Audit: Maryland misallocated $28.4M for health exchange

Staff Writer
Columbus CEO

ANNAPOLIS, Md. (AP) — Maryland misallocated $28.4 million in federal money for its flawed health care exchange and should pay the money back, according to a federal audit set to be released Friday.

The audit marked the first time the inspector general of the Department of Health and Human Services recommended that a state repay misallocated federal grant funds involving a health care exchange.

The audit found that Maryland misallocated costs to federal grants instead of the Medicaid program in 2013 and 2014, failing to use updated estimated enrollment data when it became available.

"The state agency misallocated these costs because it did not have adequate internal controls to ensure the proper allocation costs," the audit said.

In a response included in the audit, the state said it believes it complied with guidance from the federal Centers for Medicare and Medicaid Services.

"The state agency said it complied with CMS guidance on the frequency of cost allocation updates and that our assumption that the Maryland marketplace 'should have updated its cost allocation immediately after the first enrollment' is not consistent with the most recent CMS guidance," according to the audit.

Still, auditors concluded their findings and recommendations are valid. They pointed out that CMS guidance explains that states are expected to update their cost allocation methodology and plan based on updated or better data.

Meaghan Smith, a spokeswoman for the Department of Health and Human Services, said CMS will review the findings and issue clarifying guidance to state-based marketplaces as needed.

States like Maryland that created their own health exchanges received federal reimbursement according to projections on the number of people who entered private insurance plans and how many were able to receive Medicaid.

The audit found that March of 2014 enrollment numbers demonstrated a substantive change in program enrollment. That's because there was a 37-percentage point difference between the estimated enrollment split used initially to allocate costs and the actual enrollment split at the end of the first open enrollment period.

Maryland's health exchange website crashed soon after it opened in October 2013. The state revamped the website with new technology for the second enrollment period last year.

The audit has political implications in a state where top officials had hoped to make Maryland a national leader in federal health care reform, only to produce one of the most flawed health exchanges in the country.

Former Gov. Martin O'Malley, a Democrat who highlights his approach to using technology for data-driven government efficiency and accountability, is considering running for president. Former Lt. Gov. Anthony Brown, who took on a leadership role in implementing health care reform in the state, was criticized during the Democratic primary and the general election for the badly flawed rollout.

Brown has announced plans to run for Congress, after losing the governor's race to Republican Larry Hogan in November in a state where registered Democrats outnumber Republicans 2-1.

Rep. Andy Harris, Maryland's only Republican in the state's congressional delegation, requested the audit.

"This audit was critically important, and I believe the state will have to return the appropriate amount of money to the federal government," Harris said in a statement. "This is just another example of Gov. Hogan having to clean up Gov. O'Malley's mistakes."

O'Malley and Brown have blamed vendors for failing to deliver the product promised to the state.

"Our administration has not succeeded at every first try, but we have never given up," O'Malley and Brown said in a joint statement, after a state board voted in April 2014 to use new technology to revamp the health exchange website. "We learn from both success and failure. The vendors we hired failed to build us the platform they promised."

From Sept. 30, 2010 through Dec. 31, 2014, Maryland received federal grants totaling $182 million, the audit said. Maryland spent $122 million during fiscal years 2011 through 2014, according to the audit. The audit focused on $76.6 million that the state allocated in establishment grants for state fiscal years 2013 and 2014.