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Department of Health and Human Services

Office of Inspector General -- AUDIT

"Review of North Carolina’s Medicaid Upper-Payment-Limit Calculations for Non-State Government and Private Hospitals," (A-04-03-02028)

August 1, 2005

Complete Text of Report is available in PDF format (560 kb). Copies can also be obtained by contacting the Office of Public Affairs at 202-619-1343.


Our objectives were to determine whether North Carolina: (1) calculated the UPLs for non-State government and private outpatient and inpatient hospitals in accordance with Federal regulations and the approved State plan amendments and (2) properly included UPL payments in the calculation of hospital-specific disproportionate share hospital limits.  We found that North Carolina did not comply with its State plan amendment for calculation of the State fiscal year 2003 hospital inpatient UPL payments.  As a result, the State made unallowable payments of about $42 million ($26 million Federal share) in the first 9 months of State fiscal year 2003.  Also, North Carolina did not include UPL payments in its calculation of hospital-specific disproportionate share hospital limits.  As of the end of our audit period, no disproportionate share hospital overpayment had occurred; however, if the State had made payments up to the improperly calculated disproportionate share hospital limits at any time during the remainder of the State fiscal year, an overpayment of at least $42 million would have occurred.

We recommended that North Carolina:  (1) make future estimated inpatient UPL payments based on a UPL properly computed using Medicaid costs incurred instead of charges converted to costs, (2) revise its calculation of hospital-specific disproportionate share hospital limits to include properly computed UPL payments, and (3) resolve with CMS all outstanding issues affecting the final cost settlements and, upon resolution, perform annual final cost settlements and refund the Federal share of any UPL and disproportionate share hospital overpayments.  In response to the draft report, the State said that, regarding our third recommendation, any action must await the conclusion of discussions with CMS to resolve technical and legal issues.  Based on the State’s comments, we modified this recommendation.