Virginia declines to refund $7.7M in Medicaid administrative costs requested by OIG

Medicaid on paper and a stethoscope
The OIG found a few problems with the way Virginia's Medicaid system claimed administrative costs. (Getty/designer491)

Virginia claimed $15.3 million in unallowable administrative costs in its Medicaid managed care program over the past two years, according to the Office of Inspector General for HHS (OIG). And now the state is at odds with the agency over what to do with that money.

The recommendation came following a review of Virginia's Medallion 3.0 Waiver Program, a state-wide Medicaid managed care program that features capitated, risk-based payments and six managed care organizations. During fiscal years 2016 and 2017, the state claimed $342.6 million in administrative costs, $220 million of which was paid by the federal government. 

The OIG recommended that Virginia refund the federal government its portion of misallocated administrative costs, which came to $7.7 million. While Virginia concurred with other recommendations from the OIG report, it disagreed that such a refund was warranted.

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“DMAS submits that, even if the OIG's position were accepted: (a) the potential disallowance amount is $607,529; and (b) federal law authorizes retroactive amendment of the CAP as an alternative to disallowance,” Jennifer S. Lee, M.D., director of the Virginia Department of Medical Assistance Services (DMAS), wrote in response (PDF) to the OIG's recommendations.

DMAS' first point of disagreement involves a statute in its CAP related to cost centers. The state agency contends that only one section of the CAP mentioned cost centers and that section related to personnel-related cost centers only—so any potential disallowance should exclude other types of cost centers.

If you only count the personnel-related costs in the OIG's audit, the disallowance drops dramatically to $607,529. But the OIG wasn't convinced by that argument.

“After reviewing the State agency’s comments, we maintain that our disallowance recommendation is valid. The DAB and Federal regulations require State agencies to include all of their program administrative costs, not just personnel costs, in their CAPs,” the agency responded (PDF).

DMAS' second point, however, was harder to for the OIG to dismiss. If the state receives federal approval to retroactively amend its CAP, the disallowance may disappear. 

RELATED: Policy experts to legislators: Don't forget administrative spending in quest to lower healthcare costs

Such approval may indeed arrive and solve this standoff. In the meantime, however, the OIG was quick to point out that the CAP has not yet been amended.

“The costs associated with the remaining missing cost centers we identified in our findings were not included anywhere in the CAP. We acknowledge that some costs might be allowable if the State agency receives retroactive approval of amendments to its CAP. However, the State has not received such approval,” the OIG report concluded.

The OIG conducted this audit because previous reviews have found Medicaid administrative costs in many states weren't filed in accordance with federal requirements. While Medicaid administrative costs were high, the OIG concluded that $324.9 million of the administrative costs were indeed claimed correctly.

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