Program Review and Investigations Committee




<MeetMDY1> June 10, 2004


The<MeetNo2> June 10, 2004 meeting of the Program Review and Investigations Committee was held at<MeetTime> 10:00 AM, <MeetMDY2> in<Room> Room 131 of the Capitol Annex. Senator Katie Stine, Chair, called the meeting to order, and the secretary called the roll.


Present were:


Members:<Members> Senator Katie Stine, Co-chair; Representative Charlie Hoffman, Co-chair; Senators Charlie Borders, Brett Guthrie, Ernie Harris, Vernie McGaha, and Dan Seum; Representatives Adrian Arnold, Sheldon Baugh, Dwight Butler, Rick Nelson, Ruth Ann Palumbo, and Jim Thompson.


Guests:  Mike Robinson, Commissioner, Department for Community Based Services, Cabinet for Health and Family Services.


LRC Staff:  Greg Hager, Committee Staff Administrator, Kara Daniel, Rick Graycarek, Tom Hewlett, Margaret Hurst, Van Knowles, Erin McNees, Cindy Upton, Jacob Fowles, Wayne Linscott, and Susan Spoonamore, Committee Assistant.


Minutes of the May 13, 2004 meeting were approved, without objection, by voice vote upon motion made by Sen. Harris and seconded by Rep. Arnold.


Tom Hewlett and Van Knowles, Program Review staff, presented a report on Improving Fiscal Accountability and Effectiveness of Services in the Kentucky Transitional Assistance Program (K-TAP). Mr. Hewlett explained that the report focused on the funding of the K-TAP program and examined program controls designed to prevent fraud and monitor the quality of the placement process.  He said that the report also included an assessment of the results of the different training and work-related programs offered through K-TAP, as well as programs designed to assist some low-income individuals through short-term difficulties and divert them from enrolling in K-TAP. 

Mr. Hewlett stated that K-TAP is Kentucky’s welfare to work program and as of December 2003, the program served approximately 32,000 families providing an average payment of $228 per month.  He said that in FY 2003, expenditures for the program totaled $260 million dollars. 


Mr. Hewlett stated that the following major conclusions were drawn from the evaluation of the program:


·        Mandatory state funding could be reduced by $4.5 million per year;

·        Department for Community Based Services (DCBS) should consider reinstating an investigative unit used to verify clients’ submitted information;

·        Some Kentucky Works Program (KWP) components seem more productive than others, and DCBS should take steps to evaluate the effectiveness of each component; and,

·        The Family Alternatives Diversion (FAD) program seemed to reduce costs, but additional restrictions may be needed.


Mr. Hewlett explained that in 1996 Congress enacted legislation creating the Temporary Assistance to Needy Families (TANF) program. He said that Kentucky’s response to TANF was the creation of K-TAP, which is administered through the Department for Community Based Services, Division of Family Support, Cabinet for Health and Family Services. He stated that under TANF, the assumption of welfare changed from an entitlement program to one in which recipients are limited to 60 months of benefits.  He said that recipients are required to participate in a range of activities in order to remain eligible, such as subsidized or unsubsidized work, on-the-job training, or community service. Mr. Hewlett stated that in addition to cash assistance, K-TAP also provided job training and education and financial assistance for child care, transportation, relocation and medical services not covered by Medicaid.


Mr. Hewlett stated that with the implementation of TANF, Kentucky’s public assistance caseload decreased from 176,000 individuals in 1996 to less than 71,000 individuals in 2003.  He said that TANF funds were provided to Kentucky as a block grant fund on a yearly basis. He said that the block grant funding did not expire at the end of the fiscal year, but that the funds could be drawn upon in future years. Kentucky is required to contribute towards the funding of the program, referred to as its Maintenance of Effort (MOE) amount, and since fiscal year 1997, Kentucky has allocated over $500 million in state MOE funding.


He said that each state must meet an overall TANF participation rate or be required to increase its TANF MOE funding amount. He said that a state’s MOE was determined as a proportion of the amount the state funded in 1994 under the Aid to Families with Dependent Children (AFDC) program and related programs. If a state was meeting its federally mandated adjusted participation rate, it was required to provide at least 75 percent of its 1994 funding. If a state was not meeting its participation rate, it would be required to pay 80 percent of the 1994 amount. He stated  that Kentucky had consistently exceeded the required minimum participation rate, but had been funding higher than the 75 percent minimum level. He stated that since fiscal year 2000, Kentucky had been providing $4.5 million more per year than required to K-TAP. He stated that  DCBS officials said they were funding at the higher rate just in case Kentucky did not make its prescribed level of participation, or in case federal statutes were changed and the adjustment for caseload reduction was eliminated. He said that it was also possible for the state to get credit for spending outside K-TAP for programs that furthered the goals of TANF.  This could further reduce the states required spending. To the extent that there are remaining federal funds in Kentucky’s TANF accounts, this would not necessarily require reducing benefits. He stated that there were efforts underway in Congress to reauthorize TANF legislation which could have serious consequences for Kentucky’s participation rate in the future. He stated that the proposed changes would not be retroactive and the changes would likely be phased in gradually.


Sen. Stine asked how far back in time the state could go for the credit. Mr. Hewlett stated that it would depend on the amount of unobligated federal funds from prior years. He stated that as of May 2004, Kentucky had $8.4 million of unobligated federal funds from fiscal year 2003. 


Sen. Stine asked if the federal amount allocated would increase if the state reduced its percentage. Mr. Hewlett explained that federal funding was provided through a block grant  that remained the same each year. If that money was not spent, the grant did not lapse and could be used in future years.


            Mr. Hewlett stated that based upon the information received and reviewed by staff, the report made the following recommendations:


2.1             Department for Community Based Services (DCBS) officials should review the feasibility of funding the K-TAP program at the 75 percent Maintenance of Effort (MOE) instead of 80 percent.  DCBS should provide the General Assembly with information about the likelihood that the requirements for participation levels for the 75 percent funding effort will be met; the actual state expenditures for the 75 percent and 80 percent spending levels; and the potential consequences for K-TAP clients for the two funding levels. 

2.2             Officials with DCBS and other appropriate executive branch officials should undertake a thorough review of state spending outside K-TAP that furthers the goals of TANF. Information about existing spending that could be counted towards the state’s maintenance of effort for TANF should be provided to the General Assembly.

2.3             Officials with the Cabinet for Health and Family Services should discuss the possibility of accessing unobligated federal funds to offset the cost of spending at the 80 percent MOE during previous fiscal years. To the extent federal funds are available as an offset, officials should review all prior years’ spending to minimize the use of state funds for K-TAP.


Sen. Guthrie asked if the $4.5 million was the difference of 75 percent participation versus 80 percent participation in the program. He also asked if the program was spending $4.5 million more than it was required to spend. Mr. Hewlett stated that was correct.


Mr. Hewlett stated that another area of concern was the program’s control over improper payments. He said that the Cooperative Review of Eligibility (CORE) investigative program, which was housed in the Cabinet for Health and Family Services’ Office of Inspector General, was discontinued in 2002. He stated that from 1997 to 2002, the CORE program identified over $6.6 million in inappropriate payments. He stated that the department had a claims collection branch, but the DCBS office staff did not have the expertise or the resources to do field investigations.


Sen. Stine asked what costs were involved in identifying the $6.6 million in inappropriate payments. Mr. Hewlett stated that in a letter from the Inspector General’s office, the OIG claimed that the CORE program resulted in $4.23 savings for every dollar spent in investigative costs.  He added that this number has not been verified by Program Review staff.


Mr. Hewlett stated that Recommendation 2.4 addressed that concern:


2.4             The Cabinet for Health and Family Services should review the feasibility of forming a field-based investigation unit such as the Cooperative Review of Eligibility program. The review should include a cost-benefit analysis. The results of the analysis and any actions taken to expand the capability of the Office of Inspector General to conduct field investigations should  be reported to the Program Review and Investigations Committee prior to the 2005 session of the General Assembly.


Mr. Hewlett explained that staff also reviewed other management controls areas within the K-TAP program, and found some concerns associated with the agency’s quality control function. He stated that the random sample of 1,000 cases each year was not enough to assess each individual region, nor did the current sampling method insure that appropriate cases were selected from the different regions so that comparisons could be made between the regions. 


Mr. Hewlett stated that Recommendation 2.5 was made in order to improve the  overall information relating to K-TAP funding and to improve accountability:


2.5             The Quality Control Branch of the Cabinet for Health and Family Services should audit a representative sample of cases for each of the cabinet’s 16 service regions so that valid comparisons of regional deficiency rates can be made.  If necessary, the regional audits should be placed on a rotating schedule so that each region is audited at least once every four years.


Van Knowles, Program Review staff,  continued with the presentation, speaking on the assessment of services provided by the program. He stated that the primary objective of TANF and K-TAP was to help the responsible adult become self-sufficient. He said that the program provides cash and services necessary to support the family, while requiring clients to work toward financial independence. Long-term assistance is provided to adults with children in need and “child-only” cases such as orphans, foster and kinship care children. He said that the Kentucky Works Program (KWP) was developed to provide clients with a variety of services in order to prepare them for work.  He said that the program included the following activities: Employment, Vocational Training, Community Service, Job Search and Readiness, Work Experience, Education Related to Employment With No High School Diploma, Job Skills Education, and other work preparation activities.


Rep. Baugh asked if a 70 year old person would be eligible to participate in K-TAP. Mr. Knowles stated that there was no age limit as long as the client was an adult with a child, or a pregnant woman or an emancipated minor with a child.


Rep. Baugh asked if a grandmother and grandson would be eligible for the program. Mr. Knowles stated that the grandmother would be eligible if she were legally the responsible person for the grandson.


Rep. Baugh asked if DCBS verified job employment on clients who asked for assistance. Mr. Knowles stated that the case manager is supposed to obtain and verify information received from the client.


Rep. Baugh asked if cash payments were made. Mr. Knowles stated that one benefit of K-TAP was providing payments to clients.


Mr. Knowles stated that the Vocational Training and Job Skills Education components of the Kentucky Works Program produced the best results for employment with higher wages and further advancement to professional certification or a college degree. He said that the Job Search and Readiness component, which is a short-term activity, provided the greatest return on time invested, while Education Without a High School Diploma and Community Service generated the weakest results. He stated that Community Service was the second most used KWP component, but it was also the most questionable. He stated that the amount of time spent in the Employment activity had no significant effect on wages earned later, but staff found that clients who worked longer while on K-TAP earned slightly less afterwards, probably because they had more difficulty finding or holding jobs.


 He stated that Work Experience placements are created for clients who had not been able to obtain regular work, and some clients did well later, but the average client earned less in wages the more hours spent in work-experience placements.


Rep. Palumbo asked for clarification on why the Employment activity would lead to lower wages. Mr. Knowles stated that there was no clear cut answer. He said that it was one of the activities that DCBS should explore and take corrective action. 


Rep. Palumbo asked if the clients had learned the system or could it be that the clients had learning disabilities which would make it hard for them to obtain higher paying jobs. Mr. Knowles stated that either of those could be a factor. He said that staff was unable to obtain enough information to make a definite conclusion so the report recommended that:


3.1       DCBS should establish a process to evaluate the success of each Kentucky Works Program component, focusing on the benefit to clients after they leave K-TAP. As an intermediate step, DCBS should study the client screening process and the quality of placements for activities this report found to produce poor or mixed benefits for clients. DCBS should implement changes to improve results. 


Mr. Knowles stated that staff was also concerned about the time it took after entering K-TAP for recipients to begin work or another KWP activity. He explained that according to the information entered in the system, half the clients were involved in KWP within two months and 75 percent were involved within six months. He said that Jefferson County showed the greatest delay while the  Kentucky River and Cumberland Valley regions showed the quickest enrollment.


Sen. Stine asked if staff was surprised to see that Jefferson County, a metropolitan area, was the slowest in enrolling recipients. Mr. Knowles stated that the data entry delays found in the DCBS office in Jefferson County could have adversely affected their reporting information. He said that staff was unable to determine the exact reasons for slower employment in the metropolitan regions versus the rural regions.


Mr. Knowles stated that the following recommendation addressed the issue of timely entry of participation data:


3.2       DCBS should review the lag between the time a recipient enters the K-TAP program and when that recipient begins a Kentucky Works Program activity. Regional differences should be explored, as should the amount of time lag generated by data entry delays. DCBS should take steps to reduce the amount of time recipients spend before entering a Kentucky Works activity. Problematic regions should be monitored and efforts should be undertaken to ensure that recipient information is entered in a timely manner. 


            Mr. Knowles explained that caseworkers perform an assessment on any individual who applies for any kind of assistance. If the applicant’s need has resulted from an unexpected change in circumstance and the applicant would be self-supporting if the short-term need is met, he or she may be eligible for the Family Alternatives Diversion (FAD) program. The FAD program attempts to promote self-sufficiency without enrolling applicants in K-TAP. He stated that staff looked at the amount of benefits received for FAD cases compared with K-TAP only cases from November 1997 to October 2000, and it appeared that FAD may have resulted in cost savings for K-TAP.  He said the primary concern of staff was the 12 percent who went on to use two or more additional services (FAD and/or K-TAP). He stated that the majority of those clients returned for their next service as soon as they were eligible: 12 months from the last FAD application. He said that it was possible that some of the clients may have been taking advantage of the system, but most clients appeared to be using FAD properly. He stated that FAD appeared to be saving TANF funds, but if awarded to former  K-TAP recipients,  then the program was less successful at saving TANF funds. 


            Mr. Knowles stated that staff recommended the following:


3.3  DCBS officials should consider restricting participation in the Family Alternatives Diversion program to clients who have not received K-TAP benefits.


            Sen. Stine asked if there was any data to indicate whether or not a family member was working during that period, or would they quit their job at the end of the period so they could continue to receive FAD payments. Mr. Knowles stated that there was no data for that. He said that someone in the family was supposed to have a job or a firm offer of a job before they used up their FAD funds. Mr. Knowles stated it could be possible that some clients were abusing the system.


            Mr. Knowles described the Wage Subsidy Program, which is another KWP activity provided through a contract with the Department for Employment Services (DES).  He stated that the Wage Subsidy Program gives some employers a partial wage subsidy for six months when they employ certain K-TAP recipients. The subsidy is intended to cover the cost of providing training and supervision. He stated that  staff was unable to evaluate the effectiveness of the program because the hours from the Wage Subsidy Program were kept with regular work hours.


            He said that DCBS did fund a separate wage subsidy program in Warren County, but staff found that many of the hours were incorrectly assigned to the Subsidized Employment component. 


            Mr. Knowles stated that staff prepared the following recommendation for evaluating Subsidized Employment:


3.4       DCBS should implement changes in systems and procedures so that subsidized employment hours can be tracked and reported separately from regular employment for all such programs. DCBS should change the data systems so that the program code for the Warren County program cannot be misused. DCBS should then conduct an evaluation of the subsidized employment programs and determine whether they should be expanded or modified.


            Sen. Harris asked if it was becoming harder to place persons who were still in the program because of disabilities. Mr. Hewlett stated that DCBS officials indicated it was becoming harder to place those individuals who had more than one barrier to employment. 


            Sen. Stine asked if program benefits would be adversely affected if the amount of state funding was reduced by $4.5 million. Mr. Hewlett stated that funding could be reduced by $4.5 million with no effect on benefits only because Kentucky has $8.4 million in unobligated funds remaining in the 2003 block grant. He stated that the recommendations in the report asked officials with the Kentucky Transitional Assistance Program (K-TAP) to provide sufficient information to the General Assembly so legislators could make an informed decision about  funding the program at the 75 percent level or the 80 percent level.


            Sen. McGaha asked Mr. Hewlett to identify other funds that were being spent in other areas of the state budget to further the goals of TANF. Mr. Hewlett stated that officials with the National Conference of State Legislators, in working with other states, were able to identify other program funding which could be used toward the Maintenance of Effort (MOE), i.e. education programs for low income individuals, child permanency and protection services, and programs used for education in the schools to prevent teen pregnancy.  He said that if those funds were being spent in the state budget and could be identified, then those dollars could be included in the MOE and relieve the state of dedicating new funding.


            Rep. Baugh asked if a recipient was required to be a resident of Kentucky in order to qualify for benefits. Mr. Hewlett stated that recipients did have to be a resident of the state. He said that if a recipient tried to apply for the program in two different states at the same time then the applicant would be barred from the program for several years.


            Rep. Baugh asked if there was a citizenship requirement. Mr. Hewlett stated that an applicant did not have to be born a U.S. citizen.


            Rep. Baugh asked if a parent and a child who lived in the same residence could qualify for the program if they both had children. Mr. Hewlett stated it would be counted as two separate cases.


            Sen. McGaha asked for clarification regarding the misuse of data from Warren County. Mr. Knowles stated that the code used to identify Warren County activity was being used in other counties besides Warren County. 


            Mr. Hewlett stated that the misuse of the code limited Program Review staff’s ability to look at the effectiveness of the Warren County program.  It did not appear to be a fraudulent misuse, but an error in the data entry.


            Mike Robinson, Commissioner, Department for Community Based Services, Cabinet for Health and Family Services, requested a 30 day time period in which to provide a written formal response to the report and to the recommendations. He went on to say that the Cabinet wanted to review the recommendations related to the maintenance of effort and the budgeting of 75 or 80 percent. He stated that the Cabinet was waiting to see how the new federal rules were going to apply to the TANF program.


            Commissioner Robinson stated that the Department would be discussing Recommendation 2.4 with the Office of the Inspector General. He said that the Cabinet agreed that there should be some type of an investigative review. For clarification, he stated that the $6.6 million figure mentioned in the report had not been spent erroneously. He stated an investigation had produced information which kept the $6.6 million from being paid out. He also stated that because the $6.6 had not been spent, it did not mean that there was $6.6 million in a fund for the Cabinet to use — by not using that money, it would be considered as a cost avoidance as opposed to a cost savings.


            Commissioner Robinson stated that the Cabinet did not have a formal quality control process in place which could be standardized across all 16 regions, so therefore he agreed with Recommendation 2.5.


            As to Recommendation 3.1, he stated that as the caseload continued to decrease, the Cabinet would be able to focus more on the individuals who had obstacles or barriers to finding employment. He also stated that community service was a helpful tool in different geographical areas and the Cabinet would not be agreeable to discontinuing the community service activity of the program.


            As to Recommendation  3.2, Commissioner Robinson stated that the Cabinet would review the lag time between the recipient entering the K-TAP program and when the recipient actually began a Kentucky Works Program activity.


            Commissioner Robinson stated that starting this month, the Cabinet would be making system and policy changes to the Family Alternatives Diversion program as requested in Recommendation 3.3.


            He stated that in regard to Recommendation 3.4, the program code for Warren County had been fixed.


            Rep. Butler asked if the Department of Community Based Services had a standard list of options that could be offered in place of community service. Commissioner Robinson stated that there were several different activities which could be counted toward participation in the K-TAP program. 


            Rep. Butler asked if there was anything specific that could be attributed to the success of the younger people in the program. Commissioner Robinson stated that in recent years the state has placed more emphasis on education, which has had an impact on the program.


            Rep. Hoffman asked if the Department and the Cabinet had sufficient staff       to gather information on a regional level in order to provide more accurate information. Commissioner Robinson stated that the Department was structured for both protection and permanency issues, child welfare, domestic violence, as well as family support programs. He said that with more staff, the Department and the Cabinet would be able to do a better job at obtaining information, but there was room for improvement within the Department and the Cabinet for appropriating and assigning staff.  He also said that additional resources would be needed to process the quality control branch reviews as requested by Recommendation 2.5 of the report.


            Sen. Stine asked Commissioner Robinson to identify what other funds were being spent in other areas of the state budget to further the goals of TANF.  Commissioner Robinson stated that the Department was structured to look at a family situation in its entirety, and if necessary, the Department may have to provide additional services such as domestic abuse counseling, educational training, or jobs. 


            Sen. Stine asked if the funds being spent in the other areas could be submitted to the federal government as proof that Kentucky was meeting the requirements of the program. Commissioner Robinson stated that if the Department could prove and identify programs which were being funded at 100 percent with General Fund dollars, then those funds could be submitted. He stated that caution would have to be exercised especially if funds were being used for after school programs. He stated that those funds could be used toward the Maintenance of Effort, but the Department would lose the General Fund that it would replace, and it would have a net impact of reducing the amount of dollars for the TANF program.


            Sen. Stine asked if the Department had any comment about funding the K-TAP program at 75 percent instead of 80 percent, which would save $4.5 million and not affect the level of services.      Commissioner Robinson stated that the Department agreed with that statement as long as the Department continued in a surplus situation. He stated that for fiscal year 2005/2006 the Department had allocated the surplus dollars so there would be no surplus. He also stated that if  there was a reduction of dollars in the state budget then the level of services would be affected.


            Sen. McGaha asked if  recipients were allowed to attend a post-secondary school, and if so, were they allowed to attend school for 24 months. Commissioner Robinson stated that recipients were allowed to attend post-secondary school for 24 months, but only 12 months were actually countable toward participation in the program. He stated that after the 12 months, a recipient could continue to participate in the education program but they would not be included in the participation rate that is reported to the federal government.


            Sen. McGaha asked if recipients were required to work during the first 12 months of their post-secondary education.            Commissioner Robinson stated that a recipient was not required to work during the first 12 months.  He also stated that if a recipient worked for at least 20 hours in the second 12 months, then those last 12 months could be counted in the participation rate for the program.


            Sen. McGaha asked if the 12 to 24 months were calendar months such as January to January or a school year calendar. Commissioner Robinson stated that it was actual months of attendance.


            Sen. McGaha asked what determined the amount of TANF funds transferred to the Child Development Care and Development Fund, and was that amount audited for eligibility requirements. Commissioner Robinson stated that the Department’s budget was reviewed each year, and if funds were available in the TANF program, then some of those funds could be transferred to the Child Care and Development Fund based upon the need of child care assistance programs.


            Sen. McGaha asked how much could be transferred to the Child Care and Development Fund from TANF funds. Commissioner Robinson stated that federal regulations allow transfers of up to 30 percent of a state’s TANF funding.


            Sen. McGaha asked what was the average amount transferred to the Child Care and Development Fund. Commissioner Robinson stated that approximately $36 million on average had been transferred annually to the fund.


            Sen. McGaha asked if the Cabinet was considering developing an audit system similar to CORE for accountability. Commissioner Robinson stated that the Cabinet wants to work with the Inspector General’s Office to develop a program similar to CORE.


            Sen. McGaha asked that the Cabinet, as soon as possible, develop a program that would prevent people from fraudulently obtaining benefits in the K-TAP, Food Stamp, and Medicaid programs.


Sen. McGaha asked why the deficiency rate in the Kentucky Works program was 14.35 percent. Mr. Hewlett stated that the largest number of deficiencies were due to clients’ non-cooperation because they were not working, in school, or participating in Kentucky Works.


            Sen. McGaha asked what happened to a recipient who was not in compliance with the Kentucky Works participation requirements. Mr. Hewlett stated that as a sanction their payments could be reduced, and if they persisted in failing to comply with the participation requirements, they could also be dropped from the program.


            Commissioner Robinson stated that recipients had six months in which to comply with the requirements. He also stated that a new policy rule had been implemented to encourage cooperation: if an adult refused to comply with the requirements of TANF, then in addition to losing their payments, they would also lose their Medicaid card. 


            Sen. Stine asked if the Cabinet or the Department had any significant concerns with the report or the recommendations. Commissioner Robinson stated that the Cabinet concurred with the report and the recommendations.


            Sen. Stine asked the Cabinet provide to the Committee their written formal response to the report as soon as possible.


            The report Improving Fiscal Accountability and Effectiveness of Services in the Kentucky Transitional Assistance Program (K-TAP) was adopted by roll call vote, upon motion made by Sen. McGaha and seconded by Rep. Baugh.


            Cindy Upton, Program Review staff, presented a status report on the Improper Payments and Uncollected Revenues study. She stated that staff had been asked to review and examine the extent of improper payments and the extent of revenue collections in the state. She said that in the draft report being prepared, staff attempts to answer three questions:


1.      How do agencies prevent making improper payments and how are they identified when they occur;

2.      How do agencies identify and collect accounts receivable that are reported at year-end in the financial statements; and

3.      How do agencies identify and collect other amounts owed?


She stated that it should be noted that staff did not look at tax collection and therefore that information would not appear in the report.


She stated that four considerations were the guide in preparing the report:


1.      Incentives to prevent improper payments. She said that staff considered incentives to prevent improper payments or to collect debts. She stated that incentives varied in amount between the different programs, and that incentives usually depended on whether the money involved was state funds or federal funds. She said that that sometimes a penny saved by the state is not a penny earned by the state.

2.      The time value of state money. She stated that agencies should avoid making improper payments and should collect debts as soon as possible and get that money into the bank — the penny in the bank is a penny plus interest.

3.      The cost effectiveness of preventing improper payments and collecting debts.

4.      Not duplicating other agencies’ work.  


Rep. Arnold asked if it was true that collecting a debt could sometimes cost more than the debt. Ms. Upton stated that in certain situations that would be true.


Rep. Arnold stated that even though it might cost more to collect the debt, if the amount is due to the state  it should be collected.


Ms. Upton explained that in talking about “risk” in the report, it means the risk of making an improper payment or not collecting an amount that is owed. She stated that staff reviewed audit and evaluations report for all states and the federal government to identify areas of “risk” that had already been identified. She said that staff conducted interviews and obtained information from most state agencies, local officials, federal officials, and medical provider associations. She stated that staff reviewed federal and state laws, regulations, and policies, including HB 162 and SB 228 from the previous legislative session.


Ms. Upton stated that in working with other agencies, staff tried to find areas where there might be quick money to be collected or quick remedies to prevent improper payments. In reviewing travel, phone usage, procurement cards, undeposited collections and misappropriation of cash, staff found that several other agencies were also reviewing the same areas.  She said that staff avoided duplicating the same work, but hoped to have other agencies’ reports in time to incorporate their findings in the draft report.


Sen. Stine asked if HB 162 was sponsored by Rep. Moberly, and SB 228 sponsored by Sen. Thayer. Ms. Upton stated that was correct.


Ms. Upton stated that the Auditor of Public Accounts was in the process of auditing procurement cards, and that the Auditor had also been asked by the Department of Corrections to conduct an investigation regarding the money that was found in an employee’s desk drawer which had not been deposited, and to do a two-year financial audit. 


Sen. Stine asked if the Auditor’s office would have their report on the procurement cards ready by the Committee’s July meeting.  Ms. Upton stated that she had talked to the assistant State Auditor and she indicated that their office was in the process of putting all the information together.


Ms. Upton stated that Finance and other state agencies had been looking at policies and procedures for procurement card use, travel vouchers and cell phone usage.  She stated that the Attorney General’s office had also been conducting investigations for provider and recipient fraud. She said that staff had relied upon the AG’s Office for information pertinent to staff’s report.


Ms. Upton stated that staff was able to identify three major areas of potential savings or collections for the state. She said that the court system was at risk for not collecting debts, and that the Department of Community Based Services was at risk for not enforcing child support orders, which has a cascading effect on other public assistance programs. She explained that if child support orders were enforced, then that would cut back on payments from other public assistance programs. She stated that Medicaid was at risk for making improper payments to providers and recipients. Ms. Upton said that there were other areas of risk, but none that would have a significant impact on the state’s financial condition. She said that staff was able to conclude that the three major areas of risk could have a multi-million dollar effect on the state’s financial condition.


In looking at the three areas, she explained that the court clerks collected fines and court costs and sent that money to the state every month. The Finance Cabinet takes that money and allocates it among state programs and local governments as the law requires. Knowing the amount collected by the courts is not a problem,  but there is no documentation as to how much is still owed to the courts. The courts do not have a bookkeeping system that allows them to pull together all the information from the original amounts of the fines and costs imposed, the amounts that have been collected, or the amounts that have been reduced because of jail time or community service.  AOC is developing a system to track this information, but statewide implementation is not likely to be soon.


She explained that uncollected child support is not a debt owed to the state, but when orders are not enforced families become eligible for Medicaid or KCHIP, Food Stamps, K-TAP and free school lunches. Those students who qualify for free school lunches are classified as at-risk students and school districts receive additional state funding for those students.


Ms. Upton stated the Medicaid was clearly at risk for making significant improper payments on behalf of recipients. She said that the largest amount of improper payments was made to providers. She stated that staff found that some payments were a mistake, but sometimes it was fraud. She said that Medicaid used cost avoidance as a tool, such as billing Medicare first when it is known which recipients use Medicare. She stated that in addition to the Cooperative Review of Eligibility (CORE), there was also an Attorney General’s Special Investigation unit that investigates recipient fraud. She said that a good cost avoidance tool being used by other states is a pharmacy benefits manager. She stated that Kentucky’s Medicaid program had issued an RFP for a pharmacy benefits manager in order to hold down pharmacy costs. She said that Vermont expected to save 10 to 15 percent on pharmacy costs a year by using a pharmacy benefits manager. She stated that if Kentucky could save at least 10 percent a year, that would amount to over $20 million. 


Sen. Stine asked if a Senate bill had been passed during the last legislative session dealing with utilization. Ms. Upton stated that she was not aware of a bill dealing with utilization.


Ms. Upton explained that a provider could defraud Medicaid by billing for services not provided, upcoding for a higher fee, and by manipulating drug costs. She stated that these types of fraud are handled by the Attorney General’s Medicaid Fraud Control unit. She stated that any information pertaining to fraud by a provider or a pharmaceutical company is referred to the Medicaid Fraud Control unit. She said that records showed that the Fraud unit had recovered approximately $7 million in state funds over the last five years. 


In concluding her presentation, Ms. Upton stated that the preliminary conclusions of the report were:


·        The courts do not know how much is owed so staff could not conclude if they were doing a good job at collecting fines.  She stated that when House Bill 162 and Sen. Bill 228 become effective, then information will start to accumulate which can be included in a report.

·        Uncollected child support costs the state money in welfare programs and SEEK add-on funding. 

·        Cost avoidance includes expenditure control and fraud investigation among other things. She stated that controlling Medicaid pharmacy costs could be an important part of the cost avoidance effort. She said that fraud investigations and prosecutions would promote cost avoidance by deterring others from defrauding the state. The amount spent to avoid costs or collect debt should not normally exceed the benefit and the benefit may be more than the dollar saved — it could be a deterrent effect.   

·        When collections are made, that money should be deposited as soon as possible so the money earns interest. Either avoid making the payment or get the collection and get it in the bank – the state earns money every night on its investments.


Sen. Seum asked for an example of an outstanding amount of money, and he also asked if anyone in the private sector owed the state money. Ms. Upton stated that Medicaid providers owe the state money, and presently the AG’s office was pursuing law suits against pharmaceutical companies for over-pricing of drugs to the Medicaid program.


Sen. Seum asked if staff was able to determine how much was owed. Ms. Upton stated that there was no information available as to how much is owed. 


Ms. Upton stated that except for the fraud investigations being conducted by the  AG’s office, staff had not noticed any big problems in state agencies collecting what was owed to them. She stated that it would be to the state’s advantage to prevent improper payments.


Mr. Hewlett explained the contents of a memorandum answering a question from the May meeting regarding what the growth rate in nonemergency medical trips would have been if Region 6 had been excluded. He said that statewide totals excluding Region 6 showed that there was still a 10 percent growth in the number of trips in FY2003, but that this was a lower rate than in the two previous years.


Sen. Stine stated that she would like to see the Committee choose study topics no later than the August meeting. She also asked committee members to review the list of study topics that would be on the agenda for discussion at the July meeting.


Meeting adjourned at 12:00 p.m.