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Department of Health and Human Services

Office of Inspector General -- AUDIT

"Nationwide Audit of Medicaid Special Status Classifications Submitted by Medicare Health Maintenance Organizations," (A-04-96-01119)

November 7, 1996

Complete Text of Report is available in PDF format (570 kb). Copies can also be obtained by contacting the Office of Public Affairs at 202-619-1343.


This report provides the results of our nationwide audit of Medicaid special status classifications submitted by Medicare risk-based health maintenance organizations (HMO). The objective of our audit was to determine if overpayments have occurred due to HMOs submitting incorrect Medicaid special status classifications to the Health Care Financing Administration (HCFA). Risk-based HMOs receive fixed monthly payments for each enrolled Medicare beneficiary. The payment rate is increased for certain categories of beneficiaries as high-cost. Medicare beneficiaries who are also eligible for Medicaid are one of these high-cost categories and are referred to as Medicaid special status beneficiaries. The enhanced payment to the HMO due to the beneficiary being Medicaid eligible can amount to several hundred dollars, per month for each beneficiary.

Our audit was limited to payments made on behalf of Medicare beneficiaries whose incorrect Medicaid special status classification was submitted by HMOs to HCFA's Group Health Plan (GHP) system. This is our second report to HCFA relating to Medicaid special status payments to HMOs. Our first report, Review of Medicare Payments to Health Maintenance Organizations for Medicaid Special Status Beneficiaries (A-04-94-01089), addressed a weakness in HCFA's computer system which caused inappropriate payments to HMOs because the HMO payment system did not detect when Medicaid special status beneficiaries lost their Medicaid eligibility.

Our review of a random sample of 100 HMO-submitted Medicaid special status payments from the GHP system determined that 90 were not appropriate because the beneficiary was not eligible for Medicaid. Based on this sample, we estimate that overpayments totaled approximately $15 million of the approximately $45 million paid for HMO-submitted Medicaid special status beneficiaries between October 1, 1990 and July 31, 1995. This estimate was determined by projecting our sample results over the population using statistical methods. Our sample projections showed the range of overpayments to be from $13.7 million to $16.3 million.

We recommend that HCFA (1) identify and recover the overpayments caused by inappropriate HMO submissions of Medicaid special status; (2) implement policy and systems changes to prohibit HMOs from submitting Medicaid special status on behalf of beneficiaries who reside in States which automatically furnish Medicaid eligibility information to HCFA; (3) develop policies to require HMOs in States which do not furnish Medicaid information to verify Medicaid eligibility with applicable State agencies prior to submitting Medicaid special status; and (4) enforce current manual instructions which require HMOs to monitor the special status reports and report any changes in a beneficiary's Medicaid status.

In response to our draft report, HCFA concurred with these recommendations.