Costly Medicaid missteps could foretell bigger problems at troubled Minnesota agency

A top official at the Minnesota Department of Human Services has told Legislative Auditor James Nobles that recent overpayments to two Indian bands represented just "one example" of wider dysfunction in the agency's oversight of millions of dollars in state and federal money.

"No single person" within the agency has an overall grasp on outlays from the huge federal-state Medicaid program, according to a summary of comments by Julie Marquardt, a deputy assistant commissioner at DHS.

The revelation could foretell additional improper payments that have not yet come to light at the troubled department, which serves more than 1 million Minnesotans and oversees a budget exceeding $12 billion. But it also paints a picture of an agency where competing factions failed to cooperate or respect internal lines of authority — a struggle that may help explain a series of fiscal missteps revealed since this summer.

The agency disclosed this year that it had made $29 million in improper payments for opioid treatment to two Minnesota Indian bands. And documents obtained last week by the Star Tribune reveal that the agency broke state law 200 times in the last year by committing public funds without required documentation.

Legislators and even community health care advocates increasingly worry that while bureaucrats bicker, ultimately Minnesota taxpayers will foot the bill for costly mistakes. As the errors pile up, legislators have become more hesitant to fund new DHS programs that could fill gaps in services for the state's most vulnerable.

"There will always be a question — how do we know this money won't be misspent?" said Sen. Jim Abeler, R-Anoka, chairman of the Human Services Reform Finance and Policy committee. "The bar is now much higher to demonstrate, to the Senate and to the public, that a program is in the public's interest than before all this happened."

Across the state, community-based nonprofits that serve vulnerable populations expressed a mixture of shock and resentment over the agency's revelations.

In an interview Friday, Human Services Commissioner Jodi Harpstead said she is on track to release a promised plan to address the agency's problems in early December. She also is interviewing candidates with management experience to fill two assistant commissioner jobs, including one overseeing health care.

"We are working to be tough on the process and supportive and encouraging of our people, and trying to get that into the culture here," Harpstead said.

The tribal overpayments are just one of several federal compliance violations recently that have generated at least $225 million in financial hits — and more could be on the horizon.

With $12.6 billion in outlays last year, Medicaid represents one of the biggest pieces of the Minnesota budget. The federal government pays for 56% of that, and when federal officials discover significant compliance problems, they seek to recapture federal money that Minnesota spent in violation of the laws and regulations.

Nobles' audit of the opioid overpayments showed that despite the need to comply with federal requirements, decisions about Medicaid money are scattered across several departments in DHS. Even the division that runs Medicaid, Health Care Administration (HCA), is not aware of crucial decisions made by other offices within the agency.

Marquardt also described frosty relationships between Medicaid and other DHS divisions. "Our presence was not always welcomed," Marquardt told the auditor's office. "There is a culture of keeping HCA out of the business of the other divisions," according to the summary.

Marquardt said the opioid treatment overpayments were "one example" of where a program office, in this case the Behavioral Health Division, made decisions about Medicaid payment rates without notifying the officials who oversee the Medicaid program itself. In a different case, a decision by Behavioral Health means that Minnesota owes the federal government another $48 million because federal money was used to pay for a form of chemical dependency treatment that until recently did not qualify for federal reimbursement.

Harpstead said that all future Medicaid payment decisions will require approval by the agency's top Medicaid official and the chief financial officer.

"We most certainly are going to consolidate decisionmaking with the Medicaid director," Harpstead said.

Still, Harpstead said she intends to keep a management structure where the Medicaid director reports to an assistant commissioner for health care. Some agency employees said the arrangement can create confusion and uncertainty, particularly because federal laws require each state to have a Medicaid director accountable for following federal laws.

Earlier this year, DHS notified the Legislature that federal MinnesotaCare funding would be reduced by $150 million because the agency's information systems mistakenly enrolled people who did not qualify. The computer mistakes also resulted in forecasting errors sent to the federal government, which pays for 90% of MinnesotaCare's $406 million in medical spending.

Federal officials have also forced DHS to overhaul payment rates that did not comply with federal regulations.

Disability service providers are still reeling from an across-the-board 7% cut last year in rates paid through the state's Medicaid "waiver" program, which pays for a broad range of services, such as personal caregiving and transportation, for Minnesotans with disabilities. Some providers have been forced to shed staff and service offerings as a result, according to provider organizations.

Several nonprofits complained of what they view as a double standard in which DHS requires them to observe rigorous compliance measures that it does not demand of itself.

"For a lot of providers, it's a struggle to keep the doors open," said Jin Lee Palen, executive director of the Minnesota Association of Community Mental Health Programs, which represents 32 mental health providers. "So we find it particularly upsetting when we hear of financial improprieties coming to light."