Minnesota DHS faces possible fines for regulatory breakdowns that led to Medicaid overpayments

Frustrated by a string of regulatory breakdowns at the state Department of Human Services (DHS), a bipartisan group of state senators is pushing a measure that would penalize the giant social services agency if it fails to correct costly gaps in its Medicaid record-keeping system.

A state Senate committee will hold a hearing Wednesday on a new bill that would impose escalating fines, starting at $158,000 a month, on the DHS if it does not fix gaps in its electronic system for tracking eligibility and enrollment in Medicaid.

Because of those gaps, thousands of duplicate medical records in the state's public health insurance program were created. In turn, that meant the DHS overpaid up to $28.9 million over the past three years to managed care organizations and health care providers, according to a report last week to lawmakers.

The proposed penalties reflect mounting dissatisfaction at the State Capitol over a long string of financial missteps at Minnesota's largest state agency, and a growing sense among lawmakers that the problems will not be corrected until the agency is held financially accountable.

Since early last summer, DHS officials have acknowledged that repeated breakdowns in internal controls caused the agency to make more than $100 million in overpayments for substance-use treatment services.

"There are people on both sides of the aisle who have become increasingly frustrated — by the lack of accountability and lack of transparency around the use of public funds at DHS," said Sen. John Hoffman, DFL-Champlin, co-author of the legislation. "What this bill would do is create some urgency around the issue."

Under the legislation, the DHS' monthly budget appropriation would be reduced by the amount of the fine. Sen. Rich Draheim, R-Madison Lake, the bill's main author, said the money would be diverted to the state's general fund.

State lawmakers have held multiple hearings since last fall over repeated gaps in DHS' oversight of the state Medicaid program, known as Medical Assistance, the public insurance program that serves 1.1 million Minnesotans. At those hearings, Jodi Harpstead, the incoming commissioner of the $18.5 billion DHS, has pledged to shore up internal controls at the agency, which she acknowledged had grown "soft around the edges." Harpstead also formed an outside advisory council, headed by former Medtronic CEO Bill George, to advise her on process improvements and restoring public trust in the agency.

Still, embarrassing revelations continue to emerge. An internal DHS audit released in January disclosed that the agency's behavioral health division had skirted state laws on contracting and conflicts of interest. The audit also found that the division essentially created its own separate procedures for reporting conflicts of interest and for monitoring contracting.

Then last month, the DHS disclosed another regulatory headache: Thousands of duplicate records within the state's electronic system for tracking eligibility and enrollment in Medicaid. DHS conducted a review and found that, in the last fiscal year, more than 47,000 Minnesotans, or about 3% of Medicaid enrollees, had multiple personal identification numbers in the state computer system. That resulted in millions of dollars in overpayments to managed care organizations; and it disrupted health care services for people who could have had claims delayed or denied.

The estimated financial impact of the duplicate billing problem is between $12.6 million and $28.9 million over the period of 2016-2019, which amounts to less than one-tenth of 1% of the $35 billion in Medicaid payments over the same period.

According to a report to the Legislature, DHS has been working on a large, multiyear project to identify and remove the duplicate records; make software upgrades to prevent the creation of new duplicate records; and reduce the impact on Medicaid enrollees. That project is expected to be completed by June 2021.

The agency said Tuesday it "is committed to payment accuracy and minimizing the impact of duplicate identification numbers on Medical Assistance and Minnesota-Care enrollees."

The proposed legislation would impose fines if the DHS fails to meet that deadline. In the first year, the agency would pay $158,000 for every month that the problem was unresolved, and that would rise to $209,000 in the ensuing year.

"We need to get leaders [at the DHS] to pay attention," said Draheim. "And it seems like the only way to do that is to wave a stick and say, 'Either you clean up this problem or we will take away resources.' "