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NEWS from the Office of the New York State Comptroller
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DiNapoli Audit Finds Lax Oversight of Medicaid Payments May Have Cost Taxpayers Nearly $300 Million

Audit Finds No Attempt to Recover $292 Million in Overpayments for Recipients With Third-Party Insurance Coverage

July 13, 2022

Too often Medicaid pays medical bills that a third-party insurer should have covered, and not enough is being done to make sure Medicaid recovers that money, according to an audit by New York State Comptroller Thomas P. DiNapoli. The audit found that a lack of oversight by the state Department of Health (DOH) and the Office of the Medicaid Inspector General (OMIG) resulted in nearly $300 million in pharmacy claims that Medicaid never tried to recover from patients’ insurance providers.

“Medicaid is essential for millions of New Yorkers, but the program needs to ensure that funding is only used for appropriate costs for those who need it,” said Comptroller DiNapoli. “This is my office’s latest audit to uncover weaknesses in the Medicaid system’s oversight. These potentially unnecessary payments likely contributed to significant waste and a missed opportunity to recover the nearly $300 million in questionable payments. DOH should recoup any overpayments and take steps to better protect taxpayers from costly billing mistakes.”

The New York State Medicaid program provides a wide range of medical services to many New Yorkers, including those with lower incomes and/or people with special health care needs. As of the close of the State’s fiscal year on March 31, 2022, New York’s Medicaid program had served approximately 7.8 million recipients and Medicaid claim costs totaled about $74.6 billion.

Per federal law and state regulations, Medicaid is always the payer of last resort. This means that if a Medicaid recipient has third-party health insurance (TPHI) coverage, then those third-party benefits must be exhausted before the Medicaid program is billed.

To address instances where a TPHI should have paid instead of Medicaid, the DOH—in partnership with OMIG and Health Management Systems, Inc. (HMS)—utilizes post-payment reviews. Auditors found that weaknesses in DOH’s and OMIG’s oversight of HMS’ payment reviews likely contributed to significant waste and a missed opportunity to recover improper payments.

Between October 2015 and May 2020, auditors identified drug claims paid by Medicaid managed care plans totaling $292 million for which HMS did not bill claims to TPHI carriers for recovery, despite the individuals having third-party drug coverage. For instance, nearly $40 million was paid for Medicaid recipients with Medicare Part D coverage and for covered medications provided at in-network providers—a scenario that is very likely the responsibility of Medicare, not Medicaid, and that should have been refunded to the state. Also, auditors presented a sample of 50 (which included high-cost drugs) to OMIG and HMS for their review and asked for an explanation as to why they were not billed to the TPHI carrier. HMS was unable to determine why most of these claims—38 out of 50—were not recovered, and for another 9 out of 50, auditors found the explanations were not justified.

According to HMS officials, internal processes are not set up to track why individual claims are excluded from the recovery process. Auditors determined that without proper oversight and this level of tracking, there is no way to ensure that all appropriate recoveries are being made. Also concerning, HMS did not have comprehensive reports of its activities available upon auditors’ request. DiNapoli’s audit recommended:

  • A review of the $292 million in Medicaid payments made on behalf of recipients with TPHI identified by the audit to ensure overpayments are appropriately recovered;
  • An assessment of pharmacy claims that were billed to TPHI carriers but did not result in recovery of payment to ensure that proper steps are taken to obtain recoveries where appropriate;
  • An assessment of the third-party liability recovery process for managed care pharmacy services and implementation of corrective actions where necessary; and,
  • Implementation of ongoing monitoring of the TPHI recovery process for managed care pharmacy services to ensure that all appropriate recoveries are made within the statute of limitations.

In response to our audit, officials stated that all claims are reviewed as part of existing processes. However, officials acknowledged that they are working on enhancements to the entire recovery process, which will include developing additional reporting to give OMIG greater insight into why claims were not billed to TPHI carriers for recovery.

Medicaid Program: Recovering Managed Care Overpayments for Pharmacy Services on Behalf of Recipients With Third-Party Health Insurance

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