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State releases the Comprehensive Annual Financial Statement for 6/30/2018

The State of South Dakota issued their Comprehensive Annual Financial Report (CAFR) on Friday March 29. There were a couple items to note in this years’ audit.

First was the audit finding found on page 248-250 regarding the method of reimbursement for inpatient services provided by hospitals to eligible recipients. Under the Medicaid State Plan, the Department of Social Services (DSS) reimburses hospitals for inpatient services, with a few limited exceptions, using a prospective Diagnosis Related Group (DRG) methodology. Under the DRG methodology, hospitals are reimbursed for services provided based on the charges to treat eligible patients, including both labor and non-labor resources.

The audit finding states the controls in place over the calculation of DRG weights for inpaptient hospitals were inadequate to ensure the proper calculation of Mediciad reimbursement rates or to identify and correct errors to prevent the improper payment of Medicaid claims. Manual processes were used by a single individual to perform extremely complicated calculations without further verification or adequate oversight.

Due to the lack of proper controls on the calculation, errors were not detected before payments were paid to providers causing a major overpayment situation to all hospitals paid for inpatient services. The federal fiscal year 2018 (October 1 2017 – September 30, 2018) resulted in overpayments of $6,734,217.

The Department of Social Services concurred with the finding and agreed to insert additional controls into the calculation process.

The second issue to note in the CAFR is related to the Department of Health’s National Bioterrorism Hospital Preparedness Program. That audit finding can be found on pages 251 and 252.

The Department of Health was written up for three separate issues relating to this federal grant; cash management, period of performance and subrecipient monitoring. The Department of Legislative Audit actually pulled this program out of the CAFR and issued a qualified opinion on this program due to the severity. Cash payments were made to subrecipeints in advance of their need for funds and in violation of the terms of the subrecipient agreements. The subrecipient monitoring by the Department of Health was not adequate which increased the risk that funds were not properly spent in accordance with the subrecipient agreement, grant requirements and federal regulations. Finally, the internal controls were not adequate for monitoring the period during which the funds were available for obligation under the program.

The Department of Health concurred with the audit findings and agreed to a corrective action plan.

For the full audit, click here.

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