Virginia Improperly Claimed Federal Reimbursement for Most Reviewed Medicaid Payments to Catawba Hospital

Virginia's Department of Medical Assistance Services (State Medicaid agency) claimed $18.6 million in Federal reimbursement for Medicaid payments to Catawba Hospital (Catawba), an institution for mental diseases (IMD), for inpatient services it provided to patients aged 65 or older on dates during the audit period January 1, 2006, through December 31, 2010. Of that amount, $17.4 million was not claimed in accordance with Federal requirements for such services.

For States to claim Federal reimbursement for their Medicaid payments for inpatient hospital services provided to patients aged 65 or older in IMDs, those 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 IMDs providing such services.

Catawba did not demonstrate compliance with the special Medicare CoP at any time during the audit period; however, for several months during that period (the regulatory gap period), CMS inadvertently changed some applicable regulations. Of the $18.6 million in Federal reimbursement claimed by the State Medicaid agency during the audit period, $17.4 million was for unallowable claims with dates of service outside the regulatory gap period. We have not provided an opinion on the allowability of the remaining $1.2 million, which was for claims with dates of service during the regulatory gap period. The State Medicaid agency made these improper claims because it believed that Catawba had met all requirements to be eligible for Medicaid payments for the inpatient hospital services it provided to patients aged 65 or older.

We recommended that the State Medicaid agency (1) refund $17.4 million to the Federal Government, (2) work with CMS to determine whether the State Medicaid agency should refund an additional $1.2 million to the Federal Government, (3) identify and refund the Federal share of any additional Medicaid payments to Catawba for inpatient hospital services it provided to patients aged 65 or older on dates after the audit period if neither the State Medicaid agency nor Catawba can demonstrate Catawba's compliance with Federal requirements for those services, and (4) ensure that it claims Federal reimbursement for Medicaid payments for inpatient hospital services provided to patients aged 65 or older in IMDs only if those IMDs can demonstrate compliance with the special Medicare CoP. The State Medicaid agency did not concur with our first and second recommendations and did not comment on our third and fourth recommendations.