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O f f i c e O f t h e N e w Y O r k S t a t e c O m p t r O l l e r

thomas p. Di Napoli

DiviSiON Of State GOverNmeNt accOuNtabilitY

New York State Medicaid Program

Department of Health

Under Reporting of Net Available Monthly Income

for Nursing Home Residents

Causes Medicaid Overpayments

Report 2010-S-17

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Division of State Government Accountability 5

Division of State Government Accountability

State of New York

Ofce of the State Comptroller

September 28, 2011

Nirav R. Shah, M.D., M.P.H.CommissionerDepartment o HealthCorning ower Building

Empire State PlazaAlbany, New York 12237

Dear Dr. Shah:

Te Oce o the State Comptroller is committed to helping State agencies, public authoritiesand local government agencies manage government resources eciently and eectively and,by so doing, providing accountability or tax dollars spent to support government operations.Te Comptroller oversees the fscal aairs o State agencies, public authorities and localgovernment agencies, as well as their compliance with relevant statutes and their observanceo good business practices. Tis fscal oversight is accomplished, in part, through our audits,which identiy opportunities or improving operations. Audits can also identiy strategies orreducing costs and strengthening controls that are intended to saeguard assets.

Following is a report o our audit o the Department o Health: New York State MedicaidProgram entitled Under Reporting of Net Available Monthly Income for Nursing Home Residents

Causes Medicaid Overpayments. Tis audit was perormed pursuant to the State Comptroller’sauthority under Article V, Section 1 o the State Constitution and Article II, Section 8 o theState Finance Law.

Tis audit’s results and recommendations are resources or you to use in eectively managing

your operations and in meeting the expectations o taxpayers. I you have any questions aboutthis report, please eel ree to contact us.

Respectully submitted,


Division of State Government Accountability

Authority Letter

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State of New York


EXECUTIVE SUMMARY

Audit Objective

Our objective was to determine i Medicaid payments to nursing home providers were properly reduced or recipients’ Social Security, pension and other income that had been retained by theproviders.

Audit Results - Summary

New York State Medicaid annually pays $6.8 billion to nearly 700 nursing homes or the careo about 121,000 Medicaid recipients. Te Federal government unds about 50 percent o New York’s Medicaid nursing home costs; the State unds about 40 percent; and the localities (theCity o New York and counties) und the remaining 10 percent. Further, the contributionso the localities are capped, and thereore, once the cap has been reached, the State assumesthe cost o a recipient’s nursing home care not covered by the Federal government. Tus,localities might have little incentive to use limited resources to closely monitor certain aspectso Medicaid-unded nursing home costs.

Many Medicaid nursing home recipients have income rom Social Security, pensions and othersources. Tis is reerred to as Net Available Monthly Income (NAMI), and nursing homeproviders retain it as partial reimbursement or the cost o care. Localities are responsible todetermine the NAMI o Medicaid recipients on an ongoing basis. Localities also must providethe NAMI to the Department o Health’s eMedNY computer system, which processes nursinghome provider claims or Medicaid reimbursement. Te eMedNY is supposed to deduct NAMIrom the amount that Medicaid pays to the nursing home provider. Trough August 2010,eMedNY indicated that statewide NAMI averaged about $69 million per month.

We ound that Medicaid payments to nursing home providers are not always being reducedin a timely and accurate manner or NAMI. As a result, we estimate that up to $42 milliono Medicaid was overpaid to nursing homes during our 44-month audit period, which endedAugust 31, 2010. Te State and local portion o the potential overpayment was about $21million. Specifcally, we noted that:

• Medicaid overpaid providers by as much as $34.5 million during our 44-month auditperiod. Tis happened because when a provider’s claim shows no billing or the frstday o the month or a nursing home resident, eMedNY ails to deduct any NAMI rom

Executive Summary

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Ofce of the New York State Comptroller

the provider’s claim. For example, we ound that 12 months o claims rom one provideromitted billing or the frst day o the month or a resident with $3,700 o NAMI. In thisinstance, the provider was overpaid $44,000 (12 months x $3,700).

• It is likely that Medicaid has overpaid many millions o dollars more than our auditshows because a legacy computer system that predated the 2005 implementation o eMedNY also reportedly did not properly process NAMI.

• Te longstanding NAMI processing problem presents a high risk or exploitationbecause there is a fnancial incentive or providers to orego one day o billing to avoid aNAMI oset to their Medicaid payment. For example, average monthly NAMI is about$1000 per recipient, while the average value o a day o billing is about $200.

• Te eMedNY overpaid about $7.5 million during our 44-month audit period becauselocalities did not establish or update NAMI in a timely manner. For example, in December2007, a nursing home resident’s NAMI increased by $2,165. However, the locality didnot update eMedNY with this inormation until 10 months had passed (October 2008).

Consequently, the nursing home was overpaid $21,650. Moreover, because regulationsdo not permit recovery beyond six months, there is no opportunity to recover $8,600o this amount. Tis issue o timeliness was frst presented in our audit report 99-S-49entitled “NAMI Deductions From Nursing Home Medicaid Claims” which was issuedon February 1, 2001; over ten years ago.

• It is imperative or the Department to address the long-standing problems identifed inour report promptly and eectively. In total, we identifed as much as $42 million inMedicaid overpayments due to under-applied NAMI - and the risk o millions o dollarso uture Medicaid overpayments remains high i the problems go uncorrected.

Our report contains fve recommendations to improve eMedNY and accurately accountor residents’ monthly incomes. In their response to our drat report, Department ocialsgenerally concurred with our recommendations. Ocials indicated that certain actions havebeen and will be taken to address them.

Tis report, dated September 28, 2011, is available on our website at:http://www.osc.state.ny.us.Add or update your mailing list address by contacting us at: (518) 474-3271 orOce o the State ComptrollerDivision o State Government Accountability 110 State Street, 11th Floor

Albany, NY 12236

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Introduction

Te New York State Medicaid program is a ederal, State, and locally

unded program which provides a wide range o medical services to thosewho are economically disadvantaged and/or have special health careneeds. Residents must meet certain medical and fnancial requirementsto qualiy or Medicaid coverage. In recent years, the Medicaid programhas grown signifcantly, with enrollments increasing rom 4.6 millionpeople in 2007 to 5.2 million people in 2010 (an increase o almost600,000 enrollees). For the fscal year ended March 31, 2011, Medicaidcosts totaled about $53 billion - about $10 billion more than Medicaidcost or the year ended March 31, 2008.

Te Oce o Health Insurance Programs within the Department o Health(Department) administers the Medicaid program. Te Department’seMedNY computer system processes Medicaid claims submitted by providers or services rendered to Medicaid-eligible recipients andgenerates payments to reimburse the providers or their claims. TeeMedNY system is very complex, subjecting claims to various automatededits to determine whether the claims are eligible or reimbursementand the amounts claimed or reimbursement are appropriate. Annually,eMedNY processes about 330 million claim payments.

County social service oces throughout the State and the Human

Resources Administration in New York City (collectively reerred to asthe “localities”) determine i applicants are eligible to receive Medicaidbenefts, including nursing home care. In 2010, about 121,000 peoplereceived Medicaid unded care at about 700 nursing homes statewide.Medicaid pays these homes about $6.8 billion annually. In recent years, thenumbers o nursing home Medicaid recipients and Medicaid paymentsto nursing homes have decreased slightly. Te Federal government undsabout 50 percent o New York’s Medicaid nursing home costs; the Stateunds about 40 percent; and the localities (the City o New York andcounties) und the remaining 10 percent. Further, the contributions o the localities are capped, and thereore, once the cap has been reached,

the State assumes the cost or a recipient’s nursing home care not coveredby the Federal government. Under these circumstances, localities mighthave little incentive to use limited resources to closely monitor certainaspects o Medicaid-unded nursing home costs.

Medicaid nursing home recipients may have monthly income rom SocialSecurity, pensions, stocks, and bank accounts, etc. Tis income is reerredto as Net Available Monthly Income (NAMI), and nursing homes retain

Background

Introduction

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the NAMI o their recipients. Te amount retained is deducted romthe monthly nursing home Medicaid reimbursement. During the periodrom January 1, 2007 through August 31, 2010, eMedNY processednursing home Medicaid claims totaling nearly $26.6 billion. Tis amountwas oset by $3 billion o NAMI over the same time period (or about

$69 million o NAMI per month). Te average amount o NAMI wasabout $1,000 or each nursing home Medicaid recipient who had income,although the NAMI ranged upwards to several thousand dollars. Further,NAMI typically changes rom year to year as, or example, pension andsocial security amounts are adjusted or cost o living increases, etc.

Medicaid requires localities to establish and update the amounts o NAMIor each o their nursing home Medicaid recipients. On an ongoing basis,these Medicaid recipients are to notiy localities o changes in NAMI.Also, i a nursing home is aware o an increase in a Medicaid recipient’sNAMI, the nursing home must report this to the locality. Te localities

input NAMI inormation into the eMedNY system. In addition, nursinghomes must correctly identiy NAMI on their claims or Medicaidreimbursement. When eMedNY processes monthly Medicaid claimsrom nursing homes, the system automatically reduces the payment by the NAMI amount it has on fle or the NAMI amount indicated on theMedicaid claim, whichever is greater.

I changes in NAMI are not reported timely to localities or i localities donot update eMedNY in a timely manner or NAMI, then overpayments tonursing homes can result. In addition overpayments may result i eMedNYdoes not accurately process NAMI inormation. Te Department requiresthat, as appropriate, localities recover overpayments made to nursinghome providers. However, i the overpayments result rom delays inupdating NAMI, localities’ retroactive recovery o such unds is limitedto the six months prior to the update.

Te current eMedNY system was implemented in March 2005, at acost o more than $400 million. From the time it was implemented,the eMedNY system has been plagued with problems, and there isconsensus that system replacement is necessary. Consequently, in June2010, the Department released a Request or Proposal or a contractor to

design, develop and operate a new automated claims processing systemto replace the current eMedNY. As o June 2011, the Department was inthe process o selecting a contractor or the new system.

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Our objectives were to determine whether NAMI updates to eMedNYwere completed in a timely manner and whether eMedNY was accurately processing NAMI when paying Medicaid nursing home claims orresidents. Our audit covered the period January 1, 2007 through August31, 2010.

o accomplish our audit objective, we interviewed ocials rom theDepartment, the Oce o the Medicaid Inspector General and variouslocalities. We reviewed applicable sections o Federal and State lawsand regulations and examined the Department’s Medicaid policies andprocedures. We analyzed eMedNY claim payment data and obtainedsupporting records rom nursing homes. We visited two nursing homes,interviewed nursing home administrators, and reviewed medical recordsand other documentation. In addition, we selected a judgmental (non-random) sample o 208 high risk nursing home Medicaid recipients romfve localities (the City o New York and Monroe, Rensselaer, Suolk and

Westchester Counties) to determine i NAMIs were posted to eMedNYtimely. Also, we shared the detailed results o our audit tests and analysiswith Department and Oce o the Medicaid Inspector General ocialsor their review and ollow-up action, as warranted.

We conducted our perormance audit in accordance with generally accepted government auditing standards. Tose standards require thatwe plan and perorm the audit to obtain sucient, appropriate evidenceto provide a reasonable basis or our fndings and conclusions based onour audit objectives. We believe that the evidence obtained providesa reasonable basis or our fndings and conclusions based on our auditobjectives.

In addition to being the State Auditor, the Comptroller perorms certainother constitutionally and statutorily mandated duties as the chie fscalocer o New York State. Tese include operating the State’s accountingsystem; preparing the State’s fnancial statements; and approving Statecontracts, reunds, and other payments. In addition, the Comptrollerappoints members (some o whom have minority voting rights) tocertain boards, commissions, and public authorities. Tese dutiesmay be considered management unctions or purposes o evaluating

organizational independence under generally accepted governmentauditing standards. In our opinion, these unctions do not aect ourability to conduct independent audits o program perormance.

Te audit was perormed pursuant to the State Comptroller’s authority as set orth in Article V, Section 1 o the State Constitution and Article II,Section 8 o the State Finance Law.

Audit Scope and

Methodology

Authority

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We provided a drat copy o this report to Department ocials or theirreview and ormal comment. We considered the Department’s commentsin preparing this report and have included them in their entirety at theend o it. In their response, Department ocials generally concurredwith our recommendations and indicated that certain steps have been

and will be taken to address them.

Within 90 days o the fnal release o this report, as required by Section170 o the Executive Law, the Commissioner o Health shall report tothe Governor, the State Comptroller, and the leaders o the Legislatureand fscal committees, advising what steps were taken to implement therecommendations contained herein, and where recommendations werenot implemented, the reasons thereor.

Major contributors to this report include Warren Fitzgerald, Dan owle,Anthony Calabrese, Lauren Bizzarro, David Hancox, and Brian Mason.

Reporting

Requirements

Contributors to

the Report

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Audit Findings and Recommendations

Te eMedNY system should oset each resident’s monthly nursing homeMedicaid claim by the greater o the NAMI recorded on eMedNY or

the NAMI identifed on the nursing home claim. However, our auditidentifed that eMedNY ails to deduct NAMI or a monthly claimwhenever the nursing home excludes billing or the frst day o the month.Te lost billing or the frst day is typically about $200 per resident,while the monthly amount retained by the nursing home or NAMI is,on average, about $1,000 per resident. Tereore, whenever eMedNYmakes this processing error, substantial overpayments to nursing homesare likely. Also, there is risk that nursing homes are ully aware o thiseMedNY processing error and, thereore, orego billing the frst day o the month in order to ensure NAMI is not deducted rom their Medicaidreimbursement.

For example, we identifed one nursing home with a year o claims thatomitted billing or the frst day o the month or one resident with aNAMI o $3,700. Tis nursing home received nearly $63,000 o Medicaidreimbursement or this resident over the course o the year. However,since the reimbursement was not reduced by the resident’s NAMI, thenursing home was overpaid $44,000 ($3,700 o NAMI x 12 months). (Teoverpayment would be reduced or any o the 12 days o billing duringthe year that were erroneously omitted rom the Medicaid claim.)

Furthermore, we visited two nursing homes to examine in detail theMedicaid claim payments covering 221 months o care or a judgmentalsample o 40 residents (20 rom each acility) whose claims were o higherrisk o overpayment. For both nursing homes, NAMI was collectedmonthly or each o the residents over the months o care. However,the nursing home claims routinely omitted billing or the frst day o themonth or the residents in our sample. Accordingly, about $86,000 o NAMI was retained by the nursing homes and was not deducted romthe Medicaid reimbursement.

For the audit period January 1, 2007 through August 31, 2010, we

identifed $34.5 million o NAMI (pertaining to nearly 32,300 monthso nursing home care) which was retained by nursing homes and wasnot deducted rom nursing home claims or reimbursement because o this eMedNY claims processing deect. Tere were 17 nursing homeswith more than $200,000 in NAMIs that were not deducted rom theirpayments. Tese amounts, less any amounts owing or any ailure to billor the frst day o the month, represent nursing home overpayments thatthe Department must recoup.

Accuracy of

NAMI Processing

Audit Findings and Recommendations

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A summary o the under-applied NAMI we identifed, or each o thelocalities we visited and the remainder o the State, is presented in theollowing table.

Because the State typically unds 40 percent o Medicaid, the under-applied NAMI cost State taxpayers as much as $13.8 million ($34.5million x 40 percent). Te cost to local governments was as much as$3.45 million ($34.5 million x 10 percent).

Department ocials were unable to adequately explain either why eMedNY was not deducting NAMI when the Medicaid claim omittedthe billing or the frst day o the month or why certain nursing homeswere routinely billing with such an omission. Rather, they told us thateMedNY’s current processing problem was a carryover rom the 1995predecessor legacy system and had not been corrected.

According to OMIG ocials, in most states NAMI is applied to the frstclaim that is processed or the month regardless o whether or not thefrst o the month is included in the dates o service billed. As previously

noted, in June 2010, the Department released a Request or Proposal ora contractor to design, develop and operate a new automated systemto process Medicaid claims. Tis system replaces eMedNY and mustcorrect the longstanding problem associated with not deducting NAMIwhen the frst day o monthly billing is omitted rom claims.

Locality

$ Amount of NAMI

Excluded from Claims by Nursing Homes (See Note)

Percentage of Total

NAMI Statewide Not Reported

City of New York 14,980,000 43

Suffolk County 3,120,000 9

Westchester County 1,960,000 6

Monroe County 1,360,000 4

Rensselaer County 220,000 1

All Other Counties 12,860,000 37Totals $34,500,000 100

Note: Amounts rounded to the nearest ten thousand dollars.

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1. Design and implement controls in the Medicaid claims processingsystems to properly apply residents’ NAMIs towards the cost o their nursing home care.

2. Analyze the instances o under-applied NAMI and theoverpayments identifed by our audit. Recover overpayments asappropriate.

For the fve localities we visited, we examined the timeliness o theireorts to maintain current and accurate NAMI data on eMedNY. Weound signifcant delay on the part o the localities in updating NAMI.In addition, we ound delay in the recovery o overpayments. Teseineective practices caused millions o dollars o unnecessary Medicaidcosts.

We examined the posting o NAMI or a judgment sample o 208 Medicaidnursing home recipients in the fve localities. For 96 (46 percent) o the recipients we ound that either the NAMI or new residents or theNAMI updates or existing residents was not posted in a timely mannerto eMedNY. In total, or the 44-month period covered by our audit,we identifed 334 NAMI changes or these 96 residents that were late,including 219 (66 percent) that were posted six or more months lateto eMedNY. O those changes, 111 were posted a year or more late.Moreover, based on our analysis o available eMedNY data, we estimatethat eMedNY made overpayments totaling about $7.5 million during ouraudit period as a result o the untimely posting o NAMI by localities.

A summary o the NAMI attributable to untimely posting, by each o thelocalities we visited and the remainder o the State, is presented in theollowing table.

Recommendations

Timeliness of

NAMI Processing

Locality$ Amount of NAMI

Posted Late by Localities(See Note)

Percentage of Total NAMI Statewide

Reported Late

City of New York 2,970,000 40

Suffolk County 1,290,000 17

Westchester County 780,000 10

Monroe County 130,000 2

Rensselaer County 50,000 1

All Other Counties 2,280,000 30

Totals $7,500,000 100

Note: Amounts rounded to the nearest ten thousand dollars.

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ogether, the State and the localities und 50 percent o Medicaid nursing claims. Con-sequently, the untimely posting o NAMI cost State and local taxpayers $3.75 million($7.5 million x 50 percent) during our audit period.

Te ollowing are two examples o what we ound:

• Te NAMI or one nursing home resident was $583, but thelocality delayed 11 months in posting this to eMedNY. As a result,the nursing home received an overpayment o $6,413 ($583 x 11).

• Te NAMI or another nursing home resident was $735, butthe locality delayed 17 months in posting this to eMedNY. Asa result, the nursing home received an overpayment o $12,495($735 x 17).

In addition, we ound that the overpayments are sometimes caused by delay in determining the NAMI. For example, residents sometimes

do not provide the localities with sucient documentation to properly determine NAMI. In addition, in certain other instances, delays resultwhen residents challenged NAMI determination through a air hearingsprocess. Tese actors, however, contributed to relatively ew o theoverpayments we identifed.

For the large majority o the instances we reviewed, delays were causedby weakness in localities’ practices coupled with a lack o Departmentmonitoring. We noted that the Department does not routinely monitorlocalities’ determination and posting o NAMI through such steps asstandard data analysis o eMedNY. Consequently, the Department wasnot in a position to either advise localities o potential overpaymentsor to request localities to investigate them. Further, it appeared thatDepartment ocials were unaware o the previously discussed fndingabout the inability to oset NAMI when the nursing home claimcontained no billing or the frst day o the month.

During our audit feldwork, we shared our observations with the Ocethe Medicaid Inspector General (OMIG). Te OMIG advised us thata consultant has been contracted to review patient accounts at nursinghomes, and the review included tests or overpayments made as a result

o underreported NAMI. Ater our feldwork, the OMIG inormed usthat the consultant identifed about $5.1 million in overpayments dueto underreported NAMI. At that time, about $1.9 million (o the $5.1million) had been recovered. Moreover, it should be noted that thismatter was previously identifed in our audit report 99-S-49 entitled“NAMI Deductions From Nursing Home Medicaid Claims,” issued onFebruary 14, 2001. Nonetheless, ater more than ten years, signifcant

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problems in this area persist - and the Department must take actionpromptly to address them.

Also, the Department requires localities to recover Medicaidoverpayments resulting rom delays in updating residents’ NAMI. In

July 2000, the Department instructed localities to make one-timeadjustments to a resident’s NAMI in the month ollowing the updating o eMedNY. For example, a recipient could have a NAMI o $600 throughDecember o year ‘A’ which is increased by $50 (to $650) in January o

year ‘B.’ However, the increase is not reported to Medicaid until the endo May in year B (a delay o 5 months), resulting in overpayments totaling$250 ($50 x 5). Te locality can recover the overpayments by a adjustingthe resident’s contribution or June to $900 (the new NAMI o $650 plusthe $250 overpaid rom January through May).

Several State and ederal agencies continually notiy localities o NAMI

changes throughout the year. Also, Medicaid residents and nursing homesshould notiy localities o such changes. However, localities generally wait until nursing home residents are recertifed or Medicaid (generally once a year - or every 12 months) to update Medicaid or NAMI changes.Federal Medicaid law allows states to recover Medicaid overpayments inthese situations or only the six months prior to the month the recovery ismade. Tereore, because localities generally reassess a resident’s NAMIevery 12 months, they are oten unable to recover substantial amounts o overpayments.

For example, in December 2007, a resident’s NAMI increased rom $1,093to $3,258 (an increase o $2,165). However, the increase was not updatedto eMedNY until October 2008 - some ten months late. Consequently,Medicaid overpaid the nursing home by $21,650 ($2,165 x 10). Moreover,because o the Federal limitation, only six months o the increased NAMIcould be recovered, and thus, our months o the increase (or $8,660) wasnot.

It is imperative or the Department to address the long-standingproblems identifed in our report promptly and eectively. In total,we identifed as much as $42 million in Medicaid overpayments due

to under-applied NAMI - and the risk o millions o dollars o utureMedicaid overpayments remains high. Moreover, because the Federalgovernment limits retroactive application o NAMI to six months, largeamounts o such overpayments cannot be recovered. Consequently,eective controls must be in place within eMedNY and at the localitiesto ensure that the NAMI is properly applied to nursing homes’ Medicaidclams when such claims are initially processed and paid.

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3. Examine the overpayments resulting rom untimely postingo NAMI as identifed in this report and make recovery whereappropriate.

4. Enhance Department oversight through such techniques as dataanalysis to identiy and assist localities that may not be postingNAMI timely to eMedNY.

5. Advise localities to review resident’s NAMI at time intervalssucient enough to avoid overpayments that cannot be recovered.

Recommendations

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Agency Comments

Agency Comments

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