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Audit: ‘Troubling dysfunction’ at DHS led to overpayments to tribes

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Legislative Auditor James Nobles and Legal Counsel Elizabeth Stawicki
Minnesota Legislative Auditor James Nobles and Legal Counsel Elizabeth Stawicki testify before a Minnesota Senate committee in St. Paul on March 13. A report from the Legislative Auditor's office released Tuesday morning highlights “troubling dysfunction” at the Minnesota Department of Human Services led to $29 million in overpayments of federal funds to two tribes over the last decade.
Matt Sepic | MPR News

Updated: 4:09 p.m.

“Troubling dysfunction” at the Minnesota Department of Human Services led to $29 million in overpayments of federal funds to two tribes over the last decade for opioid abuse treatments covered by Medicaid, a new audit shows.

The report from the Office of the Legislative Auditor, released Tuesday morning, traces the issue back a decade, when DHS officials first decided to reimburse opioid treatment providers the same price for medications taken at home as they did for treatments provided in a clinic. 

Over the years, those decisions were repeatedly reinforced by other officials in the department, although those decisions were poorly documented, the report said.

“Even during the interviews we conducted, DHS officials could not recall who was responsible. In addition, none of the DHS officials we interviewed could offer a credible rationale for paying health care providers for their clients taking medications at home,” according to the report. “While some DHS officials took actions that led to the overpayments, there were other DHS officials who could have stopped the payments but did not.”

At the heart of the issue is how to bill for opioid addiction treatment through Medicaid for members of the White Earth Nation and the Leech Lake Band of Ojibwe, which combined services such as counseling, behavioral therapy and daily doses of medication to help with withdrawal symptoms.  

For years, tribes rolled all of those expenses into one per diem rate, called an encounter rate. Under the guidance of DHS, they continued to bill at the encounter rate, even when patients stopped going into a clinic daily and started taking medication at home. The reimbursement rates for in-clinic medication is $455 a day for tribal facilities.

As recently as February of this year, another tribe, Red Lake Nation, sought clarity from the department that billing the higher rate was correct. In emails provided to MPR News, a department official said that it was.

But it wasn’t until May of this year when the department sent a letter to the tribes reversing the department’s practice of paying the tribes for their clients to take the drugs at home, and it was three months after that when the department told White Earth and Leech Lake that they must return all of the payments received for clients who weren’t receiving services at the clinic.

“The dysfunction we found at DHS has created serious financial and legal problems for the state, the White Earth Nation, and the Leech Lake Band of Ojibwe; those problems will be difficult to resolve,” the OLA report said.

It’s caused tensions between the Walz administration and the tribes, who felt they were blindsided by the decision. The new commissioner of DHS acknowledged the department made an error. 

“The guidance that was given to tribal governments was wrong and it is impossible for us to serve Minnesotans in a trustworthy way if they believe that their interactions with DHS could leave them on the hook for tens of millions of dollars,” DHS Commissioner Jodi Harpstead said in a statement. “I am especially sorry that this error in the department unfairly affected the tribal nations with whom Gov. Walz and Lt. Gov. Flanagan are working to restore trust and rebuild our government-to-government relationships.”

But it’s still not clear who is responsible for paying the money back to the federal government. A state law requires DHS to recover any overpayments, even if the payments are the department’s fault. Harpstead said she wants to work out a deal with the Legislature and the tribes to pay the money back. 

The tribes didn’t participate in the audit, but they maintain they’re not at fault. They will appeal any attempt by the state to make them pay some or part of the money back. 

“Simply demanding the tribes repay this money will not reach a meaningful conclusion,” said LeRoy Staples Fairbanks, a member of the Leech Lake tribe. 

The Legislature is likely to weigh into the debate too. Nobles recommended lawmakers mandate new internal controls in DHS to prevent future overpayments, and he said they should reconsider the law that requires the department to recover costs from groups that are not in the wrong. 

The report is just the latest in a series of issues within the agency, including the resignation of numerous top officials and allegations of retaliation against a whistle blower. Republican Rep. Joe Schomacker, who serves on the health and human services committee, said the taxpayers shouldn’t be responsible covering the costs and DHS should take it out of its own $18 billion budget every two years. 

The audit also rekindled calls to break up the massive agency into several smaller, more manageable agencies. “The numerous levels of management and middle-management at DHS that failed to identify and stop this improper practice makes clear that reorganization, consolidation and accountability measures are desperately needed,” he said.