Counties will pay for some of growing financial failures at Minnesota DHS

Counties and some tribes will have to foot the bill for costly mistakes made by the Minnesota Department of Human Services (DHS), as embarrassing revelations of financial mismanagement continue to emerge.

The state social services agency sent letters to counties and tribes Monday saying they will be responsible for paying back more than $9 million to the federal government that was improperly spent.

At the same time, it revealed that what was $48 million in improper payments to chemical dependency treatment providers has now ballooned into a $61 million problem — money that the state is responsible for paying back on its own.

In addition to the improper payments for chemical dependency treatment, DHS said it identified compliance issues with the cash welfare assistance program and some child foster care services.

"The errors in billing and payments are unacceptable. They undermine the important work of our partners in serving Minnesotans and they undermine the trust in DHS," said DHS Commissioner Jodi Harpstead, who oversees the $18 billion department. The state's largest agency, it runs the Medicaid program for 1.1 million state residents, as well as assistance programs like food stamps, child care assistance and state hospitals.

Harpstead called influential legislators personally on Monday to inform them of the financial management errors and to explain her department's work to fix the gaps in oversight. Starting next month, the DHS will require multiple signoffs by top administrators before disbursing Medicaid funds, Harpstead told them.

Sen. Michelle Benson, R-Ham Lake, chairwoman of the Senate Health and Human Services Finance and Policy Committee, said she was "cautiously optimistic" that Harpstead and her senior management team were addressing the problems — and that the new signoff process would help prevent further costly mistakes. The agency will also hire a consultant to review its payment systems.

"The most important thing is people are bringing these errors to light, so change can start to happen," Benson said.

Sen. Jim Abeler, R-Anoka, chairman of the Human Services Reform Finance and Policy Committee, sounded a harsher tone, saying the string of new errors indicated that "DHS is in a free fall." The overpayments will be politically unpopular in many counties, he warned, which will be forced to hike property taxes to pay for the mistakes.

"I mean, holy cow, this has got to be embarrassing for DHS to repeatedly make mistakes and then turn around and ask someone else to pay for them," Abeler said. "Where are the senior staff and middle managers who are supposed to be watching this?"

The issue with the biggest financial impact involved improper Medicaid payments made to addiction treatment facilities. DHS used federal funds to pay part of the treatment costs, but under federal rules at the time, centers that had more than 16 beds were ineligible for federal money.

Even though DHS notified the Legislature in February that the state would have to repay the federal government to the tune of $48 million, DHS kept using federal money inappropriately until May, driving up the amount owed by the state by $13 million.

The treatment providers are not required to repay the state because they did nothing wrong. They qualify for state reimbursement. Minnesota has recently received permission from the federal government that would allow some of the facilities to qualify for federal funds.

But under state law, counties have to shoulder some of the repayment burden. They are being asked to pay back $8.8 million. Hennepin County's bill is $2.2 million while St. Louis County is asked to pay $693,000.

Paul Fleissner, deputy county administrator with Olmsted County in southern Minnesota, said he just learned Monday that his county would be required to pay $362,000 to DHS for the agency's mistakes. He now faces the difficult task of informing his county board of commissioners at a meeting Tuesday.

"They are going to be angry — guaranteed," Fleissner said of the county commissioners. "The worst part is, I have no way of showing them that these numbers are real, and given the fact that [DHS] controls are so poor, how do we know their numbers are accurate?"

Counties will also not get federal reimbursement for foster care provided for children who were placed in group homes, shelters and residential treatment centers since July.

Under federal law, institutions that provide child foster care are not eligible for federal funds if they have not conducted enhanced employee background checks, including a fingerprint search. As a result, about $600,000 in claims won't get paid. Family foster care is not affected.

It is unclear what impact this will have on future institutional foster care placements. Counties and tribes can still make placements, but they will have to pay the costs themselves for care at institutions that have not completed the new background checks.

"We know that counties rely on guidance from DHS to implement changes in law and we did not issue our guidance on this issue in a timely manner," Harpstead said in a letter to county officials.

DHS also erred when it advised counties on what to do when it discovers errors in cash assistance payments.

In some cases, counties were requiring cash welfare recipients to pay back money that they received in error. A state law passed in 2016 said that counties could not claw back the funds unless a "reasonable person" would have noticed the error.

Altogether, DHS estimates that $727,000 was collected in error. The money will be refunded.

Benson said she was "deeply troubled' to hear that some people on cash assistance may have been forced to repay benefits because of a DHS error. Such errors, she said, create unnecessary stress and undermine the public's confidence in state programs.

"I know how sick to my stomach I would feel if I got that letter [demanding repayment], particularly if I was behind the eight ball," Benson said. "It's always scary to get a letter from the government … and so I hope [the DHS] handles that problem thoughtfully."

Matthew Freeman, executive director of the Minnesota Association of County Social Services Administrators, said county members of his organization are already looking to work with the DHS for a legislative remedy for the overpayments to counties. "There is not extra money sitting at the counties," he said. "Our goal in this situation is to figure out a remedy that would hold county programs and services harmless."