Ed Funaro Jr. thought the audit of the independent pharmacy he and his father run went pretty well. He found the auditor from the state Department of Social Services helpful.
Then he got the results: Out of 100 Medicaid prescriptions reviewed, the Funaros’ drug store, Visels Pharmacy in New Haven, would be penalized for three problematic prescriptions, for which Medicaid paid $268.04.
And the pharmacy was expected to pay $144,814.
“You can imagine my disbelief,” Funaro said.
Funaro and his father successfully contested the results and ended up paying nothing. But the experience troubled him so much that he’s now among a wide range of health care providers urging lawmakers to change the way the state handles Medicaid audits. They say the state should be trying to root out fraud – but that its efforts are penalizing providers for honest errors, with financial costs that dramatically exceed the size of the identified problems.
Critics say the audits are making some pharmacists, doctors and other providers consider dropping out of Medicaid. And some wonder if DSS has become more aggressive in auditing as a way to fill the state’s coffers to help cope with tight budgets.
Legislators are considering changes. The Human Services Committee unanimously passed a bill – which has 40 cosponsors from both parties – that would change the rules for audits, restricting the way DSS can calculate projected overpayments in cases of clerical errors and limiting the amount of money the department can seek for them.
“I love this bill,” Rep. Terrie Wood, R-Darien, said before the committee voted last month, noting that hearing from many exasperated providers made it clear how important it was to take action.
“It’s a long time coming,” said Rep. Catherine Abercrombie, D-Meriden, the committee’s co-chair.
The Department of Social Services takes a different position. Spokesman David Dearborn said the department uses an accepted method for projecting overpayments that other states, including Massachusetts, New York and New Jersey also use.
And while critics complain of penalties for errors that weren’t fraud, Dearborn said the key issue isn’t fraud. Instead, he said, the department must rely on audits to identify claims that weren’t suitable for payment because the Medicaid program pays claims and then reviews suitability afterward, unlike private insurers, which determine suitability before paying.
“While at times auditors find evidence of fraudulent submission of claims, most often overpayments are found based on failure to meet program requirements that are not fraudulent in nature,” Dearborn said.
The department’s written testimony on the proposal noted that audits are intended to ensure compliance with the Medicaid program’s requirements.
“The need for compliance in the multi-billion dollar Medicaid program cannot be understated,” it said.
How $268 in errors became a $144,814 bill
A key issue in the proposal is the method that turned Funaro’s $268.04 in potentially problematic claims into a $144,814 bill.
That method is known as extrapolation, and DSS uses it to project the overall level of overpayment a provider might have received in a three-year period.
In Funaro’s case, the auditor reviewed 100 Medicaid claims and found issues with $268.04 worth of prescriptions. (None involved patients getting the wrong medication. One was a prescription that wasn’t written on a tamper-proof pad, as the law requires, although Funaro was able to show that the prescriber had verbally authorized it too.)
During the three-year period covered by the audit, the pharmacy filled 54,027 prescriptions for Medicaid clients. So DSS extrapolated by applying the rate of problematic claims – $268.04 per 100 – to all 54,027 claims. That’s $144,814.
Another pharmacist was found through an audit to have improperly dispensed ibuprofen to a Medicaid client because the prescription was not written on a tamper-proof pad, said Karen Hekeler, a pharmacy consultant for Northeast Pharmacy Service Corporation.
The ibuprofen cost Medicaid $3, but because of the extrapolation, the pharmacist was told he owed $877.
“He was happy. It could’ve been $100,000,” Hekeler said. “It’s not uncommon for a pharmacy to receive an audit finding report that exceeds $100,000.”
The bill legislators are considering would add restrictions to the use of extrapolation. Among other things, it would:
- Prohibit the use of extrapolation in cases of clerical errors, with exceptions for cases with high levels of errors, providers whose level of errors wasn’t improved following an educational intervention, or providers with error rates above 10 percent and at least one previous overpayment error found through an audit.
- Limit the amount providers would be required to pay back for clerical errors subject to extrapolation, with exceptions for cases of high error levels or providers who had been through an educational intervention but continued to have high error levels.
- Allow providers found through extrapolation to have received more than $200,000 in overpayments to pay for an independent audit. DSS would be required to correct the department audit’s findings in response to any verified evidence that its findings were incorrect.
But the bill would also remove restrictions that currently exist on when extrapolation can be used for non-clerical errors.
Because the proposal both adds and loosens restrictions on extrapolation, some parts of it could lead to additional revenue for the state while other parts could lead to reduced revenue, according to the legislature’s nonpartisan Office of Fiscal Analysis. “It cannot be known in advance to what extent the changes in the bill may impact current auditing results,” the office’s analysis said.
Providers say the current use of extrapolation can be burdensome.
Often, extrapolation based on small errors can lead to large payments that are beyond what small providers can afford, Mag Morelli, president of LeadingAge Connecticut, which represents nonprofit providers that serve seniors, said in written testimony. She noted that many providers are small organizations that work in the Connecticut Home Care Program for Elders, receiving Medicaid payments that are well below the cost of care.
“It’s forcing good, quality providers to consider leaving the Medicaid system,” she said.
Lisa Martin, executive director of Independent Living Solutions, a Waterbury agency that serves people with brain injuries, had an audit that found $6,346 in overpayments, which was extrapolated to $87,454. It was later revised to show that she owed $354,206, she wrote in testimony to legislators.
“As you can imagine I panicked!” she wrote. “All I could think about was the fact that there was no way my agency could afford to repay that amount and continue to provide services to our consumers.” That would mean both disrupting services, she added, and laying off about 100 people.
After hiring a law firm, Martin’s payment amount was reduced to $8,708. But she said the process, including legal fees, cost her close to $41,000.
Noting the state’s budget troubles, Connecticut State Medical Society CEO Matthew Katz said he thinks state officials see audits as a way to pull more money from the system. The problem, he said, is that it’s coming at the expense of people who make minor errors, not someone billing the state for services that were never performed.
“You’re having good doctors being punished in order for the state to take back money to cover a budget shortfall,” Katz said.
But Dearborn, the DSS spokesman, noted that Connecticut isn’t unique in its use of extrapolation.
“While this measure is controversial among some providers, it’s not new or specifically related to the current fiscal environment by any means,” Dearborn said.
“Like other Medicaid agencies across the country, DSS is responsible for administering a clean, cost-effective program for taxpayers – and that means robust measures to prevent and recoup overpayments,” Dearborn said. “As the state Medicaid agency, DSS is required to provide assurances to [the federal Centers for Medicare and Medicaid Services] regarding program integrity.”