The state health department paid $426,403 to 10 dead people and potentially made $2.5 million in Medicaid payments to more than 300 deceased people, according to an audit released this week by Maryland’s Office of Legislative Audits.

The payments occurred between Jan. 1, 2008, and Aug. 31, 2011. The audit adds that the database officials used to conduct the audit -- the Social Security Administration’s Death Master File -- contains some errors, although the file’s error rate is minuscule.

In conducting the audit, officials matched the February 2011 Death Master File to the state’s March 2011 list of eligible Medicaid recipients. The search revealed payments of $2.5 million to 323 people listed as dead. From this list, auditors extracted 20 names and determined that the deaths were accurate; that investigation revealed 10 of the people received $426,403 after their deaths.

State officials should review the remaining 303 cases to determine if the recipients were deceased, auditors said.

The audit, which was released Wednesday, was conducted to determine if the Death Master File is an effective tool for detecting and preventing Medicaid payments to deceased people. Officials concluded that the file is effective despite its error rate.

Auditors recommend that officials of the Department of Health and Mental Hygiene, which administers the Medicaid program in Maryland and disburses payments, and the Department of Human Resources, which determines the eligibility of Medicaid recipients, together develop a method for using the Death Master File to detect dead people whom the state has incorrectly identified as eligible for Medicaid benefits.

The audit found that neither department has “sufficiently comprehensive processes” for identifying state Medicaid beneficiaries who die in other states. It also noted that the process the departments use in identifying beneficiaries who die within Maryland was also “not effective in all cases.”

In a Dec. 1 response to the audit, health secretary Joshua Sharfstein and human resources’ secretary Theodore Dallas wrote that the departments will work to develop a process to use the Death Master File as a tool for identifying deceased Medicaid recipients.

“However, as the auditors noted, the file is error prone and, due to the volume of matches, an investigation of all recipients may not be feasible or cost-effective,” the secretaries wrote.

They added that they will work to discover if the other 303 people listed in the audit were dead and will seek to recover the money from those who received payments after their death.

The secretaries also noted that the health department has processes in place to recover Medicaid payments when a recipient is declared dead, adding that in fiscal 2010 and 2011, the department recovered roughly $7 million paid to 3,495 deceased recipients.

Making Medicaid insurance payments to dead persons is part of the health department’s normal course of business, said Charles Milligan, deputy secretary for health care financing.

That is because officials make those payments on the first of each month. Therefore, if a recipient dies late in a preceding month and officials don’t yet know of the death, they make the payment, then recover the money when they learn of the death, Milligan said.

“Whenever somebody dies there is naturally a lag time between when the person dies and when we find out about it,” he said. “We’re not making payments incorrectly.”

The departments’ goal is to reduce that lag time by using additional data sources, such as Social Security’s Death Master File, he said.

Officials at the human resources department are working with the health department to implement a plan to put the recommendations into practice, said Ian Patrick Hines, director of communications for human resources.

skelly@gazette.net