Minnesota improperly spent $113 million in federal funds on treatment facilities

Minnesota improperly used Medicaid dollars in the past decade to pay for seven tribal residential substance use disorder treatment programs and must refund the federal government for the $113 million mistake.

The inappropriate use of the funds stemmed from a decade-old coding error in the Department of Human Services' (DHS) billing system, which has been fixed, the agency said this week.

“State general fund dollars, rather than federal Medicaid funds, should have been used to reimburse a small number of residential [substance use disorder] providers over the previous decade,” temporary DHS Commissioner Shireen Gandhi said in a statement.

“Federal dollars were inaccurately drawn down given how they were identified in our billing system and will be repaid.”

The error came to light in Thursday’s state budget forecast, which noted that retroactively paying for the programs is driving up state health and human services spending in the current budget.

DHS had been using federal funds to pay for facilities that are “Institutions for Mental Diseases,” meaning they have more than 16 beds and their primary purpose is to diagnose, treat or care for people with mental illness, including substance use disorder. Such facilities are ineligible for the federal dollars.

Republican lawmakers decried the improper use of the aid. Sen. Jordan Rasmusson, the party’s ranking member on the Human Services Committee, said he will press for hearings with DHS to determine what went wrong and ensure the agency takes steps to prevent future misuse of funds.

He said he expects Minnesota will seek a waiver to allow spending federal funds for the residential treatment services. In the meantime, the state will pay for services at the facilities, which Rasmusson said could add more than $40 million to the $113 million.

“This is really an avoidable waste of taxpayer dollars,” Rasmusson said.

He said that if the state had had the waiver for those facilities and was able to use federal dollars, the savings could have gone to other needs.

Repayment of the federal funds won’t affect the tribal residential treatment programs that received the money and provided services, DHS officials said.

The department paid the correct amounts to the tribal facilities, state officials said, unlike several years ago when there was an issue with Medicaid overpayments to tribes.

“It’s important to note that the amounts paid to the provider were not incorrect; it’s just the split between the state and federal government,” State Budget Director Ahna Minge said during Thursday’s budget forecast.

She said the state must “settle-up with the federal government to apply the right payment source to these costs.”

Gandhi said she was proud of the DHS' Behavioral Health Administration staff for detecting the error “and taking immediate action to diagnose the problem and then fix it.”

“In the process,” she said, “we verified that all claims paid out by DHS were accurate and for legitimately provided treatment services.”

Gandhi said DHS swiftly notified the Office of the Legislative Auditor and Minnesota Management and Budget, and worked to identify the $113 million figure in the budget forecast.