DHS says coding error will leave state to absorb roughly $113M in federal SUD payments for seven tribal providers

At a March 12 meeting of the Minnesota Senate Human Services Committee, Miss Bailey, budget director for the Minnesota Department of Human Services, told senators that a coding error in DHS’s billing system resulted in federal funds being used to pay for services provided by seven tribal residential substance-use-disorder (SUD) providers dating back to 2015.

“The providers provided them as intended. It wasn't, payment error to the provider or any fraudulent, activity. It was really on the back end,” Miss Bailey said, explaining the error concerned how services were coded for federal matching rather than whether services were delivered.

DHS officials told the committee the immediate impact recorded in the agency forecast is roughly $113,000,000 in one-time back payments that the state would need to absorb because the services should have been booked to state funds. Bailey said the department now assumes tribal nations will opt into a waiver that would permit federal matching moving forward; the forecast includes a smaller state cost in the next biennium under that assumption.

The committee pressed DHS for detail on why the issue was not discovered earlier and whether it could have been avoided. Miss Bailey said the department acknowledged the error and that, had the department discovered it sooner, it could have pursued waiver enrollment more actively with the tribal providers after the legislature authorized matching under a waiver. She noted tribal nations were not statutorily required to join the waiver because of tribal sovereignty.

Bailey also described other drivers behind the February budget forecast presented to the committee. Key items she listed were increased spending in disability waivers, higher acuity and fee-for-service payments in Medical Assistance basic care, higher nursing-home payments and paid days, and increased costs tied to weight‑loss drugs. On the latter, she said the state added coverage in 2022 and more GLP-1 and similar drugs have since come to market; DHS is seeing increased claims and updated managed‑care contract costs related to those drugs.

On the disability waivers, Bailey said updated projections show higher inflationary adjustments in 2026 and 2028 and increased recipient growth concentrated in children and youth, raising the disability‑waiver forecast by tens of millions across the biennia. She also described a slower-than-expected transition from PCA to the CFSS option, which delays enhanced federal match for some services.

Committee members asked whether the legislature should require tribal providers to join a waiver by statute; Miss Bailey urged the committee to consult tribal nations directly because they are sovereign governments. Senators asked DHS to explore whether other providers might have similar waiver‑eligibility questions and to report back to the committee.

The committee did not take a vote on legislation tied to the forecast discussion, but members asked DHS for follow‑up on the tribal waiver status, the status of workforce incentive payments for LPNs and other direct‑care incentives, and more detailed forecasts. Miss Bailey said the department would follow up on specific items and email updates to the committee.

The exchange reflected both the immediate fiscal effect of the coding error and broader budget pressures DHS is tracking, including disability waiver inflation, higher managed‑care claims, nursing‑home payment changes, and new prescription‑drug costs.