State audit finds Medicaid spent $500m needlessly

The state's Medicaid program spent more than $500 million over five years on improper or unnecessary payments, according to a state audit released Tuesday.

State Auditor Suzanne M. Bump asserts that the state paid for services that should have been covered by the health insurers it contracts with to manage care. "It is troubling to see this amount of inefficiency," Bump said.

The $500 million amounts to about 1 percent of total Medicaid spending over the five-year period studied, Oct. 1, 2009, through Sept. 30, 2014.

Bump said Tuesday's findings represented the largest amount of questionable payments the auditor's office has detected in 27 years.


But the Medicaid program, known as MassHealth, asserts that only $60 million of the payments were improper. MassHealth administrators acknowledged there is a need for "greater consistency and documentation" and said the agency has already taken "affirmative steps to address gaps in our processes and documentation," said spokeswoman Michelle Hillman.

The auditor's office regularly reviews MassHealth operations because the program is the biggest item in the state budget, accounting for 30 percent of spending. MassHealth spends more than $10.8 billion a year on health care services for 1.4 million low- and moderate-income people.

The federal government reimburses the state for about half those costs. An official with the US Centers for Medicare and Medicaid Services said the federal agency was reviewing Bump's report.

About half to two-thirds of MassHealth members are enrolled in managed-care plans run by six health insurance companies. The state pays the insurers a fixed monthly fee for each enrollee, to cover a defined set of services. The agency also pays separately for certain services not included in the insurers' contracts.

Bump identified two ways in which MassHealth overpaid, she said.

First, she said the agency shelled out $233 million for services the insurers actually were already required to cover, including behavioral health care, dental treatment, home health services, and outpatient surgery. That amounted to the state paying twice for the same service, the audit concluded: once in its monthly fee to the insurer, and again when it paid the bills for the services.


The report blamed the improper payments on MassHealth's failure to maintain a master list of medical procedures that the insurers must cover, leaving the agency unable to detect when a doctor or hospital bills the state for a service that an insurer should be covering.

"MassHealth has failed to fully realize the cost savings potential of managed-care organizations," Bump said in a statement. "To avoid paying for health services twice, MassHealth must know exactly what it should and should not pay for, and have a claims processing system that can follow those rules."

MassHealth officials disagreed with Bump's analysis, finding only $60 million in duplicative claims. For example, officials said the audit was wrong when it suggested that health plans were responsible for covering the costs of patients who received services from state agencies or state hospitals for mental illness and dental care.

In the second category, Bump found that Massachusetts paid for services that insurers said in their coverage documents they would cover even though their contract with the state didn't explicitly require it. The state spent $288 million for care that insurers had listed as covered. Those payments were not described as improper, but rather a missed opportunity for savings.


Bump's report recommends that MassHealth recoup the $233 million in duplicate payments, develop systems to detect duplication in the future, and create master lists of services covered by each insurer.

But the auditor is unable to force MassHealth to take action.

MassHealth officials said they are reviewing whether the agency can recoup the money from the insurers. The agency is also working on creating the master lists that Bump recommended.

The Massachusetts Association of Health Plans, a trade group whose members include the six MassHealth insurers, said the report "provides an incomplete picture of the Medicaid program over the last five years" by not taking into account a variety of factors that have led to financial losses.

"We look forward to reviewing the auditor's report and continuing to work with MassHealth on measures to improve the administration, coordination and delivery of services for the state's Medicaid program," Lora Pellegrini, president of the trade group, said in a statement.

Felice J. Freyer can be reached at felice.freyer@globe.com.