NEW ORLEANS -- When former Gov. Bobby Jindal’s administration ended a $2 million debt-collection contract in 2014, nobody batted an eye. After all, the state faced a mind-blowing $1.6 billion budget deficit and welcomed any bit of spending that could be cut.

But that small savings may have actually created a $42 million loss for the state’s federally funded Medicaid program over the last two years. That’s more than the $40 million the Legislature recently had to slash from the Health Department to cover yet another budget shortfall.

By letting a contract with New York-based HMS expire in December 2014, the state went more than 14 months without anyone identifying and recovering money for Medicaid bills that should have been paid by third parties – like an auto insurance company on the hook for a Medicaid recipient’s health expenses after a crash, or a private health insurance plan that should have covered an illness but didn’t, instead leaving Medicaid, the taxpayer-funded payer-of-last-resort, holding the bag.

When Gov. John Bel Edwards took over last year, his Department of Health was facing $29 million in these uncollected third-party liabilities. And the former contractor responsible for collecting third-party liabilities, HMS, was embroiled in a trade-secret lawsuit with a competitor, Public Consulting Group Inc., which was also seeking the collection contract in Louisiana.

Finally, Public Consulting Group settled the lawsuit last year and agreed to not compete with HMS for contracts for seven years. Louisiana rehired HMS under a $2.1 million emergency contract last summer.
According to a state legislative audit, HMS estimated the uncollected amount of third-party liabilities at $42 million by the end of 2016, but because of the large gaps in collections work, the Department of Health couldn’t be sure of that figure.

“We had a few hiccups in the previous administration in getting this contract done, or at least in having it move forward,” said Andrew Tuozzolo, chief of staff at the Louisiana Department of Health. “Now we got it and these are monies we’re actively pursuing. I think in the last year or so $8 (million) or $9 million have already been recovered.”

But the audit also identified $18 million in receivables the state may never be able to recover. Those are claims Medicaid paid for more than three years ago and cited a state law that requires the state to stake a claim within three years or forfeit the money entirely.

“If you would have had that process consistently without the gaps, then you would have had portions of that being collected each year that could have gone directly towards the budget,” said Wes Gooch, an assistant director at the Legislative Auditor’s Office who has been auditing the health department for the last 19 years.
Gooch and Tuozzolo disagree about whether that $18 million is still available. The auditor believes the law says the state is too late to stake a claim for that money. Tuozzolo says it’s “all on the table” because another portion of the law gives the state up to six years to actually collect the money.

Attorney General Jeff Landry was “troubled” enough about the audit findings to send a letter to Health Secretary Rebekah Gee last month saying the failure to collect the third-party liabilities “wastes taxpayer money.” Landry demanded details about all the department’s efforts to track and collect the money Medicaid should be getting back. And Gooch said Legislative Auditor Daryl Purpera has created a new Medicaid audit team to work with Landry’s office to track Medicaid spending in real time, rather than having to wait until the end of a fiscal year to review it.

There was some hope that by shifting to what’s called a managed-care payment system, the state’s Medicaid program wouldn’t need to pay a company like HMS to collect third-party liabilities; the private managed care organizations hired by the state to make Medicaid payments would take care of that duty. But a significant portion of Medicaid costs in Louisiana are still paid under the old fee-for-service model, without a private managed care organization acting as a middle man.

Before the state transitioned to managed care in 2012, HMS was collecting upwards of $40 million a year in reimbursements from third parties, Gooch said. That has dropped to around $9 million a year under the managed-care model, but is still accumulating at a high rate.

“It will continue to accumulate because these issues happen all the time, but we finally got to a place where we have someone working actively and aggressively,” Tuozzolo said.