Maryland Claimed Unallowable Medicaid Costs for Residential Habilitation Add-on Services Under Its Community Pathways Waiver Program

Maryland's Department of Health and Mental Hygiene (State agency) did not always comply with Federal requirements when it claimed Medicaid costs for add-on services under its Community Pathways waiver program (waiver). The State agency did not implement its waiver as approved by CMS. Rather, the State agency claimed $34 million (Federal share) for provider claims for add-on services for beneficiaries who did not meet the waiver's level-of-need requirement for those services.

The waiver allowed add-on services for beneficiaries who met three requirements, including a level of need of 5 on the State agency's Individual Indicator Rating Scale. However, the State agency did not consider the beneficiary's level-of-need score when approving add-on services. The State agency said that the requirement in the waiver had an error and that the waiver should have allowed for add-on services that were based on any one of the requirements. We recommended that Maryland refund to the Federal Government $34 million and claim add-on service costs only for beneficiaries who meet waiver requirements.

In its written comments on our draft report, the State agency did not concur with our recommendations. The State agency said that the apparent requirement in the waiver was due to a grammatical error (the conjunction "and" was used after the second requirement instead of the conjunction "or"), that the provision should be interpreted to mean that meeting any one of the three criteria was sufficient to authorize add-on services, and that its State regulations support its interpretation. After reviewing the State agency's comments, we maintain that our finding and our recommendation for a refund are valid. The State agency's interpretation of its waiver (that only one of the three requirements be met) would have been unallowable because it would not require evidence that there was a need for add-on services or that additional payment was necessary to cover the cost of those services.

During our audit, the State agency significantly amended this provision in its waiver, and we have amended our second recommendation accordingly. The amended waiver did not require a level of need of 5 on the Rating Scale. However, the amended waiver was not in effect during our audit period and does require providers to document both medical necessity and financial need to receive add-on payments.