Alabama Claimed Millions in Unallowable School-Based Medicaid Administrative Costs

The Alabama Medicaid Agency (State agency) claimed school-based Medicaid administrative costs that were not in accordance with Federal requirements. It claimed these costs without submitting for Division of Cost Allocation review its public assistance cost allocation plan (CAP) and certain amendments and, consequently, without having an approved CAP. Instead, the State agency claimed costs based on various versions of its implementation guides and plans that were being considered by and negotiated with CMS. In addition, the State agency used statistically invalid random moment sampling (RMS) in allocating costs to Medicaid, and it did not maintain adequate support to validate its sample results and related extrapolations. As a result, the almost $150.5 million (almost $75.3 million Federal Financial Participation) the State agency claimed in school-based Medicaid administrative costs for FFYs 2010 through 2012 was unallowable. The State agency attributed its lack of compliance with Federal requirements regarding submission of the CAP to staff turnover and a lack of knowledge of Federal requirements.

We recommended that the State agency refund almost $75.3 million to the Federal Government, submit to DCA for review and approval its CAP and amendments, ensure that its CAP addresses the statistical validity issues we identified, implement policies and procedures to ensure that its RMS complies with Federal requirements for statistical validity, maintain adequate support for its school-based administrative costs allocated to Medicaid, and review school-based Medicaid administrative costs claimed after our audit period and refund unallowable amounts.