U.S. audit: Indiana should refund $5.8M to Medicaid

A federal audit released Friday recommends Indiana's human services agency refund more than $5.8 million in Medicaid funds because Logansport State Hospital did not show it had complied with special conditions for psychiatric hospitals.

The audit released by the Office of Inspector General of the Department of Health and Human Services says the hospital failed to demonstrate it met staffing and medical record requirements from the start of 2008 through the end of 2010 and recommends the Family and Social Services administration refund $5.84 million for the federal share of Medicaid payments.

It also recommended the FSSA return the federal share of Medicaid payments for any time after the audit period that the hospital, about 70 miles north of Indianapolis, might have remained out of compliance.

It's unclear whether Indiana will need to refund all of the recommended amounts or when that would happen. Audits usually begin a period of negotiations between the two sides. A 2008 audit of Logansport and two other state hospitals is still unresolved.

The audit did not say whether the hospital actually complied with the special conditions — only that it had failed to demonstrate that it had complied.

"The state agency made these improper claims because it believed that Logansport had met all requirements to be eligible for Medicaid inpatient psychiatric service payments," the report said.

The FSSA issued a brief statement Friday through spokeswoman Marni Lemons saying the agency disagrees with the audit findings and plans to work with the Centers for Medicare and Medicaid Services to reach "a reasonable resolution."

Logansport State Hospital has 170 beds in two units that treat mentally ill criminals and other individuals. From July through December, its average daily population of 145 was treated by a staff of 460 people — 31 positions short of full staffing.

In a Nov. 2 response to an audit report draft, Indiana Medicaid Director Pat Casanova argued Logansport was fully accredited by an organization authorized by the Centers of Medicaid and Medicare Services. She agreed Indiana should refund Medicaid funds for patients age 65 and older because Logansport stopped billing Medicaid for those patients in 2009.

However, Casanova argued Indiana should still receive Medicaid funds for patients who were under 21 during the audit period because the state believes facilities that provided such services did not have to meet the Medicare requirements. The report did not contain a breakdown of the funds by age group.

Auditors rejected Casanova's argument because Logansport did not demonstrate it complied with the special psychiatric conditions, which require review by qualified health care professionals.

The 2008 audit found FSSA should refund $88 million in improper payments for patients at Logansport and two Evansville hospitals from 2000 to 2003. A 2010 audit recommended Indiana refund $39 million in Medicaid overpayments from 2000 through 2008. The status of that audit's resolution wasn't clear Friday.