State gives up Medicare millions.

Byline: David Steves The Register-Guard

SALEM - Oregon officials have formally agreed to forfeit the $45 million in health care payments withheld by federal regulators last spring after auditors discovered that the human services agency had potentially overbilled the U.S. government.

In a letter sent last week to a federal health care agency, the state Department of Human Services indicated that in addition to the $45 million withheld from the first quarter of the current fiscal year, it would forego $14 million that might otherwise go to the state for the subsequent fiscal period.

Federal officials with the Center for Medicare and Medicaid Services began investigating Oregon's collection of nearly $500 million since 1999 through a loophole that several states had been using to maximize their collection of Medicaid money.

The total cost - $59 million - represents a major hit to a recession-battered state budget. But it could have been worse. At one point, federal officials said the state could potentially face a repayment of $214 million, as well as the forfeiture of the $45 million and smaller future payments.

To hedge against such a scenario, the Legislature decided not to count on any of the Medicaid-loophole dollars for the 2003-05 budget cycle.

So even if the state does forfeit the $59 million as proposed by DHS officials, it would still be entitled to $19 million in federal Medicaid money for 2003-05 beyond what's in the current budget plan, said Julia Huddleston, a budget administrator with DHS.

"If they were to sign off on this as it's proposed, it could potentially mean an additional $19 million," she said. "This would be a very reasonable solution to the whole thing."

It's far from certain, though, that the feds will go along. Robert Reed, who heads the CMMS team of regulators scrutinizing Oregon's use of the Medicaid loophole, said he couldn't comment on the likelihood that the state's proposal would be accepted.

"We're still in the process of reviewing it. We've only had it just a bit under a week so we're trying to analyze it, the response, and I suspect that there will be some follow-up questions," Reed said. The federal government has 90 days to respond to the state's proposal.

The dispute revolves around accounting maneuvers made by Oregon human services officials to maximize federal Medicaid payments. It involved transfers to public nursing home districts, which kept the portions they were entitled to, but sent along the vast majority of the payments to the state, which in turn spent the money on education and human services.

Oregon was one of 28 states using the loophole in Medicaid regulations to maximize federal aid - a maneuver the federal government began phasing out in 2001, with plans to eliminate it altogether by 2005.

The state ran afoul of regulators by retroactively counting payments from prior years for the 2000 fiscal year - which was critical since the feds used that year's payment totals to determine how much states would be entitled to in subsequent years.

In last week's letter to the CMMS, Oregon DHS Director Jean Thorne said the state remained convinced that it had done nothing wrong, but simply had "different understandings" from those of the federal government regarding the Medicaid rules.