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Federal Audit Says NJ Hospitals Were Overpaid $44M for Medicaid Services

Inspector general asks for $22M federal share to be repaid, state disputes finding

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A federal audit has found that four New Jersey hospitals received $44 million in Medicaid reimbursements that they were ineligible for, and the feds have asked the state to reimburse the government for its half of the payments.

The audit found that the hospitals received the extra payments from the Medicaid program for services they provided to Medicaid recipients and other low-income residents. The audit was conducted by the U.S. Department of Health and Human Services Office of Inspector General and examined payments based on hospital spending from July 2006 to June 2007.

State officials dispute the results, saying that their own, more accurate calculation shows that payments to three of the four hospitals weren’t out of line and that the payment overage to the fourth hospital was $634,000.

The U.S. Centers for Medicare and Medicaid Services (CMS), which made the payments, will consider the state’s objections during the next phase of the audit.

“The Office of Inspector General made the recommendation (that the state repay the $22 million) and now the state will be in negotiation” with CMS, said Donald White, spokesman for the office.

The payments were made under the Medicaid Disproportionate Share Hospital (DSH, pronounced “dish”) program, which reimburses hospitals for a portion of their costs for providing care to Medicaid and uninsured patients. The audit occurred because a federal survey of DSH payments found that the New Jersey Department of Human Services lacked controls to prevent overpayments.

The DSH program is large -- in 2006-2007, 92 New Jersey hospitals received $1.11 billion in DSH payments, with $556 million coming from the federal government and the rest coming from the state. According to the audit, 88 hospitals received the right amounts, while four were overpaid. Most of the excess amounts were paid to Jersey City Medical Center, which received $38.8 million. Mount Carmel Guild received $3.84 million, Capital Health System at Fuld received $1.35 million, and Raritan Bay Medical Center received $10,200 more than it should have.

The Office of Inspector General recommended that the state establish procedures to ensure that there aren’t excess payments, which the state agreed to do, according to the audit report.

But state officials disagreed that the hospitals were overpaid $44 million. They provided what they said was “more accurate” information regarding the services provided by the four hospitals to uninsured patients. By their calculations, the only excess payment was to Mount Carmel Guild for $634,000, of which the federal share is $317,000.

The state’s response didn’t change the Office of Inspector General’s recommendation that it repay $22 million, since the additional information “was incomplete and potential unreliable,” according to the report. Specifically, the state didn’t provide information on all 92 hospitals that received DSH payments.

State human services spokeswoman Nicole Brossoie said that the next step is for CMS to consider the state’s position and determine what if any money the state should pay. If the state remains opposed to that determination, it can take its case to the federal Departmental Appeals Board.

“If the conclusion still is not acceptable to the state, the case can go to federal court,” Brossoie wrote in an email response.

If the state were to lose the case, it’s not clear whether it would seek repayment from the hospitals. While losing the money would hurt the state budget, it can take several years for these cases to be resolved.

The federal government has asked the state to repay hospital payments before. An audit in November 2012 found that $50.1 million in DSH payments from 2003 to 2007 were made to hospitals that weren’t eligible for the program. The state disagreed with that conclusion and the case still hasn’t been resolved.

Raymond J. Castro, senior policy analyst for the nonprofit New Jersey Policy Perspective, said it’s not unusual for the state and federal government to reach different conclusions on audits of federal payments.

“These things tend to be very technical. It gets down to auditors arguing with other auditors,” Castro said, noting that the state has received similar audits in the past for the food stamp program. Castro served in the state Department of Human Services for more than 30 years, before joining New Jersey Policy Perspective in 2006.

Even if the audit was not unusual, “it’s still important -- it’s still $22 million,” said Castro, whose last state position was as legislative director for the department.

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