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The state’s top government watchdog has opened an investigation into a report that the Minnesota Department of Human Services (DHS) overpaid two Indian bands approximately $25 million for substance-abuse treatment.

Legislative Auditor James Nobles said Thursday that his office — an independent, nonpartisan arm of the Legislature — is exploring the cause of the overpayments, when they began, why they were not discovered earlier and who was responsible. He said DHS notified his office of the overpayments about 10 days ago.

The alleged overpayments were made to the Leech Lake Band of Ojibwe and the White Earth Nation to provide Suboxone, a medication used to treat opioid dependency, he said.

“This is serious,” Nobles said. “It’s not only a lot of money, but it’s a lot of money for a specific service to a specific and a very small set of vendors.”

In a written statement, Gov. Tim Walz said the problem was corrected in May and that the overpayments have stopped. “We are now taking a deeper dive to figure out the root of this issue and help ensure nothing like it happens again,” Walz said. “In order to do this, we brought the issue to the Office of the Legislative Auditor.”

Both bands said there has been a rush to judgment by state officials and that they were not fully consulted. Leech Lake officials directly denied that the band had been overpaid.

In an interview Thursday, Acting Human Services Commissioner Pam Wheelock said the agency first learned of the issue this year, when an employee from another band asked the agency about billing procedures for addiction treatment medications.

A subsequent audit determined that the two bands were billing the state’s Medicaid insurance program at the higher rate for in-clinic treatment, when in fact the patients were taking the medications at home.

“Reimbursement for self-administered medication does not meet the criteria of a face-to-face visit” and does not qualify for a higher Medicaid payment, then-Commissioner Tony Lourey told White Earth in a May 1 letter.

“This was acted on immediately ... and it has moved forward in an expedited fashion,” Wheelock said.

In letters sent late Thursday, DHS told Leech Lake that it owed $13.3 million and that White Earth owed $12 million.

DHS has notified federal health care officials about the potential overpayments and by law must reimburse the federal government. In turn, the state will seek repayment from the tribes once its investigation is completed. The money for the program comes solely from federal funds.

The alleged overpayments stretch back to 2014 for the Leech Lake Band and started in 2017 at White Earth.

In a statement late Thursday, the Leech Lake Band said it had followed billing procedures under agreements and guidance from DHS officials. The band “steadfastly refutes ... allegations” that it was overpaid, officials said in a statement, adding that it would “vigorously appeal any determination that it was improperly overpaid.”

“We know this discussion is ongoing,” said Leech Lake Chairman Faron Jackson, “but so far we do not feel DHS has meaningfully consulted with us on this issue.”

The White Earth Nation said it would work with DHS but added that it was “deeply troubled by the lack of meaningful consultation on this issue.”

In a written statement, the band said it had initiated an audit of its substance-abuse treatment program in 2018, and that some employees responsible for billing the Medicaid program had resigned “amid the audits.” It also said the band’s behavioral health director has been placed on investigative suspension.

But it added that DHS and other state officials were involved in designing the billing arrangements that resulted in overpayments. “The situation calls for shared responsibility,” said White Earth Vice Chairman Eugene Tibbetts.

Wheelock said it’s unclear whether DHS employees played a role in the overpayments, an issue that the Legislative Auditor would address.

At the agency’s request, the band has stopped billing Medicaid for the specific treatment program in question. Tribal officials expect to see a significant drop in revenue for addiction treatment as well as the possibility of paying back $11 million that DHS claims was overpaid.

In the meantime, the band said it is taking steps to keep its addiction programs operating.

Turmoil at DHS

The embarrassing revelation comes amid head-spinning turmoil within the leadership ranks of the mammoth social service agency and other reports of financial mismanagement. Lourey and his chief of staff resigned abruptly last month, following the resignations of his top two deputies, who have since rescinded their resignations. Walz has appointed Wheelock — who has an extensive résumé in the private, nonprofit and government sectors — to serve as acting commissioner. No definitive reasons have been given for the spate of resignations.

Minnesota Republicans immediately condemned the overpayments, and renewed their calls for legislative hearings into problems at DHS and for restructuring the sprawling social services agency, which has a $17.5 billion budget and serves 1.2 million people.

Sen. Michelle Benson, a Republican from Ham Lake and chairwoman of the committee that oversees DHS spending, said the years of overpayments point to “deeper, cultural problems and dysfunction” at the state agency. Like a number of other prominent lawmakers, Benson believes the agency has become too large to manage and needs to be broken up into smaller units.

At the same time, Benson cautioned against a rush to fault the two tribes for collecting Medicaid payments that appear to have been authorized by DHS. She plans to call legislative hearings on the overpayments later this summer. “At this point, we don’t have a reason to blame the tribes,” she said. “This falls squarely on the folks at DHS who determine payments.”

Chris Serres • 612-673-4308 Twitter: @chrisserres