Audit shows state insurance overpaid providers $10 million

Thursday, Dec. 3, 1998 | 11:17 a.m.

CARSON CITY -- The health insurance program for state employees, which is losing money, overpaid doctors, hospitals and medical personnel to the tune of $10 million in the last fiscal year, a new audit says.

Kafoury, Armstrong & Co., the accounting firm which performed the audit, reported Wednesday that its sample of payments showed there was an error rate of more than 10 percent, compared to past years when mistakes were in the 2-3 percent range.

In one case, there was an overpayment of $85,989 to a hospital for a patient who underwent open-heart surgery, said Randy Kuckenmeister, a member of the Kafoury firm.

That payment has since been recovered, Kuckenmeister told the state Committee on Benefits, which oversees the insurance program. In addition, samples of claim payments showed underpayments of more than $107,000. In one case there was a $21,000 underpayment to a medical provider, he said.

In July 1997, after it fired L&H Associates, which had fallen behind in making payments, the state committee hired UICI, a Texas company, to process and pay the claims of state workers. UICI officials faced a backlog of more than 95,000 claims and they concede there may have been errors because of the turmoil. But these problems have been corrected, they said.

But committee member Barbara Nelson of Las Vegas called the results of the audit "shocking." She said UICI should respond to the findings at the next committee meeting.

A preliminary finding by the audit is that the insurance program, which once had a $12 million reserve, is now $13.1 million in the red. Kuckenmeister said an exact accounting of the deficit will be available next month.

The deficit means that the 1999 Legislature, already on notice about a state fiscal crisis, will be asked for bail-out money. Already, higher premiums and a reduction in benefits -- taking effect next month -- have been imposed to get the program back to solvency within three years.

Kuckenmeister said his company auditors selected a sample of 195 claims and found 21 payment errors, which translates into a potential $10.1 million in overpayments.

Problems included claims being paid twice, overpayments for the procedures performed, payments made for treatment not covered by the policy and the wrong rate being used in paying hospitals, doctors or medical officials.

The auditors found more errors in the higher payments, partly because of the complexity of the reimbursement called for in the contracts between the state and health-care providers. For instance, the auditing firm conducted a further examination of open-heart surgery cases and found the error rate to be 60 percent or higher.

Jan Marie Reed of UICI said the transition period in taking over the business was "very difficult."

"When you push a high volume of claims, there will be a high number of errors," Reed said, adding that company never received any help from its predecessor. The contracts with providers were all different, with varied rates of reimbursement, she said.

Diana Valdez, of UICI said her staff worked with the auditors to uncover many of the errors in the payments. And the providers who were underpaid, must be reimbursed, she said.

Some providers had to wait up to a year to be reimbursed for treatment of state employees and their dependents because of the confusion. The lag time has since been reduced.

Kuckenmeister recommended the committee on benefits hire an internal auditor and that UICI undergo external audits every quarter to make sure the problems are being solved. The committee previously agreed to both recommendations.

Because of the "significant number" of errors in the payments, Kuckenmeister must issue a disclaimer that its financial examination is correct.