Indiana Improperly Claimed Federal Reimbursement for Most Medicaid Inpatient Psychiatric Hospital Service and Disproportionate Share Hospital Payments to Evansville Psychiatric Children's Center

The Indiana Office of Medicaid Policy and Planning (the State agency) claimed $10.5 million in Federal reimbursement for Medicaid inpatient psychiatric service and disproportionate share hospital (DSH) payments made to Evansville Psychiatric Children's Center (Evansville) for claims with dates of service during the audit period, January 1, 2006 through December 31, 2010. Of that amount, $7.6 million was not claimed in accordance with Federal requirements for inpatient psychiatric hospital services.

For States to claim Federal reimbursement for their Medicaid inpatient psychiatric service and DSH payments to a psychiatric hospital, the hospital's inpatient services must meet the Federal definition of such services. This definition requires the provider to demonstrate compliance with the basic Medicare Conditions of Participation (CoP) generally applicable to all hospitals and two special Medicare CoP applicable to psychiatric hospitals.

Evansville did not demonstrate compliance with the basic or special Medicare CoP from January 1, 2006, through December 9, 2009; however, for several months during that period, CMS inadvertently changed some applicable regulations (the regulatory gap period). The State agency claimed $7.9 million in Federal reimbursement for Medicaid inpatient psychiatric service and DSH payments made to Evansville for claims with dates of service from January 1, 2006, through December 9, 2009. Of that amount, $7.6 million was for unallowable claims with dates of service outside the regulatory gap period. We have not provided an opinion on the allowability of State agency claims for the remaining $0.3 million, which was for claims with dates of service during the regulatory gap period.

On December 10, 2009, Evansville demonstrated its compliance with the basic and special Medicare CoP. Therefore, the State agency's claims for $2.6 million in Federal reimbursement for claims with dates of service on or after December 10, 2009, were allowable.

We recommended that the State agency (1) refund $7.6 million to the Federal Government, (2) work with CMS to determine whether the State agency should refund an additional $0.3 million to the Federal Government, and (3) ensure that Federal reimbursement for Medicaid inpatient psychiatric service and DSH payments to psychiatric hospitals is claimed only if those hospitals can demonstrate compliance with the basic and special Medicare CoP. The State agency disagreed with our first and second recommendations. Although the State agency concurred with our third recommendation, it stated that Evansville does not need to demonstrate compliance with the basic Medicare CoP to receive payments for children under age 21.