OIG Releases Report on Medicaid Rates for New York State-Operated Developmental Centers

The Office of Inspector General (“OIG”) released a report yesterday based on its review of the reimbursement rates for New York State-operated developmental centers.   The report found that the Medicaid daily rate for state-operated developmental centers was inflated, and that New York State (State) received $700 million more in federal funding in fiscal year 2009 than was needed to provide services to the residents of those facilities.  That finding is significant because it could mean that the State has failed to comply with the federal requirement that payment for services be consistent with efficiency and economy.

OIG discovered the “overpayment” when it compared the Medicaid reimbursement rates currently calculated by using the State’s rate-setting methodology, which has been approved by the federal government, to the actual costs of operating the developmental centers.  The current reimbursement rate is set by a complex methodology, which uses as a starting point the prior year’s total reimbursable operating costs, a volume variance adjustment, and a trend factor increase.  However, that methodology is deficient, the report suggests, because the total reimbursable costs do not reflect the State’s actual costs of operating the facilities.

Based on OIG’s assessment of the State’s rate-setting methodology, the report found that the Medicaid daily rate for state-operated developmental centers is “significantly inflated.”  To illustrate, in 2009, the New York State Department of Health claimed Medicaid reimbursement on behalf of beneficiaries at developmental centers in the amount of approximately $2.27 billion ($1.13 billion Federal share). If, however, the reimbursement rate had instead been calculated based on prior year actual costs, it would have totaled $858 million ($429 million Federal share), a difference of approximately $1.41 billion ($701 million Federal share).

The report also found that the Medicaid daily rate for the state-operated developmental centers was “substantially higher” than that for privately operated Intermediate Care Facilities (ICF).  For example, the Medicaid daily rate for residents of the largest developmental center of the State was $4,116 per day, whereas the daily rate for residents of a privately operated ICF—which provided comparable services in similar locations—ranged from $421 to $535 per day, or about one-eighth the difference.

To the extent that the State might not have satisfied the federal requirement that payment for services be consistent with efficiency and economy, the OIG recommended that the Centers for Medicare & Medicaid Services (CMS) work with the State to bring it into compliance.  CMS has endorsed the report’s recommendations, stating that it is working with the State to “develop a revised payment methodology.”