SOUTH CENTRAL LOUISIANA HUMAN SERVICES AUTHORITY

DEPARTMENT OF HEALTH AND HOSPITALS

STATE OF LOUISIANA

FINANCIAL AUDIT SERVICES PROCEDURAL REPORT ISSUED JUNE 24, 2015

LOUISIANA LEGISLATIVE AUDITOR 1600 NORTH THIRD STREET

POST OFFICE BOX 94397 BATON ROUGE, LOUISIANA 70804-9397

LEGISLATIVE AUDITOR DARYL G. PURPERA, CPA, CFE

ASSISTANT LEGISLATIVE AUDITOR FOR STATE AUDIT SERVICES

NICOLE B. EDMONSON, CIA, CGAP, MPA

DIRECTOR OF FINANCIAL AUDIT ERNEST F. SUMMERVILLE, JR., CPA

Under the provisions of state law, this report is a public document. A copy of this report has been submitted to the Governor, to the Attorney General, and to other public officials as required by state law. A copy of this report is available for public inspection at the Baton Rouge office of the Louisiana Legislative Auditor and at the office of the parish clerk of court. This document is produced by the Louisiana Legislative Auditor, State of Louisiana, Post Office Box 94397, Baton Rouge, Louisiana 70804-9397 in accordance with Louisiana Revised Statute 24:513. One copy of this public document was produced at an approximate cost of $0.70. This material was produced in accordance with the standards for state agencies established pursuant to R.S. 43:31. This report is available on the Legislative Auditor’s website at www.lla.la.gov. When contacting the office, you may refer to Agency ID No. 10588 or Report ID No. 80150037 for additional information. In compliance with the Americans With Disabilities Act, if you need special assistance relative to this document, or any documents of the Legislative Auditor, please contact Elizabeth Coxe, Chief Administrative Officer, at 225-339-3800.

LOUISIANA LEGISLATIVE AUDITOR

DARYL G. PURPERA, CPA, CFE

1600 NORTH THIRD STREET • POST OFFICE BOX 94397 • BATON ROUGE, LOUISIANA 70804-9397

WWW.LLA.LA.GOV • PHONE: 225-339-3800 • FAX: 225-339-3870

June 24, 2015

The Honorable John A. Alario, Jr., President of the Senate The Honorable Charles E. “Chuck” Kleckley, Speaker of the House of Representatives Ms. Lisa Schilling, Executive Director South Central Louisiana Human Services Authority Dear Senator Alario, Representative Kleckley, and Ms. Schilling:

This report provides the result of our procedures at the South Central Louisiana Human Services Authority (SCLHSA) for the period from July 1, 2013, through June 11, 2015. Our objective was to evaluate certain controls that SCLHSA uses to ensure accurate financial reporting, compliance with applicable laws and regulations, and to provide overall accountability over public funds. I hope this report will benefit you in your legislative decision-making process and business operations.

We would like to express our appreciation to the management and staff of SCLHSA for their assistance during our work.

Sincerely, Daryl G. Purpera, CPA, CFE Legislative Auditor

BP:BH:WG:EFS:aa SCLHSA 2015

Louisiana Legislative Auditor Daryl G. Purpera, CPA, CFE South Central Louisiana Human Services Authority June 2015 Audit Control # 80150037

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Introduction

The primary purpose of our procedures at the South Central Louisiana Human Services Authority (SCLHSA) was to evaluate certain internal controls that are used to ensure accurate financial reporting, compliance with applicable laws and regulations, and to provide overall accountability over public funds. The mission of SCLHSA is to provide behavioral health and development disability services to the residents of Assumption, Lafourche, St. Charles, St. James, St. John the Baptist, St. Mary, and Terrebonne parishes. In March 2012, the Department of Health and Hospitals (DHH) launched the Louisiana Behavioral Health Partnership (LBHP) using a private contractor, Magellan Health Services, as the manager of state behavioral health programs. When Magellan began providing behavioral health management, service providers of state behavioral health programs were required to enroll as a Magellan provider and meet Magellan provider requirements. DHH also required that the human services districts/authorities use Clinical Advisor, Magellan’s electronic health record system. In November 2014, DHH announced a plan to integrate all behavioral health care services into Bayou Health, its existing Medicaid managed care system. Implementation is scheduled for December 1, 2015. At that time, Magellan will be replaced with five Bayou Health plans. These plans will be responsible for coordinating and paying for the majority of Medicaid covered services for their enrollees. Magellan’s contract was set to expire on February 28, 2015; however, Magellan and DHH agreed to a contract extension through November 30, 2015, to ensure no interruption in services during the transition. We evaluated SCLHSA’s operations and system of internal controls through inquiry, observation, and review of its policies and procedures, including a review of the applicable laws and regulations. Based on the documentation of internal controls and our understanding of related laws and regulations, we performed procedures on select controls and transactions focusing on SCLHSA’s participation in LBHP. Our procedures included consideration of transitional issues related to LBHP, including SCLHSA’s ability to deliver services, bill for services, reconcile Medicaid revenue to accounting and health records, and achieve its self-generated revenue budget. In addition, the report includes information regarding DHH’s classification of Magellan funds and current contract negotiations between DHH and SCLHSA. Appendix A contains SCLHSA’s response to this report, and Appendix B provides our scope and methodology.

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Results of Our Procedures Ability to Deliver Services 1915(i) Waiver The 1915(i) Medicaid state plan amendment provides coverage under the Medicaid State Plan for behavioral health services rendered to adults in need of behavioral health services. To determine eligibility for 1915(i) services, a client must participate in a face-to-face needs-based assessment. The Centers for Medicare and Medicaid Services (CMS) requires an independent entity not providing 1915(i) state plan amendment services to conduct these assessments. Magellan contracted with Pathways Community Health (Pathways), a not-for-profit community mental health center, to perform these independent assessments. After Pathways completes the assessment, the information is submitted to Magellan. If Magellan determines that services are necessary, a request is sent to Medicaid for eligibility determination. The wait time for Pathways to perform an assessment is approximately one to two months, which delays the start of community-based services for the client. When SCLHSA conducted the independent assessments, assessments were accomplished in seven to 10 days. As of February 25, 2015, out of the 71 clients referred to Pathways for assessments from October 1, 2014, through February 25, 2015, 69 have been scheduled for assessment appointments with Pathways, and two are waiting for Pathways to schedule assessment appointments. Of the 69 clients who had appointments scheduled, SCLHSA has only been notified that two were approved for 1915(i) services, and one client was denied. SCLHSA has not heard back about the status of the remaining 66 clients. While waiting for an independent assessment and eligibility determination, the Medicaid state plan allows SCLHSA to provide limited services to the individual through six “pass-through” appointments, 12 medication management consultations for mental health, and 24 “pass-through” appointments for substance abuse. 1915(i) Only Based on discussions with SCLHSA, we determined it was not aware of the “1915(i) only” waiver program for individuals who fail to qualify for Medicaid full coverage because of financial qualifications but are in need of services paid through the 1915(i) waiver. In this situation, an independent clinical assessment must be performed by Pathways. If the individual meets the clinical level of need criteria, the financial information is reviewed, and for eligibility determination an individual’s spouse’s income may be removed. The individual is then determined to be “1915(i) only” eligible, and Medicaid will pay for only the specific 1915(i) waiver services. SCLHSA understood that Magellan would only pay Pathways to perform independent assessments for Medicaid clients; thus, SCLHSA only refers Medicaid-eligible clients to Pathways for independent assessments.

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Recommendation: SCLHSA should work closely with DHH and Magellan to ensure the 1915(i) eligibility determinations are completed in a timely manner. In addition, SCLHSA needs to contact DHH and obtain sufficient information for the proper handling of “1915(i) only” individuals.

Billing for Services Medicaid Claims With the implementation of LBHP, SCLHSA began filing Medicaid claims with Magellan on a fee-for-service basis. Procedures performed in LBHP informational audits noted issues related to billing for services using Clinical Advisor, Magellan’s billing system. Initially, the use of Clinical Advisor was mandated by DHH. SCLHSA continues to use Clinical Advisor to bill Magellan for Medicaid claims. Since the previous audit, SCLHSA has noticed improvement and a decline in the number of denied claims. The number of service denials has also dropped. The authority is now experiencing a high success rate for submitting claims; 90% at four clinics, and the rate of payment for submitted claims is ranging from 80% - 90%. These rates show significant improvement over results noted in previous audits. We tested a sample of Magellan payments to determine if SCLHSA was claiming the proper amount based on the established fee schedule and credentials of the physician, counselor, and other service delivery personnel; accurately posting payments to patient accounts; and identifying rejected claims and resubmitting those claims for payment as appropriate. Based on the results of our procedures, the claims paid by Magellan were accurate with the established fee schedule, were being posted to the patient’s account, and rejected claims were being re-worked and re-filed with Magellan if applicable. Third-Party Claims At the implementation of LBHP, Clinical Advisor was not designed to accommodate private payers or third-party payers, including Medicare, private insurance, and other guarantors. Although Magellan later contracted with Gateway EDI, Inc., to create an electronic data interchange from Clinical Advisor to the non-Magellan payers, SCLHSA was never able to successfully bill third-party payers through Clinical Advisor. SCLHSA management estimates that for fiscal year (FY)12 and FY13, approximately $75,000 of third-party claims were not collected because the claims filing deadlines expired while waiting for Clinical Advisor solutions. In April 2014, during the third year of LBHP operation, SCLHSA began billing Blue Cross claims using PracticeMate, an online medical billing software. In November 2014, the authority began billing Medicare (Novitas) through PracticeMate. Blue Cross and Novitas are SCLHSA’s largest third-party guarantors, and additional companies are being added to PracticeMate as enrollment agreements are received.

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New Electronic Health Record System In December 2014, SCLHSA purchased E-ClinicalWorks as its new electronic health record system. E-ClinicalWorks meets meaningful use standards1 and will replace Clinical Advisor and PracticeMate. Implementation is currently under way and is expected to be complete in June 2015. Non-Billable Services SCLHSA currently provides its clients with certain services that are non-billable to Magellan. Examples of non-billable services are urine drug screenings, STD testing, HIV testing, tuberculosis testing, and pregnancy testing. Although the services are being provided for Medicaid clients, Magellan does not cover them even though some would be billable to private insurance or Medicare. Per SCLHSA management, Magellan does not pay for these services because the services were not included in the State Management Organization contract with DHH as billable behavioral health services. SCLHSA indicated that the cost of these non-billable services is currently being covered by other funding through block grants. However, with ongoing budget cuts, payment for all services provided is essential. SCLHSA anticipates that some of the non-billable services under Magellan may become billable under the Bayou Health plans.

Recommendation: SCLHSA should work closely with DHH and Magellan to find effective and efficient solutions in an effort to maximize all possible revenue.

Reconciliation of Medicaid Revenues to Accounting and Health Records Procedures performed in prior years indicated that SCLHSA experienced difficulties reconciling Magellan payments. DHH Fiscal is now providing weekly Magellan check registers to the authority, and in the current year we determined that SCLHSA could successfully reconcile the Magellan payments to the accounting system and patient records. However, the authority does not always perform reconciliations in a timely manner. As of February 24, 2015, SCLHSA had not completed a reconciliation since September 2014. Reliable, timely reconciliation processes are part of effective internal control that SCLHSA needs to ensure accurate and timely financial reporting and effective business operation. Procedures performed in prior years relating to LBHP revealed that there were recoupments from one district/authority for claims paid to other districts/authorities, which hindered the ability to perform complete reconciliations. DHH, in conjunction with Magellan, determined that this was a result of multiple entities sharing a single federal tax ID number. DHH indicated that Magellan identified 1,519 claims that were recouped from the wrong district/authority for a total of

1 Meaningful use standards are the requirements set by the Centers of Medicare and Medicaid Services to govern the use of electronic health records.

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$39,363 across various districts/authorities in the state. SCLHSA indicated that Magellan provided a partial list of the recoupments returned to the authority. However, SCLHSA is not able to determine that all of the incorrect recoupments have been refunded.

Recommendation: SCLHSA should perform reconciliations at least monthly to ensure the authority is receiving all of its Magellan funds and that DHH Fiscal is accurately and timely classifying the funds. In addition, SCLHSA should work with Magellan and DHH to determine if all incorrect recoupments have been refunded to the authority.

Self-generated Revenue Budgets SCLHSA did not achieve its budgeted self-generated revenue for FY13 or FY14, and may not achieve its FY15 budget. SCLHSA collected approximately 51% of its budgeted self-generated revenue for FY14. The FY15 self-generated budget was reduced due to a decrease in the projected fees and self-generated revenues. As of February 28, 2015, the authority had only collected approximately 35% of its budgeted self-generated revenue (see exhibit below). The inability to meet its self-generated revenue budget essentially becomes budget cuts for SCLHSA that could negatively impact the delivery of needed services.

Fees and Self-Generated Budget to Actual Revenues

SCLHSA continues to pursue efforts to maximize its self-generated revenue. The authority has taken on new contract services and has signed a Memorandum of Understanding to provide services to incarcerated adolescents and adults provided at SCLHSA sites. In addition, to minimize non-productive time, the clinics began double booking clients because of a large

$2,050,407

$3,230,402

$2,938,180

$840,603

$1,661,098

$1,024,426

$0

$500,000

$1,000,000

$1,500,000

$2,000,000

$2,500,000

$3,000,000

$3,500,000

2013 2014 2015 (as of 2/28/15)

Budget

Actual

Source: ISIS Reports at June 30, 2013, June 30, 2014, and February 28, 2015

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percentage of client no-shows. If one of the clients fails to show for an appointment, the clinician has another client scheduled. Regardless of SCLHSA’s efforts, the self-generated budget DHH set continues to be overly optimistic.

Recommendation: SCLHSA should work closely with DHH to ensure self-generated budgets are reasonable and obtainable.

DHH Classification of Magellan Funds SCLHSA is required to file claims with Magellan to receive a payment for each service delivered. The payments are not immediately available for use, as they must be classified and deposited in the state treasury by DHH Fiscal before the funds can be accessed. Procedures performed in prior years revealed that DHH Fiscal had inadequate processes and controls to ensure claims payments were identified, reconciled, and properly classified timely in the state’s accounting system for the districts to access funds paid by Magellan for their services. Payments for Magellan claims can be in the form of electronic fund transfers (EFT) or paper checks. Once paper checks are received by SCLHSA, the checks are mailed to DHH along with supporting documents indicating how the funds should be classified in ISIS. We reviewed the Magellan check register covering the period July 1, 2014, through November 30, 2014. The number of days it took for DHH to classify EFTs and paper checks ranged from a minimum of the same day to a maximum of 81 days. Although there were some transactions that took as many as 81 days to classify, these transactions were only about 5% of the total number of checks and totaled less than $3,500. The other 95% (or $644,000) was classified by DHH within 24 days. This is significant improvement by DHH from the prior LBHP audit report that showed it was taking 31 to 99 days to classify SCLHSA’s funds. However, we noted $338 of Magellan funds classified as DWI Court Costs and $2,028 of Magellan funds classified as UDS-Copay. In addition, we noted $32,817 of fees ineligible for Medicaid coverage incorrectly classified as Magellan revenue. These misclassifications hinder SCLHSA’s ability to accurately reconcile Magellan payments to the state accounting system.

Recommendation: SCLHSA should work closely with DHH to improve processes and controls to ensure amounts are classified accurately. In addition, SCLHSA should ask DHH to provide classification documents to SCLHSA for review to ensure accurate classification of funds.

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Proposed Contract with DHH Per Louisiana Revised Statute 28:912, DHH must have a contract with SCLHSA authorizing its board to operate and provide behavioral health and developmental disabilities services. DHH has drafted a new contract with SCLHSA to replace the Memorandum of Understanding (MOU) that went into effect on October 10, 2012. However, SCLHSA has expressed concerns with some of the accountability and performance indicators included in the proposed contract. SCLHSA has requested that DHH make certain changes to the proposed contract. Until that time, DHH and SCLHSA continue to sign month-to-month extensions of the MOU.

Distribution Under Louisiana Revised Statute 24:513, this report is a public document, and it has been distributed to appropriate public officials.

APPENDIX A: MANAGEMENT’S RESPONSE

A.1

A.2

B.1

APPENDIX B: SCOPE AND METHODOLOGY

We conducted certain procedures at the South Central Louisiana Human Services Authority (SCLHSA) for the period from July 1, 2013, through June 11, 2015. Our objective was to evaluate certain internal controls SCLHSA uses to ensure accurate financial reporting, compliance with applicable laws and regulations, and to provide overall accountability over public funds. The scope of our procedures was significantly less than an audit conducted in accordance with Government Auditing Standards issued by the Comptroller General of the United States. The Annual Fiscal Reports for SCLHSA were not audited or reviewed by us, and, accordingly, we do not express an opinion on those reports. SCLHSA’s accounts are an integral part of the state of Louisiana’s financial statements, upon which the Louisiana Legislative Auditor expresses opinions.

We evaluated SCLHSA’s operations and system of internal controls through inquiry, observation, and review of its policies and procedures, including a review of the laws and regulations applicable to the authority.

Based on the documentation of SCLHSA’s controls and our understanding of related laws and regulations, we conducted procedures in consideration of transitional issues related to LBHP including SCLHSA’s ability to deliver services, bill for services, reconcile Medicaid revenue to accounting and health records, and achieve its self-generated revenue budget. In addition, we performed procedures relating to DHH’s classification of Magellan funds and current contract negotiations between DHH and SCLHSA.

We compared the most current and prior-year financial activity using SCLHSA’s annual fiscal and/or system-generated reports and obtained explanations from the authority’s management for any significant variances that could potentially indicate areas of risk. Management’s explanations were reasonable.

The purpose of this report is solely to describe the scope of our work at SCLHSA and not to provide an opinion on the effectiveness of SCLHSA’s internal control over financial reporting or on compliance. Accordingly, this report is not intended to be and should not be used for any other purpose.