The shameless chase for federal money

Private contractors help states grab more U.S. dollars at the expense of serving children and the poor

By DAVE DALEY | Oct. 18, 2017

The federal government is awash in taxpayers’ money, billions of dollars that the United States doles out each year to states in grants, food stamps and the huge Medicaid program that funds health care for the poor. Name a program, and the feds have a pot of money for it.

So much money that a booming cottage industry has sprung up — private contractors offering services to states, ever-thirsting for funds, with the pitch that they can capture even more federal dollars. “Revenue maximization,” the contractors call it. Their proposition: They can deploy state-of-the-art technology to squeeze every available dollar out of federal coffers.

But in too many cases, federal auditors are finding, the services are little more than a computer-driven, high-tech flimflam that ends with states being forced to pay back millions and the needy lost in the shuffle.

Meanwhile, the quest for federal cash at the state level has too often turned legitimate help for the needy into fraudulent claims — raising questions about whether there might be a simpler, better way to help those who truly need it and rein in federal spending.

Widespread trouble

Massachusetts was ripped for “Medicaid money laundering” when the state used gimmicks to divert federal funds to the state treasury. In Missouri, a private contractor advised state officials to shift welfare recipients to federal disability rolls to save state tax dollars. In Maryland, foster care agencies, using recommendations from a private contractor on how to rake in more dollars, are stripping foster kids of Social Security survivor and disability benefits and using the funds to balance agency budgets. That contractor, Maximus Inc., also operates in Wisconsin.

Daniel Hatcher, a University of Baltimore law professor, encountered this chilling revenue-maximization method firsthand when he represented two foster children in cases heard in the Baltimore courts in 2011.

One was a boy, Alex, placed in foster care when he was 12. The Baltimore County Department of Social Services applied for Alex’s Social Security survivor benefits after his father died, Hatcher says. But the agency did not tell Alex it was applying for the benefits, ostensibly on his behalf. And when the payments came in, the agency kept all of the money, much of it for their own uses that had nothing to do with Alex.

Seeing dollar signs, the agency then hired Maximus to develop recommendations on how to do more of the same — maximize claims of Social Security survivor and disability benefits from other foster children, Hatcher says.

That’s because a child pulled out of a welfare home and put into foster care comes “with money attached,” Hatcher says in an interview. He ticks off the multiple federal funding available to a foster child: Social Security survivor benefits if a parent has died, Supplemental Security Income (SSI) if a disability can be found, veterans assistance if a parent died in the military and even child support payments.

In The Poverty Industry, Hatcher’s 2016 book on how social service agencies are shortchanging the needy just to bring in more revenue, he cited an assessment that Maximus provided to the Maryland Department of Human Resources in 2013: “We will be looking for children with identifiable physical or mental disabilities,” making foster children a “revenue-generating mechanism.”

Maximus in Wisconsin

Maximus specializes in helping manage government health and social service programs and is the largest provider of Medicaid and children’s health insurance services to states. The company, based in Reston, Va., has more than 18,000 employees worldwide and sells its services in all 50 states and five foreign countries. In 2014, Maximus had revenues of $1.7 billion and profits of $145 million, according to reports.

In Wisconsin, the company has provided administrative services for foster care since 1996 and currently has two contracts with the Department of Children and Families (DCF) — a two-year $7.8 million contract for the welfare-to-work W-2 program and a $2.8 million contract for calendar year 2017 that covers child welfare services. There have been no reported problems with how Maximus provides administrative foster care services in the Badger State. But there were huge problems in a contract between Maximus and the Wisconsin Department of Health Services (DHS) to help the state with reimbursements from Medicaid, the health care program for the poor in which states and the federal government each pay half the cost.

Four years ago, federal auditors slapped DHS for filing unallowable Medicaid reimbursement claims. The auditors’ report noted that Wisconsin used a “reimbursement methodology developed by the consultant (Maximus) it hired to target new revenue that might be available to the state.”

That methodology increased the state’s Medicaid reimbursement by more than $18 million in the first year alone, the report noted. One problem, though — the methodology “used estimates that it could not adequately support,” the report concluded.

of $41 million the state claimed for mental health services, federal auditors disallowed $39 million. In one two-year period, federal auditors found that the state had improperly claimed $19 out of every $20 in bills submitted.

Under Maximus’ contract with Wisconsin, the firm was paid 9 percent of any increased federal payments to the state for those mental health services. Not surprisingly, the state’s recovery of federal Medicaid dollars shot up dramatically — $67 million over a nine-year period. Maximus itself raked in $3.4 million in fees. But now the feds want Wisconsin to pay back $22.8 million — more than half the $39 million in claims federal auditors disallowed.

Maximus declined to comment for this story.

Maximus elsewhere in America

The company has a checkered history.

In 2007, Maximus paid $42.65 million in a settlement to end a criminal investigation that alleged it, under contract to the District of Columbia, bilked the federal government by helping the district file phony Medicaid claims for foster care. The investigation was sparked by a former Maximus executive who alleged that as much as 78 percent of the Medicaid claims made by the company over a six-year period were fraudulent. Federal prosecutors charged that Maximus employees, including a vice president, helped D.C. submit claims for all children in the district’s foster care program whether the children received services or not.

Maximus’ business model — its very existence — relies on the fact that state governments operate massive programs funded by the federal government. Under that operational model, instead of states using the best and most efficient ways to spend a predetermined amount of federal grant dollars, as in a block grant award, the states submit reimbursement claims for the work of state employees. That reimbursement system offers the potential for virtually unlimited claims — and abuse.

Random moment sampling

The high-tech services Maximus and other private contractors offer can sound like techno-babble, with terms such as predictive analytics, data mining and the innovative but sometimes questionable random moment sampling — a cost-effective way to measure the amount of time employees say they are working on a given program.

Maximus introduced random moment sampling (RMS) to Wisconsin in 2002 to monitor how much time Milwaukee County employees work on various programs largely funded by the federal government. Instead of filling out time sheets, a sample of workers receives a random email asking what they are working on at that moment. Each worker responds by using a drop-down box to check off a program.

The contractor relies on the state employee to truthfully answer the query. The state then tabulates the data from the sample pool and determines what percentage of workers are working on what specific federal program during a three-month period. It then factors in the wages of workers in the pool and makes a reimbursement claim to the federal government for that work.

RMS advocates say that if implemented correctly, the methodology is 95 percent accurate, plus or minus 2 percent, and is quicker and less burdensome than 100 percent time reporting.

The Wisconsin Department of Children and Families has used the methodology since 2008 and has never been asked to return any of the grant funds it received due to RMS sampling, according to DCF spokesman Joe Scialfa.

While Wisconsin has not reported any issues with RMS, which is chiefly used to track the work of county employees in Medicaid programs, several other states have run into problems. Federal auditors have charged eight states with improperly billing Medicaid using invalid RMS sampling.

In March, U.S. Health and Human Services Department inspectors charged that the State of Mississippi submitted $42 million in improper Medicaid claims using invalid RMS models. Inspectors reported finding in the samples duplicate employee names, improperly documented employee schedules and sampling that included holidays, when employees were not working.

The other states claiming millions of dollars in improper Medicaid reimbursements because of statistically invalid RMS are Alabama, over $100 million; Arizona, $11.7 million unallowable and another $18.8 million in questioned costs; Kansas, $11 million; Massachusetts, $47 million in questioned costs; Missouri, $36.6 million; North Carolina, $53.8 million; and Ohio, $9.3 million in questioned costs.

Meanwhile, Texas is on the hook for $58 million following a federal audit. The case involved another private contractor offering revenue-maximization services and RMS expertise, Public Consulting Group (PCG) of Boston. Auditors found that a PCG-trained state employee miscalculated Medicaid Supplemental Physician payments and determined that the state must repay $58 million to the federal government.

In Missouri, PCG aggressively moved recipients from state welfare rolls to SSI, which serves the poor and disabled. That saved the state as much as $80 million but boosted federal costs. PCG earned $2,300 for every family it shifted from state to federal assistance.

Children as ‘revenue sources’

Like Maximus, PCG apparently sees dollar signs on foster children. In his research, Hatcher uncovered a chilling pitch that PCG made to Kentucky officials.

PCG wrote in its 2010 proposal: “All likely foster care candidates are scored and triaged for SSI application. We then track the results of those applications … and incorporate this information back into our system to modify our analyses and better target potentially eligible children.”

PCG simply viewed children in foster care as “revenue sources on a conveyer belt,” Hatcher says. “The language is striking — and not in a good way.” And too often, the federal funds wrung out of a foster child case do not go to help the child but are diverted to state coffers or the profits of private contractors, Hatcher says.

“PCG is proud of our success in ensuring that our several state clients throughout the country, and the many constituents they serve, secure full access to the federal program benefits to and for which they are entitled and eligible, as prescribed by regulation and law. These federal programs are complex and challenging for states to navigate, and services such as those provided by PCG help states to be reimbursed for critical services delivered to their most fragile populations,” a company representative says.

What about actual outcomes?

Some states are seeing the downside of the emphasis on federal dollars over the quality of their social programs. The Texas Department of Family and Protective Services noted in a 2014 report that the agency needed “to ensure that the focus is on outcomes, not revenue maximization.”

Without a clear focus on whether the federal money is actually improving the lives of Americans in need, rather than simply funding state governments, the chase for money is paramount. Accountability, when it exists, is rarely timely. It often takes federal investigators years to find reimbursement errors and then even more time to get states to return the money.

DHS, for example, stopped using in 2015 the new Medicaid claiming method — the one devised by Maximus to bring more federal dollars to the state — that federal auditors questioned in 2013. But the state is still trying to resolve with the Centers for Medicare & Medicaid Services (CMS), the Medicaid administration office, the 2013 federal audit that disallowed $39 million out of $41 million Wisconsin claimed for mental health services.

“A final resolution has not been achieved,” Elizabeth Goodsitt, a spokeswoman for DHS, said in September. “CMS has not required DHS to make repayments.”

In one state at least, there is an effort underway to halt the odious trend of monetizing children in need: Legislators in Maryland are sponsoring bills that require disability and survivor benefits actually be used to help the foster child.

But the larger systemic issues remain.

In D.C., budget hawks and state policy-makers can only hope for a bigger-picture debate that clearly links federal and state taxpayer dollars to better outcomes for the poor, the elderly and the disabled.

Under the current system of states scrambling for federal bucks based on claims using random moment sampling or data mining of potential grant recipients, those closest to the people have to wonder if America can ever both rein in the ever-growing federal deficit and responsibly alleviate true need.

Dave Daley is a reporter for the Badger Institute’s Project for 21st Century Federalism.

► Read the entire issue of Diggings Fall 2017 here.

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