MCO audit finds more than $1.5 million in overstated expenses

An OIG audit of a managed care organization (MCO) found issues related to the documentation and inclusion of certain expenses in their combined financial statistical report (FSR). 

The audit reviewed whether the process Molina Healthcare of Texas Inc. used to prepare and submit the 2020 Combined FSR, a document that details expenses and reportable revenues, ensured the submission of accurate information. Auditors found that Molina’s process had included some inaccuracies, unallowable expenses, unsupported expenses and costs incurred in a different fiscal year resulting in more than $1.5 million in overstated expenses. Specifically on its combined FSR, Molina had:  

  • Incorrectly used premium revenue as a component of its weighted average allocation methodology in the Administrative section.
  • Reported corporate allocations across line items rather than carrying forward the actual classification of the expenses.
  • Allocated direct administrative expenses across all its lines of business in Texas rather than limiting the expenses it reported to Texas Medicaid programs and CHIP as required.

The audit determined that 45 out of 104 direct and indirect expenses were inaccurately reported and a further 682 costs that should not have been included in the FSR. The current amount owed back to the state of Texas is based on an estimate developed by auditors, however additional review by the Texas Health and Human Service Financial Reporting and Audit Coordination team will develop the final calculation of funds to be returned to the state.

To address the concerns of the OIG, auditors provided Molina with recommendations including:

  • Develop and implement a reasonable allocation methodology for all indirect business units.
  • Ensure indirect expenses reported on the Combined FSR are based on actual expenses.
  • Strengthen its processes to identify and remove unallowable expenses.
  • Develop a process to ensure other lines of business are not included in direct expenses on the Combined FSR.
  • Review business units to determine if unallowable indirect expenses are being included prior to allocation.
  • Report indirect and direct expenses in the period corresponding to the dates the services were incurred.
  • Maintain documentation that meets the standard in the cost principles for salaries reported on the Combined FSR to justify the amount allocated for individuals with some unallowable job duties.
  • Ensure unallowable indirect and direct expenses are not included on the Combined FSR.
  • Provide a bonus plan to FRAC in accordance with the required time frames and prior to reporting bonus expenses on its FSRs.