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Watchdog warns states may be misusing PPACA funds

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(Bloomberg Business) — The federal government isn’t doing enough to keep states from misusing Patient Protection and Affordable Care Act (PPACA) money, according to a watchdog agency.

The U.S. Department of Health and Human Services (HHS) has awarded more than $5 billion in grants since 2011 to help states establish insurance marketplaces under PPACA.

PPACA required the marketplaces established in time to open for the 2014 open enrollment season to find ways to fund themselves without use of HHS PPACA grant money by Jan. 1, 2015, and that the grant money can’t be used for operations after that point.

Centers for Medicare and Medicaid Services (CMS), the arm of HHS that oversees the grants, hasn’t done enough to make sure states are following the law, according to HHS Inspector General Daniel Levinson.

In a letter to CMS, Levinson, head of the HHS Office of Inspector General (HHS OIG), described the situation as “a significant matter” that needs “immediate attention.”

CMS said it reviews exchanges’ spending plans to make sure they follow the rules. “This is a preliminary report and should CMS find any misspent funds after review, we will use remedies available under the law and regulations to recover any such funds,” CMS spokeswoman Meaghan Smith said. The agency will also publish formal guidance “to further clarify the uses of establishment funding.”

The inspector general’s warning letter is an “early alert,” rather than a complete audit, suggesting the inspector general wants to get ahead of potential trouble. It’s not clear how much of the money is at risk of misuse.

Of the $5 billion in grants, CMS awarded about $420 million to states in December 2014, the last month it could disburse the money. Those grants can be used for “design, development, and implementation,” according to the letter, but not for “operations.”

But determining which expenses constitute operations is fuzzy. CMS has explicitly said the funds can’t be used for rent, software maintenance, or utilities, for example. But it’s not clear whether spending on call centers or staff to help with enrollment would be considered allowable or forbidden.

“Without specific guidance that clearly defines the difference,” the inspector general’s letter noted, “there is a risk that [state-based marketplaces] might inappropriately use establishment grant funds for operational costs.”

See also: Watchdog agency audits Maryland exchange

Most states are still trying to wean their PPACA marketplaces off federal grants, said Dan Schuyler, senior director of exchange technology at consultant Leavitt Partners. “Some states have developed and adopted a plan. Other states are still in that process,” he said. “We’re probably in the second inning of a nine-inning game.”

The inspector general’s letter cited potential risks in Washington state and Rhode Island. Washington’s state exchange has received more than $185 million in federal grants. It might need $10 million to pay for operating expenses like printing, postage, and bank fees, according to the letter.

“When we were awarded the funding, [CMS] informed us that they were allowable costs,” said Michael Marchand, spokesman for the Washington Health Benefit Exchange.

Rhode Island’s exchange, which got $151 million, doesn’t currently have another source of revenue but may try to sell advertising or license its technology to other states, the letter states. A spokesperson for the exchange said the governor’s proposed budget would include fees on health plans to fund it.

State-level audits in Vermont, Colorado, and Minnesota have also raised questions about oversight of those states’ exchanges. Each got close to $200 million in federal grants.

See also: Watchdogs: ‘Good’ state-based exchanges also have controls problems