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A Review of Selected Medicaid Issues
February 2001

REPORT (PDF)     SUMMARY (PDF)

As requested by members of the General Assembly, we conducted a review of the Department of Health and Human Services’ (DHHS) management of the state Medicaid program. Medicaid is a federal program that provides financial assistance to states for health care for eligible recipients. Eligible recipients are those who receive cash assistance and those children, pregnant women, the disabled and the elderly who meet income and resource requirements.

The audit requesters were primarily concerned about:

  • DHHS’s efforts to detect and control fraud and abuse.
  • The increase in pharmaceutical expenditures.
  • The agency’s budget deficit.

They also had additional concerns about DHHS’s use of managed care. We will discuss managed care and other issues in a subsequent report.

DHHS has a Division of Program Integrity which investigates potential cases of fraud and abuse. For FFY 98-99, DHHS reported $2,064,460 in collections, including overpayments, identified through fraud and abuse detection efforts.

In South Carolina, Medicaid costs for prescription drugs have increased from $123 million to $260 million in the last five years. In FY 99-00, pharmaceutical services accounted for 11% of total Medicaid expenditures and was the fourth highest expenditure. Between FFY 94-95 and FFY 97-98, the average annual increase in prescription drug expenditures for the southeastern region was 14%, while South Carolina’s was 22%.

Our findings include the following.

  • While DHHS requires verification of health care providers’ licenses and certificates, more stringent requirements could be implemented to ensure that only eligible providers are enrolled in the Medicaid program.
  • DHHS does not always verify income for applicants to the Partners for Healthy Children program to ensure that only eligible recipients receive Medicaid services. Specifically, DHHS does not verify information for those applicants who report no income or other sources of income such as child support.
  • DHHS has not been providing adequate training to health care providers to ensure that providers understand and are following Medicaid policies and procedures.
  • There is little evidence that internal reviews result in questionable cases being referred to DHHS fraud investigators, as policy directs. From FY 95-96 through FY 99-00, only 5 cases were referred for further investigation as a result of reviewing medical services claims.
  • DHHS Program Integrity Division has not developed performance measures or an adequate case tracking system that would enable it to assess the effectiveness of its fraud and abuse investigations.
  • For FFY 98-99, collections resulting from fraud and abuse detection amounted to only 0.08% of payments to Medicaid providers. DHHS should set a goal to increase collections due to fraud and abuse.
  • Since 1995, the Medicaid Fraud Control Unit (MFCU), which is part of the Attorney General’s office, has received only 44 cases from DHHS. The Program Integrity Division should increase the rate of, and shorten the time frame for, referral of suspicious cases to MFCU.
  • DHHS Program Integrity Division does not have a written fraud and abuse plan. Division officials stated that a plan is being developed.
  • DHHS has not developed drug use policies that could help limit increases in prescription drug costs. Such policies should require increased use of generic drugs, prior authorization, and therapeutic protocols for targeted drugs, and could save up to $15.6 million in Medicaid funds.
  • While DHHS will pay for only 4 prescriptions per month for adult Medicaid recipients, they are allowed to obtain a 100-day supply for each prescription. This in effect could allow recipients up to 12 prescriptions per month, which impacts DHHS’s cash flow and could result in wasted medication.
  • DHHS did not amend the State Medicaid Plan, as required by law, when increasing the number of Medicaid prescriptions. As a result, the state could be penalized up to $3.5 million by the federal government. DHHS now has a formal process for all changes that require an amendment to the State Plan.
  • Three factors creating pressure on DHHS’s state budget for Medicaid include the increase in the number of recipients, the change in the funding mix toward increased use of state funds, and the use of non-recurring funds to make up the state’s share of Medicaid funding. DHHS had a $25.8 million deficit in state appropriations in FY 99-00.