State auditor general: State loses millions with inefficiency, slow pay practices

[August 09, 2008]  SPRINGFIELD -- Over the last several fiscal years, the Department of Healthcare and Family Services has not paid Medicaid claims on a timely basis, as required by the Prompt Payment Act, due to the lack of state funds to pay Medicaid claims. The Illinois State Finance Act (30 ILCS 105/25(b)) allows the department to make medical payments from appropriations for any fiscal year, without regard to the fact that the medical or child care services may have been provided in a prior fiscal year. This provision of the State Finance Act has allowed HFS to carry unpaid bills averaging $1.5 billion from fiscal 2005, 2006 and 2007 into the next fiscal year. Claims received in each of the past four fiscal years, when added to the unpaid bills carried over from the prior year, have exceeded the funds available for timely payment of medical providers.

Due to the delays in payment, 3.3 million claims submitted to HFS accrued a potential liability of almost $81 million in Prompt Payment Act interest since fiscal 2000. Actual interest expected to be paid to providers is estimated by HFS to be less, due to not all providers requesting eligible interest as well as exclusions that may be applied to potential interest payments by HFS. As a result of its payment schedule used to regulate payments, in most instances HFS does not submit approved claims immediately to the comptroller for payment. In fiscal 2006, it took HFS an average of six days to process claims; however, it took HFS an average of 57 days to submit claims to the comptroller for payment. Payments are added to the payment schedule by HFS based on payment parameters for each provider type. The payment parameter is the number of days a Medicaid claim will be held by HFS before it is put on a payment schedule and submitted to the comptroller for payment. According to HFS officials, HFS uses the payment schedule to regulate payments throughout the year to ensure there is enough appropriation at the end of the fiscal year to continue to make weekly payments to the "expedited" providers, physicians, All Kids and monthly Medicare premium payments. Expedited providers are providers paid on an accelerated payment schedule as discussed below.

HFS could not provide any documentation to support how the payment schedule and payment parameters are established. However, according to HFS officials, payment parameters are established based on the appropriation amount available for that provider type when compared with the predicted liability for that provider type. As an example, based on payment parameters provided by HFS, from Sept. 1, 2006, until April 20, 2007, claims submitted by home health care providers were held at HFS for 118 days from receipt date before being eligible for payment.

Providers are generally paid pursuant to one of two payment schedules. The first is the regular payment schedule used to pay "non-expedited" providers (providers not paid on an accelerated payment schedule). The second is an accelerated schedule used to pay "expedited" providers. Pursuant to the administrative rule (89 Ill. Adm. Code 140.71(b)), expedited payments may be issued only under extraordinary circumstances, in which withholding of the expedited payment would impose severe and irreparable harm to the clients served. The difference between the two designations is that expedited providers are given a higher priority and are paid weekly, while non-expedited providers are put on the regular payment schedule and, as a result, payments to them are not as timely.

HFS does not have any written policies, procedures or guidelines that delineate what documentation a provider must submit to HFS to receive expedited payments. Additionally, HFS has no policies or procedures that delineate the review process used to determine whether a provider initially meets, and continues to meet, the eligibility requirements of the administrative rule. HFS also lacks a comprehensive policy as to whether a provider needs to enter into an agreement with HFS to receive expedited payments.

From the 2,058 providers that were expedited as of Oct. 18, 2007, the auditor's office randomly sampled 66 providers. HFS had current signed agreements with 24 of the 66 providers sampled. The following issues were identified:

• Lack of documentation to substantiate the emergency nature of the request. For the 24 providers sampled that had current signed agreements, 19 did not have documentation from the providers for HFS to verify that the providers met the administrative rule's requirements to substantiate the emergency nature of the request. The only documentation was a letter from the providers attesting that they met the eligibility requirements.

• Lack of documentation of the number of Medicaid clients served. For 22 of the 24 providers sampled that had current signed agreements, there was no documentation to support that the provider met the significance requirements related to the number of Medicaid clients served, as required by the administrative rule.

• Outdated agreements and provider lists. HFS does not have an annual application process to be an expedited provider for long-term care or for maternal and child health providers to ensure that the providers continue to meet the eligibility requirements. Additionally, expedited provider lists from Mount Sinai and the University of Illinois at Chicago hospitals were not updated regularly by HFS.

HFS uses another poorly defined process to expedite payments to certain providers. These payments, referred to as "one-time drop" payments, are made to providers who, according to HFS officials, need a one-time infusion of cash (such as having difficulty in making payroll or making quarterly tax payments). If a provider's request is granted, HFS authorizes the payment of any outstanding claims.

Management controls over the one-time drop payment process are deficient. No criteria for these one-time drop payments are included in the expedited payment section of the administrative rule (89 Ill. Adm. Code 140.71(b)) or in HFS' policies or procedures. No policies or procedures exist to delineate the process for providers requesting or HFS' review and approval of the need for a one-time drop payment. HFS does not require providers to submit a written request documenting their need or keep a log of one-time drop payment requests. According to HFS officials, these providers usually contact HFS by phone and declare their emergency need to be paid.

(From report conclusions released in May by the Office of the Auditor General on the performance audit of the Department of Healthcare and Family Services' Prompt Payment Act compliance and Medicaid payment process)

[Text from the office of William G. Holland, Illinois auditor general]