Legislative report conflicts with state audit over Medicaid costs

by Lynn Bonner, News and Observer, November 20, 2013.

Administrative costs in the state Medicaid program are relatively low compared to other states, according to a report by the state legislature’s Fiscal Research Division.

The report contradicts findings from a state audit released earlier this year that found North Carolina was spending a higher percentage of its money on administration that other states.

Gov. Pat McCrory has used the audit to push the narrative that Medicaid is “broken” and needs reform.

Auditor Beth Wood defended her audit at the legislative committee this week where the fiscal research report was discussed. Some of the information used to create the legislative study came from a report that is not audited and has unreliable information, she said.

Administrative costs in Medicaid have been a hot topic since North Carolina Health News unearthed an explanation prepared by the former administration of Gov. Bev Perdue that was deleted by Department of Health and Human Services from the audit response after Gov. Pat McCrory took office.

Legislators asked their fiscal staff for an analysis.

Many states have managed care companies running parts of their Medicaid programs. When managed care companies’ administrative costs are included, states that the auditor reported spending a smaller proportion of their budgets on administration than North Carolina actually spent more, according to the fiscal research analysis.

The information that the state audit used comes from a federal report structured to ensure standardization, “not to provide a basis for an apples to apples comparison for each category,” said Steve Owen of the Fiscal Research Division.

The fiscal research report included information gleaned from interviews with officials from other states’ Medicaid programs and a Milliman consulting firm report, he said.

For example, the audit reported that Tennessee spends 5.19 percent on administration, while the fiscal research report puts it at 11.35 percent. For Arizona, the audit has administrative costs at 1.73 percent, while the fiscal research analysis puts them at 11.24 percent. North Carolina is at 6.3 percent in the audit and at 6.4 percent in the fiscal research report. But the audit has the state paying a higher percentage for administration than any of the eight others listed, while the fiscal research report puts the state near the bottom for administrative costs.

The fiscal research costs are estimates, because only the information the individual states know about the managed care companies is included, not what the companies actually spend.

“All else being equal, it is reasonable to expect Medicaid MCO (managed care organization) administrative costs to be higher than fee for service programs because of profit and the requirement for the MCO to actively manage utilization,” the fiscal research report says.

In defense of her audit, Wood said Milliman notes that managed care companies don’t all define administrative expenses the same way, and the report includes the qualification that the information is not audited.

Democratic legislators homed in on the differences between Wood’s audit and the fiscal research findings.

“It looks as if our costs are among the bottom three states,” said Sen. Floyd McKissick, a Durham Democrat. He asked Wood how much work she did to make “an independent evaluation or assessment” of the information she found.

Wood said managed care wasn’t the focus of the audit.