The memo dated Friday, which The Associated Press obtained through a Freedom of Information Act request, says the state auditor compared clients enrolled in the Medicaid database last June with state death records dating back to 1970. Auditors identified overpayments for services to roughly 2,900 people after the date of their deaths.
The heads of the departments of Healthcare and Family Services and Human Services, the two state agencies involved with Medicaid payments, outline steps to fix the problem in the memo to their senior staffs.
The memo states that more than $7 million has been recovered and the rest is expected to be recouped by year's end.
Sen. Dale Righter, a Republican from Mattoon and the Senate GOP's point person on Medicaid reform, said the finding was further evidence that Democrats' arguments that they have done all they can to clean up the Medicaid rolls is "empty rhetoric."
"It's disappointing and somewhat enraging for taxpayers, but it's not surprising," Righter said. "I wish this administration would spend more time trying to solve the problems rather than trying to convince taxpayers that they've already solved them."
Gov. Pat Quinn's office didn't immediately respond to phone and email messages seeking comment.
Republicans have pressed for the state to use a private company to verify Medicaid eligibility. Maximus Health Services was hired to scrub state Medicaid rolls following 2012 Medicaid-reform legislation. Republicans have said the company was achieving a Medicaid eligibility-removal rate of 40 percent.
But the contract between the company and Gov. Pat Quinn ended last year, and the work was shifted to state employees, after the state's largest public-employee union objected and an arbitrator ruled the contract should end.
Republicans wanted Quinn to appeal the ruling. They have repeatedly said better verification of eligibility and rooting out fraud and abuse could help save the cash-strapped state much-needed funds.
Righter sponsored legislation to try to renew the state's contract with Maximus, but it was defeated in the Democrat-controlled Senate. He said Republicans will "absolutely renew" that push following the audit's release.
Rep. Greg Harris, a Chicago Democrat, said it's possible some of the payments were made for services that were provided while a person was alive, but paid after they died because of the lag time in billing. But he said regardless of the reasons, the memo raises "really serious concerns."
"When you get to a number above 2,000 people, it's concerning," he said.
Harris, who is chairman of the House committee that oversees appropriations for human services, said the audit also raises the question of whether Medicaid benefits are being immediately "turned off" for anyone who is determined to be ineligible, such as someone whose income increases or family situation changes.
Rep. Patti Bellock, a Hinsdale Republican, who has been pushing for more accountability in the Medicaid system, said conditions are ripe for problems, even though she didn't anticipate this particular one.
"I'm shocked, but not surprised," Bellock said.
The two state agencies involved in Medicaid are updating their systems "to ensure any current enrollees who pass away are entered into our eligibility system by their date of death, and that deceased individuals are not enrolled in managed care," according to the memo written by Healthcare and Family Services Director Julie Hamos and Human Services Secretary Michelle Saddler.
"While this represents less than one-tenth of one percent of our caseload, and an even smaller percentage of our Medicaid budget, overpayments are unacceptable," the agency heads write in the memo. "It is imperative that our databases include only people who are eligible for Medicaid."
A spokeswoman for Hamos said she was unavailable for an interview because of the holiday weekend. Phone and email messages left for Saddler's spokeswoman were not immediately returned.
"We learned this from an internal review corresponding with the audit," said Hamos spokeswoman Joanne Von Alroth. "We really can't elaborate more than that."
Associated Press medical writer Carla K. Johnson can be reached at http://www.twitter.com/CarlaKJohnson