Mismanagement of a Medicaid program over the last eight years could cost the state as much as $17 million, and has prompted lawmakers to call for an audit in the Department of Health and Social Services.

The federal government isn’t going to pay millions the state expected as reimbursements for a Medicaid program cancelled for faulty financial management, but the state has already logged that money and doled it out. Incensed that state accounting oversight failed to turn up the problem, House Finance Co-Chairman Rep. Mike Hawker, R-Anchorage, is calling for an audit of the Department of Health and Social Services accounts.

The mess has a couple of layers:

First, there’s the immediate problem of possible mismanagement of a federally funded Medicaid program, leading to a hole of roughly $7 million over several years.

There’s also the matter of more than $10 million that the feds did pay, but say the state may have to return after auditors uncovered murky program management in the School-Based Medicaid program.

Second, a similar error -- this one within the Department of Corrections -- has Hawker worried the state’s accounting division isn’t using basic business principles to manage Alaska’s money.

“It is absolutely intolerable that we are being so cavalier with the public’s resources,” Hawker said, promising to shed “the glaring, high-wattage spotlight of truth” on the matter.

The good news is, the problem appears to be fixed with the School-Based Medicaid program administered through the state’s Department of Health and Social Services.

State Office of Management and Budget Director Karen Rehfeld said the problems seem to be limited to revenue collections, and that a series of changes have been made to avoid future problems.

The bad news, according to Hawker, is there’s just no telling how deep the problem really is. That’s why the Finance Committee is calling for an audit, which may be done through a contractor in light of an 18-month backlog in the Legislature’s auditing department.

“Money was being used from one program to inappropriately make it appear another program was whole,” Hawker charged. “It is their entire accounting and managing of federal receipts that is being called into question.”

Here’s what happened.

Compensating schools

The state’s Department of Health and Social Services manages a program called School-Based Medicaid, which used federal funds to pay back the state and school districts for the costs of administering direct services to Medicaid-eligible students.

If the state is following all the rules in tallying the amount due, the federal government pays up.

“That’s where we were running into problems,” said Alison Elgee, assistant commissioner in the Department of Health and Social Services. “We were apparently not doing everything correctly.”

Claims submitted between 2003 and 2008 were partially paid by the feds, with portions deferred. A federal review and audit in 2008 turned up serious problems, prompting the state to cancel the program. At the time, 47 of the state’s 52 school districts received some of the $3.5 million that went to schools annually.

In the years when the feds deferred payment, the department held out hope that it could eventually collect. In the system the claims were logged as received, and money was spent.

A 2008 audit as part of the federal review revealed that mismanagement. Now the state may have to pay the federal government back about $10 million that it received between Jan. 1, 2007, and June 30, 2008, because the state hadn’t complied with program requirements, Elgee said.

In addition, about $7 million over four years was marked as collected and doled out, but was really never reimbursed. The department wants to the state to write that off and take the loss.

Lawmakers first got wind of trouble brewing last session, when the Department of Health and Social Services had a request for $2.1 million in the supplemental budget. The department staff was just beginning to unearth the problem, and the extent wasn’t known. But they didn’t keep lawmakers filled in as the situation developed, which rubbed some the wrong way.