Missouri Improperly Claimed Federal Reimbursement for Most Reviewed Medicaid Inpatient Psychiatric Hospital Service and Disproportionate Share Hospital Payments to Hawthorn Children's Psychiatric Hospital

The Missouri Department of Social Services (the State agency) claimed $22.7 million in Federal reimbursement for Medicaid inpatient psychiatric service and disproportionate share hospital (DSH) payments made to Hawthorn Children's Psychiatric Hospital (Hawthorn) for claims with dates of service during the audit period, July 1, 2005, through June 30, 2010. Of that amount, $21.4 million was not claimed in accordance with Federal requirements for inpatient psychiatric hospital services.

For States to claim Federal reimbursement for their Medicaid inpatient psychiatric service and DSH payments to a psychiatric hospital, the hospital's inpatient services must meet the Federal definition of such services. This definition requires the provider to demonstrate compliance with the basic Medicare Conditions of Participation (CoP) generally applicable to all hospitals and two special Medicare CoP applicable to psychiatric hospitals.

Hawthorn did not demonstrate compliance with the special Medicare CoP at any time during the audit period; however, for several months during that period, CMS inadvertently changed some applicable regulations (the regulatory gap period). Of the $22.7 million in Federal reimbursement claimed by the State agency during the audit period, $21.4 million was for unallowable claims with dates of service outside the regulatory gap period. We have not provided an opinion on the allowability of State agency claims for the remaining $1.3 million, which was for claims with dates of service during the regulatory gap period. The State agency made these improper claims because it believed that Hawthorn had met all requirements to be eligible for Medicaid inpatient psychiatric service and DSH payments.

We recommended that the State agency (1) refund $21.4 million to the Federal Government, (2) work with CMS to determine whether the State agency should refund an additional $1.3 million to the Federal Government, (3) identify and refund the Federal share of any additional payments made to Hawthorn for claims with dates of service after the audit period if neither the State agency nor Hawthorn can demonstrate the hospital's compliance with Federal requirements for inpatient psychiatric hospital services, and (4) ensure that Federal reimbursement for Medicaid inpatient psychiatric service and DSH payments to psychiatric hospitals is claimed only if those hospitals can demonstrate compliance with the special Medicare CoP. The State agency did not concur with our first and second recommendations and did not comment on our third and fourth recommendations.