OHIO USES A QUALITY CONTROL METHOD DEVELOPED BY THE DEPARTMENT OF HEALTH, EDUCATION, AND WELFARE (DHEW) TO REVIEW RECIPIENT ELIGIBILITY, DETERMINE LOSSES FROM OVERPAYMENT ERRORS, AND IMPLEMENT CORRECTIVE REFORMS. THE GENERAL ACCOUNTING OFFICE (GAO) REVIEW FOUND THAT THESE PROCEDURES DID NOT DIFFERENTIATE BETWEEN TECHNICAL AND SUBSTANTIVE ERRORS AND CONSEQUENTLY OVERSTATED THE POTENTIAL SAVINGS AVAILABLE FROM ELIMINATING ELIGIBILITY DETERMINATION MISTAKES. OHIO'S REQUIREMENTS CONCERNING PERSONAL RESOURCES RESULT IN A HIGH RATE OF TECHNICAL ERRORS AND TEMPORARY INELIGIBILITIES. A RECIPIENT USUALLY EXCEEDS THE ASSET REQUIREMENT BY A NOMINAL AMOUNT AND QUICKLY REGAINS ELIGIBILITY STATUS BY DISPOSING OF SOME INCOME. AN ANALYSIS OF 76 CASES FOUND INELIGIBLE BY QUALITY CONTROL SHOWED THAT MOST CASES INVOLVED TECHNICAL ERRORS, SUBSTANTIALLY REDUCING THE SAVINGS ESTIMATED BY THE STATE. A REVIEW OF THE MEDICAID QUALITY CONTROL REPORTS FOR 5 OTHER STATES REVEALED SIMILAR OVERSTATEMENT PROBLEMS. THE SYSTEM USED TO COMPUTE AID TO FAMILIES WITH DEPENDENT CHILDREN (AFDC) CASE ERRORS AND SUBSEQUENT SAVINGS ALSO MAY OVERSTATE SAVINGS BECAUSE IT DOES NOT DISTINGUISH BETWEEN TECHNICAL AND SUBSTANTIVE ERRORS. MOREOVER, THE STATE'S MAXIMUM MEDICAID RATE FOR SKILLED CARE IS NOT ENOUGH TO COVER THE COSTS OF THIS SERVICE, AND MANY NURSING FACILITIES WILL NOT ACCEPT THESE PATIENTS FROM HOSPITALS, CONCENTRATING INSTEAD ON PROVIDING INTERMEDIATE CARE. THIS SITUATION ULTIMATELY RESULTS IN HIGHER COSTS FOR HOSPITALS AS WELL AS MEDICAID AND COULD CAUSE SUBSTANTIAL OVERPAYMENTS IF INTERMEDIATE PATIENTS WERE MISCLASSIFIED AS SKILLED. THE GAO REPORT RECOMMENDS THAT DHEW REVISE MEDICAID QUALITY CONTROL PROCEDURES, ASSIST OHIO IN IMPROVING ITS REIMBURSEMENT SYSTEM FOR SKILLED NURSING SERVICES, AND DETERMINE IF OTHER STATES ARE HAVING SIMILAR PROBLEMS AND NEED ASSISTANCE. (MJM)