The District of Columbia made improper and inflated Medicaid payments estimated at $7.8 million during the year ending Sept. 30, according to the results of a random audit of one portion of the city's Medicaid program.

That loss, added to what Department of Human Resources director Albert P. Russo said were $6 million in improper payments under another phase of the local welfare program, brings to almost $14 million the city's annual loss through inflated welfare benefits and payments to unqualified recipients.

Medicaid is a program jointly funded by the federal and local governments to pay for medical care of the indigent.

The Medicaid overpayments and payments to ineligible recipients were made to persons in the so-called "medically needy" category. These are employed persons who do not qualify for any other form of welfare but who earn so little that they cannot afford to pay for medical care. There are about 17,000 persons, or 4,250 families and individuals not in families Receiving such help.

In the six-month period ending Sept. 30. the city made improper payments in 40 per cent of the medically needy Medicaid cases for a loss of $3,895,559, according to the findings of a federally mandated study of 275 cases chosen scientifically at random.

According to the federal Health Education and Welfare Department almost all the errors were the result of payments being made for persons ineligible to receive any payments.

Officials at HEW, which requires the audit every six months, say that it can be estimated that the city lost twice that amount, or [WORD ILLEGIBLE] in the year ending Sept. 30.

According to Russo, head of the agency responsible for the management of the local Medicaid program, the medically needy program costs about $20 million out of the total $100 million Medicaid program.

Eliminating the improper payments would reduce the cost of the medically needy program by about 39 per cent.

When asked Wednesday about the city's Medicaid losses, Russo said there was a 40 per cent error rate, but said he did not know the dollar amount of the loss.

Asked if one could accurately estimate the dollar loss by multiplying the error rate times the total payments. Russo said such an extrapolation would be inaccurate without knowing the cost of the individual cases sampled.

Russo said the city had not come up with a dollar figure because "it's difficult to estimate these costs.

"We're not required (by law) to estimate the cost," only determine the rates.

However, HEW spookesman Walter Angrist said that HEW derived the dollar figure by multiplying the error rate by the total payments. HEW statisticians says such a method is accurate, said Angrist, because almost all of the errors resulted from payment to persons who were not eligible for any payment.

Angrist said the $3.9 million figure has been available publicly for months, and was included in an HEW report to Congress on the Medicaid program.

Asked yesterday to comment on the Medicaid program losses. Mayor Walter E. Washington responded through Spokesman Sam Eastman that he "is not aware of these figures."

Eastman said that Russo denies the validity of the HEW estimate.

However, Russo termed the error rate "unconscionable," and said the main reason for it "is our failure to review medically needy cases in a timely fashion. Another reason for it is the failure of the medically needy heads of households to report changes in their income.

"We do not do timely reviews," said Russo. "We do not have the horses to pull the rope," he added, referring to what he says is a shortage of DHR staff members to do the reviewing. The D.C. budget now before Congress contains money for new staff to review the welfare programs, Russo said.

Russo said that a similar study of the Aid to Families with Dependent Children program found an error rate of 34 per cent, with 22 per cent of the recipients receiving too much money and 12 per cent inteligible for any aid. This amounts to the $6 million loss, he said.