Congress scrutinizes $30 million Medicaid 'gift' to Minnesota

WASHINGTON - A $30 million "gift" to Minnesota from one of the state's principal Medicaid contractors has put Gov. Mark Dayton's administration in the sights of a congressional investigation, with lawmakers examining whether state officials tried to shortchange the federal government for medical services to the poor and disabled.

Commissioner Lucinda Jesson of the Minnesota Department of Human Services came under withering fire on Wednesday before a U.S. House committee hearing testimony from a state whistleblower alleging massive fraud.

Facing questions from GOP lawmakers, Jesson was called on to explain how the state handled an unprecedented $30 million windfall from UCare, one of four contractors that administer Medicaid programs for the state.

The hearing before the Committee on Oversight and Government Reform was called to examine potential Medicaid fraud across the nation, but it also served to put Minnesota's vaunted public health care system on trial.

Despite bipartisan calls for reform, the hearing took on political overtones, with Jesson and Democratic members of the Minnesota House delegation suggesting that the questions raised were rooted in deals cut by the administration of Republican Gov. Tim Pawlenty, the predecessor to DFLer Dayton.

"There were specific areas of concern Governor Dayton and I had regarding how the Minnesota Department of Human Services, under the previous administration, purchased health care for its Medicaid managed care program," Jesson testified.

But the $30 million payment that prompted the federal inquiries was part of a series of discussions and agreements last year, including a deal that Jesson brokered with UCare and three other insurance companies, to cap their 2011 profits at 1 percent.

The Dayton administration has termed the deal a success. But the payment -- characterized by state officials as a gift -- has led to at least two congressional probes focusing on state Medicaid rates and on whether, as Rep. Michele Bachmann, R-Minn., suggested on Wednesday, "a game has been played" on the federal government to get more Medicaid money.

Dayton, speaking to reporters in St. Paul, rejected any suggestion of wrongdoing by either his administration or Pawlenty's, adding that he welcomes the scrutiny. "I assume they did their best," he said of the Pawlenty administration, "And we've certainly done our best."

Minnesota Democratic Reps. Betty McCollum and Keith Ellison, invited to take part in the committee hearing, strongly defended the Dayton administration. But other Democrats, including Ohio Rep. Dennis Kucinich, joined their GOP counterparts in pressing Jesson to explain her characterization of the UCare payment as a "donation."

Rep. Trey Gowdy, R-S.C., expressed incredulity. "Am I the only one who has any cynicism about this?" he said. "C'mon."

"This was a very unique situation and one we didn't have a playbook for," Jesson said.

'Bona fide donation'

State officials say the $30 million from UCare came atop $73 million in profits over the negotiated 1 percent cap that were being repaid by UCare, Blue Cross and Blue Shield of Minnesota, Medica and HealthPartners.

Seen initially as good news for taxpayers, the additional payment also has led to a dispute with the federal Centers for Medicare and Medicaid, which demanded a cut since Medicaid is funded jointly by the state and federal governments.

State officials earlier this week said they continue to believe the $30 million was a "bona fide donation" that could be kept by the state. But under pressure, they agreed on Monday to treat it as a repayment of excess profit that will be shared with the feds.

The dispute has raised further questions about state oversight of the private insurers that manage Medicaid services. Fueling the doubts was Minnesota whistleblower David Feinwachs, who said he was fired from his job as general counsel for the Minnesota Hospital Association for "asking the wrong questions."

Feinwachs testified that the $30 million was actually reimbursement of state overpayments to UCare over the past year. He described it as the tip of the iceberg in a system that he said has inflated Medicaid rates since at least 2003 so that the state could improperly cover other state health programs and administrative expenses.

"What we found in Minnesota is a collaboration between private parties to the fraud and people in state government," Feinwachs said. "It appears to have been going on for some years."

He estimated that total overcharges to the federal government over the past decade could total at least "a half-billion dollars."

Rep. Elijah Cummings, D-Md., said that if Feinwachs' account is true, the people involved "should get a chance to see their pictures on a mug shot."

Question of fraud

Kevin Goodno, Pawlenty's Human Services commissioner from 2003 to 2006, said in an interview Wednesday that he had no suspicions about fraud when he was commissioner.

"I would be interested, and I think it is worthwhile, to have the discussion to find out if there were fraudulent activities or there were just activities that someone alleges was fraud and were fine, or were approved by the federal government," he said. "I'm not aware of anything that happened that would be illegal."

Jesson was put on the defensive about an e-mail she wrote that described the importance of characterizing UCare's payment as a "donation" and expressing her preference for discussing the matter by phone rather than in writing.

Pressed by Gowdy, Jesson said the e-mail corrected language in a draft press release. Her preference for phone calls, she said, referred to the notification of committee leaders in the Minnesota Legislature.

Feinwachs, along with Bachmann, called for more rigorous third-party audits, something the Legislature recently enacted. Bachmann said she soon will introduce federal legislation as well.

Sen. Chuck Grassley, R-Iowa, has launched a separate congressional investigation, telling the House panel that the lack of federal oversight on state managed care contracting and rate-setting has him "gravely concerned."

Grassley has already written to Minnesota Legislative Auditor Jim Nobles, asking for all correspondence between Nobles' office and state officials on the UCare payment. Nobles has questioned the candor of state officials who apparently withheld from him -- as well as from Grassley -- a letter from the federal government questioning the UCare payment.

Jesson pointed to moves made by the Dayton administration to tighten accountability in the state's nonprofit health care system, which she repeatedly described as a "model" for the nation.

Jesson also argued that because of contracts negotiated under Dayton, taxpayers were getting back more than $100 million, counting the $30 million the state just agreed to share with the feds. "What I'm happy about here is because of the 1 percent cap we were able to resolve this," she said.

Staff writer Rachel E. Stassen-Berger contributed to this article. Kevin Diaz is a correspondent in the Star Tribune Washington Bureau.