Purpose

To determine the extent of implementation of the four recommendations included in our initial audit report, Overpayments to Managed Care Organizations and Hospitals for Low Birth Weight Newborns (Report 2013-S-57).

Background

The State’s Medicaid program 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. In addition to monthly capitation payments, MCOs receive supplemental payments for the costs associated with newborn medical care. For example, 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).

We issued our initial audit report on October 2, 2014. The objective of the audit was to determine if Medicaid overpaid MCOs and hospitals for low birth weight newborn claims. The audit covered the period from April 1, 2012 through June 1, 2014. Our initial audit identified about $13.9 million in inappropriate Medicaid payments, including $12.4 million in overpayments for low birth weight kick payments that did not meet the billing requirements of the supplemental payments; $949,681 in potential overpayments for similar claims that had a high risk of not meeting the billing requirements for low birth weight kick payments; and $548,404 in overpayments due to duplicate fee-for-service and managed care low birth weight newborn claims. At the time the initial audit’s fieldwork concluded, auditors recovered over $7 million of the overpayments identified.

We recommended that the Department review and recover the remaining $5.9 million in overpayments; review the $949,681 in payments at high risk of not meeting the billing requirements for low birth weight kick claims and recover any overpayments; implement controls to properly process low birth weight kick claims; and, actively monitor the appropriateness of low birth weight kick payments.

Key Finding

Department officials made significant progress implementing the recommendations we made in the initial audit report. This included recovering about $2 million in overpayments that were identified in the initial report and strengthening controls that prevented over $13 million in improper claims since November 2014. Each of the initial report’s four recommendations were implemented.

Other Related Audit/Report of Interest

Department of Health: Overpayments to Managed Care Organizations and Hospitals for Low Birth Weight Newborns (2013-S-57)