California Withdrew Excessive Federal Medicaid Funds for Fiscal Year 2010

Of the $27.6 billion in Federal Medicaid funds that the California Department of Health Care Services (State agency) obtained for fiscal year (FY) 2010, $20.3 million was not supported by net expenditures. Specifically, the State agency (1) refunded less to its FY 2010 Payment Management System (PMS) accounts for certain adjustments to reduce its expenditures than it reported for those adjustments on the CMS 64s and (2) obtained funds for expenditures that it did not report on the CMS 64s. After reconciling the FY 2010 PMS accounts, the State agency did not take appropriate corrective actions for the $20.3 million because it did not have specific policies and procedures to resolve the differences identified or because it chose not to take action.

Additionally, the State agency reported on its CMS 64s for FY 2010 $88.5 million of expenditures and $80 million of adjustments reducing expenditures that need further analysis by CMS and the State agency. Because these amounts need further analysis before their impact on the FY 2010 PMS accounts can be determined, we set aside these amounts for resolution by CMS and the State agency.

Finally, the State agency did not obtain Federal funds from the appropriate PMS accounts. Generally, the State agency withdrew funds from the PMS account for the current FY rather than the PMS account for the FY in which the expenditures were reported on the CMS 64s, causing the annual account balances to be incorrect. Although the account balances were incorrect, the amounts obtained do not represent funds that should be refunded to the Federal Government because they were supported with expenditures reported on the CMS 64s. The State agency did not obtain funds from the appropriate PMS accounts because it had not updated its procedures to withdraw funds from the annual PMS accounts.

We recommended that the State agency (1) refund to the Federal Government $20.3 million that was not supported by net expenditures, (2) work with CMS to resolve the $88.5 million of expenditures and $80,004,306 of adjustments reported on the CMS 64s for FY 2010 and determine whether adjustments should be made to the expenditures reported or the funds obtained from the FY 2010 PMS accounts, (3) ensure that it obtains funds only for net expenditures reported on the CMS 64s, (4) implement policies and procedures to resolve differences between the amounts awarded and obtained and the expenditures reported on the CMS 64s when reconciling its PMS accounts, (5) ensure that it can support the amounts it withdraws from its PMS accounts and reports as adjustments on the CMS 64s, (6) ensure that it reports the appropriate amounts on the CMS 64s, (7) strengthen procedures to obtain funds from the appropriate PMS accounts, and (8) review the amounts it obtained from PMS accounts for FY 2011 and later FYs to determine whether they were supported by net expenditures and refund any amounts that were not adequately supported. The State agency agreed with our first through fourth and sixth through eighth recommendations and provided information on actions that it had taken or planned to take to address those recommendations. The State agency did not address our fifth recommendation.