Legislative committee hears inspector general audits on Medicaid, prior authorization and pharmacy fees; Accenture briefs on AI for government efficiency

The Committee on Government Efficiency heard a series of audits and briefings on Medicaid payment integrity, prior authorization delays, pharmacy dispensing fees and home- and community-based services during a multi-hour session, followed by a private-sector briefing on using artificial intelligence to find government efficiencies.

The inspector general summarized a performance audit of school-based Medicaid reimbursements that covered a 25‑month period and documented “a lot of overpayments, wasteful payments about $83,000,000,” plus $573,000 in overpayments in a sample, and systemic documentation failures that made claims noncompliant with federal rules. The inspector general said many school claims lacked required physician orders and parental consents, and that errors included use of invalid National Provider Identifiers on claims and missing background checks for some providers.

The audit found that Kansas was paying some school‑based services under a fee‑for‑service model even though those students were already covered by managed‑care organizations (MCOs), and that moving payment responsibility to MCOs could reduce state costs. The inspector general’s office estimated potential annual savings of about $22.5 million if the state moved the school‑based payments to MCOs, and about $47 million across the full audit period if the change had been in effect for the whole audit window. “If they would just move the payment process from fee for service and have the MCOs pay for it, it would save the state $22,500,000 per year,” the inspector general said during the hearing.

Committee members asked how the state and its fiscal agent had missed the invalid NPI entries and background‑check deficiencies. The inspector general said the state contractor Gainwell, which serves as KDHE’s fiscal agent, had responsibility for verifying NPIs and had not done adequate checks; KDHE and Kansas State Department of Education (KSDE) provided written responses in the audit appendix and are working on corrective steps, the inspector general said.

Members pressed about recoveries. The inspector general said the audit identifies overpayments and notes them to KDHE, but the office lacks statutory authority to force recoupment. “All we can do is point to the agency and say, here was an overpayment,” the inspector general said; KDHE decides whether to pursue debt collection.

The committee also heard a separate performance audit of MCO prior authorization and hospitalization determinations. That audit found delays in peer‑to‑peer reviews that sometimes took up to seven business days and long waits for post‑acute care determinations. Auditors said hospitals reported MCOs often defaulted patients to observation status rather than inpatient placement and used proprietary clinical screening tools to deny inpatient status. The audit found denied hospital claims represented roughly 7% of denied claims by count but about 64% of denied claim value, a disparity that hospitals said penalizes them financially while tying up beds and staff.

Auditors raised concerns about potential conflicts of interest when MCOs or their affiliates own the clinical criteria tools used to screen prior authorizations. Hospitals told auditors that peer‑to‑peer reviews are often scheduled during “banker’s hours” and sometimes do not match specialties — for example, a hospital cardiologist may be asked to argue with a non‑cardiology physician for the MCO.

A separate review under way will examine pharmacy dispensing fees for over‑the‑counter (OTC) medications: auditors said pharmacies receive a $10.50 dispensing fee for OTC prescriptions (for example, ibuprofen) that may cost a few dollars, and that pharmacy benefit managers (PBMs) may capture portions of that fee. The inspector general’s office said the review — covering 2022–2024 — will look at total state spending on dispensing fees, whether prescription‑strength versus OTC forms are being used appropriately, and whether PBM ownership of some pharmacies affects payments. That report was expected later in the year.

The committee was told the inspector general has started a second Home and Community‑Based Services (HCBS) waiver follow‑up audit after a 2022 review identified missing monthly services for waiver participants and problems with annual functional assessments. The new scope covers 2023–2024 and will check whether beneficiaries consistently receive at least one service per month, whether redeterminations and annual functional assessments occur as required, how the waiver waiting list is managed, and whether invoices for functional assessments are validated before payment. Prior work found possible improper payments and cases in which beneficiaries remained on waivers without required services.

The inspector general also described a new data‑sharing review looking at Medicaid and SNAP eligibility records in the state’s eligibility system (KEY). That review will examine whether agencies use shared information effectively to detect changes that affect eligibility — for example, cross‑checking SNAP use out of state or other status changes that should affect Medicaid eligibility — and recommend policy changes to make better use of available data.

Staff presented two issue briefs: one recommending that MCOs provide electronic explanation‑of‑benefit notices (EOBs) for Medicaid recipients so beneficiaries can confirm services billed in their name, and another noting errors in several KMAP provider manuals and urging KDHE to correct inaccurate citations. Committee members and the inspector general’s office said EOBs are a common tool used in commercial insurance to detect billing errors and that requiring them for Medicaid beneficiaries could improve fraud detection and beneficiary safety.

The inspector general summarized active fraud investigations and recent prosecutions. Cases described included beneficiaries who used false pregnancy documentation and forged physician letters to qualify for benefits, individuals who used a Kansas address while living out of state, and identity theft cases in which deceased individuals’ identities were used to obtain government benefits. The office reported nearly $500,000 in restitution and recoveries tied to cases accepted for prosecution; the inspector general noted the office has expanded investigative capacity and works with federal partners on identity‑theft matters.

After committee questions the meeting closed the morning session; in the afternoon the committee heard a vendor briefing from Accenture on how artificial intelligence could help identify efficiency opportunities across state government. Accenture staff described using generative AI and other analytic tools to scan public documents, budget data and program rules to identify likely areas of savings, then to produce prioritized opportunities for further human analysis. Accenture emphasized using AI under a “responsible use” framework — keeping a human in the loop, protecting sensitive data, and following NIST‑style governance — and suggested near‑term use cases such as contact‑center agent assist, invoice processing and contract/procurement reviews.

Accenture staff said AI can be an entry point for rapid analysis (for example, scanning statutes, budgets and program manuals) and for automating repetitive back‑office work, but they warned states must adopt governance, security and privacy controls before placing sensitive data into generative AI models. “We use it as an entry point to rapidly go through government data and documentation that’s publicly available,” said Rob Cohan of Accenture. “But we don’t just take that for granted — we use it to funnel down and then have our strategists refine the analysis.”

Committee members raised transparency and regulatory questions, and asked staff to consider whether the state should require labeling of AI‑generated content and set parameters for where AI may or may not be used in decisions affecting benefits and eligibility.

The committee did not vote on legislation or policy in the hearing; members asked staff to return with follow‑up briefing materials and to coordinate with other committees and agencies on procurement, data‑sharing, and regulatory modernization opportunities.

Ending

Committee leadership asked members to propose topics for future hearings, including further work on EOBs and data sharing, procurement and contracting reforms, fleet and facility consolidation, and a possible legislative sunset or review process for overlapping rules and agencies. The panel set a tentative next meeting for Oct. 14 and asked senators to notify staff of schedule conflicts.