OIG Report Finds Texas May Have Claimed More Than $30 Million in Federal Funds for Medicaid Uncompensated Care Payments That Did Not Meet Federal and State Requirements

King & Spalding

On September 29, 2022, OIG published a report of its findings summarizing its investigation into whether Texas properly claimed uncompensated care (UC) payments (the Report). The Report by OIG found that Texas incorrectly claimed millions of dollars in Medicaid UC payments that did not meet federal and state requirements because the State did not refund the full federal share of overpayments, did not collect identified overpayments, and did not reduce hospitals’ actual uncompensated care costs by Medicare payments.

In its September 2022 report, OIG reviewed UC payments Texas distributed for costs incurred between December 12, 2011, and September 30, 2016. OIG found that Texas incorrectly claimed $18.90 million. This figure includes $12.91 million that Texas did not refund the full federal share of overpayments and $5.99 million that it did not collect identified overpayments. Specifically, the state agency made overpayments to three public hospitals totaling $30.89 million. Due to a recording error, the state agency returned a smaller amount of overpayments to the federal government rather the correct total. The state agency also failed to collect $5.99 million in overpayments it made to eight hospitals. The Report listed high personnel turnover as the cause of the inadvertent accounting failure.

The Report also found that the state agency did not reduce hospitals’ actual UC costs by Medicare payments so the state may have also incorrectly claimed $33.78 million. In January 2010, CMS issued FAQs 33 and 34 in its “Additional Information on the DSH Reporting and Audit Requirements” that directed states to decrease hospital provider costs by private insurance and Medicare payments when totaling the hospital-specific limits. After litigation, CMS withdrew FAQs 33 and 34 in December 2018. The state agency failed to reduce the UC costs by Medicare payments received for dually eligible persons during October 1, 2013, to September 30, 2016, resulting in overpayments to some hospitals. The state agency disagreed with OIG’s finding regarding this issue and asserted that the state agency acted properly. As a result of the State’s response to the draft report, OIG amended its recommendation from recoupment of funds to working with CMS to determine the correct course of action in figuring out whether the $33.78 million in UC payments hospitals retained due to the failure to consider the Medicare payments should be recouped. If so, OIG recommends that the state agency either refund the related federal share of $19.66 million to the federal government or recoup and redistribute the funds to hospitals that had unmet UC costs.

OIG also recommends the state agency refund $11.05 million to the federal government for the underreported UC overpayments. Additionally, OIG advises the agency to follow the CMS-approved methodology for calculating actual UC costs when reconciling initial UC payments with providers’ actual UC costs, including reducing UC costs by Medicare payments providers receive. Finally, OIG recommends that the state agency establish review procedures for overpayments to ensure that they are accurately entered into the state agency’s accounting system and returned to the federal government.

The full text of the Report is available here.

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