Raleigh, N.C. — The state Department of Correction could cut the health costs for inmates by $11.5 million a year by requiring hospitals and other medical service providers to bill Medicaid for eligible expenses, according to a state audit released Tuesday.

The amount of potential savings would increase in 2014, when health care reform expands Medicaid eligibility, auditors said.

A previous audit found that the DOC has allowed hospitals and other medical providers to dictate the terms of contracts for inmate medical care, leading to a range of pricing. In some instances, hospitals charged the state rates called for under the contracts when the actual cost of care was far lower.

On average, providers billed the DOC at rates 467 percent of reimbursement rates under Medicare or Medicaid, according to the previous audit. For example, the department paid WakeMed $482,000 for a trauma case that Medicare would have paid $120,000 to treat.

During the 2008 and 2009 calendar years, the DOC paid about $159.8 million for inmate health care, auditors said in the new audit.

Generally, the federal government doesn't reimburse states for inmate medical care, but auditors confirmed with federal regulators that Medicaid would cover the for inmates treated in private or county-run hospitals who meet Medicaid eligibility requirements.

Billing Medicaid would not only reduce the charges that DOC is paying for inmate care, the auditors said, it also would provide the state with a reimbursement from the government of 65 cents for every $1 spent, according to the audit.

DOC Secretary Alvin Keller said the department is working with the state Department of Health and Human Services to identify which inmates meet Medicaid requirements, and they hope to begin next month reviewing all hospital admissions of inmates for possible Medicaid reimbursement.

Keller said he doubts the state could save as much as auditors predict because a provision in the 2010-11 state budget allows the DOC to reimburse medical providers no more than 70 percent of billed charges. He said he also expects future contracts for inmate health care to include more favorable terms for the state.

Auditors said North Carolina counties also could use Medicaid billing to cut the cost of treating inmates in their jails.