Auditing the Auditors: OSC Audits the OMIG and Questions the Accuracy of OMIG’s Cost Saving Figures

The New York State Office of the State Controller (“OSC) has released its audit of the New York State Office of the Medicaid Inspector General (“OMIG) entitled “Accuracy of Reported Cost Savings. The final report, issued July 11^th, presented OSC’s findings regarding the accuracy of the OMIG’s reported cost savings for calendar years 2008 through 2012.

As determined by the Public Health Law, the OMIG’s mission is to prevent and detect fraudulent, abusive and wasteful practices in the Medicaid program and to recover improperly expended Medicaid funds. In furtherance of this legislative mandate, the OMIG conducts and supervises prevention, detection, audit and investigation efforts, and coordinates such activities with various State agencies as well as federal and local law enforcement agencies. These activities result in reported cost savings to the Medicaid program. While there are no industry standards, guidelines or metrics for calculating cost savings dollars, OMIG has calculated cost savings as estimates based on historical and current Medicaid claims data. For calendar years 2008 through 2012, OMIG reported cost savings activities totaling $10.1 billion for 35 separate initiatives.

The OSC audit found that the majority of the reported cost savings examined were reasonable and adequately supported. However, OSC also found that “the OMIG overstated savings from 27 of 35 activities that were examined by at least $1.2 billion as a result of flaws and/or inconsistencies in the methodologies used to estimate savings. OMIG officials indicate they have taken corrective action on the methodologies for many of these 27 activities. Additionally, the OSC report stated that a lack of communication among the managers responsible for the various activities contributed to these problems.

OSC recommended that the OMIG: (1) perform a full review of cost savings activities to identify and correct inconsistencies and inaccuracies in methodologies; (2) routinely take steps to identify changes in the Medicaid program that impact cost savings activities and update cost savings methodologies when needed to ensure consistency among all cost savings methodologies; and (3) improve communication among managers responsible for cost savings calculations and use their collective input to help routinely identify inconsistencies and refine methodologies.

A portion of the OMIG’s official response to the OSC audit has been excerpted below.

OMIG believes it is vital for readers to have a clear understanding of this audit.  While we are pleased that OCS’s draft audit report recognized that OMIG saved tax payers billions of dollars, we disagree with many of the findings in this report.  Accordingly, OMIG has identified areas for which further explanation is warranted, and if necessary, a request that OSC amend its findings.  Those main areas are summarized as follows:

First, it is important to note OMIG properly utilized established agency policies and procedures for its cost savings initiatives.  It is well-established that there are no laws, regulations, technically developed standards or norms, or defined business practices regulating cost savings methodologies.  In such cases, Government Auditing Standards explicitly allow the use of policies and procedures established by the audited entity (OMIG).

 Second, OMIG asserts that although it was unnecessary for OSC to retroactively adjust cost savings estimates, OMIG has since tabulated revised estimates based on OSC’s recommendations and the additional adjustments that OMIG feels should be noted in the Final Report.  These calculations resulted in the identification of a $794 million understatement of reported cost savings, making the total cost savings to the New York State Medicaid program $10.9 billion rather than the $10.1 billion originally reported by OMIG for the entire audit period.

Third, although OSC reviewed a modification to OMIG’s Pre-Payment Insurance Verification — Commercial and Medicare (PPIV) methodology, it did not account for or report the resulting $1.5 billion under-reported cost savings.  OMIG requests that the Final Report be amended to include this information.

Finally, OMIG respectfully notes that the majority of OSC’s findings were actually adjustments that OMIG had identified through internal reviews prior to OSC’s audit, and that OMIG has already implemented those findings prospectively.

With OMIG’s comments properly considered, we believe that OSC’s expansive review affirms the accuracy of OMIG’s performance metrics and reinforces OMIG’s position as the most effective State Medicaid Program Integrity Agency in the nation.

For more information, please contact the author, David R. Ross, who served as Acting New York State Medicaid Inspector General under governors Pataki and Spitzer, as well as General Counsel, Deputy Medicaid Inspector General, and Director of Audits and Investigations for the Office of the Medicaid Inspector General (OMIG). He can be reached at (518) 462-5601 or via e-mail at dross@oalaw.com.