Minnesota's Medicaid program improperly paid $3.7 million to HMOs to provide health coverage for enrollees who were deceased, a federal audit has found.

The Department of Human Services (DHS), which runs Medicaid, pays managed care organizations a flat fee per enrollee to administer health benefits for about 850,000 of the 1.1 million people covered by the program. But DHS was paying them for some enrollees who had died, according to an audit report released this week by the Inspector General of the U.S. Department of Health and Human Services.

That finding was echoed by DHS's own internal audits, conducted over the past year, which found 198 people who were still enrolled after they died, according to a DHS report issued last month. The agency also removed about 23,000 people who were no longer eligible. No dollar figures were disclosed from those reviews.

As a result of the federal audit, which covered the years 2014-2016, authorities recommended that DHS repay $3.2 million to the federal government for its share of the improper payments, a figure that was extrapolated based on a random sample of 100 cases.

Though sizable, the improper payments represented less than 1% of total Medicaid payments to health plans in the period covered by the report.

DHS Commissioner Jodi Harpstead said the errors happened in the early days of a new computer system and that the agency began fixing the problems and recovering overpayments from managed care organizations before the federal audit.

"Ensuring our records are up-to-date so we do not pay for individuals who are no longer receiving care is a continual challenge," Harpstead said in a statement. "We gather death information from many different sources, which do not always report in a timely manner. Because these payments are made to health plans in advance, we will always have to reconcile accounts."

Republican lawmakers seized on the report as the latest example of sloppy oversight and technology failures at the massive state agency.

"This is just another example of the problems that have taken place within the Department of Human Services," said State Rep. Joe Schomacker, R-Luverne. "While this issue is now behind us, it highlights the need for us to continue to investigate what is happening within the agency."

Sen. Michelle Benson, R-Ham Lake, said the audits point to continuing problems with a computer system that DHS launched in 2014 to help caseworkers determine eligibility for Medicaid and MinnesotaCare, another government insurance program that covers those who make too much money to qualify for Medicaid. County administrators have long complained that the system is inefficient and unreliable.

"It is an unstable platform and I think some change has to be made," Benson said. "Right now we have to get the staff and culture refocused at DHS and then we can build a system that works."

For years, state legislators have been asking DHS to conduct its own audits, known as periodic data matching, to look for eligibility mistakes and correct them.

"We had to fight tooth and nail," said Benson. "This just bears out that there are problems."

The DHS report released last month is the first to be released under the audit program.

Using outside data sources, DHS checked information on about 580,000 Medicaid and MinnesotaCare members to make sure they qualified for those programs.

Of the 23,000 people that DHS removed from coverage, most had failed to respond to letters from the agency. Some have since been re-enrolled after proving that they were still eligible.

Glenn Howatt • 612-673-7192 Twitter: @GlennHowatt