Pennsylvania Did Not Refund the Full Federal Share of Recouped Excess Capitation Payments From the Medicaid Behavioral HealthChoices Program

Pennsylvania recouped $39.6 million in excess capitation payments from 12 of 24 reviewed counties' Risk and Contingency and Reinvestment funds but did not refund the full Federal share in accordance with Federal requirements. (At the time of our audit, the State had not identified excess capitation payments to be recouped for the 12 remaining counties.) The State identified $24.6 million of recouped excess capitation payments in 11 of the 12 counties we reviewed and properly refunded the Federal share of $13 million. However, the State designated as State-only funds $15 million recouped from Philadelphia County's Reinvestment Fund and, therefore, did not refund the Federal share.

Section 1915(b) of the Act allows States to seek waivers to implement managed care delivery systems or otherwise limit an individual's choice of provider under the Medicaid program. Managed care entities agree to provide specific services to enrolled Medicaid beneficiaries, usually in return for a predetermined periodic payment, known as a capitation payment, for each beneficiary. Under Pennsylvania's section 1915(b) waiver, the Behavioral HealthChoices program provides mental health services to beneficiaries in 25 of the State's counties.

The State did not develop and implement effective internal controls to identify and return to the Federal Government the Federal share of excess capitation payments recouped from the counties' Risk and Contingency and Reinvestment funds. Because Philadelphia's Reinvestment account commingled excess capitation payments for both Federal Medicaid and State General Assistance enrollees, the State was unable to identify the amount of State-only funds recouped from Philadelphia County. Accordingly, the State must refund the $8 million Federal share of the returned excess capitation payments.

We recommended that the State (1) refund $8 million (Federal share) of excess capitation payments returned by Philadelphia County and (2) develop procedures to ensure that the State properly refunds the Federal share of excess capitation payments recouped from the Risk and Contingency and Reinvestment funds. The State partly agreed and partly disagreed with our recommendations.