Understanding overpayments: The latest Minnesota Department of Human Services scandal, explained

It is only the latest scandal at the Minnesota Department of Human Services: the improper billing and excess payments sent to two tribal nations for opioid addiction treatments.

At last count, $29 million in excess payments was sent by state to the White Earth Nation and Leech Lake Band of Ojibwe tribes.

The money, paid out of federal Medicaid funds, went to pay for dosages of the drug Suboxone, which addicted patients took at home rather than in a clinic setting. The overpayments resulted from the state’s decision to pay the tribes what’s called the “encounter rate” — $455 per day — as if there was an actual face-to-face encounter between a patient and staff at a clinic. There wasn’t.

Nevertheless, the state agents that oversee the program for DHS repeatedly told the tribes that it was an allowed reimbursement. And now someone — either the state of Minnesota or the tribes — is on the hook for the money.

Here, answers to questions coming out of two meetings last week about the issue — one of the Legislative Audit Commission and another of state Senate committees that oversee the Department of Human Services. Both gatherings were triggered by the release of a special audit conducted by the Office of the Legislative Auditor, which — among other things — found what it termed “troubling dysfunction” at the agency.

What, exactly, was the problem?

The report released by the legislative auditor last week said its primary objective “was to determine what factors contributed to DHS making the overpayments and why the department did not disclose and stop them sooner.”

According to Legislative Auditor Jim Nobles, the problem began more than a decade ago, when DHS decided to reimburse the tribes at the federal Indian Health Services’ “encounter rate” of $455 per day for Suboxone as part of a Medication-Assisted Treatment (MAT) protocol, which involves using drugs to wean addicts off of opioids.

Similar in concept to methadone, Suboxone was once administered as part of MAT programs only in clinics in an effort to assure that it was taken properly and not sold or abused. That system has evolved in recent years to allow doctors to provide take-at-home dosages.

At his appearance before the audit commission last week, Nobles held up his own prescription bottle as a way to explain that his insurance carrier paid for the doctor’s appointment where his medication was prescribed. It does not, however, make a payment for each time he pops a pill at home, he said. And despite the state’s decision, Nobles also said federal rules on the encounter rate are very clear: “No encounter, no encounter-rate,” he said.

While $455 per day may seem like a large payment for a doctor to administer a drug, the rate is often used in other contexts to cover a range of services a patient might receive during a medical visit, including a counseling session with a therapist or a teeth cleaning by a dental hygienist.

Nobles and his staff of auditors reported that they were unable to find state workers, or any paper trail, to establish who made the decision to pay the $455 per day encounter rate — or why. By the time the agency discovered the problem, the overpayments equaled $25 million. They eventually reached $29 million because they continued for several months even after the error was discovered.

How were the overpayments discovered?

The OLA audit says that in February, a third tribe — the Red Lake Nation — asked DHS staff if it too could received the “encounter rate” for Suboxone even when it was taken by patients for opioid addiction treatment in non-clinical settings. The tribe was told that it could, but another staffer included on the email said they weren’t sure and that Red Lake should wait for a more complete answer.

“The department did not, however, issue an official response to Red Lake until May 1, 2019,” the OLA report notes. “Also on May 1, 2019, the department finally implemented a policy and a payment control that stopped the department from making payments to tribes when clients take medication at home. The department took another three months to inform the White Earth and Leech Lake tribes that they must return all of the payments their tribes received from DHS for clients self-administering medications at home.”

The OLA also found that the system had been used for years to reimburse non-tribal opioid treatment programs, and that there was a desire to treat the tribes equally with non-tribes. The rate for non-tribal recipients, however, was just $23 per day.

What did it mean when the Legislative Auditor said there was “troubling dysfunction” at DHS?

The OLA audit used the term several times to describe what Nobles views as an agency that lacks basic controls and systems to prevent, or at least track, problems such as this one. He reported that agency units were siloed, with personnel who wouldn’t or couldn’t comment on the mistakes of other units. That his investigation put state employees under oath underscored the seriousness of the problem.

There was also the fact that nobody at DHS documented the decision allowing the tribes to be reimbursed at the $455 encounter rate — or formulated a written policy to implement the decision.

“In addition to being a poor management practice, the department’s failure to document its decision violated the Minnesota Official Records Act, which says that agencies ‘shall make and preserve all records necessary to a full and accurate knowledge of their official activities,’” the audit reports.

Finally, there was the audit’s conclusion: “As the discussion in the findings above clearly show, the financial and legal problems created by the DHS overpayments to White Earth and Leech Lake are going to be difficult to resolve. This is particularly troubling since DHS could have avoided the problems with simple, good management. The fact that so many DHS management officials allowed the department to make millions of dollars in unauthorized payments over multiple years is inexcusable, as is the department’s failure to document important policy decisions. We think fundamental and deep reforms within DHS are needed.”

During his testimony, Nobles told the commission that, “there are layers and layers of management supervision in the unit that made these payments that failed to raise questions. They simply said, ‘This is what we’ve been doing for a number of years,’ and no one stopped it.”

When he went before the Senate committees, which are used to hearing about problems with the agency, he was even more blunt: “This is a whole other order of mistake.”

Who’s going to end up paying for this?

Because the money came from the Medicaid program, federal law requires states to reimburse the U.S. government for improper payments, while state law requires DHS to recover improperly paid out funds from recipients — in this case the two tribes.

Initially the state informed the two tribes that they would be on the hook for the overpayments. Both, however, have objected, saying they shouldn’t have to clean up a mess created by the state’s own errors, and Gov. Tim Walz and Lt. Gov. Peggy Flanagan have asked the department to work more cooperatively with the tribes.

The state now says it will follow a formal process to ask the feds for a determination and then give the tribes 30 days to respond and appeal if they wish. But Nobles said he expects there will be litigation if the state pursues repayment.

One of his recommendations was that the Legislature reconsider a blanket law that says all overpayments must be recovered from the recipients. “The state law that allows the Department of Human Services to recover all payments it erroneously made to providers allows the department to avoid any accountability for egregious mismanagement,” the audit states. “While the law may be justified in many situations, we think the facts presented in this report should be the basis for a legislative reconsideration.

Specifically, he said, the Legislature may want to consider whether actions by DHS “are so unfounded and erroneous that the pay-back policy should have some exceptions.”

When he went before the commission, Nobles said: “We think the dysfunction of the department has to be taken into consideration.”

If the state has to repay the money, it could do so with a new appropriation from the Legislature. But that’s unlikely to happen given the opposition to such a move within the Republican-controlled state Senate.

During meetings last week, Health and Human Services Committee Chair Sen. Michelle Benson told new DHS Commissioner Jodi Harpstead: “Do you realize how hard we work to find $29 million for anything?”

The agency’s biennial budget is more than $18 billion, and while it could try to find money within other programs, some lawmakers insist that such movement of funds requires legislative approval.

The agency could just reduce the amount of expected federal funds accounted for in the budget forecast by that amount, though that would result is less money in the state’s ending fund balance.

What is DHS’ response?

Harpstead has been on the job as commissioner for less than two months, having recently replaced interim commissioner Pam Wheelock, who herself replaced Commissioner Tony Lourey after he resigned in July.

At her appearances before the commission and the committee this week, Harpstead didn’t dispute most of what Nobles reported and said she has been working on restoring “trustworthiness” in the agency.

“We have been setting to work to correct the problems in the department’s systems and processes that allowed such a costly error to take place and to ensure there are protections in place for our partners in serving Minnesotans,” she said. “I am as tired as all of you about reading of problems in the Department of Human Services.”

In response to the OLA recommendation that the agency improve internal controls, she said, “Amen,” and described her effort to improve efficiency and management in the massive agency as “Operation Swiss Watch,” in that it reflects her desire to have it running as smoothly as possible.

What do the tribes say?

LeRoy Staples Fairbanks, the District III representative for the Leech Lake Band of Ojibwe, told the audit commissioner that he looks forward to working with the agency and Legislature, but said that work must be done in a way “that respects the sovereignty of our tribal governments and helps to continue to address the ongoing opioid epidemic in our communities.”

He also said the band’s position is that it will not repay the overpayments “because we are not at fault.” Repayment, he said, “will result in catastrophic cuts to important services and programs needed by the most vulnerable members of our community.”

Nobles noted that neither tribe cooperated with his audit. “We asked to meet with them and other tribal officials. We also asked them to provide us with documents that would help OLA understand the overpayment issue from the tribes’ perspectives. They did not respond to our request, and given the fact that American Indian tribes are sovereign nations, OLA’s authority to compel their participation in an OLA review was uncertain.”

Several senators took issue with Nobles statements that he was not able to resolve whether there was fraud at the tribal level because of his lack of jurisdiction.

White Earth Band Assistant Director for Behavioral Health Danielle Stevens, however, told the Senate committees that the tribe did cooperate with DHS, providing records and data to sort through the billings.

What are the political implications?

Republicans in the Legislature have long made an issue of dysfunction in state agencies, especially DHS, often under the umbrella of “waste, fraud and abuse.” The charges have also have also been used to attack former Gov. Mark Dayton and current Gov. Tim Walz, both DFLers.

Many DFLers, in turn, have felt the need to defend DHS, both because their party has controlled the governor’s office since 2011 and because they fear the repeated crises will reduce public support for an agency that provides essential safety net services for Minnesotans.

They have at times, however, joined in criticism of the department, and have been mostly supportive of the tribes’ complaints about how DHS interacted with them and how repayment of these payments would do serious damage to tribal programs.

“We’re all bewildered why anyone would receive an encounter rate for a home-administered medication,” said Sen. Matt Klein, a DFLer from Mendota who’s also a medical doctor.

He said while Suboxone is appropriate for some addiction patients, it is not best for all. Yet the way the state pays for services it could “incentivize” that method even when it is not appropriate, he said.

Wait, who said anything about fraud?

Fraud is not addressed in the OLA report, though Nobles said auditors were required to ask questions about it. Because the tribes chose not to cooperate — and because he has no power to compel them to — federal agencies would have to get involved to get those answers, he said.

Nobles said he spoke to the U.S. Attorney, the U.S. Department of Health and Human Services’ office of inspector general and the FBI to share what he knows and where his investigation trail ended. “It is in their hands,” he said. “It is my understanding that the tribes will face some questions about how the money was actually used. It’s a lot of money.”

When pressed by Sen. Chris Eaton, DFL-Brooklyn Center, about his statement, Nobles said: “I do not know and I am not saying that there is a federal fraud investigation relative to the tribes. All I’m saying is we don’t have that jurisdiction. Federal authorities would.”