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An audit released today said Missouri should return $21.4 million in federal Medicaid payments made to a state-owned children’s hospital in St. Louis County.

The Federal Office of Inspector General report found Hawthorn Children’s Psychiatric Hospital on Pennsylvania Avenue near Pagedale failed for nearly five years to fulfill regulatory requirements to qualify for the federal Medicaid reimbursements. The audit recommended the Missouri Department of Social Services, which administers and disperses the federal funding, pay back all but $1.4 million of the $22.7 million it received from July 1, 2005, through June 30, 2010 — the period of the audit.

The Office of Inspector General has no power to compel the state to pay back the money. That action will be initiated by the Centers for Medicare and Medicaid Services, which will review Missouri’s response and decide whether to pursue full or partial repayment. Missouri has a right to appeal.

There is precedent for repayment in similar situations. In 2009 federal Medicaid officials agreed with the Office of Inspector General and asked Indiana to begin repaying $16.3 million in Medicaid payments made to a psychiatric hospital.

This year, the Office of Inspector General has released four similar audits of mental health hospitals in Indiana and Oklahoma, altogether recommending the repayment of $26.9 million in those states. Last year the office issued a report recommending Illinois repay $82.9 million.

At issue in Missouri is the failure by Hawthorn and the Department of Social Services to demonstrate that they complied with two conditions the audit found mandatory for inpatient mental health facilities that receive federal Medicaid payments.

One condition requires proof of standard staffing, such as a clinical director and director of psychiatric nursing, as well as systems and programs that include therapeutic activities.

The other requires special record keeping for mental health patients such as a standard entry psychiatric evaluation to be done within 60 hours of admission, and a treatment plan.

The audit did not address whether the hospital provided these services, only that it did not undergo proper outside review by mental health professionals. Thus it could not properly demonstrate whether the mandatory staffing and record-keeping were in place.

State officials could not be reached for comment.

Alan Freeman, former director of the Department of Social Services, contested the findings in a letter dated Feb. 13 that was included in the audit. Freeman wrote that federal Medicaid officials failed to notify the state that the hospital was out of compliance and needed to complete an outside review.

He argued that Hawthorn did not need to comply with the special standards for part of the funding because the guidelines applied only to Medicare-receiving, inpatient mental health hospitals that serve patients 65 or older.

For another portion of the funding, he offered a 1985 New Jersey court case in which a hospital successfully argued it was exempt from the special regulations because it was fully accredited with the Joint Commission on Accreditation of Hospital Organizations.

The audit dismissed Freeman’s arguments. It said Medicaid standards had changed since the New Jersey case, and cited a federal law that clarified mental health hospitals, regardless of the age of the patients or accreditation, must follow the federal Medicaid standards for reimbursement.

Freeman resigned unexpectedly from the Department of Social Services last month, just five months after being appointed by Gov. Jay Nixon. His resignation closely followed the sudden departure of Ian McCaslin, Missouri’s Medicaid director and a subordinate of Freeman’s. Legislators and health care advocates said at the time that Nixon had forced out McCaslin. During the most recent legislative session, Nixon unsuccessfully pushed to expand the state’s Medicaid program.

McCaslin has not commented on the situation. Freeman said he left the director’s post because he preferred operating a private agency.Hawthorn Children’s Psychiatric Hospital is a 52-bed facility for children and provides long-term residential psychiatric care as well as shorter acute care for kids in a mental health crisis. The hospital serves children who have no health insurance, limited resources and would not be able to receive care elsewhere.

The audit further recommended that state and federal officials discuss whether Missouri should also pay back the $1.4 million balance of the Medicaid payments to the hospital. That sum was excluded from the audit’s repayment recommendation because federal Medicaid guidelines had been inadvertently omitted from the public register for a four month period when those payments were made.

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