Review of Medicaid Administrative Costs Claimed for the Pennsylvania Department of Aging's Direct Care Worker Initiative

The State did not comply with Federal requirements when it claimed Medicaid administrative costs for the Direct Care Worker Initiative (Initiative). The claimed costs were supplemental to payments to direct care workers for direct medical services and included training and other nonadministrative expenses. These costs were not incurred to operate the Medicaid program, and the Centers for Medicare & Medicaid Services specifically prohibits claiming them as administrative costs. Accordingly, the State claims totaling $3.5 million ($1.7 million Federal share) in unauthorized Initiative costs for State fiscal years 2007 through 2009 were unallowable.

Federal law permits States to claim Federal reimbursement for Medicaid administrative costs. These costs must be "for the proper and efficient administration of the State plan." In a December 1994 letter to State Medicaid directors, the Centers for Medicare & Medicaid Services (formerly the Health Care Financing Administration) clarified its position on State claims for administrative costs, stating that "allowable claims ' must be directly related to the administration of the Medicaid program."

We recommended that the State (1) refund $1.7 million in Federal funds for unallowable Initiative costs, (2) refund the Federal share of unallowable Initiative costs claimed after our audit period, and (3) discontinue all future claims of Initiative costs. The State did not directly address our recommendations.