Audit shows DHHS financial picture improving

| April 14, 2015

imagesby Richard Craver, Winston-Salem Journal, April 13, 2015.

The N.C. Department of Health and Human Services received a mixed checkup from the State Auditor’s Office on Monday in the first detailed financial audit of the department in nearly 20 years.

It came at the request of legislators from both parties who have questioned fiscal 2013-14 financial statements and 2014-15 budget forecasts made by state health Secretary Dr. Aldona Wos and other DHHS officials. The audit cost was $1.4 million.

The audit broke DHHS’ financials into 10 divisions and reported extensively at those levels.

DHHS reduced the deficit in its general fund balance during fiscal 2013-14 by $61.1 million to $288.9 million. For the Medicaid program, the fund balance deficit decreased from $408.6 million to $350 million.

The report stated that the total estimated state Medicaid program budget shortfall was $81.7 million – down substantially from $496 million in fiscal 2012-13.

Medicaid has had nearly a $2 billion financing gap since the start of the 2009-10 fiscal year.

“One of the major goals of the biennial budget … was to avoid future Medicaid shortfalls by providing an appropriate factor for growth,” according to the audit. “However, despite efforts to avoid a budget shortfall, the General Assembly was again required to identify savings to provide additional funds for the Medicaid program.

The 2014-15 state budget contains $136 million to cover existing Medicaid liabilities.

DHHS said in a statement the audit determined “no deficiencies of a material weakness in the department’s internal control over financial reporting.”

“We are currently on budget again this year,” said Rod Davis, DHHS’ chief financial officer.

“Sound, accurate and transparent management of the taxpayer’s money is a top priority of this department, and the results of these audits demonstrate the careful oversight and attention given to the financial management of this department.”

Questions about surplus

State Auditor Beth Wood told legislators Monday at a joint program evaluation oversight committee that the financial data “was fairly stated and materially correct.” She said other state departments will receive similar more extensive financial audits.

“I would hope the committee can get comfortable at looking at these numbers division by division,” Wood said.

The foremost reason cited by legislators for the audit request was Wos’ proclamation in September that DHHS had a $63.6 million surplus for the Medicaid program in fiscal 2013-14. That money was reverted to the General Fund.

When asked about the Medicaid budget discrepancy, DHHS spokeswoman Alexandra Lefebvre referred to the September report from the Office of State Budget and Management that listed the $63.6 million surplus.

“The $81 million you are referring to in the report was a 2014 projection only that tried to anticipate things that could potentially have a negative impact on the budget during 2014,” Lefebvre said. “Some considerations were the as-yet unknown impact of the Affordable Care Act, as well as the severity of that year’s flu season.”

State Auditor’s Office spokesman Bill Holmes referred to DHHS for comment on the discrepancy.

Rep. Donny Lambeth, R-Forsyth, said the shortfall “was the subject of a long debate last summer and little confidence expressed by legislators at year end.”

“That is the primary reason for setting aside a reserve fund.”

Wos also said in September that DHHS was “in the best shape over the last five years due to better budgeting, collaboration and paying attention.” Davis repeated Wos’ declaration in his statement.

The audit determined Medicaid enrollment rose 8.5 percent during fiscal 2013-14 to 1.73 million North Carolinians. That number is projected to rise to 1.9 million by the end of fiscal 2014-15. Some enrollment growth came from children transferred from the Health Insurance program for children to Medicaid.

Auditors said DHHS has taken steps to compensate for increased enrollment and expenditures that include: prior authorization for drugs for mental health patients, other pharmacy improvements; rate reductions; modifications to hospital reimbursement; and increased retention of revenues generated by hospital assessments.

As legislators passed changes to the 2013-14 state budget, an additional $45 million in reduced hospital reimbursements were made. That brought the two-year total to $209 million, according to the N.C. Hospital Association.

The department had $13.54 billion in total revenues, down 4.2 percent. Expenditures were down 3.9 percent to $18.38 billion, which primarily reflected a $722.8 million reduction in grants, state aid and subsidies.

There also was a $112.1 million reduction in state appropriations to $4.89 billion.

Outsourcing work

A bipartisan criticism of DHHS’ handling of the state $14 billion Medicaid program the past two years has been the lack of dependable data and forecasting.

Much of its work has been outsourced to Alvarez & Marsal, an out-of-state vendor operating with a controversial no-bid contract that recently doubled to $6.8 million. DHHS spent $118 million on contracted personal services in fiscal 2013-14, compared with $160.9 million in fiscal 2012-13.

Several Senate Republican leaders support legislation that would privatize much of the Medicaid program, some through out-of-state providers, and create a new oversight group nominally within DHHS.

Meanwhile, House leaders, Gov. Pat McCrory and Wos prefer having North Carolina-based providers and health care systems involved in accountable care organizations that carry a larger risk-reward expenditure role.

Legislators say that a poor DHHS financial audit could be enough to force legislators toward a compromise on a potential hybrid public-private Medicaid reform plan.

“This is exactly why we need Medicaid reform,” Lambeth said. “Reform will be transformational and will redefine sick care to health care, where we focus on well care and prevention, and where quality care and access is the highest priority and care providers are rewarded for managing within a capitated fixed budget.

“These end-of-year surprises will continue under the current volume fee-for-service system. Patients expect more, providers expect more and our tax burden on our citizens can be controlled and reduced.”

Wos’ surplus proclamation was pivotal also in that it could have put more pressure on McCrory and state Republican legislative leaders to revisit their stances on not expanding Medicaid to an additional 500,000 low-income North Carolinians.

McCrory has cited as his main opposition his opinion that the state Medicaid program “is broken” and must be fixed before he can consider expansion.

Wos has said since September that she could recommend soon to McCrory whether to expand the program.

Category: Healthcare, SPIN Blog

Comments (1)

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  1. Frank Burns says:

    This will be bad news for the myriad of liberal advocacy groups. They were hoping for bad news with regard to Medicaid reform.