law.  The high rates violate Title 19 of the Social Security Act, which mandates that Medicaid payment rates must be “efficient and economical.”  The high rates also violate Medicaid Upper Payment Limit Requirements, which prohibit States from claiming federal matching funds for Medicaid payments that are in excess of what Medicare would have paid for similar services.  According to the Committee’s estimates, federal payments to New York developmental centers may have exceeded the Upper Payment Limits by $15 billion over the past two decades. 

Penny Thompson, a witness today and the Deputy Director of the Center for Medicaid and CHIP Services at CMS, has admitted that CMS failed to adequately protect taxpayer dollars in this case.  Ms. Thompson is here today to address three key questions.  First, how could daily payment rates grow to exceed $5,000 per patient?  Second, how is the federal government going to correct this specific problem?  Third, how is the federal government going to prevent this type of wasteful spending in the future?

As I mentioned at the start, Arizona sent me to Washington to solve problems.  Hard choices will have to be made on how to reduce federal spending, but ending overpayments to New York State-operated developmental centers should not be a hard choice.  They must end now.   I thank our witnesses for being here today and look forward to hearing their testimony about how we can best act to stop these overpayments immediately and end similar abusive practices in the future.  Thank you.


Witnesses and testimonies

Name Title Organization Panel Document
Mr. John Hagg Director of Medicaid Audits Office of Inspector General Department of Health and Human Services Document
Ms. Penny Thompson Deputy Director, Center for Medicaid and CHIP Services Centers for Medicare and Medicaid Services Document

Related Documents

Name Document
Staff Report: "The Federal Government's Failure to Prevent and End Medicaid Overpayments" Document
INFOGRAPHIC: Skyrocketing Medicaid Rates in New York State Document