Medicaid

GAO reviewed seven states' prospective payment systems, which provide nursing homes with incentives to reduce costs without adversely affecting the quality of health care, to identify weaknesses in each phase of the ratesetting process.

GAO found that: (1) allowable base costs were too high because the seven states did not always establish specific written criteria limiting allowable costs; (2) states did not perform adequate studies to ensure that subgroups reflected legitimate differences in the costs of operating nursing homes; (3) inflation indices did not accurately measure inflation within the nursing home industry; and (4) states did not perform studies to ensure that established cost ceilings would maximize nursing homes' incentives to contain costs without jeopardizing quality care. GAO also found that: (1) the Department of Health and Human Services (HHS) did not publish regulations implementing the Deficit Reduction Act which enabled the Health Care Financing Administration (HCFA) and the states to better control cost increases resulting from the sale of a nursing home; and (2) although HHS regulations require states to submit assurances that their Medicaid reimbursement rates are reasonable and adequate, HCFA has not established adequate guidelines to review the basis for state assurances.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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