Two family planning clinics serving low-income women say their operations will be at serious financial risk if state auditors stand firm on claims that they overbilled Medicaid by $3.5 million, largely for birth control drugs and devices.

Beth Hartung, president of the Wisconsin Family Planning and Reproductive Health Association, said the auditors’ stance would also force other family planning providers in the same Medicaid program to claim a drastically lower reimbursement rate for birth control — forgoing a chunk of money that subsidizes other reproductive health care services they provide to low-income people.

“My hunch is that if any one of us were audited it would come out the same way. We’re all operating the same way,” Hartung said. “It would mean, quite frankly, that we would all close.”

The largest such provider in the state is Planned Parenthood of Wisconsin. Public policy director Nicole Safar called the audits “clinic-closing” and said she was concerned the clinics were being targeted for political reasons.

Department of Health Services Inspector General Alan White defended his auditors’ choice of targets and their findings. The drug billing program at issue is about $110 million a year of the $7 billion Medicaid budget.

“This administration, this agency has put a great deal of effort into improving program integrity, and (auditors) take it very seriously,” White said. “And protecting the taxpayers of Wisconsin is their predominant responsibility.”

In preliminary findings issued to the nonprofits in August, Office of Inspector General auditors wrote that Family Planning Health Services Inc. overbilled Medicaid by $2.3 million, and NEWCAP Inc. by $1.2 million, from 2010 to 2011.

Wausau-based FPHS serves about 6,000 people a year in nine counties. Oconto-based NEWCAP Inc.’s Community Health Services division last year served about 3,500 people in six counties. Neither organization provides abortions. Both operate in areas officially designated to have shortages of health care professionals.

FPHS and NEWCAP have responded and are waiting to hear back from the OIG. If the agency sends a notice of intent to recover money, the groups can appeal.

The auditors are challenging a reimbursement price for oral contraception that providers say the state itself set and is what their peers use.

The state is also claiming money on the grounds that the providers entered claims incorrectly. It claims the providers did not note the invoice price for medications. But providers say the state’s own computerized claim entry system does not include a way to enter the cost.

The claims concern the clinics’ use of Medicaid’s 340B drug pricing program, in which pharmaceutical companies are required to provide discounted drugs to safety net providers.

For family planning providers, the federal government reimburses 90 percent of the cost of drugs, while the state pays 10 percent.

That breakdown also means that the state stands to recoup relatively little. But White said that was not the point; his office has investigated cases in which no state money is involved.

“We have to protect both the state taxpayer and the federal taxpayer,” he said.

Mike DeVries / The Capital Times

Safar said Planned Parenthood bills the same way that NEWCAP and FPHS are charged with doing — but for many more clients, and therefore much more money. Planned Parenthood told the department how it was billing in a 2011 survey but has not been audited.

“An audit isn’t the way to change how we’re billing,” Safar said. “This is a very under-the-radar way to block access to birth control.”

White was asked whether audits of specific groups were appropriate if the department knew the billing practices used by NEWCAP and FPHS were widespread among family planning clinics — or whether it was instead a signal that the health department should clarify its policies.

“That wouldn’t be within the scope of what this office does,” White said.

Lawmakers worry it’s politics

Two Democratic lawmakers, Rep. Chris Taylor of Madison and Sen. Dave Hansen of Green Bay, wrote the OIG on Oct. 27 saying “there appears to be no legal basis” for the claims.

They asked the office to produce a list of open audits to prove it is not disproportionately targeting providers serving or staffed by women.

White would not answer how NEWCAP and FPHS specifically were chosen for audits but denied that it was political. There were no complaints of fraud against NEWCAP or FPHS, or claims that they did not provide the birth control.

DHS provided data showing that of the office’s 3,950 open audits, only these two involved family planning clinics’ use of the 340B drug pricing program. Thirty family planning audits were under way — less than 1 percent of the total, the department argued, and most were federally required.

Audit documents

“Under no circumstances would this office be auditing a disproportionate share of providers targeting women,” White said.

Taylor, a former public policy director of Planned Parenthood of Wisconsin, said she is suspicious because Gov. Scott Walker’s administration and the Republican-controlled Legislature have been “hostile to birth control.”

Five Planned Parenthood clinics shut down after the Legislature cut funding to the organization, a move widely praised by pro-life advocates.

The Walker administration also effectively disbanded the state’s Family Planning Council, which under the Doyle administration was a place for agency officials and providers to share information.

With the Nov. 4 election days away, Planned Parenthood sent voters a two-page glossy mailer emblazoned with a close-up of a pack of oral contraception under the title, “SCOTT WALKER: EXTREME ON BIRTH CONTROL AND ABORTION.”

Asked to comment on the harsh characterizations of Walker, Laurel Patrick, the governor’s press secretary, replied:

“On all the substantive points, DHS has provided information on this issue related to conducting audits as part of its charge to protect Wisconsin taxpayers, who pay both federal and state taxes, from misuse of or errors in practice for public assistance programs such as Medicaid, FoodShare, FamilyCare and other programs.”

Walker beefed up audits

The audits come from an enforcement agency that has expanded significantly under Walker, who has frequently said that eliminating waste, fraud and abuse is a priority.

After the state Legislative Audit Bureau and the Milwaukee Journal Sentinel revealed lax oversight and fraud in the FoodShare program, Walker beefed up the old Medicaid program integrity bureau, renamed it the Office of the Inspector General and had it report directly to the DHS secretary.

White, who headed the old audit unit, was hired to run the new OIG. The office now has 110 full-time equivalent positions.

Enhancing fraud prevention is one of eight top priorities for the Department of Health Services, and detection of overpayments is a key metric. The OIG’s latest published statistics on FoodShare and Medicaid fraud prevention activity say the office identified $5.3 million in savings in the past year.

Providers argue the family planning services are a good investment in their own right. Safar cited numbers from the Guttmacher Institute, a sexual and reproductive health advocacy group, saying that for every $1 the government spends on family planning, it saves $7 by reducing unintended pregnancies and the spread of sexually transmitted diseases.

Issue: Price of birth control

The auditors faulted the providers for failing to bill Medicaid for the actual cost of each pack of oral contraception, plus a dispensing fee.

The family planning clinics maintain that birth control should be billed differently.

“It’s been published, it’s been articulated, it’s been understood for years,” said Molly Fuller, CEO of FPHS. “It’s just now in this audit in which a different methodology is being imposed.”

They say the state never asked them to track those costs individually, and instead told them to bill for each monthly pack of birth control pills the “usual and customary charge up to the maximum allowable fee,” which the state set at $26.02 in 2009 and communicated through its ForwardHealth Update, a newsletter.

The rate at the time was comparable to the ones for neighboring states.

Diane Welsh, a former chief legal counsel to the Department of Health Services who is representing NEWCAP and FPHS, declined to comment for this article. But the providers gave a reporter copies of her correspondence with OIG on their behalf.

Before 2010, Welsh wrote, the Family Planning Council and state officials discussed setting a dispensing fee for birth control. Welsh was on the council.

The fee would have to be higher than the usual one for pharmacists, because dispensing birth control is more than just handing out some pills. Providers have to take patients’ full medical histories and figure out the best contraceptive options. For intrauterine devices, nurses or physicians must be trained and licensed. In short, the interaction is more like a visit to the doctor’s office than one to the pharmacy.

But those and other services at the clinics are not fully reimbursed by Medicaid, so the higher reimbursement rate for birth control helps them avoid losing money, according to Jennifer Waloway, NEWCAP’s director of community health services.

Welsh wrote that the “political ramifications” of setting a dispensing fee higher than what pharmacists were getting, and the “huge burden on small clinics to effectively establish and monitor the actual cost of each product” were factors. The state decided not to set the rate as the cost plus a fee.

OIG’s White argues that the state’s newsletter does not apply to the 340B drug pricing program — it was directed at “family planning clinics” — and so is irrelevant. Virtually all of the family planning clinics are enrolled in the 340B program.

“We still don’t have any documentation showing that they can bill differently than the actual acquisition cost,” he said.

He also said that in an unrelated audit, another organization proved to OIG’s satisfaction that their costs exceeded the dispensing fees.

“We would look at a reasonable dispensing fee,” he said. “If they want to come to us and discuss that, that’s their decision.”

Waloway said that aside from the $1.2 million, NEWCAP may have to close its family planning clinics if it has to bill according to the auditors’ method.

“I don’t understand how they can expect anybody to be sustainable in a business when all you can charge is acquisition price. Nobody can run a business like that,” Waloway said. “We can get volunteers, but you can’t run everything by volunteer.”

$26.02: Is that a lot?

The price family planning providers are charging Medicaid is typically well below the maximum reimbursement pharmacies can charge the program for the same drugs.

Waloway cited an example. A month’s worth of Yaz, a popular oral contraceptive, costs her clinic $12.61 wholesale currently; as a 340B provider, she can charge Medicaid $26.02. A pharmacy would have to buy the pack at a higher price, so it can charge Medicaid a maximum of $124.88.

Pharmacies can charge Medicaid $49.28 for a pack of a low-dose pill, Lutera. NEWCAP buys them at $13.00 wholesale for a monthly pack, and charges Medicaid $26.02.

Where would the costs go?

The state said the clinics should have entered the actual cost of each drug for each claim. But the providers counter that there’s no place to do that in the state’s own computer system.

After the audit began, a newly hired NEWCAP budget staffer called the state’s hotline for Medicaid providers and asked how to enter the cost correctly.

Hotline staffers told her there was no way to enter it, according to NEWCAP’s Waloway.

White said he had been told that either the paper or electronic billing system was “limited” in how costs could be entered, but said, “I wouldn’t be able to give you a correct answer at this time.”

Proportionality of audits defended

Auditors are seeking some money back over what is essentially a paperwork violation: missing National Drug Codes.

NDCs are used to determine rebates that pharmaceutical companies must pay to Medicaid. But in the 340B program, because the drugs are already discounted, no rebate is paid.

The state nonetheless requires the code for provider-administered drugs.

The providers questioned whether it was fair for auditors to recoup the entire claim for these errors.

White said federal and state law require it.

“Our obligation is to seek recovery,” he said.

That approach to audits scared NEWCAP off from expanding its safety-net services this year, Waloway said.

NEWCAP was hoping to start providing prenatal care coordination to low-income women in Oconto County. Medicaid reimburses clinics a lump sum for pregnancies, no matter what services they provide.

Then Waloway learned that another community action agency was being audited for its prenatal care coordination — and had to return all the money for pregnancies where their documentation was imperfect. NEWCAP put its plans on hold.

“The reimbursement right now is very low to start with, but if they’re going to recoup all the money it’s not going to be worth it,” she said.

This story has been corrected due to new information provided by a source. The prices for a month’s worth of Yaz and Lutera, two types of oral birth control, are $12.61 and $13.00, not $4.46 and $1.76, according to Jennifer Waloway of NEWCAP.