Highlight on California: The Golden State failed to verify aliens’ Medicaid eligibility

California obtained $9.9 million in improper Medicaid reimbursement over a five-year period by failing to correctly identify all nonreimbursable claims for nonemergency services provided to qualified aliens, the OIG determined as part of an audit. The OIG discovered that the overpayments resulted from errors in the system used by the state to verify alien qualification for Medicaid. The OIG recommended that the state refund the overpayments and take steps to correct the verification system.

Medicaid Restrictions

Federal health care benefits are typically only allowable when they are provided to certain classes of persons: U.S. citizens, U.S. nationals, or qualified aliens. A further limitation exists for qualified aliens. Generally, qualified aliens are not permitted to receive federal benefits until five years after entering the U.S. with qualified alien status. However, before the five-year period runs, qualified aliens may receive services necessary to treat an emergency medical condition and, if a state elects to allow them, services provided to certain lawfully residing children and pregnant women.


States are obligated to maintain systems to determine whether qualified aliens have met the required five-year waiting period. The HHS Office of Inspector General (OIG) conducted a review of California’s verification system, to determine whether the California Department of Health Care Services correctly identified all nonreimbursable claims for nonemergency services provided to qualified aliens.

California System

To meet its federal requirements, California created the quarterly alien claiming adjustment report adjustment report in its Medicaid Management Information System (MMIS). The adjustment report was designed to identify services provided to qualified aliens who had not satisfied the waiting period requirement.


The OIG audit included quarters ending June 2010, September 2010, June 2011, June 2012, June 2013, and June 2014. During that time, the California agency identified $215.9 million as nonemergency services provided to qualified aliens for which the state did not claim Federal Medicaid reimbursement. However, the OIG determined that the state agency did not identify all the necessary claims for its adjustment reports. Specifically, the OIG identified errors when claims were approved for payment in one quarter and paid in a later quarter. As a result of those errors, the state agency claimed $9,872,618 in unallowable federal Medicaid reimbursement.


The OIG recommended that the state agency: (1) refund the $9,872,618 to the federal government; (2) identify and refund any subsequent overpayments; and (3) ensure, in the future, that the MMIS correctly identifies all nonreimbursable claims for nonemergency services provided to qualified aliens. The state agency partially agreed with the first recommendation, noting its belief that the refund amount was overstated. The state agency agreed with the second and third recommendations.

Highlight on Virginia: Medicaid agency fails to collect $2.9M in drug rebates

For a covered outpatient drug to be eligible for federal reimbursement under the Medicaid program’s drug rebate requirements, manufacturers must pay rebates to the states. States bill the manufacturers for the rebates to reduce the cost of the drugs to the program. Previous HHS Office of Inspector General (OIG) reviews found that states did not always bill and collect all rebates due for drugs administered by physicians to enrollees of Medicaid managed-care organizations (MCOs).

An OIG review of Virginia’s Department of Medical Assistance Services, Division of Health Care Services (Virginia), from January through December 2013, found that Virginia did not bill manufacturers for some rebates for physician-administered drugs dispensed to enrollees of Medicaid MCOs. As a result, it failed to collect an estimated $2.9 million (federal share) in rebates.

Virginia uses a contractor to manage its drug rebate program. According to the OIG audit, in calendar year 2013, Virginia paid MCOs $2,411,629,093 ($1,238,462,930 federal share), which included expenditures for physician-administered drugs.

The OIG found that Virginia properly billed manufacturers for rebates for drugs associated with the National Drug Codes (NDCs) in its audit sample. However, Virginia did not have valid NDCs for other drug utilization data submitted by MCOs for physician-administered drugs, and it did not bill manufacturers for rebates for these drugs. Virginia estimated average rebates per claim billed to manufacturers, and the OIG determined these estimates to be reasonable. The OIG applied the estimates and determined that Virginia did not bill rebates of $5,831,528 ($2,915,764 federal share) to manufacturers for physician-administered drug utilization without valid NDCs.

The OIG concluded that Virginia did not bill manufacturers for rebates for these drugs because the MCOs submitted utilization data to Virginia with a blank NDC field or an invalid NDC. Although Virginia required MCOs to submit valid NDCs for all physician-administered drug utilization, Virginia did not implement edits in its Medicaid Management Information System to ensure that MCOs submitted valid NDCs. As a result, Virginia did not obtain rebates for these drugs.

The OIG recommended that Virginia: (1) work with CMS to resolve the drug utilization data without valid NDCs by determining the correct NDCs, billing manufacturers for the estimated $5,831,528 ($2,915,764 federal share) in rebates, and refunding the Federal share of rebates collected; (2) implement Medicaid Management Information System edits to verify that NDCs are present and valid in all drug utilization data; and (3) ensure that MCOs submit drug utilization data containing NDCs for all physician-administered drugs.

Virginia concurred with the OIG’s findings and plans to take corrective actions.


HHS kicks off challenge to design a better medical bill

On May 9, 2016, HHS announced that registration was open for the “A Bill You Can Understand Design and Innovation Challenge,” an effort by the agency to encourage those working in health care or other relevant entities, such as digital information experts, to imagine a new form of the medical bill as well as a new medical billing process. The challenge was announced in the Federal Register.


The challenge involves two objectives. First, HHS is asking participants to redesign the medical bill, “that is, making it more readable and easier for the consumer to understand.” In the second objective, HHS asked for a redesigning of the medical billing process. With respect to this objective HHS explained that “submissions could address any step in the consumer journey from the medical encounter to afterward.” This may include innovation relating to providing information at discharge about the process or developing a consolidation process, HHS noted. Overall, the agency predicted that the challenge would result in “conceptual solutions and frames that will help health systems and payers continue to make improvements in reducing the complexity of medical bills and improving the financial aspect of health from the patient’s perspective.” Specifically, HHS indicated that submissions should include: a design concept, a journey map or wireframe for the new patient process, and a written and video explanation.


Potential challenge contestants may be either: (1) a business or non-profit entity; or (2) an individual or team of “no more than five U.S. citizens or permanent residents of the United States who are 18 years of age or older at the time of entry.” Further, the entrants must meet the following requirements, participants must:

  • Register to participate pursuant to rules issued by CMS and the other requirements set forth in the Federal Register Notice;
  • Be incorporated and maintain a primary place of business in the U.S., if the participant is a private entity;
  • Not be a federal entity of an employee of the federal government who is working within the scope of their employment;
  • Not be employed by CMS or involved in any way of the judging or production of the challenge or an immediate family member of such an individual;
  • Not be a trustee, director, shareholder, employee, client, contractor, agent, representative, or affiliate of any entity involved with the production of the challenge; and
  • Not use certain other federal funding.

Prizes and dates

The agency is offering two prizes for those deemed the winners of the contest, each for $5000. One prize will be given for the most improved medical bill design and another will be awarded for the submission of the best transformational approach to the medical cost estimation and billing process.

Submissions were accepted by HHS starting on May 9, 2016, and will be accepted through August 10, 2016. The judging will occur between August 20, 2016, and September 10, 2016. The agency expects winners to be announced between September 25 and 28, 2016.

HHS describes the challenge, rules, eligibility, prizes, and relevant dates in more depth and provides a portal for enrollment on the challenge website.