NC Medicaid financial report by auditor shows year-to-year improvement, but IOUs still high



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RALEIGH, North Carolina — The first detailed financial audit of North Carolina's Medicaid program in two decades shows some improvement in its fiscal picture, but revenues are still trying to catch up with pending liabilities, particularly on payments to medical providers.

State Auditor Beth Wood released financial statements Monday on the entire Department of Health and Human Services, which spends more than $18 billion annually using federal, state and other sources. More than $13 billion goes to the Division of Medical Assistance, which runs Medicaid.

Lawmakers on a government watchdog oversight committee asked for the detailed audit of DHHS to see how specific agencies are faring beyond what they are spending in the state budget.

A comprehensive financial report of state government is performed annually, but it doesn't dig as deep into individual agencies or explain which divisions are healthier than others. Lawmakers also wanted to know more about Medicaid, which had until recently been beset by shortfalls and mismanagement for several years. The General Assembly is weighing whether to overhaul the way the state pays for Medicaid patients' services.

The report found the Division of Medical Assistance fund balance — basically assets minus liabilities — was negative $350 million as of last June 30. That's an improvement of nearly $59 million over the negative $409 million balance of June 30, 2013.

Wood and DHHS finance leaders said the direction of the fund balance is good but still shows the Division of Medical Assistance lacked the funds to pay off its debts if the agency hypothetically had to shut down last June 30.

Much of the negative fund balance can be attributed to pending claims by doctors or hospitals that had been turned in but not yet paid at the end of the fiscal year and would be paid in the next fiscal year. The most recent balance sheet counted those pending claims at $985 million, with another $116 million due to UNC Hospitals.

DHHS Chief Financial Officer Rod Davis also blamed the hole on a Medicaid billing error several years ago that forced the state to pay back $360 million it overcollected.

"It's going to take time to bring that number down, because it goes back for many years," state DHHS Controller Laketha Miller told reporters after the oversight committee heard Wood's presentation. Davis and Miller said Medicaid also had good news because it had $64 million more than it actually spent for the 12 months ending last June 30.

When asked to evaluate the financial shape of Medicaid, Wood said she needed four or five more years of auditing finances to examine trends.

"It is a hard question to answer," the auditor said.

Wood said her office was working on similar audits for other departments requested by the legislative committees, with the Department of Public Instruction to be completed next.

The DHHS report said it cost $1.4 million and more than 10,000 hours of work by auditors to complete the financial audit for the first time. The cost to perform these annual reports should be much less moving forward, she said.

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