Review of Medicaid Administrative Costs Claimed by New Jersey for State Fiscal Years 2005 and 2006

The State's Medicaid Administrative Claim (MAC) did not comply with Federal requirements for claiming costs associated with the administration of the State Medicaid plan. Specifically, Maximus, Inc. (Maximus), the contractor that computed the MAC, included unallowable salaries and operating costs in the cost pool used to compute the MAC, resulting in a claim for $22.2 million ($11.1 million Federal share) in excess Medicaid administrative costs. For State fiscal years 2005 and 2006, the State claimed Federal Medicaid reimbursement totaling approximately $45 million ($22.5 million Federal share) for the cost of Medicaid administration activities performed by staff of contracted community mental health providers on the Form CMS 64.

In addition, as part of the allocation method used to identify salary costs to be included in the payment rate, Maximus assigned Medicaid-reimbursable random moment timestudy (RMTS) codes to workers' activities that were not allowable costs related to Medicaid administration or could not be documented as related to Medicaid and performed an RMTS that deviated from acceptable statistical sampling practices.

Finally, in calculating the MAC payment rate, the State used Medicaid eligibility rates that could not be documented. Therefore, the remaining $22.7 million ($11.4 million Federal share) of administrative costs claimed was unallowable. These errors occurred because the State did not establish adequate policies and procedures to ensure that its MAC complied with Federal requirements.

We recommended that the State (1) refund $22.5 million to the Federal Government, (2) maintain supporting documentation for Medicaid-reimbursable activities, (3) establish policies and procedures to ensure that future MAC calculations follow acceptable cost principles and CMS requirements, and (4) maintain supporting documentation for Medicaid eligibility rates used in computing the MAC. The State partly agreed and partly disagreed with our recommendations.