The state may have erroneously paid up to $2.5 million on health care through the Medicaid program for more than 300 low-income residents after they died, according to a state legislative audit released Wednesday.

The payments were discovered after auditors checked the names of Medicaid recipients from January 2008 through August of this year against Social Security records to capture those who died out of state. The program had relied on state vital statistics to track deaths.

Auditors couldn't say how many payments were fraudulent or even illegitimate — some medical bills could have been sent after a patient's death. But state health officials pledged to investigate and to improve financial checks and balances in the system, which provides health care to the poor and has come under scrutiny aimed at rooting out waste, fraud and abuse in recent years.

"We are working collaboratively with other parts of the department and with other agencies," said Chuck Milligan, deputy secretary for health care financing at the state's Department of Health and Mental Hygiene, which oversees the health programs. "We and others have an interest in being good fiscal stewards."

Milligan said the agency didn't find any fraud among the $426,000 in payments made in 20 cases flagged by the audit for closer review. Auditors said 10 involved improper payments, but Milligan said that was largely because of a lag in the time between when someone died and when the state was informed and stopped payments on premiums.

The state pays a premium monthly for Medicaid recipients to managed-care organizations and frequently must recoup one or two months of payments after routine checks of state death records. Last year, Milligan said, the state recouped $20 million. No one knows, however, how often the state continues to pay indefinitely because someone's death isn't recorded in Maryland.

A total of about $7.7 billion in payments were made under the state- and federally funded Medicaid program in Maryland in fiscal 2011, and about $3 billion of that went directly to managed-care organizations. The rest was paid to care providers, such as hospitals, or for long-term care. About 959,000 residents received services.

Milligan said state officials had just begun to consider using the federal information before the audit. Until recently, he said, the federal data had been unreliable because the Social Security Administration included death information from banks, funeral homes and others that often provided erroneous information. Now, it only lists the names of people whose deaths have been verified and no longer receive Social Security payments.

Bruce A. Myers, the state legislative auditor, said his office decided to investigate whether the federal data could help ferret out problems in the state because other states and agencies have had success doing so.

"Our conclusion is that it could be useful," Myers said. The so-called Death Master File, kept by the Social Security Administration, has 89 million records and it's not limited to Maryland, he pointed out. The federal data could be useful for other programs where there have been concerns about payments, he said.

He also said plenty of Medicaid recipients don't notify the state when they move out of Maryland, and when they die Maryland keeps paying the health maintenance organizations and providers. Money is not paid directly to patients.

In some cases, he said there could be fraud that should be referred for criminal investigation.

Milligan said that other steps, such as a new computer system that's expected to be built in the next two years, could help with other deficiencies cited in past audits. For example, those audits have revealed that separate programs for the state's mentally ill and developmentally disabled paid claims to dead people or didn't adequately verify that patients were eligible for state assistance.

Past audits also have found that state health officials failed to take sufficient action to control costs and prevent abuse in health programs for the poor. In one case, a state employee stole nearly $1.8 million from a kidney disease program, and in another the state Medicaid system overpaid health care providers or failed to obtain federal reimbursements worth millions of dollars.

Myers said regular fiscal compliance audits of the state health department will continue every three years.

Sun reporter Andrea F. Siegel contributed to this article.

meredith.cohn@baltsun.com

twitter.com/baltsunhealth

  • Text NEWS to 70701 to get Baltimore Sun local news text alerts