[Audit Report on Medicaid Program Grants, Department of Health, Government of the Virgin Islands]
[From the U.S. Government Printing Office, www.gpo.gov]

Report No. 99-i-957

Title: Audit Report on Medicaid Program Grants, Department of Health,
       Government of the Virgin Islands


Date:  September 30, 1999



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U.S. Department of the Interior
Office of Inspector General



                                                  N-IN-VIS-004-99
AUDIT REPORT


MEDICAID PROGRAM GRANTS,
DEPARTMENT OF HEALTH,
GOVERNMENT OF THE VIRGIN ISLANDS


REPORT NO. 99-I-957

SEPTEMBER 1999




Honorable Charles W. Turnbull
Governor of the Virgin Islands
No. 21 Kongens Gade
Charlotte Amalie, Virgin Islands 00802

Subject: Audit Report on Medicaid Program Grants,
         Department of Health, Government of the
         Virgin Islands (No. 99-i-957)

Dear Governor Turnbull:

This report presents the results of our audit of the management
of Medicaid Program grants by the Bureau of Health Insurance and
Medical Assistance of the Virgin Islands Department of Health.
The objective of the audit was to determine whether (1) the
Department complied with grant terms and applicable laws and
regulations; (2) charges made against grant funds were
reasonable, allowable, and allocable pursuant to the grant
agreement provisions; (3) funds received through electronic
transfers were appropriately deposited and accounted for in the
Government's Financial Management System; and (4) drawdowns were
made in accordance with the Cash Management Act of 1990.  The
scope of the audit included Program activities that occurred
during fiscal years 1997 and 1998.

Based on our audit, we concluded that the Bureau of Health
Insurance and Medical Assistance generally expended grant funds
for purposes that were allowable under the grants and
accomplished the primary objective of providing low-income
individuals with quality health care services.  However, the
Bureau did not effectively perform some of the administrative
functions of the Medicaid Program, did not effectively follow up
on the results of quality control reviews, and did not ensure
that all payroll costs were correct and adequately supported.
Specifically, we found that:

- The Bureau did not (1) ensure that health care providers were
properly licensed and had current agreements with the Medicaid
Program, (2) make purchases of equipment and supplies at the most
cost-effective prices, (3) maintain complete and accurate
property management records and perform physical inventories of
equipment at least biennially, and (4) establish a claims
processing assessment system that was in compliance with Federal
regulations.  As a result, Medicaid Program funds of at least
$1,169 were expended for purchases that, in our opinion, were not
needed to accomplish Program objectives.

- The Bureau did not ensure that (1) individuals whose
eligibility for the Medicaid Program was initially questioned as
a result of quality control reviews were prevented from
continuing to receive Medicaid benefits, (2) individuals who were
subsequently found to have been ineligible were required to
reimburse the Program for medical services received, and (3)
individuals who misrepresented information submitted as part of
the application/certification process were referred for
appropriate legal action.   As a result, medical bills totaling
at least $23,325 were paid on behalf of individuals who did not
meet Medicaid Program eligibility requirements.

- The Bureau did not ensure that (1) Medicaid Program employees
were paid at the correct salary rates, (2) the salaries of
individuals who worked for other branches of the Department of
Health were not charged to the Medicaid Program, and (3)
consultants adequately documented the number of hours worked on
Medicaid Program tasks.  As a result, we took exception to salary
costs of $60,818 that were incorrectly charged against the
Medicaid Program.

We made 14 recommendations to you, as the Governor of the Virgin
Islands, to address the deficiencies identified by the audit.  On
July 14, 1999, we discussed a preliminary draft of this report
with representatives of the Department of Health, who generally
concurred with the recommendations but provided additional
information on the finding areas, which we incorporated into the
report as appropriate.

Based on your September 3, 1999, response to the draft report
(Appendix 2), we considered Recommendations A.2, A.3, A.4, A.5,
C.1, and C.2 resolved and implemented and requested additional
information for Recommendations B.1, B.2, B.3, B.4, B.5, and C.3.
Also based on the response, we revised Recommendation A.1 and
request that your office respond to that recommendation and to
Recommendation A.6, both of which are unresolved.  (The status of
all of the recommendations is in Appendix 3.)

Section 5(a) of the Inspector General Act (Public Law 95-452, as
amended) requires the Office of Inspector General to list this
report in its semiannual report to the Congress. Therefore,
please provide a response to this report by November 5, 1999.
The response should be addressed to our Caribbean Office, Federal
Building - Room 207, Charlotte Amalie, Virgin Islands 00802.  The
response should provide the information requested in Appendix 3.

We appreciate the assistance provided by the Department of Health
staff during the conduct of the audit.

                                           Sincerely,


                                           Earl E. Devaney
                                           Inspector General

CONTENTS

                                                    Page

INTRODUCTION.......................................  1  

 BACKGROUND........................................  1  
 OBJECTIVE AND SCOPE...............................  2  
 PRIOR AUDIT COVERAGE..............................  2  

FINDINGS AND RECOMMENDATIONS.......................  3  

 A.  ADMINISTRATIVE FUNCTIONS......................  3  
 B.  PARTICIPANT ELIGIBILITY........................10  
 C.  PERSONNEL COSTS................................16  

OTHER MATTERS.......................................19  

APPENDICES

 1.  CLASSIFICATION OF MONETARY AMOUNTS.............21  
 2.  GOVERNOR OF THE VIRGIN ISLANDS RESPONSE........22  
 3.  STATUS OF AUDIT REPORT RECOMMENDATIONS.........28  
 
 INTRODUCTION

 BACKGROUND

The Medicaid Program (also known as the Medical Assistance
Program) was established under Titles XIX and XVIII of the Social
Security Act of 1965.  In the Virgin Islands, the Program is
administered by the Bureau of Health Insurance and Medical
Assistance of the Virgin Islands Department of Health.  According
to the Code of Federal Regulations  (42 CFR 430.0), the Program
provides Federal grants for "medical assistance to low-income
persons who are age 65 or over, blind, disabled, or members of
families with dependent children or qualified pregnant women or
children."

The Medicaid Program is jointly funded by the U.S. Department of
Health and Human Services and the Government of the Virgin
Islands on a 50-50 matching basis.  Federal funding included
Title XIX grants of $4.3 million and Title XVIII grants of
$15,600 in fiscal year 1997 and Title XIX grants of $5.2 million
and Title XVIII grants of $15,000 in fiscal year 1998.  The
Government of the Virgin Islands provided its matching share of
Program costs through a combination of cash and in-kind services
provided by Government-owned hospitals and health clinics.  These
contributions included funding of $1.8 million and in-kind
services of $1 million in fiscal year 1997 and funding of $3
million and in-kind services of $3.3 million in fiscal year 1998.
However, because the combination of Federal and local funding did
not cover the complete cost of providing health care services to
eligible participants, the Medicaid Program had accumulated
unpaid medical bills totaling more than $21.5 million for fiscal
years 1993 through 1998.  According to Medicaid Program records,
about $18 million (83 percent) of this amount was owed
Government-owned hospitals, $3.3 million (16 percent) was owed
Government-owned health clinics, and the remaining $200,000 (1
percent) was owed private health care providers.  Because of the
limits imposed (42 CFR 433.10) on Federal funding for the
Medicaid Program in the Virgin Islands, the Government of the
Virgin Islands, in fiscal year 1998, subsidized about 66 percent
of the total cost of the Medicaid Program as opposed to the 50
percent matching share defined in the Social Security Act.  The
Virgin Islands Delegate to Congress has been actively pursuing
legislative action to remove or increase the legal limit on
Federal funding for the Medicaid Program in the Virgin Islands.
At the exit conference, the Department of Health provided
additional information on this issue, which we have included in
the "Other Matters" section of this report.

To be eligible for participation in the Medicaid Program,
applicants are required by the Code of Federal Regulations (42
CFR 436) to meet specific income and financial resources criteria
and to be certified as eligible by the Bureau of Health Insurance
and Medical Assistance.  There were 17,154 certified participants
during fiscal year 1997 and 19,764 certified participants during
fiscal year 1998.  The Bureau of Health Insurance and Medical
Assistance had 33 employees and offices at three locations on St.
Croix and two locations on St. Thomas.

OBJECTIVE AND SCOPE

The objective of the audit was to determine whether (1) the
Department of Health complied with grant terms and applicable
laws and regulations; (2) charges made against grant funds were
reasonable, allowable, and allocable pursuant to the grant
agreement provisions; (3) funds received through electronic
transfers were appropriately deposited and accounted for in the
Financial Management System; and (4) drawdowns were made in
accordance with the Cash Management Improvement Act of 1990.  The
third and fourth parts of the objective relating to electronic
transfers and drawdowns will be addressed in separate audit
reports to be issued after completion of ongoing grant audits.

The scope of the current audit included Program activities that
occurred during fiscal years 1997 and 1998.  To accomplish the
audit objective, we reviewed grant documents, supporting
documentation for expenditures claimed against the grants and for
electronic transfers of Federal funds, and the operating
procedures of the Bureau of Health Insurance and Medical
Assistance of the Virgin Islands Department of Health.  The audit
was conducted at the offices of the Bureau of Health Insurance
and Medical Assistance, the Department of Health, and the
Department of Finance.

Our review was made, as applicable, in accordance with the
"Government Auditing Standards," issued by the Comptroller
General of the United States.  Accordingly, we included such
tests of records and other auditing procedures that were
considered necessary under the circumstances.

As part of our audit, we evaluated the internal controls over
Program operations to the extent we considered necessary to
accomplish the audit objective.  Internal control weaknesses were
identified in the areas of Program administration, participant
eligibility, and personnel costs.  These weaknesses are discussed
in the Findings and Recommendations section of this report.  The
recommendations, if implemented, should improve the internal
controls in these areas.

PRIOR AUDIT COVERAGE

The Office of Inspector General has not conducted any prior
audits of the Medicaid Program in the Virgin Islands.  However,
the single audit  report of the Government of the Virgin Islands
for the fiscal year ended September 30, 1994, included 11
findings related to the Medicaid Program.  Those findings were in
the areas of quality assurance, property management, procurement,
expenditure control, indirect costs, financial reporting,
participant eligibility, and staffing.  Our current audit
revealed that deficiencies related to 5 of the 11 findings had
not been corrected.  The unresolved recommendations related to
(1) establishing a claims processing assessment system, (2)
establishing and maintaining property control records, (3)
establishing and enforcing reimbursement rates in health care
provider agreements, (4) reconciling internal accounting records
to the Government's Financial Management System, and (5)
establishing controls to ensure that debarred providers were
excluded from Medicaid Program participation.  At the July 14,
1999, exit conference on the preliminary draft of this report,
the Executive Director of the Medicaid Program stated that these
findings had been resolved as part of the fiscal year 1995 single
audit.  However, as of July 15, 1999, the fiscal year 1995 single
audit report of the Government of the Virgin Islands had not been
finalized and issued by the independent accounting firm and the
Government.

FINDINGS AND RECOMMENDATIONS

A.  ADMINISTRATIVE FUNCTIONS

The Bureau of Health Insurance and Medical Assistance did not
effectively perform some of the administrative functions of the
Medicaid Program.  Specifically, the Bureau did not (1) ensure
that health care providers were properly licensed and had current
agreements with the Medicaid Program, (2) purchase equipment and
supplies at the most cost-effective prices, (3) maintain complete
and accurate property management records and perform physical
inventories of equipment at least biennially, and (4) establish a
claims processing assessment system that was in accordance with
Federal regulations. The Code of Federal Regulations contains the
administrative requirements (45 CFR 74) for Medicaid Program
grants and the quality assurance requirements (42 CFR 431) for
the Medicaid Program, and U.S. Office of Management and Budget
Circular A-87, "Cost Principles for State, Local, and Indian
Tribal Governments," contains the standards for allowability of
grant costs.  However, Medicaid Program personnel did not comply
with or were not familiar with all of the Federal guidelines, did
not comply with related local guidelines, and did not coordinate
the equipment and supply needs of the St. Thomas and St. Croix
offices.  As a result, (1) there was little assurance that health
care providers were properly licensed and charged appropriate
fees for services provided to Medicaid Program participants; (2)
purchases of $1,169 were, in our opinion, not necessary for
Program operations; (3) equipment was not adequately accounted
for; and (4) there was little assurance that payments made to
health care providers were accurate.

Health Care Providers

The Medicaid Program designates the health care providers to
which Program participants are required to go for medical
treatment.  The Program's first-choice health care providers are
Government-owned hospitals and health clinics.  Program
participants may go to approved private health care providers
only when the required services are not available at one of the
Government-owned institutions and the institution refers the
individual to a private provider.  However, we found that the
Medicaid Program's files pertaining to health care providers did
not accurately reflect the current status of health care
providers who were active participants in the Program.

Government-Owned Providers.  We found that the most recent
agreements between the Medicaid Program and the Government-owned
facilities (two hospitals and five clinics), which specify the
services that the facilities will provide to Medicaid Program
participants and the rates that will be charged by the facilities
for such services, had not been renegotiated since the period of
1991 through 1995.  Although a September 1997 internal memorandum
from the Medicaid Program's Executive Director to the Program
staff listed the daily room rates that were to be charged by the
two hospitals and a March 1994 letter listed the rates for
emergency medical services, the Medicaid Program files did not
have current health care agreements for fiscal years 1997 or
1998.

In addition, we found that although the Government-owned
facilities provided health care services totaling $6.6 million
during fiscal year 1998, the facilities were paid only $3.3
million, or one-half of the amount billed.  The unpaid balance of
$3.3 million was treated by the Government of the Virgin Islands
as in-kind contributions towards its matching share of Medicaid
Program costs.  The Chief Executive Officers of the two hospitals
told us that the hospitals (as of May 14, 1999) were
semiautonomous entities that had to generate their own operating
revenues and that it was therefore imperative that they receive
payment for all services provided to Medicaid Program
participants.

Private Providers.  We were unable to determine the number of
private health care providers who were certified by the Medicaid
Program because the files were numbered sequentially with no
identifying information as to the applicable fiscal years or as
to which files were active.  Further, based on our detailed
review of the files for 25 providers who were identified to us by
Medicaid Program employees as active, we found that only 6 of the
providers had executed health care provider agreements for the
current year and that only 5 of the providers had submitted
documentation evidencing the current status of their health care
licenses or certifications.  The Medicaid Program's internal
regulations require that Medicaid Program staff obtain copies of
health care providers' licenses or certifications prior to
accepting the providers as Program participants.  In addition, we
noted a January 1998 letter sent to a specific provider which
stated that hospitals had to submit a current copy of their
accreditation status or certification letter and that physicians
and other ancillary service providers had to submit a current
copy of their health care licenses.  However, Medicaid Program
staff did not ensure that these requirements were met.

Medicaid Program officials told us that although letters were
sent to health care providers reminding them of the documentation
requirements, many providers did not submit the copies of
licenses or certification letters.  

We also found that providers were allowed to participate in the
Program on the basis of agreements that had been negotiated as
many as 10 years ago (1989) and for which cost reimbursement
rates and other negotiated conditions may have changed.
Additionally, current agreements were not always complied with.
For example, a pharmacy negotiated a provider agreement in July
1998 and agreed to bill the Medicaid Program at approved Medicare
rates.  However, the pharmacy subsequently billed the Program and
was paid at its standard rates for medications.  The single audit
report on the Government of the Virgin Islands for fiscal year
1994 (see Prior Audit Coverage) recommended that the Bureau of
Health Insurance and Medical Assistance implement procedures to
ensure that health care provider agreements and established
billing rates are recertified annually.  Based on our current
review, we found that this recommendation had not been
implemented.

In an effort to contain costs, the Program's Executive Director
had initiated efforts, as of September 1998, to contract with a
pharmacy card system provider in Atlanta, Georgia.  Additionally,
Program employees were instructed to mark down bills received at
standard rates to the approved Medicare rates.  However, because
of the reduced rates and the delays that have occurred in the
payment of provider bills, some private health care providers
have refused to participate in or have discontinued participation
in the Medicaid Program.

At the July 14, 1999, exit conference on the preliminary draft of
this report, the Executive Director of the Medicaid Program
stated that, in her opinion, it was not necessary to prepare new
provider agreements unless the rates to be charged by the
providers changed or new agreements were required by other
Federally funded programs which provided reimbursements for
Medicaid services provided to participants of those other
programs.  The Executive Director did agree, however, that many
of the more than 1,000 provider agreements on file at the
Medicaid offices needed to be removed from the files because they
were inactive.

Procurement Practices

During fiscal year 1998, the Medicaid Program purchased equipment
totaling $105,200 ($100,700 from Federal funds) and supplies
totaling $26,200 ($17,000 from Federal funds).  In general, these
purchases were made in accordance with competitive procurement
requirements.  For purchases of $5,000 or less, the Medicaid
Program obtained two price quotations, and for purchases of more
than $5,000, the Program processed the procurement actions
through the Commissioner of Property and Procurement with letters
of justification. However, we did note two areas where
improvements could be made by the Medicaid Program as follows:

-  Medicaid Program officials on St. Thomas and St. Croix did not
coordinate purchases to obtain better prices by consolidating
their orders for common supplies.  For example, while the St.
Croix office was able to purchase certain Medicaid forms at a
unit price of $77.60 per case of 1,000 forms, the St. Thomas
office paid another vendor $88.31 per case of 1,000 of the same
forms.  If the purchases had been consolidated and made from the
St. Croix vendor, the St. Thomas office could have saved $10.71
per case, or a total of $535.50 for 50 cases.

-  In April 1999, the Medicaid Program purchased a refrigerator
and  two microwave ovens, at a total cost of $1,169.  These items
were purchased with Federal funds and, in our opinion, were not
essential to the functioning of the Medicaid Program.  Also,
Medicaid Program employees had access to a refrigerator and a
microwave oven at the administrative offices on St. Thomas.
Because of the limited Federal and local funding available to the
Medicaid Program, we believe that the purchase of new items in
April 1999 was not a reasonable expenditure of Program funds, as
defined in U.S. Office of Management and Budget Circular A-87.[1] 

At the July 14, 1999, exit conference on the preliminary draft of
this report, the Executive Director of the Medicaid Program
stated that, in her opinion, the refrigerator and two microwave
ovens were legitimate purchases with grant expenditures.
However, we disagreed with the Executive Director and noted that
our report recommended (see Recommendation 4) that the supporting
documents for those expenditures be provided to the Federal
grantor agency for its final determination as to the allowability
of the questioned costs.

Property Management

The Medicaid Program did not maintain current and accurate
property management records or perform biennial physical
inventories of equipment, as required by the administrative
requirements (commonly referred to as the "Common Rules") for
Federal grant programs.  The single audit report on the
Government of the Virgin Islands for fiscal year 1994 (see Prior
Audit Coverage) recommended that the Bureau of Health Insurance
and Medical Assistance establish property management records  in
compliance with the Code of Federal Regulations (45 CFR 74.34).
However, our current review disclosed that existing property
management records were not complete and that, although a
physical inventory was performed at the St. Thomas Medicaid
Program offices during December 1998 through February 1999, the
records documenting that inventory were not complete.
Specifically, the property records did not include 29 items that
were located at the Program's Certification Unit office; did not
identify the source of funds used to purchase equipment items;
and did not include the cost of 29 items, the serial numbers for
5 items, and the Government property numbers for 2 items.  We
also found that, although the "Common Rules" requires that
adequate maintenance procedures be developed to keep Federally
funded equipment in good condition, seven items of equipment were
not operative and a maintenance contract could not be negotiated
with the vendor for a $15,000 photocopier because the Government
of the Virgin Islands had not paid the vendor for services
provided to other agencies.

Although the Medicaid Program's St. Croix branch provided us with
property management records for 58 equipment items, there was no
documentation indicating that complete physical inventories were
performed biennially.  The Assistant Director told us that the
property records were updated each year as new items were
purchased, which we believe indicates that the records were not
reconciled and updated based on periodic physical inventories of
equipment.

Claims Processing

The Code of Federal Regulations (42 CFR 431.806) requires that
states participating in the Medicaid Program establish a claims
processing assessment system as part of their quality control
procedures.  The purpose of a claims processing assessment system
is to ensure that bills submitted by health care providers for
services to Medicaid participants are accurate and are prepared
in accordance with Medicaid Program requirements.  However,the
Health Care Financing Administration's Director of State Systems
told us that the Virgin Islands was exempt from the requirement
to establish a formal claims processing assessment system that
met the Federal requirements.  Despite the exemption, the Bureau
of Health Insurance and Medical Assistance had internal
procedures for limited quality assurance reviews of claims
received for payment at the time of our audit.  Our review of
these internal procedures disclosed that the Medicaid Program's
quality assurance review process included the review and approval
by a designated physician of procedural codes on bills submitted
by private health care providers and the reduction of bills that
were based on rates which were above the established
reimbursement rates.  However, we also found that such reviews
were not performed for bills submitted by the Government-owned
hospitals and clinics and by privately owned pharmacies.
Although we did not find any errors as a result of our review of
32 reimbursement vouchers, totaling $874,000, the sample
represented only 3 percent of the total value of Medicaid Program
reimbursements made to health care providers during fiscal years
1997 and 1998.  Without a quality assurance review process that
includes all claims that were processed for payment, there was
little assurance that erroneous reimbursement claims were not
made.

Recommendations

We recommend that the Governor of the Virgin Islands direct the
Commissioner of Health to ensure that the Bureau of Health
Insurance and Medical Assistance:

1. Establishes and implements procedures to require that health
care providers submit to the Bureau and periodically update their
medical licenses, certifications, and/or accreditation status
reports (as appropriate) and periodically (preferably annually)
execute provider agreements with the Bureau that specify the
rates at which they will bill for services provided to Medicaid
Program participants.

2. Requires that its branch offices coordinate their supply and
equipment needs to ensure that the most economical prices are
obtained through consolidated purchases of such items.

3. Ensures that its staff becomes familiar with and complies with
the cost principles contained in U.S. Office of Management and
Budget Circular A-87.

4. Submits to the Federal grantor agency supporting documents for
the questioned costs of $1,169 so that the grantor agency can
make a final determination as to whether the costs are allowable.

5. Establishes and implements procedures to require that property
management records are maintained and updated in accordance with
the "Common Rules" (45 CFR 74) and that physical inventories of
equipment are conducted at least biennially.

6. Revises its internal quality assurance review process for
claims received for payment to include a sample of claims
submitted by the Government-owned hospitals and clinics and by
privately owned pharmacies.

Governor of the Virgin Islands Response and Office of Inspector
General Reply

The September 3, 1999, response to the draft report (Appendix 2)
from the Governor of the Virgin Islands concurred with
Recommendations 2, 3, and 5; partially concurred with
Recommendation 1; and nonconcurred with Recommendations 4 and 6.
Based on the response, we consider Recommendations 2, 3, 4, and 5
resolved and implemented and Recommendations 1 and 6 unresolved
(see Appendix 3).

Recommendation 1.  Partial concurrence.

Governor of the Virgin Islands Response.  The response concurred
with the part of the recommendation requiring that health care
providers periodically update their medical licenses,
certifications, and/or accreditation reports.  In that regard,
the response stated that "[a] form will be developed by the
Assistant Director in charge of Special Services by October 31,
1999 which will incorporate" the recommendation.  However, the
response did not concur with the part of the recommendation
requiring the Medicaid Program office to execute annual provider
agreements which specify the rates at which medical services will
be reimbursed.  The response stated that this part of the
recommendation "is not practical and there is no regulation
requiring this.  In addition, the recommendation to specify the
rates at which [health care providers] will bill for services is
redundant in that providers have already been advised that they
will be reimbursed by the Medicaid Program at Medicare rates.
There is no reason for an annual update.  Providers will be
updated when and if necessary as reimbursement policies changes."

Office of Inspector General Reply.  The response sufficiently
addressed the part of the recommendation regarding medical
licenses, certifications, and accreditations.  However, our
recommendation requiring that health care service provider
agreements to be renewed periodically (preferably annually) was
based on our findings that (1) provider agreements had not been
renewed or renegotiated for periods of up to 10 years, (2) it was
not possible to identify active providers by reviewing the
Bureau's files because the files included agreements that had
expired and had not been removed from the files, and (3) some
providers did not bill in accordance with their existing
agreements.  Additionally, although there was no specific legal
requirement that provider agreements should be renewed annually,
periodic annual renewals or extensions of contracts are a common
business practices, which, in our opinion, should be applied to
the health care provider agreements.  Accordingly, we have
revised the recommendation to specify the frequency of execution
of provider agreements.  Therefore, we request that the revised
recommendation be reconsidered (see Appendix 3).

Recommendation 4.  Nonconcurrence.

Governor of the Virgin Islands Response.  The response stated,
"While we philosophically do not agree with this recommendation
in terms of the interpretation of Circular A-87 in that federal
dollars cannot be used to purchase these items [a refrigerator, a
microwave oven, and a television/video recorder unit for use by
the staff], we have prepared a Voucher for Adjustment of
Expenditures . . . which will return the $1,169 to the federal
account and charge the local account for the same amount."

Office of Inspector General Reply.  We continue to believe that
Federal funds should not have been used to purchase a
refrigerator and a microwave oven for use by Medicaid Program
staff because these purchases were not considered to be
reasonable or allowable costs in accordance with Circular A-87 in
that those items were not "generally recognized as ordinary and
necessary for the operation" of the Medicaid Program.  However,
we believe that the corrective actions taken by the Medicaid
Program meet the intent of the recommendation.

Recommendation 6.  Nonconcurrence.

Governor of the Virgin Islands Response.  The response stated
that the requirement for a claims processing assessment system
does not apply to the United States territories (including the
Virgin Islands) and that the Government's independent public
accountants had verified this exemption with U.S. Health Care
Financing Administration officials as part of the fiscal year
1995 single audit of the Government.

Office of Inspector General Reply.  Upon receipt of the
Governor's response, we confirmed from the Health Care Financing
Administration that the Virgin Islands is exempt from the Federal
requirement for establishment of a formal claims processing
assessment system as defined in the Code of Federal Regulations
(42 CFR 431.806 and 431.830-431.836).  However, even with such an
exemption, we believe that the Medicaid Program in the Virgin
Islands should have an internal quality assurance process that
requires a review (a limited statistical sample) of all claims
received for processing so as to provide full assurance that
Medicaid payments are legitimate and accurate.  Such assurance
would be especially beneficial because of the legal limit on
Federal funding provided for the Medicaid Program in the Virgin
Islands, which places a greater burden on the Government of the
Virgin Islands (see the Other Matters section of this report).
To the extent that the Medicaid Program can eliminate claims that
are erroneous, the Program can more effectively use the limited
Federal and local funds that are available to provide quality
health care services to needy individuals in the Virgin Islands.
Based on the response and the additional information obtained
from the Health Care Financing Administration, we have revised
the recommendation to ensure that the internal quality assurance
review process for claims received for payment is revised to
include a sample of claims submitted by the Government-owned
hospitals and clinics and by privately owned pharmacies.
Accordingly, we request that the revised recommendation be
reconsidered (see Appendix 3).

**FOOTNOTES**

[1]:Circular A-87 states, "A cost is reasonable if, in its nature
and amount, it does not exceed that which would be incurred by a
prudent person under the circumstances prevailing at the time the
decision was made to incur the costs."  The Circular further
states that "the cost is of a type generally recognized as
ordinary and necessary for the operation of the governmental unit
or the performance of the Federal award."

B.  PARTICIPANT ELIGIBILITY

The Bureau of Health Insurance and Medical Assistance did not
effectively follow up on the results of quality control reviews
performed to ensure the eligibility of Medicaid Program
participants.  The requirements for eligibility under the
Medicaid Program are contained in the Social Security Act and
summarized in the Medicaid Program Certification Manual and the
State Plan.  Additionally, the Code of Federal Regulations (42
CFR 455) contains guidelines for investigating and penalizing
persons who defraud or abuse the Medicaid Program.  However, the
Bureau did not develop internal guidelines for preventing,
detecting, and taking action on ineligible participants,
including the collection of amounts owed for services
inappropriately received through Program participation.  As a
result, during fiscal years 1997 and 1998, at least 18 ineligible
participants in the St. Thomas and St. Croix districts improperly
received free medical services under the Medicaid Program, at a
total cost to the Program of  $23,325.

Quality Control Process

The Bureau's Quality Control Unit performed monthly quality
control reviews of a sample of 12 Medicaid Program cases (7 cases
that were closed during the month and 5 cases that were certified
or recertified during the previous month).  The purpose of the
quality control reviews was to identify "technical" and
"eligibility" errors in the Medicaid Program
application/certification process.  "Technical" errors involved
mistakes made by Medicaid Program staff during the process, and
"eligibility" errors involved mistakes or misrepresentations of
information by applicants.  Eligibility errors were identified
through confirmations obtained by quality control staff from such
sources as local banks, the Social Security Administration
office, the Tax Assessor's Office, and the applicants' employers.
The results of the quality control reviews were presented to the
Certification Unit through memoranda that summarized the quality
control findings and requested a response within a specific time
period, usually 2 weeks.  Based on our review of the quality
control process, we concluded that the Quality Control Unit had
been effective in detecting and reporting errors in the
application/certification process that resulted in losses of
Medicaid Program funds.  However, we found that prompt followup
actions were not taken by other Medicaid Program units to (1)
prevent ineligible individuals from continuing to receive
Medicaid benefits, (2) recoup amounts improperly paid for medical
services provided to such individuals, and (3) refer cases that
potentially involved intentional fraud or abuse for legal
actions.

Suspension of Ineligible Participants.  If Medicaid Program
participants were found by the Quality Control Unit to have
resources (cash in bank accounts, real property, or other assets)
in excess of the established Program guidelines, their
eligibility was questioned.  However, the individuals were not
considered ineligible and their participant certifications were
not suspended or revoked until they came to the Certification
Unit office to have their financial situation reevaluated.  We
found instances in which the individuals with questioned
eligibility refused to return to the Certification Unit to have
their cases reevaluated, and Medicaid Program officials did not
suspend the individuals' participation in the Program after
giving them a reasonable opportunity to have their cases
reviewed.  Section 401 of the Medical Program Certification
Manual states:

If the information provided by the applicant or recipient is
inconclusive, and the Bureau is unable to obtain necessary data
from other records, and the individual is unwilling to have the
Bureau seek verification of information, there is no other
recourse but to deny or terminate assistance.  The individual
will be provided with official notification of the Bureau's
decision and of the right to appeal that decision if the person
so desires.

To determine whether individuals were required to provide
supplemental documentation to the Certification Unit or had their
eligibility suspended if they refused to come into the
Certification Unit for review after their eligibility was
questioned by a quality control review, we examined the records
related to all eligibility errors reported by the Quality Control
Unit during fiscal years 1997 and 1998, we found that there were
50 such eligibility errors and that medical service bills
totaling $35,842 were paid on behalf of 26 of the 50 participants
(22 on St. Thomas/St. John and 4 on St. Croix).  According to
Medicaid Program requirements, individuals who had more than
$1,500 in cash were not eligible to participate in the Program;
therefore, eligibility was questioned when participants were
found to have cash resources in excess of the $1,500 limit.  For
example, a St. Croix participant's eligibility was questioned by
the Quality Control Unit on August 13, 1996 (with a second notice
to the Certification Unit on October 31, 1996), because the
participant had a total of $4,887 in two local bank accounts.
Despite these findings, medical bills totaling $1,162 were paid
for services provided to the individual during the period of
December 1996 through March 1998, which was after the August 13,
1996, finding of questioned eligibility.

The Medicaid Program did not have detailed written guidelines for
handling cases in which participants were found, as a result of
quality control reviews, to have had their eligibility
questioned.  For at least 5 of the 50 eligibility errors reported
by the Quality Control Unit, Certification Unit personnel stated
that the participants had refused to return to the Medicaid
Program for formal reevaluation of their eligibility status
and/or to give up their Medicaid Program participant cards.
Although Section 401 of the Medicaid Program Certification Manual
states that in such cases participation in the Medicaid Program
will be terminated, these individuals were allowed to continue
obtaining medical services through the Medicaid Program for which
health care providers billed the Medicaid Program.

In our opinion, the Medicaid Program should establish procedures,
supplemental to the basic guidelines contained in the
Certification Manual, to suspend the Medicaid Program cards of
participants who are found to be ineligible or who refuse to come
to the Certification Unit to have their eligibility reassessed
after a finding of questioned eligibility by the Quality Control
Unit.  In addition, we believe that the Medicaid Program should
establish procedures by which the Fiscal Services Unit would
review bills from health care providers to identify and delete
charges for individuals who had been suspended or terminated from
the Program.  The Executive Director of the Medicaid Program told
us that it was not practical to require the Fiscal Services Unit
to perform the recommended review of bills because of the large
numbers of such bills and the labor-intensive manual nature of
the bill processing system.  However, the Executive Director
stated that the Medicaid Program was planning to implement an
automated bill processing system in fiscal year 2000 and that, at
that time, reviewing bills for the names of suspended and
terminated individuals would be possible.

Recovery of Ineligible Medical Costs.  The Medicaid Program did
not have formal policies and procedures for collecting, from
participants who were found to be ineligible, amounts paid to
health care providers on their behalf.  We found that, during
fiscal years 1997 and 1998, at least 18 ineligible participants
in the St. Thomas and St. Croix districts improperly received
free medical services under the Medicaid Program, at a total cost
to the Program of  $23,325.  The Medicaid Program was able to
recover only $658 of that amount.  For example, as a result of a
quality control review conducted during the period of November
1997 to January 1998, the Medicaid Program determined that a
participant who had received medical services costing the Program
$11,173 was ineligible because he had more than $16,000 in a
local bank account.  On January 14, 1998, the individual was
notified in writing that he had improperly received $607 in
medical services (since determination of his ineligibility).
Although the individual reimbursed the Medicaid Program for this
$607, the remaining $10,566 that was improperly paid on his
behalf was not recovered.

In our opinion, the Medicaid Program should develop and implement
procedures for billing and collecting from ineligible
participants amounts improperly paid to health care providers on
their behalf.  Such procedures should include referring
uncollected amounts for legal action after reasonable
administrative efforts, such as written notifications, telephone
contacts, and personal contacts, to collect the bills have been
unsuccessful.

Referral of Fraud and Abuse Cases.  The Code of Federal
Regulations (42 CFR 455.15) states, "If there is reason to
believe that a recipient has defrauded the Medicaid program, the
[Medicaid] agency must refer the case to an appropriate law
enforcement agency."  The Code (42 CFR 455.2) defines "fraud" as
"an intentional deception or misrepresentation made by a person
with the knowledge that the deception could result in some
unauthorized benefit to himself or some other person."

Of the 50 eligibility errors reported by the Medicaid Program's
Quality Control Unit, individuals in 8 instances had more than
$11,000 in cash at the time they applied to participate in the
Medicaid Program.  Additionally, in each instance, the
individuals stated, at the time of their certification reviews,
that they did not have bank accounts.  In one instance, the
individual had $56,400 in a bank account and also owned rental
property valued at $10,400.  In our opinion, these eight cases
were appropriate for referral to a law enforcement agency in
accordance with the Code of Federal Regulations.  However,
because the Medicaid Program did not have formal procedures for
such referrals, they were not made.

The Medicaid Program's Executive Director told us that she had
suggested to the former Commissioner of Health that an
interagency fraud task force be established to investigate
potential fraud cases originating in the Department of Health and
the Department of Human Services.  We agree that an interagency
fraud task force should be established.  However, we also believe
that the Medicaid Program needs to establish internal procedures
to refer potential Medicaid fraud cases to an appropriate law
enforcement agency.

Recommendations

We recommend that the Governor of the Virgin Islands:

1. Direct the Commissioner of Health to ensure that the Bureau of
Health Insurance and Medical Assistance establishes and
implements procedures to prevent ineligible participants from
continuing to obtain free medical services at the expense of the
Medicaid Program.  Such procedures should include deactivating
the ineligible individuals' Medicaid Program cards, notifying
health care providers of the individuals' ineligible status, and
reviewing health care providers' bills (either manually or
mechanically) for charges related to individuals who have been
determined to be ineligible for participation.

2. Direct the Commissioner of Health to ensure that the Bureau of
Health Insurance and Medical Assistance establishes and
implements procedures to enforce the collection of amounts
improperly paid to health care providers on behalf of individuals
who are determined to be ineligible for participation in the
Medicaid Program.  These procedures should include referring the
individuals for legal action after reasonable administrative
efforts, such as written notification, telephone contacts, and
personal contacts, have been made but have not been successful.

3. Direct the Commissioner of Health to ensure that the Bureau of
Health Insurance and Medical Assistance submits to the Federal
grantor agency supporting documents for the questioned costs of
$23,325 so that the grantor agency can make a final determination
as to whether the costs are allowable.

4. Direct the Commissioner of Health to ensure that the Bureau of
Health Insurance and Medical Assistance establishes and
implements procedures to identify and refer to appropriate law
enforcement authorities (such as the Virgin Islands Attorney
General or the U.S. Attorney's Office) cases of suspected
fraudulent intent in misrepresenting personal information as part
of the Medicaid application and certification process.

5. Establish an interagency fraud task force to identify,
coordinate, and investigate cases where individuals use
fraudulent practices to improperly obtain certification for
participation in Government-financed programs intended to service
needy segments of the community.

Governor of the Virgin Islands Response and Office of Inspector
General Reply

The September 3, 1999, response to the draft report (Appendix 2)
from the Governor of the Virgin Islands concurred with
Recommendations 4 and 5, partially concurred with Recommendations
1 and 2, and nonconcurred with Recommendation 3.  Based on the
response, we request additional information for Recommendations
1, 2, 3, 4, and 5 (see Appendix 3).

Recommendation 1.  Partial concurrence.

Governor of the Virgin Islands Response.  The response included a
schedule with additional information based on the Medicaid
Program's followup analysis of the specific cases of questioned
eligibility cited in the draft of this report.  Based on this
analysis, the response concurred with our initial determination
in 12 cases, did not concur in 10 cases, and could not make a
determination in 4 cases.  With regard to the recommendation, the
Bureau stated that it was "negotiating for a new computer system
for certification and billing which will allow for interfacing
between all of these departments.  At the point that a client is
found ineligible, we will have the capability to enter the system
and remove the client's name from the master list. . . . We
expect to have this system in place and running by the middle of
FY [fiscal year] 2000.  In the interim, attached instructional
memos have been issued to Certification Supervisors regarding
this subject.  The major problem in the past has been the severe
lack of staffing in the Certification Units on both St. Thomas
and St. Croix.  We continue to have staff shortages in this
area."

Office of Inspector General Reply.  Based on the information
included with the response, we have revised the number of
ineligible participants in the finding from 27 to 18 and the
associated questioned costs from $37,672 to $23,325. Based on the
response, we request additional information (see Appendix 3).

Recommendation 2.  Partial Concurrence.

Governor of the Virgin Islands Response.  The response stated: 

Establishment and implementation of procedures to enforce the
collection of amounts improperly paid to health care providers on
behalf of individuals who are determined to be ineligible for
participation in the Medicaid Program was done about one year
ago.  Many of the cases reviewed by the auditors were for service
dates prior to that time. . . . The QC [Quality Control]
Supervisor is meeting with the newly appointed attorney in the
office of the Commissioner of Health in an effort to get legal
guidance on how to proceed once all administrative efforts have
been exhausted.

Office of Inspector General Reply.  As stated in our reply to
Recommendation 1, we have revised the finding and the reported
questioned costs based on the additional information provided.
Based on the response, we request additional information (see
Appendix 3).

Recommendation 3.  Nonconcurrence.

Governor of the Virgin Islands Response.  The response stated: 

An indepth review of cases reveal that there is some difference
of opinion in the disposition of the cases.  We therefore request
that before the amount of $35,672 is submitted to the grantor
agency, auditors should re-review the cases in conjunction with
the Certification Supervisors and the Assistant Directors.  We
also request that, once final disposition is made, our office be
given the opportunity to attempt recovery of the specified
monies.  Any remaining amounts would then be submitted to the
grantor agency for final determination.

Office of Inspector General Reply.  We have revised the
recommendation and Appendix 1 by reducing the amount of
questioned costs from the $35,672 stated in the draft report to
the $23,325 verified by the Medicaid Program's followup analysis.
Based on the response, we request additional information (see
Appendix 3).

C.  PERSONNEL COSTS

The Bureau of Health Insurance and Medical Assistance did not
ensure that payroll charges made against Medicaid Program funds
were reasonable, allowable, and allocable pursuant to the grant
agreement provisions.  Specifically, the Bureau did not ensure
that (1) Medicaid Program employees were paid correct salary
rates, (2) the salaries of individuals who worked for other
branches of the Department of Health were not charged to the
Medicaid Program, and (3) consultants adequately documented the
hours they worked on Medicaid Program tasks.  The requirements
for the allowability of grant costs are contained in U.S. Office
of Management and Budget Circular A-87.  However, the Medicaid
Program did not have internal procedures to require that payroll
records be routinely reviewed to ensure their accuracy.  As a
result, we took exception to salary costs of $60,818 that were
incorrectly charged to the Medicaid Program.

Personal Services Costs

U.S. Office of Management and Budget Circular A-87 contains
detailed guidance on the types of personal services costs that
may be charged against Federally funded programs and the type of
documentation required to support such charges.  Among other
provisions, Circular A-87 requires that the related personal
services costs for employees who are expected to work for only
one activity be supported by semiannual certifications which
state that the employees' work activities are for the specific
program.  When employees are expected to work for more than one
activity, detailed personnel activity reports or other time
distribution records are required to be maintained to record the
number of hours worked by the employees on each activity, and
those records are required to be used to distribute the related
personal services costs among the various activities.  To
determine the extent of compliance with Circular A-87, we
reviewed the payroll documents for a statistical sample of 10 pay
periods (5 from each  fiscal year reviewed), which had gross
salary costs totaling $144,732.

Incorrect Salary Rate.  We found that an employee of the Medicaid
Program was paid at the incorrect salary rate for  34.5 biweekly
pay periods (July 21, 1997, to November 13, 1998) with the
Program.  The employee's salary as shown on the Notice of
Personnel Action was $16,019 per year.  However, the employee was
paid $19,019 per year, which resulted in an overpayment of $3,981
for the 34.5 biweekly pay periods.  Because the employee's salary
was funded 50 percent from Federal funds, $1,990 of the $3,981
overpayment was charged against Federal funds.  Medicaid Program
officials stated that the incorrect salary rate may have occurred
because of a data entry error.

Medicaid Program officials said that under established
procedures, Notices of Personnel Action are prepared and the
pertinent information entered into the centralized payroll system
by the Virgin Islands Division of Personnel.  Once the employees'
records have been established on the payroll system, the Payroll
Section of the Department of Health enters the number of hours
worked and hours of leave taken by each employee each pay period.
After the biweekly payrolls are processed, a copy of the payroll
register is provided to the Department of Health for its records.
Medicaid Program officials said that although they had been
consistently receiving copies of the biweekly payroll registers
for Program employees since fiscal year 1998, they did not review
the registers thoroughly to ensure that the salary rates paid to
employees were accurate and that they therefore did not detect
the $3,981 overpayment to the employee we identified.

We believe that the Medicaid Program should establish written
procedures to require the initial salaries and subsequent salary
changes for all employees to be verified between the Notices of
Personnel Action and the first payroll register on which the new
or revised salary appears.  For subsequent pay periods, the
current payroll totals should be compared with the totals on the
prior payroll register for followup review.

Non-Employee Salary Costs.  We also found that when a former
employee of the Medicaid Program was transferred to another job,
the employee's biweekly payroll costs continued to be charged
against Medicaid Program funds.  On May 9, 1996, the employee
transferred from a $21,539 per year position with the Medicaid
Program to a $23,090 per year position in another unit of the
Department of Health.  However, the employee's biweekly payroll
costs at the new $23,090 salary rate continued to be charged
against Medicaid Program funds until November 22, 1997 (a total
of 64 biweekly pay periods).  Therefore, salary costs of $56,837
($888.08 per pay period times 64 pay periods), plus an
undetermined amount of fringe benefit costs, were improperly
charged against the Medicaid Program.  Program officials told us
that they became aware of the incorrect payroll charges in
November 1997, when payroll registers were first provided to them
on a consistent basis, and that they requested Department of
Health, Department of Finance, and Division of Personnel
officials to correct the error.  However, during our audit, the
Administrator of Fiscal Services told us that the incorrect
charges had not been corrected.

Unsupported Contractor Hours.  We found that two medical
consultants who were responsible for reviewing bills submitted by
health care providers to ensure the accuracy of the amounts
billed did not provide the Medicaid Program with detailed records
to document the number of hours they worked and for which they
charged the Program.  One consultant was paid $45 per hour for 10
hours per week, and we observed him at the Medicaid Program for
about 4.5 hours on Thursdays.  The second consultant was paid
$26.08 per hour for 12 hours per week, and we observed him at the
Medicaid Program for about 4.5 hours each on Tuesdays and
Fridays.  When we asked Program officials how the first
consultant justified charges for 10 hours per week when he worked
only about 4.5 hours on Thursdays, they stated that the
consultant also performed some of his review work via telephone
from home.  However, we were not provided with any documentation
to support the number of hours worked by either consultant.  We
believe that consultants who are paid on an hourly basis should
be required to provide documentation of the hours worked in
accordance with the requirements of Circular A-87.

At the July 14, 1999, exit conference on the preliminary draft of
this report, the Executive Director of the Medicaid Program
stated that the medical consultants were now required to fill out
time sheets to document the actual hours they worked on Medicaid
Program tasks.

Recommendations

We recommend that the Governor of the Virgin Islands direct the
Commissioner of Health to ensure that the Bureau of Health
Insurance and Medical Assistance:

1. Establishes and implements procedures to require the initial
salaries and subsequent salary changes for all Medicaid Program
employees to be verified between the Notices of Personnel Action
and the first payroll register on which the new or revised salary
appears and that the current payroll totals be compared with the
totals of the prior payroll register for subsequent pay periods
to identify any errors that might require followup inquiry.

2. Establishes and implements procedures to require
documentation, as required by Circular A-87, to be maintained for
all Medicaid Program employees and for consultants who are paid
on an hourly basis.  Such documentation should include, for
individuals who work for only one activity, semiannual
certification that they work for the Medicaid Program and, for
individuals who work for more than one activity, personnel
activity reports or other time distribution records that record
the hours worked for each activity

3. Submits to the Federal grantor agency supporting documents for
the cost exception of $60,818 for salaries so that the grantor
agency can make a final determination as to whether the costs are
allowable.

Governor of the Virgin Islands Response and Office of Inspector
General Reply

The September 3, 1999, response to the draft report (Appendix 2)
from the Governor of the Virgin Islands concurred with
Recommendations 1, 2, and 3.  Based on the response, we consider
Recommendations 1 and 2 resolved and implemented.  Regarding
Recommendation 3, the response addressed the salary costs of
$56,837 for employees of another Department of Health unit that
were erroneously charged to Medicaid Program accounts, but did
not address the $3,981 that was overpaid to a Medicaid Program
employee.  Therefore, we request additional information for
Recommendation 3 (see Appendix 3).

OTHER MATTERS

During our July 1999 exit conference, the Executive Director of
the Medicaid Program requested that we include in our report
information from her February 1999 issue paper, which, according
to her, presented information to document the "negative effect"
that legislated limitations on Medicaid reimbursements to the
United States territories has had on the ability of the
Government of the Virgin Islands to provide health care services
to eligible residents.  The issue paper discussed four areas as
follows:

- The issue paper stated that amendments to Section 1108c of the
Social Security Act passed in 1997 imposed a limit on the amount
of Federal reimbursements the territories may receive each year
for Medicaid costs; that the limit was $2.6 million until fiscal
year 1993, when the Congress passed an additional amendment to
establish a formula for annual increases to the limit.  The
formula links increases in the Medicaid reimbursement limit to
the percentage increase in the medical component of the consumer
price index for all urban consumers.  The issue paper further
stated that, under this formula, the Medicaid reimbursement
ceiling has increased by an average of 5 percent per year and
accordingly was set at $5.26 million for fiscal year 1998 and
$5.4 million for fiscal year 1999.  However, according to the
issue paper, Medicaid costs in the Virgin Islands were
significantly higher.  The issue paper then cited the example of
the Medicaid Program providing health care services valued at
$14.2 million during fiscal year 1997 and $15.6 million during
fiscal year 1998.  However, we found, in each instance, that the
Government of the Virgin Islands had to fund (either through cash
or in-kind contributions) the health care services in excess of
the Federal limit.

- The issue paper stated that the Federal matching share for
Medicaid Program costs in the 50 states is based on a formula
that is connected to the per capita income in each state, with
the matching share increasing as per capita income decreases and
that for the 50 states, the Federal matching share ranged from 50
to 83 percent.  However, according to the issue paper, the
Federal matching share for the territories is fixed at 50
percent.  The issue paper cited examples that 9 of the 50 states
had a per capita income of less than $15,000 and Federal matching
share rates of more than 70 percent and that the Virgin Islands,
with a per capita income of $11,052, was limited to a matching
share of 50 percent.  Additionally, according to the issue paper,
the mandated limit on Federal Medicaid reimbursements to the
territories resulted in an actual Federal matching share in the
Virgin Islands of only 31 percent in fiscal year 1997 and 34
percent in fiscal year 1998.

- The issue paper stated that the treatment of U.S. territories
under the Medicaid legislation also prevented the Virgin Islands
from participating in programs that are supplemental to the basic
Medicaid Program.  The issue paper cited the example that
although the 50 states receive additional funding for the
establishment and upgrade of computerized management information
systems for their Medicaid operations, the Virgin Islands must
fund such computerization from the basic Federal Medicaid
allocation.

- The issue paper stated that the Medicaid Program in the Virgin
Islands was further negatively impacted by the inability of the
Government of the Virgin Islands to fully fund the larger
matching burden placed on it by the limitations on the level of
Federal cost sharing.  As a result, we noted that the
Government-owned hospitals and clinics have had to absorb the
unfunded costs of providing health care services to Medicaid
participants, which has put an additional financial burden on
those institutions.  According to the issue paper, the
government-owned health care facilities had incurred cumulative
deficits of about $21 million related to providing services to
Medicaid participants.

The issue paper further states that as a result of these four
issues, low-income residents of the Virgin Islands have not been
receiving the level and the quality of health care services
comparable to those given to Medicaid participants in the 50
states, such as specialized physician services, long-term care,
wheelchairs, dentures, or prosthetics.  According to the issue
paper, the Virgin Islands Medicaid Program spent about $670 per
Medicaid participant in 1995 as compared with the national
average cost of $3,311 per Medicaid participant.

APPENDIX 1

CLASSIFICATION OF MONETARY AMOUNTS

Questioned Costs*
Finding(Cost Exceptions)  


A.Administrative Requirements   $1,169

B.Participant Eligibility       23,325

C.Personnel Costs               60,818

Totals                         $85,312

                            __________

* Amounts consist of Federal funds of  $42,656 and local funds of
$42,656 based on the 50 percent local matching requirement of the
Medicaid Program.

APPENDIX 2
Page 1 of 6

GOVERNOR OF THE VIRGIN ISLANDS RESPONSE

APPENDIX 3
Page 1 of 2

STATUS OF AUDIT REPORT RECOMMENDATIONS

-----------------------------------------------------------
Finding/Recommendation
Action     Reference     Status      Required

A.1  Unresolved.Reconsider the part of the recommendation
pertaining to the execution of provider agreements and
provide a response indicating concurrence or nonconcurrence. 
If concurrence is indicated, provide an action plan that
identifies the target date and the title of the official
responsible for updating the health care provider service
agreements

A.2, A.3, A.4, and  Implemented.on a periodic (preferably A.5
annual) basis.  If Unresolved.nonconcurrence is A.6 indicated,
provide reasons for the nonconcurrence.

No further action required.

Respond to the revised recommendation and provide Management a
response indicating B.1 concurs; concurrence or additional
nonconcurrence.  If information concurrence is indicated, needed.
provide an action plan that identifies the target date and the
title of the official responsible for implementation.

Provide a target date and the title of the official responsible
for implementing the planned certification and billing computer
system and for providing the Medicaid Program's Certification
Unit with the staff resources needed to effectively carry out its
required quality assurance responsibilities.

-----------------------------------------------------------
APPENDIX 3
Page 2 of 2
-----------------------------------------------------------
Finding/Recommendation
Action       Reference       Status      Required

B.2 Management Provide the target date and concurs; the title of
the official additional responsible for information establishing
administrative needed procedures to recover amounts improperly
paid on behalf of ineligible B.3 Management individuals. concurs;
additional information Provide the target date and needed. the
title of the official responsible for completing administrative
recovery

B.4 Management activity on the $23,325 in concurs; questioned
 costs and additional reporting any unrecovered information
amounts to the grantor needed. agency.

B.5 Management Provide the target date and concurs; the title of
the official additional responsible for information implementing
procedures for needed. handling suspected cases of fraud against
the Medicaid Program. 

C.1 and C.2 Implemented. Provide the target date and C.3 
Management the title of the official concurs; responsible for
additional establishing an interagency informationtask force to
identify, needed.    coordinate, and investigate cases of fraud
against more than one program for needy segments of the
community.No further action required.

Provide the target dates and the title of the official
responsible for processing adjustments to recoup the $56,837 in
salary costs that was incorrectly charged to Medicaid Program
grants and reporting any unrecovered amounts to the grantor
agency. Also provide a plan of action, including the target date
and the title of the official responsible for recovering the
$3,981 that was overpaid to a Medicaid Program employee.
-----------------------------------------------------------




ILLEGAL OR WASTEFUL ACTIVITIES SHOULD BE REPORTED

TO THE OFFICE OF INSPECTOR GENERAL BY:

Sending written documents to:



Within the Continental United States

U.S. Department of the Interior
Office of Inspector General
1849 C Street,N.W.
Mail Stop 5341
Washington, D.C. 20240

Calling:

Our 24 hour
Telephone HOTLINE
1-800-424-5081 or
(202) 208-5300

TDD for hearing impaired
(202) 208-2420 or
1-800-354-0996



Outside the Continental United States


Caribbean Region

U.S. Department of the Interior
Office of Inspector General
Eastern Division- Investigations
1550 Wilson Boulevard
Suite 410
Arlington, Virginia 22209

Calling:
(703) 235-9221


North Pacific Region

U.S. Department of the Interior
Office of Inspector General
North Pacific Region
238 Archbishop F.C. F'lores Street
Suite 807, PDN Building
Agana, Guam 96910


Calling:
(700) 550-7428 or
COMM 9-011-671-472-7279