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Press Release MassHealth Audit Finds Over a Half Billion Dollars in Improper Payments and Potential Savings

Audit of the managed-care program within MassHealth found the state health agency unnecessarily spent $233 million by paying medical providers directly when the medical services should have been paid for by managed-care organizations (MCOs).
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  • Office of State Auditor Suzanne M. Bump

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Mike Wessler, Communications Director

Stethoscope and medical forms

Boston — State Auditor Suzanne Bump today issued an audit of the managed-care program within MassHealth. It found the state health agency unnecessarily spent $233 million by paying medical providers directly when the medical services should have been paid for by its affiliated managed-care organizations (MCOs). The audit also found that the agency could have additionally saved up to $288 million if its MCO contracts had been more specific as to whether certain services should have been covered. The dollar amounts represent the largest monetary value of audit findings uncovered in a State Auditor’s report in 27 years.

“MassHealth has failed to fully realize the cost savings potential of managed-care organizations,” said Auditor Bump. “To avoid paying for health services twice, MassHealth must know exactly what it should and should not pay for and have a claims processing system that can follow those rules. It is troubling to see this amount of inefficiency. The importance and impact of MassHealth across the spectrum - recipients, providers, insurance companies, hospitals and taxpayers - cannot be understated and I am pleased that MassHealth has pledged to use this audit to strengthen its operations.”

MassHealth, the state’s Medicaid agency, with annual payments to healthcare providers of more than $10.8 billion, provides access to healthcare services for approximately 1.4 million eligible low- and moderate-income individuals. MassHealth is the state’s largest program and accounts for approximately one-third of the state budget. MCOs are private health care insurers which contractually agree to a fixed, per-member rate to administer and pay for specific categories of health care claims on behalf of MassHealth for eligible members. For a five-year period of review - October 2009 through September 2014 - MassHealth paid MCOs approximately $12 billion to provide health services to 1.6 million members.

Today’s audit found MassHealth made more than 1.48 million duplicative fee-for-service payments valued at more than $233 million for claims for services which MCOs had already been paid to cover. The improper payments were made because MassHealth did not maintain a master list of specific medical procedure codes that MCOs must cover across the 29 required categories of service for all members. As a result, MassHealth’s claims system was incapable of identifying and preventing payments for services already funded under MCO contracts.

Twenty million dollars of the improper payments were due to MassHealth delays in updating members’ information in its database in a timely manner. Another $43 million was for routine services such as blood tests and immunizations provided by state agencies that MassHealth believes were not eligible for coverage by its MCOs.

In addition, because MassHealth did not maintain a master list of required medical procedure codes, individual MCOs developed their own unique lists. Comparing the procedure code lists from the individual MCOs to MassHealth payment data, auditors identified more than $288 million in fee-for-service MassHealth payments for services that were not required under contract, but were often covered by MCOs regardless. The report makes clear that such MassHealth payments are not improper, but reflect a major area for MassHealth to examine and find potential future savings. Also, the audit does not fault MassHealth’s affiliated MCOs.

“MassHealth needs to strengthen its MCO contract management in order to deliver the highest quality care to its members and the best value to taxpayers,” said Auditor Bump.

Utilizing advanced data analytic software and internally developed processes made possible by the office of the Governor and the Legislature through IT Bond funding, state auditors analyzed all of the approximately 25.5 million fee-for-service claims for MCO enrollees during the five-year audit period. Since 2011, Auditor Bump has identified more than $619 million in savings opportunities or spending that is unallowable, questionable, or potentially fraudulent in the MassHealth program. Audits have highlighted a series of deficiencies in MassHealth’s claims system related to dentistry, drug screenings, personal care attendant services, and the Limited Program.

In a response included within today’s audit report, MassHealth stated that it will develop a master procedure code list and plans to pursue system enhancements to address the audit findings. It has already projected $10 million in annual savings into its budget for the next fiscal year. However, MassHealth disagrees with the identified amounts of improper spending by as much as $127 million because it claims some of the audit’s identified fee-for-service payments should not have been covered by MCOs. 

“I am confident of our audit findings, and will work with MassHealth to see that it realizes its maximum savings,” said Auditor Bump.

The Office of the State Auditor conducts performance audits of state government’s programs, departments, agencies, authorities, contracts, and vendors. With its reports, the OSA issues recommendations to improve accountability, efficiency, and transparency.

The MassHealth - Review of Fee-for Service Payments for Services Covered by Managed Care Organizations audit is available here.


Media Contact

Office of State Auditor Suzanne M. Bump 

The Office of State Auditor Suzanne M. Bump (OSA) conducts audits, investigations, and studies to promote accountability and transparency, improve performance, and make government work better.


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