Oversight Releases Report on Medicaid Overpayments Costing Taxpayers Billions

September 20, 2012

WASHINGTON – Today House Oversight and Government Reform Committee Chairman Darrell Issa released a new staff report entitled, “The Federal Government’s Failure to Prevent and End Medicaid Overpayments,” which examines outrageous abuses of federal tax dollars within the Medicaid program, specifically regarding New York State developmental centers (see chart below). The report finds that over the past two decades, New York State has received billions of dollars in Medicaid reimbursements through mismanaged overpayments, and that the overpayments are continuing. Further, the report documents that as Medicaid payment rates increased, Federal officials failed to question the rising cost or implement measures that would bring the rates in line with actual costs.

At 2:00pm today, the Subcommittee on Health Care, District of Columbia, Census, and the National Archives will examine the Centers for Medicare and Medicaid Service’s (CMS) actions that resulted in New York facilities receiving billions of dollars in federal Medicaid overpayments over the past two decades, as well as CMS’s efforts to address the problem.

Key findings from the report include:

The Committee estimates that the State-operated facilities in New York that house and treat individuals with developmental disabilities have received federal Medicaid overpayments of $15 billion over the past two decades.

The daily per patient payment rate at New York’s developmental centers rose from $348 in 1990 to $5,118 in 2011.  Medicaid’s payment rates to the developmental centers were ten times higher than Medicaid rates for similar privately-run Intermediate Care Facilities in New York. 

The daily payment rate skyrocketed because the formula governing Medicaid payment rates for the developmental centers allowed the State-operated facilities to retain nearly two-thirds of the total Medicaid reimbursement when an individual left the facility.  According to OIG, this formula feature meant taxpayers paid twice for individuals who leave the developmental centers since most of them were transitioned into settings, such as group homes, also financed by Medicaid. 

• Although the federal overpayments to New York began in 1990, the Center for Medicare and Medicaid Services (CMS) was unaware of the growing payment rates until they reached $3,715 per patient per day in 2007.  Although learning of the overpayments in 2007, CMS delayed any action for three years and only acted after a local New York newspaper reported on the high overpayments received by the developmental centers. 

• At a briefing with Committee staff in June 2012, CMS officials informed the Committee that CMS is negotiating on a plan that gradually reduces the overpayments but allows New York to continue to receive billions in federal overpayments over the next five years.

•  CMS’s failure to question Medicaid’s excessive payments to New York developmental centers is inexcusable given that Medicaid payments to New York State’s developmental centers exceeded the entire Medicaid budgets of 14 states during this time period.  In fact, total Medicaid’s payments to New York’s developmental centers that served about 1,700 residents in 2009 was roughly the same as total payments made on behalf of the 372,522 enrollees in Kansas’s Medicaid program. 

The overpayments violate Title XIX of the Social Security Act which mandates that state Medicaid payment rates must be consistent with “efficiency, economy and quality of care.”  The overpayments also violate Medicaid Upper Payment Limit requirements that Medicaid reimbursements not exceed what Medicare would have otherwise paid for similar services.

Today’s Hearing Witnesses: Mr. John Hagg, Director of Medicaid Audits, Office of Inspector General, Department of Health and Human Services (testimony); Ms. Penny Thompson, Deputy Director, Center for Medicaid & CHIP Services, Centers for Medicare and Medicaid Services (testimony)

Today’s report and hearing continue the Committee’s oversight of how the Medicaid program is misspending tens of billions of taxpayer funds each year. Read the report here.