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Minnesota made improper payments to up to 100 chemical-dependency providers since 2014 and must return the money to Washington after federal officials issued a formal notice to the state Department of Human Services (DHS) in May.

The Centers for Medicare and Medicaid Services (CMS), which administers the federal-state Medicaid program, said that Minnesota “must immediately cease” the payments, according to a letter obtained by the Star Tribune.

It is unclear how much money the state must return, but sources told the Star Tribune that it could be more than $10 million.

Acting DHS Commissioner Pamela Wheelock said Wednesday that the agency is “working with CMS to determine the scope and remedy for this issue,” but added: “We are committed to ensuring access to quality care for people who need substance-use disorder treatment. This issue will not impact our efforts.”

The payback amount would be in addition to the $25 million in overpayments that came to light recently to two Indian bands for outpatient substance-abuse treatment. DHS has asked the bands to return the money, even though both tribal governments contend they were following DHS guidance that resulted in the overpayments.

The back-to-back errors caused renewed criticism from state legislators who have been critical of the state agency’s performance.

“It seems that DHS has a cavalier attitude towards operational standards and a batten-down-the-hatches approach to transparency,” said Sen. Jim Abeler, R-Anoka, chairman of a key Senate health committee. He added that DHS has not informed him of the federal request for repayments. “DHS has adopted a go-it-alone mentality with regard to at least the Senate and probably the Legislature in general,” he said.

Generally, federal Medicaid money cannot be used to pay for treatment in “institutions for mental disease,” which include facilities that have more than 16 beds. Medicaid is funded with both state and federal dollars.

Notified in March

DHS notified the federal government in March that it had been making Medicaid payments to facilities that should not have received payment. Of the 100 facilities it has identified since 2014, not all were active during the entire span of time, DHS said in a statement issued Wednesday.

Unlike overpayment made to the Indian bands, DHS said that it would not ask the facilities to pay back the money since “the error was how DHS billed CMS for federal matching funds.”

Federal officials have been communicating with DHS about the chemical-dependency treatment facilities since at least 2018, according to the May letter, which was sent to the state by Ruth Hughes, a deputy director at the CMS regional office in Chicago.

Hughes noted that DHS “is responsible for returning federal funds” that were used to pay for treatment at institutions for mental disease for people ages 21 through 64.

The state was instructed to account for the illegal payments in its next quarterly expense report to the federal agency.

The Medicaid billing problems originated in the agency’s behavioral-health division, the same branch that worked with the Indian bands on opioid-addiction treatment programs and also certifies which residential treatment facilities are eligible for Medicaid payments.

One behavioral health employee said she suffered retaliation after raising compliance issues about contracts the division was making with public and private agencies to help fight the opioid epidemic.

Turmoil at the top

The $18.5 billion state agency has been rocked by turmoil this summer and will have its third commissioner in seven weeks when Lutheran Social Service CEO Jodi Harpstead takes over the top job after Labor Day. Wheelock, a veteran executive with public- and private-sector experience, has been acting commissioner since the mid-July resignation of Tony Lourey, who left after his two top deputies announced their intentions to quit. They have since rescinded their resignations and remain at the agency.

In addition to the 1.1 million people on Medicaid, known as Medical Assistance in Minnesota, the agency also administers food supports to 400,000 residents, provides child care assistance to 15,000 families and funds mental health services for more than 100,000 children and adults.

Nearly half of the agency’s budget is paid for with federal funds, and DHS must comply with the restrictions and conditions imposed by Washington for several programs.

This is not the first time that Minnesota has been told by federal Medicaid officials to stop paying for care at institutions for mental disease. It 2014, they challenged Medicaid payments to children’s residential treatment facilities, partly because of a federal rule change.

DHS eventually determined that about a dozen facilities were no longer eligible for federal funds, and in 2017 the Legislature authorized $2.5 million annually to make up for the lost federal funds.

In June, DHS received permission from federal officials to use Medicaid funds to pay for some substance-abuse treatment in facilities with more than 16 beds under certain circumstances. It is part of a nationwide effort to increase access to treatment in light of the opioid epidemic.

But the new state authority is not retroactive, leaving Minnesota on the hook for improper payments made in the past.