Purpose

To determine if Medicaid overpaid managed care organizations and hospitals for low birth weight newborn claims. The audit covered the period April 1, 2012 through June 1, 2014.

Background

Medicaid reimburses providers for newborn services using the fee-for-service and managed care payment methods. Under fee-for-service, Medicaid pays providers (such as hospitals) directly for Medicaid-eligible services. Under managed care, Medicaid pays managed care organizations (MCOs) a fixed monthly capitation payment for each newborn enrolled in the MCO. The MCO, in turn, is responsible for the provision of covered health care services. MCOs have networks of participating providers that they reimburse directly for providing services.

In addition to monthly capitation payments, MCOs receive supplemental payments for the costs associated with newborn medical care. MCOs receive a “Supplemental Newborn Capitation Payment” (commonly referred to as a kick payment) for the inpatient birthing costs of each newborn enrolled. Additionally, effective April 1, 2012, MCOs receive a “Supplemental Low Birth Weight Newborn Capitation Payment” (low birth weight kick payment) for each enrolled newborn weighing less than 1,200 grams at birth (approximately 2.64 pounds).

The supplemental low birth weight kick payments are intended to cover the high cost of care these newborns require. Low birth weight kick payments range from $68,355 to $105,108 per newborn and far exceed the standard kick payments for newborns weighing 1,200 grams or more, which range from $2,277 to $6,651 per newborn. During the two-year period ended March 31, 2014, Medicaid paid MCOs over $126 million for 1,301 low birth weight kick payment claims.

Key Findings

• Medicaid made $12,378,309 in overpayments for low birth weight kick payments that did not meet the requirements of the supplemental payments. For example, Medicaid paid one MCO $99,044 for a low birth weight kick payment based on a reported newborn birth weight of 215 grams. However, the newborn’s actual birth weight was 3,215 grams. Medicaid should have only paid the MCO $3,232 for a standard kick payment. As a result, Medicaid overpaid the MCO $95,812.
• There was an additional $949,681 in potential overpayments for similar claims at high risk of not meeting the billing requirements for supplemental low birth weight claims.
• Medicaid paid $548,404 in duplicate fee-for-service and managed care low birth weight newborn claims.
• At the time the audit fieldwork concluded, auditors recovered over $7 million of the overpayments identified.

Key Recommendations

• Recover the remaining overpayments, totaling about $5.9 million, as identified by the audit.
• Review the $949,681 in potential Medicaid overpayments and recover where appropriate.
• Implement automated Medicaid payment system edits to properly process low birth weight
  kick claims.

Other Related Audits/Reports of Interest

Department of Health: Multiple Medicaid Payments for Newborn Services (2002-S-25)
Department of Health: Managed Care Payments for Newborn Services (2003-S-7)
Department of Health: Medicaid Fee for Service Payments for Managed Care Recipients (2007-S-100)
Department of Health: Inappropriate Medicaid Claims for Newborn Services (2008-S-152)