RALEIGH – Medicaid has long been the savior of low income individuals seeking medical assistance.

However, according to a recent independent audit of the state’s Medicaid program, there appears to be problems, and lots of them, including substantial administrative costs, among the highest in the nation, to operate the program fueled by federal and state dollars.

During a press conference on Thursday, Governor Pat McCrory welcomed the audit conducted by State Auditor Beth Wood and highlighted the need to address cost control and accountability issues in the program through proactive reforms.

“This audit should be a concern for every North Carolinian,” said McCrory. “Every dollar that is mismanaged at the Department of Health and Human Services for Medicaid is one dollar less that is available for medical services, education or road and bridge repair.”

According to the numbers, 1.5 million North Carolinians are enrolled in the state’s Medicaid program, and more than 88 million Medicaid claims are processed by the Department of Health and Human Services every year. On average, North Carolina’s Medicaid program costs North Carolina approximately $36 million a day.

Wood’s audit highlighted administrative inefficiency, lack of oversight of contracts, lax cost-control and cost-management measures and disjointed accounting practices that have led to inaccurate financial projections.

In an administrative cost comparison, the audit showed that the total cost of North Carolina’s Medicaid program was $10.3 billion. The administrative costs stood at $648,762,805 representing 6.3 percent of the overall cost.

This percentage was significantly greater than the ratio of other states. Additionally, states that came the closest to spending as much in Medicaid administration as North Carolina’s $648.8 million are Illinois at $678.6 million, Massachusetts at $555.8 million, and New Jersey at $571.4 million. However, all three of these states have larger total cost, and therefore larger Medicaid programs to be administered.

For example,  only Illinois spent more than North Carolina in administrative costs; however, because they  were administering a program almost $3 billion larger, their percentage of administrative  costs is still below North Carolina’s, at 5.29 percent. Similar results were also found with comparisons made to the same states in state fiscal years 2009 and 2010.

“This information is critical to us in the work we have ahead to reform the Medicaid system in North Carolina,” said Department of Health and Human Services Secretary Aldona Wos, M.D. “I am pleased to say that we already are taking proactive steps to address some of these issues – the most important of which is hiring Carol Steckel, nationally recognized expert in Medicaid, to run our Medicaid program.”

Steckel comes to North Carolina from Louisiana where she coordinated the state’s response to the federal Patient Protection and Affordable Care Act of 2010 (PPACA) legislation. She led initiatives to improve the state’s public health care services while reducing costs, and to revamp its information technology capabilities, taking extensive advantage of the private and academic sectors while reducing public employment.

Previously, Steckel led Alabama Medicaid from 1988-1992 and from 2003-2010. In 2011 she provided instrumental support to the Republican Governors Association in developing a report titled “A New Medicaid: A Flexible, Innovative and Accountable Future.”

“I am concerned, but not surprised, by the results of the audit of North Carolina’s Medicaid system,” said NC House Speaker Thom Tillis (R-Mecklenburg) on Thursday. “The audit is further proof of inefficiencies and mismanagement at many levels of the Medicaid system that cannot be tolerated.

“It is apparent that improvements must be made to ensure that individuals dependent on Medicaid are adequately served by the system,” Tillis added. “We cannot allow bureaucratic incompetency to negatively affect North Carolina’s taxpayers.  I look forward to working with Gov. McCrory and Secretary Wos to fix what has become a broken Medicaid system in our state.”

Senate President Pro Tempore Phil Berger (R-Rockingham) also commented on the findings of Wood’s audit.

“I applaud Auditor Beth Wood and her staff for their tireless work in uncovering gross budgetary mismanagement and inefficiencies within our state’s Medicaid program,” he said.  “I commend in the highest terms Gov. Pat McCrory and Secretary Aldona Wos for their commitment to reforming DHHS and cleaning up the mess they inherited from the Perdue administration. Today’s report confirms North Carolina does not have an administrative system in place that can capably handle an expansion of Medicaid or implementation of a state-based insurance exchange.”

According to the audit, one of the driving factors in North Carolina’s large budget for this program is linked to the CPE (Cost per Eligible) statistic. CPE is the average cost of providing services to an average Medicaid eligible over a specified period.  North Carolina’s annual CPE is the highest in Federal Region IV (southeastern states) and it is more than 10 percent higher than the US average, which indicates that the NC Medicaid program provides a rich benefit package.

The audit also revealed that in 2012 the state’s total Medicaid budget expended more than $14 billion, which included more than $3 billion in the State General Fund.

The Medicaid budget has grown 23 percent over the past four years, and it has experienced significant State General Fund shortfalls in each of the past three years. In 2012, the General Fund shortfall was more than $400 million at year end.  The General Assembly had to appropriate an additional $200 million for DMA (Division of Medical Assistance). Additionally, State funds were transferred from other DHHS agencies, and Federal revenues were retained in 2012 that had to be repaid in State Fiscal Year 2013.

In October 2011, DMA testified before a legislative committee that they anticipated a State  General Fund shortfall in Medicaid of $139 million.  In January 2012, DMA reported to a  legislative subcommittee that they anticipated a $149 million General Fund shortfall in Medicaid.  The actual General Fund shortfall was more than $400 million.

In 2011, the General Fund shortfall also exceeded $400 million and in 2010 it was more than $300 million.

Medicaid has also incurred significant costs because of required repayments of funds to the  Federal government.  In 2012, DMA had to repay $41 million for disallowances for Federal payments for personal care services. In 2010, DMA received a $15 million disallowance for Federal payments on community support services.  In 2009, DHHS erroneously drew $300 million in Federal funds, resulting in installment payments to CMS of $40 million each year in 2011 and 2012 and $30 million in 2013.

Medicaid was created as an entitlement program to help states provide medical coverage for low-income families and other categorically related individuals who meet eligibility requirements. Candidates include the blind, aged, disabled and pregnant women.

In essence, Medicaid serves as the nation’s primary source of health insurance coverage for low-income populations. Each state administers its own Medicaid program, establishes their own eligibility standards, determines the scope and types of services they will cover, and sets the rate of payment. Benefits vary from state to state.