North Carolina Claimed Millions in Unallowable School-Based Medicaid Administrative Costs

The North Carolina Division of Medical Assistance (State agency) claimed school-based Medicaid administrative costs that were not in accordance with Federal requirements. The State agency used statistically invalid random moment sampling (RMS) in allocating costs to Medicaid, and it did not maintain adequate support to validate its sample results and related extrapolations. In addition, it claimed these costs without promptly submitting to the U.S. Department of Health and Human Services, Division of Cost Allocation (DCA), for review its cost allocation plan (CAP) amendment describing its new random moment timestudy (RMTS) methodology. Instead, the State agency claimed costs based on an implementation plan describing the new RMTS methodology, which was conditionally approved by CMS. As a result, the almost $107.5 million (almost $53.8 million Federal financial participation) the State agency claimed in school-based Medicaid administrative costs for Federal fiscal years 2010 through 2012 was unallowable.

We recommended that the State agency (1) refund almost $53.8 million to the Federal Government; (2) revise its implementation plan and amend its CAP to address the statistical validity issues we identified and to incorporate CMS's sampling documentation requirements; (3) implement policies and procedures to ensure that its RMTS complies with Federal requirements for statistical validity; (4) maintain adequate support, including all information necessary to reproduce and verify its sample results, for school-based administrative costs allocated to Medicaid; (5) promptly submit to DCA for review and approval its future CAP amendments describing its procedures for identifying, measuring, and allocating costs to Medicaid; and (6) review school-based Medicaid administrative costs claimed after our audit period and refund unallowable amounts. The State agency disagreed with our findings but did not specifically address our recommendations.