Ten years ago, state welfare officials fell head-over-heels in love with Maximus, a Virginia-based consulting firm that knew how to coax millions of federal dollars out of the nation’s Medicaid program.

The company’s experts helped the Kansas Department of Social and Rehabilitation Services take in an additional $26 million in 1996 alone. Millions more soon followed.

Maximus, it seemed, could do no wrong.

Now, Medicaid wants – and is taking back – a lot of its money that it gave Kansas.

Welfare officials last month revealed they’ve already agreed to give back $32 million after federal auditors found mistakes in the formulas used to calculate the state’s costs of providing services for school children.

Other audits are the subject of negotiations that could, according to the audits, lead to the state having to return as much as $100 million.

SRS isn’t happy. Earlier this month, SRS Secretary Gary Daniels announced the department had dropped its “maximization” contract with Maximus.

“It seems they’ve become somewhat of a lightning rod for (auditors),” Daniels said. “We decided it would be best if we managed our own affairs.”

Maximus officials did not respond to repeated calls seeking comment.

Maximus’ cut

In the past, the SRS contract with Maximus called for paying the company 9 percent of the revenue it generated.

Whether SRS will sue Maximus to recoup a portion of those payments is unclear.

“A decision of that sort has not been made,” Daniels said. “These audits are going on all across the country, and at this point, I don’t know if other states have (sued). I suspect we’ll look at it, but we haven’t yet.”

Since 1996, SRS has paid Maximus $88 million to calculate the costs of its in-school Medicaid services, increase child support collections and help administer its foster care and HealthWave programs.

Maximus still has the HealthWave contract. The others have expired.

‘Incentives to cheat’

Medicaid uses a blend of federal and state funds to underwrite health care for the poor, disabled and elderly.

In Kansas, the federal government puts up 60 cents for every 40 cents the state is willing to spend.

States get to come up with their own formulas for figuring out how much they spend. By inflating their costs, they reap more federal dollars.

“The incentives to cheat are huge,” said Jocelyn Johnston, an associate professor of public administration at American University in Washington, D.C.

For years, these cost-figuring formulas were loosely scrutinized. But in 2005, Congress and the Bush administration passed the Budget Deficit Reduction Act, vowing to trim Medicaid spending by almost $40 billion over five years. The audits soon followed.

“This is going on all over the country,” said Johnston, who taught at Kansas University before leaving for American University.

“The feds are squeezing everything they can out of the states,” she said. “The states feel like they’re being picked on – and they probably are – but at the same time, they’ve been notorious in coming up with ways to cheat Medicaid.”

But former SRS Secretary Rochelle Chronister argued that Kansas was one of the last states to fiddle with its Medicaid formula.

“This really aggravates me,” Chronister said, referring to the recent audits. “We looked at all these other states and saw what the feds allowed. It finally got to the point where we had to choose between cutting programs and doing what every other state was doing. We chose the latter.”

Chronister, who led SRS from 1995 to 1999, turned to Maximus, one of the nation’s largest government consulting firms.

Maximus adjusted the state’s billing formula for Medicaid-funded services provided to special education students in school settings.

In just the first year, 1996, the changes brought in an additional $26 million to the state.

But in 2006, those changes have been the subject of four federal audits.

“This is all about the feds wanting to balance the budget on backs of the states,” Chronister said, insisting that neither Maximus nor SRS did anything wrong.

Murky guidance

Chronister is not alone in her objections. A recent report by the National Academy for State Health Policy noted “the federal government has allowed and even encouraged state fiscal practices that it later determines are problematic.”

But the report also surmised that states “are engaged in a constant game of ‘catch me if you can’ in an effort to maximize receipt of federal funds.”

Tom Lenz, regional administrator at the Centers for Medicare and Medicaid Services’ office in Kansas City, Mo., said he understood the state’s frustration.

“It’s true, (federal) guidance wasn’t always crystal clear,” Lenz said.

But, he said, states shouldn’t expect the federal government to ignore past transgressions.

“When the current administration came in, it decided we needed to enhance the oversight of Medicaid program and strengthen policies as to what’s allowable and appropriate,” he said. “That’s what we’re doing.”

Crippling concerns

At SRS, Daniels’ hands are full. Other audits have uncovered major problems in how the state’s foster care, mental health and substance abuse programs bill Medicaid.

These audits – 11 in all – are still in “draft” form and have not yet resulted in federal demands for the state to return money.

But Daniels recently warned legislators that issues raised in the audits could “ultimately cripple” the state’s mental health programs if left unaddressed.

He also revealed that since 2003, SRS has given back $54 million in disputed foster-care claims.

“We’re doing everything we can to demonstrate that it’s our intent to be a good partner and to resolve whatever concerns they may have,” Daniels said.

None of the outstanding 11 audits is thought to involve Maximus.

No one seems to know how much these and the in-school audits will end up costing the state.

State Rep. Brenda Landwehr, R-Wichita, said she’s hearing the tab could be between $400 million and $500 million.

“We don’t have that kind of money – not when we’re putting another $195 million into schools and the 10-year highway plan is ready to be revisited,” she said.

Daniels would not predict. “It’s too early in the process for that,” he said.

But Marcia Nielsen, executive director at the Kansas Public Health Authority, said she doubts the state’s liability will be anywhere near $400 million.

“For the record, no, I don’t think it will be that much,” she said. “Do I know how much it will be? No, I don’t.

“This is like trying to predict the final score of a football game,” Nielsen said. “There are so many variables and in this instance they’re so disparate – you’re looking at school-based services, foster care, mental health – and there are all kinds of variables built into the negotiation process. There’s no way to know.”

Kansas Public Health Authority has been in charge of the state’s Medicaid program since last year.