States Stymied in $4.3B Medicaid Collection Efforts

It's back to square one for states' efforts to recoup an estimated $4.3 billion they erroneously paid for Medicaid services for almost 280,000 beneficiaries who should instead have been enrolled in the Medicare program.

At issue is a Social Security Administration error that classified some disabled enrollees as eligible for Supplemental Security Income when actually they were eligible for Social Security Disability Insurance. That means states used their own Medicaid funds to cover the care that Medicare should have provided. The mistake was first discovered in 1999 and dates back to cases in the 1970s. The SSA created the special disability workload project to work through the errors.

In June 2011, the National Association of Medicaid Directors (NAMD) sent a letter to the Department of Health and Human Services asking Secretary Kathleen Sebelius to use the department's Medicare and Medicaid demonstration program authority to resolve the longstanding issue.

Sebelius responded in an October 27th letter that she lacked "the statutory authority to use my demonstration authorities to this end." She added that she would "work with affected states to explore possible legislative solutions."

The funds are particularly important as states face mounting Medicaid expenses. States' spending for the Medicaid program is expected to increase by a record 29% in fiscal year 2012, according to a survey from the Kaiser Family Foundation's Commission on Medicaid and the Uninsured. The individual state shares of the misallocated funds are estimated to range from $3.5 million for Wyoming to $821.2 million for California, according to data from the University of Massachusetts Medical Schools Center for Health Care Financing.

Matt Salo, executive director of the NAMD, told HealthLeaders Media that the waiver proposal was the ideal solution because "it didn't require the federal government to write a huge check." Instead HHS would have issued credits to reimburse states for their share of the erroneous Medicaid payments. The credits could have been used to meet a state's share of its current Medicaid expenditures.

Salo says he's unsure what will happen next, adding, "We've been working to resolve this issue for a long time."

The SSA has long contended that the only remedy available to states is to recoup from providers the mistaken Medicaid payments and then to have those providers file Medicare claims for the medical services. Salo said the effort to chase down decades-old medical records for patients and providers would be fruitless. "Providers could be dead, retired, relocated and their practices closed. They aren't going to want to go through this process," he says.

In her letter, Secretary Sebelius referred to court cases brought by New York and Massachusetts, which stand to gain $414.4 million and $158.3 million, respectively. "The courts concluded that nothing in either the federal Medicare or Medicaid acts authorizes the Medicare program to directly reimburse states for these expenditures," she wrote.

NAMD has tried unsuccessfully to get federal legislation passed to provide for the repayment, Salo says. "The current political climate just doesn't allow for this kind of expenditure."