August 7, 2014

CMS Audit of OPWDD ICFs Seeks Recovery of $1.26 Billion from New York State

New York State is appealing to the Secretary of the United States Department of Health and Human Services (“HHS”) for reconsideration of a July 25, 2014 Centers for Medicare and Medicaid Services (“CMS”) final audit report that found the State liable for $1,257,499,670 in federal Medicaid overpayments.  In its letter to the State, CMS indicated it would be initiating similar reviews of the State’s two subsequent fiscal years based upon the audit findings.  To make matters worse, this federal cost recovery  is in addition to an agreement between the State and CMS to lower Medicaid rates for developmental disability centers, effective April 1, 2013, resulting in an approximately $1.1 billion reduction in federal Medicaid funding annually.

A recent Health Law Sidebar post discussed a Congressional Hearing where an HHS Office of Inspector General (“OIG”) official testified about this audit.  Click here for more information.

The audit focused on the reported costs of intermediate care facilities (“ICF”) operated by the New York State Office of People with Developmental Disabilities (“OPWDD”) during State fiscal year 2010-11.  ICFs are designed for individuals with intellectual and developmental disabilities that limit them from living independently.  In New York State, ICFs can be state-operated facilities or non-state operated facilities.  OPWDD operates ICFs with more than 30 beds, which are referred to as “developmental centers,” as well as ICFs with 30 or fewer beds, which are referred to as “other state-operated ICFs.”  The goal of the audit was to ensure that OPWDD’s reported costs were allowable under the federal Medicaid program and to determine if any further adjustments were required, including changes to the State’s 2013-14 reimbursement rates.  Federal statutory and regulatory requirements include compliance with the program regulations imposing an upper payment limit (“UPL”) on ICF services.

As set out in the CMS report, the review found:

  1. For SFY 2010-2011, OPWDD did not adequately support reported costs of $154,208,154 for the ICFs it operated.
  2. New York’s ICF Medicaid reimbursement rates for SFY 2013-2014, which are based on SFY 2010-2011 costs, require adjustment and do not fully comply with federal requirements.
  3. OPWDD lacks proper internal controls for ensuring the accuracy and reliability of its accounting data and financial reporting.
  4. OPWDD did not comply with federal requirements for establishing a cost allocation plan.
  5. OPWDD’s 2010-2011 Consolidated Fiscal Report (i.e., cost report), as submitted, cannot be fully relied upon as the basis for allowable Medicaid rates.
  6. OPWDD’s unadjusted, self-reported data for SFY 2010-2011 confirms Medicaid payments over the one-year review period exceeded the allowable UPL by $1,140,165,090 FFP. After adjusting for the unsupported costs determined through this review, payments exceeded the UPL by $1,257,499,670 FFP for the review period.

As mentioned above, the State has appealed the CMS determination to the Secretary of HHS stating its  reasons for reconsideration.  Should the Secretary uphold the CMS findings, the State has 60 days to file a notice of appeal with the HHS Departmental Appeals Board (“DAB”).  The State can retain the disallowed funds during the pendency of the reconsideration and DAB review process; however, if the State is unsuccessful, it will owe interest on top of the $1.26 billion in overpayments.  As a final alternative, if the State exhausts all of its administrative options, it may bring an action in federal court to attempt to keep CMS from collecting the potential disallowance.

This article was written by Kathleen Evers.  For more information, please contact David R. Ross, who served as Acting New York State Medicaid Inspector General under governors Pataki and Spitzer, as well as General Counsel, Deputy Medicaid Inspector General, and Director of Audits and Investigations for the Office of the Medicaid Inspector General (OMIG).  He can be reached at (518) 462-5601 or via e-mail at