CMS: NYS Overcharged Feds $10B At Developmental Centers

State Overcharged Feds $10B At Developmental Centers

Investigation: Medicaid did nothing to halt overpayments

By Mary Beth Pfeiffer  Poughkeepsie Journal  September 11, 2012


New York state overcharged the federal government $10 billion for care at institutions for the developmentally disabled under a decades-old funding scheme that was first publicly revealed by the Poughkeepsie Journal, according to documents released exclusively to the Journal following a congressional investigation.

While Medicaid officials realized the overpayments as early as 2007, officials did nothing to stop them, the House Oversight and Government Reform Committee found in a probe spurred by Journal revelations.

“It appears CMS (Centers for Medicare and Medicaid Services) acted only after this scandal was uncovered and reported by the Poughkeepsie Journal on June 20, 2010,” Chairman Darrell Issa, R-Calif., wrote in a recent letter to Marilyn Tavenna, acting director for the federal Medicaid program. The date refers to the Journal’s first article on the issue, entitled “At $4,556 a day, N.Y. disabled care No. 1 in nation.”

The Journal article, Issa noted in one of three letters released, prompted officials to begin crafting a new funding structure. However, it will not be in place for five years - far too long in Issa’s view because the payments are continuing.

In response to the letters, a representative for the federal Medicaid program wrote in an email: “We are very concerned with the rate methodology being used by New York. We are working with the state to ensure that the new rate methodology complies with federal statute and regulation.”

State officials have acknowledged the overpayments but said the money helps pay for care for tens of thousands of developmentally disabled people in other community housing and programs.

The congressional committee may hold a hearing on the overpayments but no date has been set, said a spokesman, Ali Ahmad.

In the first estimate of how big the overpayments were, Issa’s letter said federal officials acknowledged, “New York may have received upwards of $10 billion beyond actual costs.”

Under the funding program - approved by the Centers for Medicare and Medicaid Services - New York charges $5,118 per person, per day for about 1,040 residents with Down syndrome and other disorders at seven institutions. The reimbursements - paid half by the federal government - have created a powerful incentive to keep open expensive, sprawling institutions that were supposed to be closed by 2000, including one in Wassaic.

“We are concerned that the state created this scheme to inappropriately leverage ... hundreds of millions of federal tax dollars,” Issa wrote. The letter called the overpayments “alarming,” demanded they stop “immediately,” and said federal officials should see if the money can be recovered.

New York state officials, who did not respond to requests for comment, received a similar letter, dated July 19. In it, Issa demanded a list of documents to explain the sky-high rate, which generated about $1.2 billion in 2009 in federal money. A federal audit estimated that $701 million of that was in overpayments but Issa put the figure at $860 million.


Incentive backfired

The letters are a stunning indictment of state and federal Medicaid programs, which were complicit in the billions of dollars in overpayments. “Despite the enormous gap between reimbursement rates and actual costs,” one letter said, federal officials “approved more than 35 state plan amendments,” which allowed the rate to grow from $348 a day in 1990 to more than $5,000 now.

Ironically, the formula was supposed to be an incentive to place residents in the community by allowing the state to keep two-thirds of the money for every resident placed there. But it ultimately made the institutions too valuable to close, the Journal has reported from state documents obtained under the Freedom of Information Law.

In an ominous turn for the state budget, Issa demanded that federal officials “end all excess payments immediately” and “assess your ability to recover the billions in improper payments.”

Calling it “alarming” that the payments are continuing, Issa wrote: “We doubt that if you caught someone overcharging you that you would allow them to continue overcharging you so long as they gradually overcharged less over time. As a guardian of limited taxpayer resources, you have a responsibility to end all excess payments immediately.” He also noted that Medicaid officials were unable to produce details of a new funding plan.

Following a briefing by Medicaid officials in June, Issa demanded documents showing how the extra money was spent, whether it was used by the state to leverage additional money - the state gets one federal dollar for each one it spends - and how the state calculated the actual cost of care, which it has admitted is about a quarter of the reimbursement rate.


State 'windfall'

In a separate letter to state Health Commissioner Nirav Shah, Issa said he was concerned that state officials concocted the “scheme to inappropriately leverage the federal Medicaid reimbursement to bring hundreds of millions of federal tax dollars into the state treasury each year.”

“Clearly, this scheme resulted in a windfall for New York at the expense of federal taxpayers,” the letter states, noting the rate was “10 times higher than rates paid” to similar privately operated facilities.

The committee letter listed nine requests for information and documents on developmental center costs and population, the rate-setting methodology, an accounting of excess monies and a corrective plan to address the overpayments.

“It is time for New York to make tough choices regarding the state’s Medicaid program,” the letter to Shah said, “which spends 25 percent more than California ... despite having only half the population.”

The oversight committee has also looked at Medicaid irregularities in Minnesota as part of its mission as a fiscal watchdog.

The Wassaic facility, meantime, currently has 80 residents, down from 4,500 in the 1960s. They are served by 156 direct-care staff; an additional 283 people work on the campus, many administering community group homes.