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DHHS overpaid for contracts, study finds

AUGUSTA – The Legislature’s nonpartisan Office of Program Evaluation and Government Accountability has found that the Department of Health and Human Services has not been providing adequate oversight of many contracted services.

“We conservatively estimated that improving the cash management practices could result in DHHS retaining $2.6 million annually,” said OPEGA senior analyst Jennifer Reichenbach, author of the study. “We found that DHHS is disbursing cash to providers based on their budgeted cost and didn’t have any systematic process to look at what their actual costs were.”

She told members of the Legislature’s Government Oversight Committee on Tuesday that the way DHHS was managing the contracts with non-Medicaid service providers resulted in overpayments that the agency then had to recover. She said that added to the complexity of the contracting process.

In addition, she said, “DHHS was not always collecting the amounts due in a timely manner.”

Reichenbach said that in February, DHHS had not collected overpayments from nine of the 28 providers in the sample of contracts studied by the OPEGA staff. That totaled $1.9 million.

The report indicated DHHS had 834 agreements with 392 providers in the 2008 budget year, which ended June 30.

While Medicaid expenditures are far larger than non-Medicaid spending at DHHS, the non-Medicaid contracts added up to $187 million in budget year 2007 and $185 million in budget year 2008. They included state funds, federal funds and other funding sources, such as the Fund for a Healthy Maine, which distributes annual payments from the tobacco settlement.

Sen. Elizabeth Mitchell, D-Vassalboro, co-chairwoman of the committee, said while it is important for the agency to better manage its finances, lawmakers should not assume that fixing the accounting problems with DHHS contracting will mean extra money to meet other state needs.

“I think it is important to note that this does not mean we may have savings of $2.8 million a year from this,” Mitchell said. “The report says this has already been accounted for within the budget for DHHS.”

But Sen. Kevin Raye, R-Perry, said the findings have broad implications for other contracting within DHHS. He also serves on the Legislature’s Human Services Committee, which has jurisdiction over DHHS.

“This could be a vast amount of money if you can extrapolate these findings in any way,” he said. “I think it is a safe bet there is more money there.”

Raye said lawmakers should further explore the contracting processes used throughout all of DHHS, the largest agency in state government. He said it is important to find administrative savings so that resources can be used to provide direct care services to Mainers.

Sen. Philip Bartlett, D-Gorham, seized on a finding in the study that the cumbersome DHHS process was resulting in appeals by providers when the agency went to collect overpayments. He said that has a cost to it that was not measured by the study and he wants a follow-up by OPEGA.

“I want to come back a year from now and be able to quantify the savings that have been achieved,” he said.

OPEGA Director Beth Ashcroft praised DHHS for cooperating with her agency in the study. In a letter that was part of the report released at the committee meeting Tuesday, DHHS Commissioner Brenda Harvey agreed with the findings and outlined steps under way to improve oversight of contracts.

“In partnership with [the] DAFS [the Department of Administrative and Financial Services] Service Center and the Office of the State Controller, new payables processes are being developed to improve accuracy and timeliness through better matching of payment obligations with available funds,” she wrote. “As more and better financial reporting tools are made available, increased transparency and accountability has occurred.”

Harvey said DHHS has been working to improve its oversight and pointed to the Medicaid unit’s improvement in processing claims and settling overpayments caused by the MeCMS, or Maine Claims Management System computer system, which has never met expectations.

Raye and others on the committee said they intend to continue to monitor DHHS as it seeks to improve its management practices and its oversight of contracts.