Purpose

To determine whether managed care organizations (MCOs) provided the Department of Health (Department) with complete and accurate Medicaid cost information and whether the Department appropriately set Managed Long Term Care (MLTC) premium rates. The audit covered the MLTC premium rates for the period April 1, 2013 to March 31, 2014.

Background

The New York State Medicaid program is a federal, state, and locally funded program that provides a wide range of medical services to those who are economically disadvantaged and/or have special health care needs. For the State fiscal year ended March 31, 2016, New York’s Medicaid program had approximately 7.4 million enrollees and Medicaid claim costs totaled about $56 billion.

In January 2011, the New York State Governor’s Office established the Medicaid Redesign Team to reduce Medicaid costs and improve the delivery of health services. One initiative of the Medicaid Redesign Team was to expand the enrollment of Medicaid recipients into managed care. Accordingly, most of the State’s Medicaid recipients receive their services through Medicaid managed care. Under managed care, Medicaid pays MCOs a monthly premium for each enrolled Medicaid recipient, and the MCOs arrange for the provision of services their members require. The State offers different types of Medicaid managed care, including MLTC. The MLTC MCOs provide long term care services (e.g., home health care, adult day care, nursing home care) and other health-related services (e.g., dentistry, eye care, durable medical equipment).

The Department is responsible for setting monthly MLTC premium rates. The rate-setting methodology is based largely on MCOs’ medical costs and administrative costs, which MCOs report annually to the Department on Medicaid Managed Care Operating Reports (MMCORs), along with other detailed financial information. MLTC premium rates are prospectively set based on two years of MCOs’ actual costs submitted on the MMCORs. The two years of data are combined to help ensure the reasonableness of future rates. The Department issues MMCOR instructions to guide MCOs on how to report medical costs and administrative costs.

Key Findings

• Two MCOs reported a total of $82.3 million in medical costs for services procured through a corporate affiliate that we found would have been more accurately classified as administrative costs. These costs, which should have been subject to an administrative cap, were included in the medical costs component of the premium rate, which is not capped. Based on our analysis of the corresponding impact on the 2013-14 MLTC premium rates, we estimated the misclassification of costs led to questionable payments of at least $82.3 million. We determined the Department does not have a process in place to properly evaluate unique MCO cost reporting situations and differences in MCO operations and corporate structures that would impact the completeness, accuracy, and consistency of the financial data used to set the premium rates. Furthermore, the MMCOR form itself does not provide a means for MCOs with unique corporate payment structures to properly report their costs in a manner that allows for consistent reporting of costs across all MCOs.
• The Department overpaid at least $2.8 million in MLTC premiums between April 1, 2013 and March 31, 2014 as a result of improper reporting of medical costs by MCOs on the MMCORs. The MCOs reported costs for non-enrolled individuals and the Department used these costs in its 2013-14 premium rate calculations, which ultimately resulted in inflated premium rates for MCOs.
• MCOs did not always identify and prevent inappropriate payments to providers for health care services. We identified $262,197 in duplicate payments to providers, which were reported as costs on the MMCORs and factored into the 2013-14 premium rates.

Key Recommendations

We made seven recommendations to the Department to review the appropriateness of the reported medical costs we identified and recover overpayments where appropriate; amend the MMCOR and its instructions, as appropriate, to ensure proper cost reporting by MCOs; and ensure MCOs take certain steps to remedy inappropriate reporting of costs on the MMCOR.

Other Related Audit/Report of Interest

Department of Health: Mainstream Managed Care Organizations – Administrative Costs Used in Premium Rate Setting (2014-S-55)