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Repair of Tiny Medicaid Rounding Errors Could Carry Hefty Price Tag

Federal authorities say Texas health officials must resolve rounding errors that lead to mere pennies worth of Medicaid overpayments. The fix could end up costing Texas taxpayers more than $1 million.

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When federal auditors analyzed the Department of Aging and Disability Services’ Medicaid payments to nursing home providers in June, they found 11 mistakes — pennies worth of rounding errors that amounted to 53 cents.

Now, the Centers for Medicare and Medicaid Services wants the state to fix the minor payment problem, at a cost of up to $1.2 million to Texas taxpayers. 

Stephanie Goodman, a spokeswoman for Texas’ Health and Human Services Commission, said what CMS is attempting to do — ensure federal dollars are properly spent in the joint state-federal Medicaid program — makes complete sense. The agency has hired outside contractors, called Payment Error Rate Measurement reviewers, to analyze overpayments and underpayments.

“I don’t think anybody takes issue with the overarching goal,” Goodman said.

The problem, Goodman said, is that the federal government insists that payments be accurate down to the penny — while Texas’ payment calculation system relies on some limited rounding. The Texas Medicaid & Healthcare Partnership has estimated it would take between 5,000 and 10,000 hours of work to overhaul the current payment system, to the tune of between $575,000 and $1.15 million.

Texas officials say it’s ridiculous to expend countless hours and resources to “literally track pennies” in the $25 billion-per-year state Medicaid program. They appealed each of the 11 errors — six for a combined overpayment of 86 cents, and five for a combined underpayment of 33 cents — to both the PERM reviewers and to CMS, to no avail.

“In addition to the time and money that has already been spent on this, the automation costs to address these pricing errors may be very expensive and the return on investment … may never be realized,” the state wrote in one of its failed appeals. “Texas does not think that this is a prudent use of public funds (state and federal).”

CMS’s ruling was blunt: Texas’ system violates federal law. “There is a difference in payment between what the state paid and what the state should have paid,” CMS stated in its decision denying the appeal. Federal Medicaid officials did not respond to a request for comment on the ruling.

Under the ruling, HHSC must have a solution in place to remedy the payment errors by September 2013. But agency officials have yet to make a request for funding to the Legislative Budget Board or the governor’s office, saying they are unlikely to get approval in tight fiscal times, and with such a poor return on investment.

In the meantime, HHSC officials can’t even pay the federal government what it is owed — roughly half of the 53-cent overpayment — because CMS’s reimbursement form doesn’t allow for amounts under $1. 

Goodman said the agency is hoping enough states will take issue with these tiny cost discrepancies that the federal government will establish some threshold for reporting and rectifying pricing errors.

“The concept is very good,” Goodman said. “But because there’s no minimum threshold, we spend all this time tracking and appealing and going over errors that are so small that we can’t even reimburse CMS directly.”

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