Audit faults Minnesota for lax collection of $40M from nursing homes, medical providers

A legislative audit faulted the Minnesota Department of Human Services (DHS) for lax collection of more than $40 million owed to the state from nursing homes, hospitals and other medical providers.

How much Minnesota could recoup, if any, is unclear because some of the debts appear to date to 2006 and have murky or incomplete records to explain them. But the Office of the Legislative Auditor said in a report released Tuesday that DHS should be making more of an effort, starting by identifying which of its divisions is responsible.

“At the very least, notify these providers to let them know that outstanding debt exists and potentially recoup some of that money,” Lori Leysen, deputy legislative auditor, said in an interview.

DHS pays billions of dollars each year to medical providers and long-term care facilities to care for low-income and disabled Minnesotans covered by the state’s Medical Assistance insurance program. Sometimes the agency discovers errors, such as when a provider overbills or claims to have provided services that it didn’t. In the case of existing providers, the state typically deducts the amount it pays in the future to make up the difference. But the audit found particular problems when the debts are owed by providers that have either closed or been sold.

DHS Commissioner Jodi Harpstead said in a response letter to the audit she agrees with many of its findings, but it’s challenging “to recover from providers who are no longer billing Medicaid and are often no longer in business.” One of the agency’s contractors actually stopped trying to collect these types of debts after only recovering $125,000 from 2018 through 2022, she added.

“The majority of these balances represent organizations no longer doing business and we have had a very low return on any recovery work,” she wrote.

The explanation didn’t appease state Rep. Lisa Demuth, R-Cold Spring, the House GOP leader. The audit found inaccuracies in how DHS was reporting its accounts receivable balance.

“It’s shocking that the Department of Human Services still does not have processes in place to stop and prevent waste of taxpayer dollars,” Demuth wrote. “Even more concerning are the apparent accounting practices that are inaccurate at best, or deceptive at worst.”

The state can always write off uncollected amounts as bad debt; hospitals commonly do this when deciding that it would be cost-prohibitive to continue to pursue overdue bills from patients. But the audit found DHS hadn’t made a concerted effort to attempt collection for several years, and that its finance and programming divisions both though that each other was responsible.

“In our eyes, that is not bad debt,” she said.

The amount was too small to be considered a “material” concern in the annual audit of the finances and accounting practices of DHS, an agency with a $27 billion budget this year, Leysen said. But her office decided to take a closer look at the collections problem.

Auditors initially examined $51 million in uncollected debts, but $11 million of that is likely to be recouped by deducting future payments to providers that are still in business and participate in the state’s Medical Assistance program. Of the remaining $40 million, more than $32 million is owed by long-term care providers and more than $3 million is owed by hospitals.

The problem of uncollected debt in part reflects turbulence in Minnesota’s nursing home industry. The Long-Term Care Imperative has reported the closure of at least 116 nursing homes in Minnesota since 2000 because of staffing shortages and underpayment for their services.

Numerous others have been sold and placed under new management. Leysen said the terms of the sales usually specify whether the buyers take on existing debts or whether they remain the responsibility of the sellers.