Health Reform WK-EDGE New York claimed almost $1M in unallowable Medicaid/CHIP contract costs
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Wednesday, April 4, 2018

New York claimed almost $1M in unallowable Medicaid/CHIP contract costs

By Victoria Moran, J.D., M.H.A.

After reviewing $4.4 million in federal reimbursement to New York for select contract costs from June 2012 through April 2014, the HHS Office of Inspector General (OIG) has determined that New York did not always follow federal requirements for claiming Maximus, Inc. contract costs to Medicaid and the Children’s Health Insurance Program (CHIP). The OIG recommended that New York refund CMS $954,521 in unallowable costs ($852,992 in profit fees and $101,529 in general and administrative costs) (OIG ReportA-02-15-01014, March 16, 2018).

Background. Pursuant to the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148), New York established its own state-based marketplace, known as the New York State of Health. The New York marketplace provided eligibility determinations and enrollment services for private health insurance plans offered through the marketplace (qualified health plans or QHPs). It also provided determinations and services for New York’s public programs: Medicaid and CHIP. In June 2012, New York amended an existing contract with Maximus to expand a statewide Medicaid and CHIP enrollment center to also include marketplace customer services for those seeking to enroll in QHPs.

The OIG’s review was related to a prior review of grants awarded to New York for establishing its marketplace, where it was determined that the state did not always follow federal cost allocation requirements. The goal of this review was to determine whether the state followed federal requirements related to the costs allocated to Medicaid and CHIP and incurred by Maximus under the contract to operate the marketplace customer service center. The OIG reviewed $4.4 million in federal reimbursement for selected contract costs from June 2012 through April 2014 claimed to Medicaid and CHIP.

Findings. The OIG determined that New York did not always follow the federal requirements for claiming Maximus contract costs to Medicaid and CHIP, resulting in $954,521 in unallowable costs. New York claimed $852,992 in unallowable profit fees and $101,529 in unallowable general and administrative (G&A) costs and related profit fees.

During the June 2012 through April 2014 time period, profit fees were calculated by applying a profit fee rate of 17.65 percent, including travel and office space costs. There was no explanation for the basis for the rate or how it was calculated. For the time period May 2014 through April 2015, New York negotiated a profit fee based on Maximus’ fiscal year profit margin, and the state and Maximus agreed the rate would not apply to pass-through costs like travel and office space. The $852,992 in unallowable profit fees occurred because a basis for the profit fee rate was not established with Maximus at the beginning of the contract. Maximus was also not required to retroactively adjust the calculation by removing travel and office space costs, despite agreement between Maximus and New York that those costs should not have been subject to those charges.

The contract with Maximus did not specify project costs that the G&A rate should be applied for June 2012 through April 2014. Maximus developed G&A rates at the beginning of a fiscal year for provisional billing, with final rates developed at the conclusion of the fiscal year. G&A costs to Medicaid and CHIP were calculated by applying provisional and final rates, including travel and office space; New York and Maximus subsequently agreed travel and office space costs should not be applied. The $101,529 in unallowable G&A and related profit fees occurred because Maximus was not required to use its final cost rate G&A costs and not required to retroactively adjust the profit fee and G&A costs calculation by removing travel and office space costs.

Recommendations and response. The OIG recommended that New York refund CMS the following amounts: (1) $852,992 in unallowable profit fees or work with CMS to determine the appropriate amount that should have been claimed to CHIP and Medicaid; and (2) $101,529 in unallowable G&A costs and related profit fees. New York disagreed with the recommendations on the basis that while different contract terms were negotiated for a subsequent period, this did not result in unallowable profit fees and G&A costs in prior periods.

Companies: Maximus, Inc.

ReportsLetters: OIGReports NewsFeed AgencyNews CHIPNews EnrollmentNews HealthInsuranceExchangeNews MedicaidNews

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