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State Medicaid Agency Hid Deficit, Report Says

The S.C. Department of Human and Health Services engaged in unauthorized accounting procedures to mask a more than $220 million deficit in the 2011 fiscal year, according to a Legislative Audit Council report.

Health and Human Services (HHS) also is susceptible to a revolving door of agency officials leaving and immediately going to work for private companies that do business with the department, the Audit Council found.

Such potential for conflicts of interest exists throughout much of state government, according to the report.

The review was prompted by three written requests for the Legislative Audit Council (LAC) to investigate why the Health and Human Services agency ran up $222.5 million in red ink in fiscal 2011.

The LAC acts as the General Assembly’s inspector general.

HHS primarily operates the Medicaid program in South Carolina. Medicaid provides health care to the poor and disabled.

One of the three requests for a review of HHS came from 24 legislators.

Then-Senate President Pro Tem Glenn McConnell, R-Charleston and now the lieutenant governor, and the department’s director, Tony Keck, submitted the other two requests.

Keck had been on the job for just a few weeks when he asked the LAC to investigate the deficit.

The Audit Council’s report on Health and Human Services shows that some of the problems it uncovered stemmed from unauthorized accounting procedures, while other issues might necessitate legislative action.

The origin of the department’s deficit traces to the 2009-10 fiscal year.

“To avoid a deficit in FY 09-10, the department made timing adjustments in the payment and receipt of $46.4 million in non-federal funds and $67.8 million in federal funds,” the report says.

Those adjustments were not authorized in the state budget for that year, according to the report. “In addition,” the review says, “the department made questionable use of $5.5 million in non-federal funds from a restricted account.”

Then, during the legislative budget-writing process for fiscal 2011, HHS “did not inform the General Assembly of a projected deficit, the foundation of which was the deficit averted” the previous year.

Continuing, the report says, “If the department had not received a $222.5 million funding supplement from the Budget and Control Board to offset the FY 10-11 deficit, the state could have lost an additional $700 million in federal matching funds.”

According to the report, the average number of Medicaid enrollees increased 18 percent – from about 718,000 to 850,000 – from fiscal 2008 to fiscal 2011.

That far exceeded HHS projections.

But the department did a poor job of communicating the impending deficit to the Budget and Control Board, the report says.

As a result of that finding, the Audit Council recommended a change in state law so that a quarterly report on expenditures and receipts is required by all agencies that receive state funding.

In his audit request letter, McConnell said he had been looking into the HHS deficit for several months. “This is overspending in its purest form and makes a mockery out of the budget process,” he wrote to the LAC.

Further, the audit found that state employees can take a position with a private company that they dealt with directly in their work for the state, creating a conflict of interest.

Two high-ranking HHS officials did just that last year, according to the LAC report.

In January 2011, the department’s bureau chief in care management and medical support services, along with a deputy director of medical services, “resigned and accepted employment with a company that administered a private medical home network,” the report says.

“Each of these employees had authority to approve payments to this company and other contractors.”

State law does not consistently address such potential conflicts of interest, the LAC found, recommending that the Legislature change the law so that it does.

The Audit Council recommended a one-year ban on former state employees being paid to influence action by their former employers in general, and a lifetime ban when it comes to matters in which the workers were directly involved.

The Audit Council previously reported on this problem in a 2007 investigation of the S.C. Department of Health and Environmental Control, but no legislation has been presented in the House or Senate to fix this problem.

Keck acknowledged the LAC findings in a written response and claimed significant changes had begun taking place.

“The agency has implemented a formal executive-level quarterly management review of the entire budget, including the use of expenditure, revenue and cash flow variance reports,” Keck said in response to the Audit Council’s recommendations to prevent future budget deficits.

“The quarterly analysis includes comparisons of monthly budget projections to actual spending as well as comparisons of current and prior year actual spending,” he continued.

Keck’s response did not mention the revolving door employment issue.

LAC director Perry Simpson told The Nerve in an email that the Audit Council plans to release additional findings from its HHS review later this month.

Simpson said this second report will be “a limited review of Medicaid managed care rates and expenditures and other administrative issues … because of the number of questions (31 total) in Sen. McConnell’s letter.”

Reach Welch at (803) 254-4411 or blake@thenerve.org.

Accountability Budget Budget and Control Board General Assembly Legislation State Agencies

S.C. Legislative Audit Council S.C. Department of Health and Human Services S.C. Senate President Pro Tempore Glenn McConnell Tony Keck