PROVIDENCE, R.I. (WPRI) -- Rhode Island paid health insurers more than $38 million to cover Medicaid recipients living in nine other states and Puerto Rico over three years, according to a newly released audit.

The R.I. Office of the Auditor General released the report this week, concluding poor oversight of eligibility by the state's Medicaid office led officials to disburse the funds for ineligible recipients from 2019 through 2021.

State money made up about $16.5 million -- or 43% -- of the total. The money was paid to the state's "managed care organizations," which are health insurance companies that administer the publicly funded Medicaid program on behalf of the state. The rest of the funds were federal money, according to the report.

"Internal controls over eligibility were not operating effectively to reasonably ensure that eligibility was limited to members residing in Rhode Island," Auditor General David Bergantino wrote in the report.

State Medicaid spokesperson Kerri White acknowledged there had been issues identifying out-of-state residents leading up to the coronavirus pandemic, and the problem was exacerbated once the public health crisis began early in 2020.

"It is important to note that, moving forward, Rhode Island will continue to review Medicaid members' eligibility every year and will continue to use systems to help us identify members that may have moved out of state so we may act on that information," she said in a statement.

White did not respond to a question about whether the state could recoup any of the $38 million from the three managed care organizations: Neighborhood Health Plan, UnitedHealthcare and Tufts Health Plan. The state is currently reviewing bids from those companies, as well as Blue Cross Blue Shield, for a new five-year Medicaid managed-care contract valued at $15.5 billion. (It is Rhode Island's biggest single-state contract.)

But Bergantino told Target 12 that federal officials have already agreed Rhode Island will be "held harmless," meaning the state will not have to pay the federal government back any of the misspent Medicaid money.

Bergantino partnered with the U.S. Department of Health and Human Services to conduct the audit, which found Rhode Island had been paying for people living in Massachusetts, Connecticut, New Jersey, Pennsylvania, Florida, Georgia, North Carolina, Puerto Rico and Texas.

Medicaid is by far the largest program in Rhode Island's state budget, covering roughly one-third of the state's population. The program covers low-income residents and people with disabilities.

Bergantino highlighted the importance of administering the program correctly, and his office made three recommendations for how the state agency should improve operations.

"For large federal programs like Medicaid, operating these programs efficiently is vital for states to ensure the financial sustainability of critical benefits to its citizens," Bergantino wrote. "The size and complexity of the program necessitates well designed and effective controls to manage program eligibility and benefits."

The three recommendations include improving how the state keeps track of where recipients are living, developing monthly reporting to help discern who is eligible, and using databases to help determine when recipients move out of state.

In response to the auditor general, officials at the R.I. Executive Office of Health and Human Services emphasized how the coronavirus pandemic complicated their ability to figure out which recipients moved out of state.

And because the federal government prohibited states from taking anyone off the Medicaid rolls from 2020 until last spring, state officials said they "decided to pause notifications" to members who might have moved out of state.

When reenrollment requirements began again last April, state officials said they began reaching out to people potentially living out of state and they were "terminated if they fail[ed] to verify in-state residence."

"For example, there were over 800 residency [verification requests] sent to members as part of the October 2023 Medicaid renewal cohort," officials explained in the report.

The audit, however, examined a significant chunk of time before the reenrollment moratorium began in the first half of 2020.

State officials acknowledged their system of verifying whether people had moved out of state "was not fully operating as designed." And it wasn't fixed until December 2019, which was just months before the pandemic began.

During the 15 months prior to the pandemic, the process "didn't terminate benefits for all individuals who failed to respond to the residency verification due to several system issues," state officials added.

White told Target 12 the state is committed to reviewing its internal operation for residential requirements.

"If required, system enhancements will be implemented to identify, notify, and terminate eligibility for members that are no longer residing in Rhode Island," she said.

Bergantino warned the estimated $38 million spent on out-of-state residents was a "conservative estimate," and that not addressing the issue could result in negative consequences for the state.

"In addition to the inefficient administration of the program, this condition represents significant noncompliance with federal regulations that could expose the program to sanctions if not addressed," he wrote.