Healthcare Business News

Illinois: Audit is flawed

State fights HHS' efforts to collect $140 million

By Joe Carlson
Posted: February 23, 2013 - 12:01 am ET

Illinois state officials, who are already grappling with one of the nation's most severe fiscal crises, plan to continue fighting the federal government's efforts to squeeze the state Medicaid program for $140 million.

The eye-popping figure was first revealed in an HHS audit in 2004, when auditors reported that the state had allowed a Chicago hospital to collect a quarter of a billion dollars too much in disproportionate-share Medicaid revenue during the last few years of the 1990s.

It was the largest overpayment auditors uncovered among nearly 150 similar reviews by HHS' inspector general's office during the 2000s. And it remains unpaid today, despite a federal law that requires the CMS to take swift action to collect the debt.

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Last week, HHS auditors prodded CMS officials again to either collect the $140 million from Illinois or submit paperwork explaining why they think the audit was flawed. The Feb. 20 audit said the CMS had not been “aggressive” enough in collecting Medicaid debts in 10 of the 147 audits it reviewed from the past decade, leaving $226 million in unrecouped revenue.

“Illinois strongly disagrees with the contention that money should be refunded to the federal government and will continue to vigorously contest this matter,” Medicaid spokeswoman Kelly Jakubek said in an e-mail.

HHS wrote in its 2004 audit that the hospital—then known as the University of Illinois at Chicago Hospital—had overreported the cost of free and discounted care provided to uninsured and Medicaid patients between 1997 and 2000. Those figures were used to give extra compensation to hospitals that cared for a disproportionate share of costly, low-income patients. But the auditors said the hospital used a flawed cost-to-charge ratio to figure the cost of its services and included bad debt on behalf of insured people in its calculations of charity care, neither of which were allowed. The federal government took issue with the calculations.

“What they're saying multiple times is, 'Here is the formula that needs to be used to calculate disproportionate-share hospital payments. You didn't do that. You did something else. And further, you didn't monitor how much you were actually paying the hospital,' ” said Dr. Joel Shalowitz, director of the Health Industry Management Program at Northwestern University's Kellogg School of Management.

Regardless of any potential flaws in the methodology, Jakubek said the payments at issue were based on prospective estimates, and there was no federal requirement at the time that the state ever go back and reconcile the actual figures against the estimates and collect any overpayments—an opinion the CMS agrees with, she said. The CMS declined to say whether it agreed with Illinois. A written response to the audit from the acting CMS administrator noted that the agency does have the right to disagree, and that the CMS was “close to resolving the recommendations” in the 2004 audit. Shalowitz said it seemed unlikely that the state was going to get out of the payment since so many other states that were audited about the same time did pay up.

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