Arizona’s Medicaid program is paying out up to an extra $50 million a year to provide care for those who are ineligible, a new report says.

The study done by the state Auditor General’s Office finds a 1.1 percent error rate in cases where people were determined to qualify for the free care.

Auditor General Debbie Davenport acknowledged that appears to be half of what federal officials found for Arizona in 2008, the last time the Centers for Medicare and Medicaid Services did its own report on the Arizona Health Care Cost Containment System. That same year, Davenport said, the average error rate of the 17 states studied was 6.7 percent.

But Davenport said Arizona’s 1.1 percent rate still translates to real money.

“Of the approximately $414 million in monthly capitation payments that AHCCCS makes for its members in the programs tested, we estimated that AHCCCS is paying its health plans approximately $3.5 to $4.8 million monthly for enrolled but ineligible patients,” she wrote.

Davenport said both AHCCCS and the state Department of Economic Security, which is involved in screening applicants, need to develop plans to correct what she said are the kind of processing errors identified. She said the state needs to be proactive because there is no way to recover the funds once they are paid out.

Gov. Jan Brewer said she was briefed on the report shortly after it was released.

“We’re certainly going to do everything in our power to get some of it resolved,” she said.

The governor said she was pleased that the error rate computed by Davenport was below the national average. But she said that does not make it acceptable.

“Every dollar counts,” she said. “And we’re going to do our best to rectify it.”

AHCCCS provide free care for families below the federal poverty level. That currently translates out to nearly $19,100 a year for a family of three.

As of June 1, there were about 1.28 million people enrolled in various AHCCCS programs.

AHCCCS differs from most other state Medicaid plans because most of its services are provided on a prepaid basis. Plan providers — essentially insurance groups — are paid a flat fee for each person enrolled to provide all necessary care.

That means the program, funded through state and federal tax dollars, is paying out money for every person improperly enrolled every month, whether they are going to the doctor or hospital or not. And they can stay there for some time: The state redetermines eligibility every 12 months.

Davenport said her auditors found that caseworkers do verify social security numbers electronically. What they did not do regularly, she said, is use electronic matching to verify income or citizenship.

“DES has two electronic income verification systems it can use to make such verifications,” Davenport wrote, and the agency enhanced one of them last year to allow one to be used to check someone’s income.

“However, both AHCCCS and DES should make greater use of electronic matching to verify citizenship,” she said. Davenport said it makes sense for the state to move in that direction, as the new federal health care law requires states to do more electronic verification by 2013, including checking with the Social Security Administration on citizenship and the Department of Homeland Security for immigration status.

Davenport said the agencies should also require additional training of caseworkers, especially in areas her auditors found were prone to errors.

AHCCCS Deputy Director Monica Coury questioned the significance of Davenport’s findings.

“From a statistical perspective, it is not conclusive to extrapolate the very small number of cases reviewed across the entire program,” she told Capitol Media Services, even though it was the Auditor General’s office that made the financial projections of potential losses.

Yet at the same time, Coury touted that 1.1 percent error rate finding by Davenport.

“The national average is 6.74 percent,” she said. “So we think a 1.1 percent rate is pretty good, but of course we are committed to improvement.”

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