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Oversight Committee Prompts $1.2 Billion in Medicaid Savings

Press Release

Location: Washington, DC

In response to pressure from the House Oversight and Government Reform Committee, the Department of Health and Human Services has sharply reduced some Medicaid overpayments to the State of New York, saving taxpayers an estimated $1.2 billion over the next 18 months.

"The new payment rate confirms that HHS has been overpaying the State of New York billions of dollars over the past two decades for this Medicaid funded service, in violation of federal law," said Committee Chairman Darrell Issa, R-Calif. "While the new rate may bring the New York developmental center payment rate in compliance with the law, the Department needs to aggressively pursue recovery of the decades of overpayments and guarantee an immediate end to all similar overpayments."

According to HHS, the new rates are aligned with their estimate of costs actually incurred by state providers of Intermediate Care Facilities, which include the controversial residential centers known as "developmental centers." These centers are run by the State of New York, creating a perverse incentive to drive up costs in order to receive larger federal reimbursements and fill in budget gaps elsewhere.

Issa continued: "Fraudulent and wasteful spending remain a serious problem throughout New York's bloated Medicaid system, and throughout the country. At my request, the Government Accountability Office is conducting a thorough review of state-run Medicaid financed institutions nationwide to determine how many additional billions of federal tax dollars are at risk because of creative state payment schemes."

Although the massive overpayments to these centers were acknowledged by New York and HHS, prior to the Committee's involvement starting in July 2012, the State and the federal government were planning to gradually phase out the overpayments over five years instead of ending them immediately.

A September 2012 staff report estimated that over the past two decades the federal government had made roughly $15 billion in overpayments to the State of New York since 1990 for the developmental centers alone. By 2011, Medicaid's daily reimbursement rate exceeded $5,100 for each patient residing in a developmental center. The new rate, which takes effect, today, will be approximately $1,200.


*In July 2012, the Committee sent a letter to CMS demanding an immediate end to the historical overpayments of state developmental centers. CMS became aware of the gross overpayments, which exceed $1 billion per year, in 2007, but did not make any inquiries about the overpayments until July 2010 when a series of articles from The Poughkeepsie Journal exposed the overpayments. For more than a two-year period after July 2010, however, CMS failed to take meaningful steps to remedy the overpayments.
*In September 2012, the Committee released a staff report and held a hearing on the Administration's failure to prevent an end Medicaid overpayments. At the hearing, CMS officials reversed course and promised immediate action to end federal overpayments.
*In March 2013, the Committee released a bipartisan committee report on New York State's Medicaid misspending. In 2010, New York spent $1,500 more per capita on Medicaid than the average in the rest of the country. The Committee report contained six recommendations, including the recovery of an appropriate amount of past overpayments, for both the federal government and New York in order to minimize misspending in the State's program going forward and remedy past abuses.

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