Staff file photo by Robin Rudd / Erlanger Medical Center, on East Third Street in Chattanooga, is seen on June 24, 2021. A federal audit released Thursday found that Tennessee improperly claimed Medicaid funds, including for public hospital uncompensated care at places such as Erlanger, which could force the state to repay the federal government over $700 million.

Tennessee could be forced to repay the federal government $767.5 million in Medicaid funds that auditors said TennCare officials incorrectly claimed between 2009 and 2014, according to a U.S. Health and Human Services inspector general report released Thursday.

The report found that Tennessee did not comply with federal requirements for certain expenses that are supposed to be certified for eligibility for matching federal funds from Medicaid.

Under a Medicaid waiver, Tennessee was allowed to claim uncompensated care costs that public hospitals bore for taking care of low-income patients as certified public expenditures, and Tennessee uses those matching dollars to help fund its Medicaid program, TennCare.

TennCare provides health care coverage to roughly 1.5 million qualifying, low-income Tennesseans, including children, their families, pregnant women and disabled people, and is funded using a combination of state and federal dollars.

(READ MORE: Tennessee Speaker of the House Sexton pours cold water on Medicaid expansion proposal)


'Not in compliance': Download the report


Between May 2019 and April 2021, auditors analyzed $2 billion in certified public expenditures that Tennessee claimed from 2009 to 2014 and found no problem with $909.4 million of the claims.

The remaining $1.1 billion — for which the federal share was $767.5 million — was excessive, auditors found.

That amount included expenditures that Tennessee claimed, but according to the audit, should have paid back to the federal government after a reconciliation based on finalized Medicare cost reports — which is a requirement of the waiver.

TennCare Director Stephen Smith said during a virtual news briefing Wednesday that the agency "strongly disputes" the findings and intends to fight them before the U.S. Centers for Medicare and Medicaid Services — the agency tasked with reviewing the report and ultimately deciding repayment and enforcement.

"The findings date back to actions that took place more than a decade ago, so this goes all the way back to the [Gov. Phil] Bredesen administration. It has absolutely nothing to do with this administration or even recent years," Smith said.

The report states that its objective was to determine whether Tennessee properly claimed certified public expenditures after the state claimed the same amount of $373.8 million for fiscal years 2010 through 2013 — signaling that the state may have miscalculated those claims.

An audit of Florida's Medicaid program recently found that state improperly received $412 million due to its own miscalculations.

The Tennessee report centers on two categories of expenditures: uninsured costs at public psychiatric care facilities with more than 16 beds, which Medicaid calls "institutions for mental diseases," and public hospital uncompensated care at places like Nashville General and Erlanger Health System.

The report states that the documentation for institutions for mental diseases provided by TennCare was insufficient to certify the expenditures, while the protocol that TennCare used to determine hospital uncompensated care for certified public expenditures was incorrect and resulted in overpayment.

Smith noted that TennCare is responsible for the claims in question, not the facilities themselves.

As a result of the findings, auditors recommended that:

— The state refund $397.4 million in overpayments to the federal government.

— The state provide detailed supporting documentation to explain $370.1 million of net costs of caring for uninsured psychiatric patients that the federal government matched or refund those payments.

— The state establish additional policies and procedures to ensure compliance with federal requirements.

Smith called those recommendations "completely unreasonable and unwarranted," saying that TennCare has already given the inspector general's office the documentation requested, but he claims it was ignored.

According to Smith, the certified public expenditure protocol for hospital uncompensated care is much more clear now than during the audit period, so he's not concerned about future audits finding issues with those claims. However, the state plans to collect individual claim data at public institutions of mental disease going forward, though Smith believes the documentation TennCare provided up until now was sufficient.

"I think this audit highlights a very flawed federal process. Auditing and holding an entity responsible for activities [and] detailed documentation from almost 13 years ago is unreasonable," he said. " We did our very best to locate every piece of information that we could, and we do know that limited available records point to considerable confusion and a lack of clarity around federal [certified public expenditure] standards leading up to this audit period."

He said the next step is for TennCare to refute the findings before the U.S. Centers for Medicare and Medicaid Services, and, if an agreement can't be reached, pursue an appeals process through U.S. Health and Human Services, though Smith said he's confident those discussions will have a positive outcome.

"If we still can't reach a resolution, then we can go to federal court," he said. "All that said, these things do not get resolved quickly, and this is not a matter that would have any impact on this year's budget or even next year's budget."

The inspector general's report acknowledges that TennCare officials refute the report based on the comments that Smith shared in the news briefing.

"After considering Tennessee's comments, we maintain that our findings and recommendations are valid for the reasons detailed in the report," the report states.

Contact Elizabeth Fite at or follow her on Twitter @ecfite.