Health Centers And Rural Clinics
State and Federal Implementation Issues for Medicaid's New Payment System Gao ID: GAO-05-452 June 17, 2005The Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 (BIPA) established a prospective payment system (PPS) for Medicaid payments to Federally Qualified Health Centers (FQHC) and Rural Health Clinics (RHC), giving providers a financial incentive to operate efficiently. BIPA requires that BIPA PPS rates be adjusted for inflation and changes in scope of services. States also may use an alternative methodology if it pays no less than the BIPA PPS rate. In response to a BIPA mandate, GAO reviewed states' implementation of the new payment requirements, the need to rebase or refine the BIPA PPS, and the Centers for Medicare & Medicaid Services' (CMS) oversight of states' implementation. GAO surveyed the states about their payment methodologies, did a targeted review in four states, and reviewed indexes used to reflect medical care inflation.
GAO's review of states' implementation of Medicaid's new payment system--the BIPA PPS and alternative methodologies--for FQHCs and RHCs identified certain issues regarding the appropriateness of some states' methodologies. Most states used the BIPA PPS and about half of states used an alternative methodology--generally cost-based reimbursement or a PPS with features slightly different from those required for the BIPA PPS--to pay at least some of their FQHCs, RHCs, or both. States took an average of slightly more than a year from the legislation's January 1, 2001, effective date to implement their BIPA PPS, and a few states had not completed implementation as of June 1, 2004. GAO identified three significant issues with states' new Medicaid payment systems. First, some states' BIPA PPS payment rates may be inappropriate because they did not include all Medicaid-covered FQHC and RHC services in the rates as required by law. Second, as of June 1, 2004, over half the states using the BIPA PPS had not determined how they would make the required adjustment to BIPA PPS rates for a change in scope of services. Third, some states did not ensure that their alternative methodologies resulted in payments no lower than what the FQHCs and RHCs would have received under the BIPA PPS. Evidence to date is insufficient to determine the need to rebase or refine the BIPA PPS. Concerns exist that the statutorily specified annual inflation index used to adjust the BIPA PPS is inappropriate because it not only increases more slowly than do many FQHCs' and RHCs' costs but also does not reflect the services these providers deliver. Other indexes GAO reviewed had a similar shortcoming. GAO's analysis determined that no inflation index has been developed that reflects the services typically provided by FQHCs and RHCs. Because many states no longer require FQHCs and RHCs to submit cost reports, comprehensive and current Medicaid cost data are no longer available to help inform an evaluation of the need to rebase or refine the BIPA PPS. Although GAO's comparison of cost-based and BIPA PPS rates from four states showed that cost-based rates generally exceeded BIPA PPS rates, not all factors contributing to the higher rates are known. Differences between cost-based and BIPA PPS rates varied widely within and among the states reviewed, which also limited the ability to draw conclusions about the need to rebase or refine rates. CMS guidance and oversight regarding the new BIPA payment requirements were inadequate to ensure consistent state compliance with the law. CMS guidance did not fully address certain requirements, and as states developed their new payment systems, they lacked important information clarifying the new requirements. As a result, uncertainties exist regarding how states were to implement some BIPA requirements, such as how to adjust BIPA PPS rates to account for a change in scope of services. CMS has conducted limited oversight of states' implementation and therefore was unaware of compliance issues with some states' payment systems.
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Director: Team: Phone:GAO-05-452, Health Centers And Rural Clinics: State and Federal Implementation Issues for Medicaid's New Payment System
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Report to Congressional Committees:
United States Government Accountability Office:
GAO:
June 2005:
Health Centers and Rural Clinics:
State and Federal Implementation Issues for Medicaid's New Payment
System:
GAO-05-452:
GAO Highlights:
Highlights of GAO-05-452, a report to congressional committees:
Why GAO Did This Study:
The Medicare, Medicaid, and SCHIP Benefits Improvement and Protection
Act of 2000 (BIPA) established a prospective payment system (PPS) for
Medicaid payments to Federally Qualified Health Centers (FQHC) and
Rural Health Clinics (RHC), giving providers a financial incentive to
operate efficiently. BIPA requires that BIPA PPS rates be adjusted for
inflation and changes in scope of services. States also may use an
alternative methodology if it pays no less than the BIPA PPS rate. In
response to a BIPA mandate, GAO reviewed states‘ implementation of the
new payment requirements, the need to rebase or refine the BIPA PPS,
and the Centers for Medicare & Medicaid Services‘ (CMS) oversight of
states‘ implementation. GAO surveyed the states about their payment
methodologies, did a targeted review in four states, and reviewed
indexes used to reflect medical care inflation.
What GAO Found:
GAO‘s review of states‘ implementation of Medicaid‘s new payment
system”the BIPA PPS and alternative methodologies”for FQHCs and RHCs
identified certain issues regarding the appropriateness of some states‘
methodologies. Most states used the BIPA PPS and about half of states
used an alternative methodology”generally cost-based reimbursement or a
PPS with features slightly different from those required for the BIPA
PPS”to pay at least some of their FQHCs, RHCs, or both. States took an
average of slightly more than a year from the legislation‘s January 1,
2001, effective date to implement their BIPA PPS, and a few states had
not completed implementation as of June 1, 2004. GAO identified three
significant issues with states‘ new Medicaid payment systems. First,
some states‘ BIPA PPS payment rates may be inappropriate because they
did not include all Medicaid-covered FQHC and RHC services in the rates
as required by law. Second, as of June 1, 2004, over half the states
using the BIPA PPS had not determined how they would make the required
adjustment to BIPA PPS rates for a change in scope of services. Third,
some states did not ensure that their alternative methodologies
resulted in payments no lower than what the FQHCs and RHCs would have
received under the BIPA PPS.
Evidence to date is insufficient to determine the need to rebase or
refine the BIPA PPS. Concerns exist that the statutorily specified
annual inflation index used to adjust the BIPA PPS is inappropriate
because it not only increases more slowly than do many FQHCs‘ and RHCs‘
costs but also does not reflect the services these providers deliver.
Other indexes GAO reviewed had a similar shortcoming. GAO‘s analysis
determined that no inflation index has been developed that reflects the
services typically provided by FQHCs and RHCs. Because many states no
longer require FQHCs and RHCs to submit cost reports, comprehensive and
current Medicaid cost data are no longer available to help inform an
evaluation of the need to rebase or refine the BIPA PPS. Although GAO‘s
comparison of cost-based and BIPA PPS rates from four states showed
that cost-based rates generally exceeded BIPA PPS rates, not all
factors contributing to the higher rates are known. Differences between
cost-based and BIPA PPS rates varied widely within and among the states
reviewed, which also limited the ability to draw conclusions about the
need to rebase or refine rates.
CMS guidance and oversight regarding the new BIPA payment requirements
were inadequate to ensure consistent state compliance with the law. CMS
guidance did not fully address certain requirements, and as states
developed their new payment systems, they lacked important information
clarifying the new requirements. As a result, uncertainties exist
regarding how states were to implement some BIPA requirements, such as
how to adjust BIPA PPS rates to account for a change in scope of
services. CMS has conducted limited oversight of states‘ implementation
and therefore was unaware of compliance issues with some states‘
payment systems.
What GAO Recommends:
GAO recommends that CMS explore the development of a more appropriate
inflation index for the BIPA PPS and improve its guidance for states
and its oversight of states‘ payment methodologies. CMS said it will
take steps related to its oversight but disagreed on the need to issue
additional guidance. CMS also disagreed on the need to develop an
inflation index; GAO maintained the recommendation and also elevated
the issue to a matter for congressional consideration.
www.gao.gov/cgi-bin/getrpt?GAO-05-452.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Kathryn G. Allen at (202)
512-7118.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
States' Implementation of BIPA PPS and Alternative Methodologies Raises
Certain Issues:
Evidence to Date Is Insufficient about the Need to Rebase or Refine the
BIPA PPS:
CMS Guidance and Oversight Did Not Ensure Consistent State Compliance
with BIPA:
Conclusions:
Matter for Congressional Consideration:
Recommendations for Executive Action:
Agency and State Comments and Our Evaluation:
Appendix I: Methodology for Review of Selected States Using Cost-Based
Reimbursement:
Appendix II: Overview of Prospective Payment Systems:
Appendix III: Medicaid Payment Methodologies for FQHCs and RHCs, by
State, as of June 1, 2004:
Appendix IV: Comments from the Centers for Medicare & Medicaid
Services:
Appendix V: GAO Contact and Staff Acknowledgments:
Tables:
Table 1: States' Use of the BIPA PPS to Make Payments to FQHCs, as of
June 1, 2004:
Table 2: Timetable for States' Application of the MEI Inflation Index
to FQHCs' BIPA PPS Rates:
Table 3: States' Use of the BIPA PPS to Make Payments to RHCs, as of
June 1, 2004:
Table 4: Timetable for States' Application of the MEI Inflation Index
to RHCs' BIPA PPS Rates:
Table 5: Alternative Payment Methodologies for FQHCs, as of June 1,
2004:
Table 6: States That Used Limits in Determining Reasonable Costs for
FQHCs under Cost-Based Reimbursement Alternative Methodologies, by Type
of Limit, as of June 1, 2004:
Table 7: Characteristics of Alternative PPSs for FQHCs, by State, as of
June 1, 2004:
Table 8: Alternative Payment Methodologies for RHCs, as of June 1,
2004:
Table 9: States That Used Limits in Determining Reasonable Costs for
RHCs under Cost-Based Reimbursement Alternative Methodologies, by Type
of Limit, as of June 1, 2004:
Table 10: Characteristics of Alternative PPSs for RHCs, by State, as of
June 1, 2004:
Table 11: Percentage Increase of the MEI Compared to Increases for
Other Indexes Commonly Used to Adjust for Medical Care Inflation (2001
to 2003):
Table 12: States' Cost Reporting Requirements for FQHCs and RHCs, as of
June 2004:
Table 13: Comparison of Key Features of BIPA PPS to Selected Other
PPSs:
Figures:
Figure 1: States' Implementation of the BIPA PPS for FQHCs, as of June
1, 2004:
Figure 2: States' Implementation of the BIPA PPS for RHCs, as of June
1, 2004:
Figure 3: Percentage Difference in Cost-Based and BIPA PPS Rates, by
State and Provider Type, 2001 through 2003:
Figure 4: Timeline Showing CMS's Issuance of Guidance and Approval of
States' Plans to Implement BIPA's Medicaid Payment Provisions:
Abbreviations:
BIPA: Medicare, Medicaid, and SCHIP Benefits Improvement and Protection
Act of 2000:
CMS: Centers for Medicare & Medicaid Services:
CPI: Consumer Price Index:
FQHC; Federally Qualified Health Center:
HHS: Department of Health and Human Services:
HRSA: Health Resources and Services Administration:
MEI: Medicare Economic Index:
PPI: Producer Price Index:
PPS: prospective payment system:
RHC: Rural Health Clinic:
SPA: state plan amendment:
UDS: Uniform Data System:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
June 17, 2005:
The Honorable Charles E. Grassley:
Chairman:
The Honorable Max Baucus:
Ranking Minority Member:
Committee on Finance:
United States Senate:
The Honorable Joe Barton:
Chairman:
The Honorable John D. Dingell:
Ranking Minority Member:
Committee on Energy and Commerce:
House of Representatives:
To increase the accessibility of primary and preventive health services
for low-income people living in medically underserved areas, Congress
made Federally Qualified Health Centers (FQHC) and Rural Health Clinics
(RHC) eligible for payments from Medicaid, a joint federal-state
program that finances health insurance for certain low-income adults
and children.[Footnote 1] FQHCs are urban or rural centers that provide
comprehensive community-based primary care services to individuals
regardless of their ability to pay. In 2003, there were approximately
900 FQHCs. The nation's approximately 3,600 RHCs provide similar
primary care services in underserved rural areas, but unlike FQHCs,
RHCs are not required to provide services to all individuals, such as
those who are uninsured.[Footnote 2] Medicaid is a significant revenue
source for FQHCs and RHCs; according to the most recent data available,
it accounted for about 35 percent of total revenues for FQHCs and 24
percent for RHCs.[Footnote 3] In fiscal year 2003, Medicaid payments to
FQHCs and RHCs were almost $1.5 billion.
Historically, federal law required state Medicaid programs to reimburse
FQHCs and RHCs on the basis of reasonable costs--that is, costs that
are not excessive for a type of service provided to Medicaid
beneficiaries. While this basis for reimbursement may have ensured that
service providers were paid for necessary costs, it was also regarded
as potentially inflationary because providers may have increased their
payments by raising their costs. The Medicare, Medicaid, and SCHIP
Benefits Improvement and Protection Act of 2000 (BIPA) changed Medicaid
payment requirements by establishing a new prospective payment system
(PPS) effective for services provided by FQHCs and RHCs on or after
January 1, 2001.[Footnote 4] Unlike cost-based reimbursement, a PPS
creates financial incentives for providers to operate more efficiently.
Providers that keep their costs below their payment amount profit;
conversely, providers lose money if their service costs exceed the
payment amount.
Although not typical of other PPSs, the BIPA PPS established a provider-
specific rate for the first year's payment rate (2001). Specifically,
states were to set the base rate at the average of each FQHC's or RHC's
fiscal year 1999 and fiscal year 2000 reasonable costs per visit. In
subsequent years, states were to use the Medicare Economic Index (MEI)
to increase payment rates annually for inflation and were to adjust
rates when necessary to reflect a change in scope of services. States
may use an alternative methodology to reimburse some or all of their
FQHCs and RHCs if they can demonstrate that the alternative payment
methodology would result in payments no lower than under the BIPA PPS
payment rate and if the FQHC or RHC agrees to its use.
BIPA required that we study the need for, and how to, rebase and refine
costs for making Medicaid payments to FQHCs and RHCs.[Footnote 5] We
(1) reviewed states' implementation of the Medicaid payment system
under BIPA for FQHCs and RHCs, (2) evaluated the need for rebasing or
refining costs for making payment under the BIPA PPS, and (3) reviewed
the Centers for Medicare & Medicaid Services' (CMS) oversight of
states' Medicaid payment systems for FQHCs and RHCs.
To examine these issues, we surveyed Medicaid officials in the 50
states and the District of Columbia regarding their FQHC and RHC
reimbursement policies and practices as of June 1, 2004.[Footnote 6]
States also submitted documentation describing their methodologies,
which we reviewed to corroborate their survey responses. In addition to
conducting the survey, we reviewed the MEI, the index required by
statute to annually adjust BIPA PPS rates for inflation, as well as
other indexes often used to reflect changes in medical care inflation.
To identify these other indexes, we reviewed literature on medical care
indexes and information from organizations typically involved in
developing and updating these indexes. We also conducted a targeted
review of FQHC and RHC payment rates in four states--Iowa, Vermont,
Virginia, and Wisconsin--that used cost-based reimbursement as an
alternative methodology. (See app. I for details about the methodology
of our targeted review.) We interviewed officials from CMS and its
regional offices; CMS is the agency within the Department of Health and
Human Services (HHS) that oversees states' Medicaid programs. We also
interviewed officials from HHS's Health Resources and Services
Administration (HRSA), which is responsible for reviewing FQHC grant
applications and disbursing federal public health grant funds to FQHCs.
To provide contextual information, we interviewed various stakeholders.
Specifically, we interviewed officials from the National Association of
Community Health Centers (an organization representing FQHCs), the
National Association of Rural Health Clinics, George Washington
University's Center for Health Services and Policy (an organization
that has conducted research on FQHCs), and a judgmentally selected
sample of eight FQHCs and eight RHCs. We performed our work from July
2004 through May 2005 in accordance with generally accepted government
auditing standards.
Results in Brief:
Our analysis of states' implementation of Medicaid's new payment
system--the BIPA PPS and alternative methodologies--to pay FQHCs and
RHCs identified certain issues about the appropriateness of some
states' methodologies. Most states implemented the BIPA PPS and just
under half of states used an alternative methodology--generally cost-
based reimbursement or a PPS with features differing slightly from the
BIPA PPS--to pay at least a portion of their FQHCs or RHCs; and some
states used more than one methodology. States took an average of
slightly more than a year to implement their BIPA PPS, and a few states
had not completed implementation as of June 1, 2004. We noted three
significant issues regarding states' payment methodologies--two related
to the BIPA PPS and one related to alternative methodologies. First,
some states' BIPA PPS payment rates may be inappropriate because the
states did not include all Medicaid-covered FQHC and RHC services in
determining the rates. Second, over half of states using the BIPA PPS
had not determined how they would address the requirement to adjust
their BIPA PPS rates for a change in scope of services. Third, not all
states with alternative methodologies ensured that they resulted in
payment at least equal to what FQHCs and RHCs would have received under
the BIPA PPS, as required by statute.
Evidence to date is insufficient to determine the need to rebase or
refine the BIPA PPS. Concerns exist about the appropriateness of the
MEI, the index required by statute to annually adjust BIPA PPS rates
for inflation. For example, the MEI was designed to measure the
changing costs for the average physician, which may be different from
the costs of FQHCs and RHCs. FQHCs often provide additional services,
such as translation, and a significant portion of RHC services may be
provided by nonphysician practitioners. Other indexes often used to
reflect medical care inflation have a similar shortcoming as they also
do not reflect the services typically provided by FQHCs and RHCs.
Although the MEI may not be an appropriate index, we determined that no
inflation index is currently available that reflects these services.
Determining the need for rebasing or refining is further complicated by
the increasing lack of comprehensive and current cost data because many
states no longer require all FQHCs and RHCs to submit cost reports. Our
comparison of cost-based and BIPA PPS rates from four states that used
cost-based reimbursement as an alternative payment methodology did not
provide conclusive evidence on the need to rebase or refine the BIPA
PPS. Specifically, cost-based rates for these states generally were
higher than the BIPA PPS rates for most providers, but it is unclear if
this is because providers lacked the incentive to deliver services
efficiently or because they were operating efficiently but their costs
were higher than what the BIPA PPS would pay.
CMS guidance for and oversight of states' implementation of the new
BIPA-mandated payment requirements for FQHCs and RHCs were inadequate
to consistently ensure states' compliance with the law. Although CMS
issued guidance, it did not address how states were to implement some
BIPA requirements, such as how to adjust BIPA PPS rates to account for
a provider's change in scope of services and the relevance of this
requirement to states using alternative payment methodologies.
Moreover, CMS has conducted limited oversight of states' implementation
of the new payment system for FQHCs and RHCs. Instead, CMS has relied
on states' assurances that they were in compliance with BIPA and
investigated payment issues only in response to complaints, which CMS
said were rare, or when payment issues were raised during a CMS review
conducted for other purposes. As a result of its limited oversight, CMS
was unaware of certain compliance issues with states' payment
methodologies for FQHCs and RHCs, such as that some states' alternative
methodologies did not comply with BIPA's requirement that these
methodologies result in payment no lower than what FQHCs and RHCs would
have received under the BIPA PPS.
This report includes a matter for congressional consideration and
several recommendations to the Administrator of CMS. We suggest that
Congress consider directing CMS to explore the development of a more
appropriate inflation index or develop a strategy to periodically
assess the adequacy of the MEI as an inflation index for adjusting BIPA
PPS rates. We are recommending that the Administrator of CMS also
explore the development of a more appropriate inflation index for the
BIPA PPS, take various steps to improve CMS guidance for states, and
provide more consistent oversight of states' payment methodologies for
FQHCs and RHCs. In commenting on a draft of this report, CMS said it
would take certain actions related to its oversight of states' payment
methodologies for FQHCs and RHCs, but did not agree that development of
another inflation index or issuance of additional guidance were
necessary. We believe that the CMS response does not adequately address
the issues raised in this report, as its proposed actions may not be
sufficient to ensure states' compliance with BIPA. In addition, we
continue to believe that CMS should explore developing an inflation
index that more appropriately reflects the services provided by FQHCs
and RHCs. We therefore maintained this recommendation and also elevated
the issue to a matter for congressional consideration.
Background:
The FQHC and RHC programs were established to increase access to care
for individuals in medically underserved areas. Medicaid, which
finances health care for more than 50 million low-income Americans, is
a significant revenue source for FQHCs and RHCs, providing, on average,
one-quarter to over one-third of these providers' revenues.
Characteristics of FQHCs and RHCs:
To be designated an FQHC, a facility generally must meet the
requirements of a grant recipient under section 330 of the Public
Health Service Act; be a public or private nonprofit entity that
provides a statutorily required set of primary care services to any
individual, regardless of ability to pay; and serve the medically
underserved.[Footnote 7] In fiscal year 2002, the President launched
the Health Center Initiative with the goal of adding 1,200 new or
expanded health center sites and increasing the number of patients
served from about 10 million in fiscal year 2001 to 16 million by 2006.
In 2003, the approximately 900 FQHCs provided services to over 12
million people.[Footnote 8]
FQHCs include community health centers, migrant health centers, public
housing and homeless programs, FQHC look-alikes, and certain facilities
operated by tribes or tribal organizations.[Footnote 9] A
distinguishing feature of FQHCs is that they provide enabling services
such as outreach, translation, and transportation, which help patients
gain access to health care. FQHCs vary considerably in their geographic
location; their revenue mix; and the size of the uninsured and Medicaid
populations and degree of managed care penetration in the surrounding
area. For example, an FQHC may be located in an urban area with a large
uninsured or Medicaid population and a high Medicaid managed care
penetration, or in a rural area, where it serves as the only source of
primary care for several communities.
Unlike FQHCs, RHCs are not required to provide services to all
individuals, such as those who are uninsured, but they are required to
operate in rural areas that are designated as underserved.[Footnote 10]
RHCs can operate either independently or as part of a larger
organization, such as a hospital, skilled nursing facility, or home
health agency. RHCs can be specialty clinics, focusing their services
on particular populations or medical specialties such as pediatrics or
obstetrics and gynecology. In addition to being located in a rural,
underserved area, to be certified by CMS as an RHC, a provider must
primarily offer outpatient primary medical care, employ at least one
nonphysician practitioner at least half the time the clinic is open,
and have a physician on-site at least once every 2 weeks.[Footnote 11]
As of August 2004, approximately 3,600 RHCs operated in 44
states.[Footnote 12]
In 2003, Medicaid reimbursement and HRSA grant funds were the two
largest single sources of revenue for FQHCs and accounted for 35
percent and 22 percent of these providers' total revenue, respectively.
FQHCs also received revenues from state, local, and private grants as
well as other insurance programs.[Footnote 13] In contrast, RHCs
received a smaller proportion of their total revenues from Medicaid (24
percent) but a higher proportion from Medicare, commercial insurance,
and directly from patients (self-pay).[Footnote 14] Although Medicaid
is a large revenue source for FQHCs and RHCs, payments to these
providers represent a very small percentage of overall Medicaid
expenditures. In fiscal year 2003, Medicaid payments to FQHCs and RHCs
totaled almost $1.5 billion combined, which accounted for less than 1
percent of Medicaid expenditures for medical care.
Medicaid Reimbursement for FQHCs and RHCs:
Prior to 2001, federal law required state Medicaid programs to pay
FQHCs and RHCs using a cost-based reimbursement methodology. To
determine cost-based payments, states required FQHCs and RHCs to submit
cost reports, which states reviewed to determine which reported costs
were allowable (related to providing services to Medicaid
beneficiaries) and reasonable (not excessive for the type of service).
The Medicaid statute directed states to follow the Medicare statute to
reimburse FQHCs and RHCs. This meant that states were to reimburse
FQHCs and RHCs according to CMS Medicare regulations, which provide
guidance on the types of allowable costs, such as compensation for
physicians and other staff, supplies, administrative overhead, and
other items. The regulations allowed states to establish their own
definition of what constituted "reasonable costs," which could include
a ceiling on costs per service, such as a medical visit, or a limit on
a type of cost, such as administrative costs.
In December 2000, BIPA established a PPS to pay for Medicaid-covered
services provided by FQHCs and RHCs. While BIPA did not specify when
states had to implement the PPS, the statute required that the BIPA PPS
be effective for services provided by FQHCs and RHCs on or after
January 1, 2001. Unlike the prior cost-based reimbursement system, a
PPS establishes payment rates in advance of service delivery and
creates incentives for providers to operate more efficiently.
Generally, the payment is not contingent on an individual provider's
actual cost of delivering care. Providers that, on average, deliver
care for less than the payment amount can retain the portion of the
payment amount exceeding their costs; conversely, providers will lose
money if their service costs are higher than the payment. (See app. II
for additional general information on PPSs, including how the BIPA PPS
compares with selected other PPSs.)
Under the PPS mandated by BIPA, the 2001 payment rate, called the base
rate, was effective for services provided beginning January 1, 2001.
The 2001 payment rate was to be the average of each FQHC's and RHC's
fiscal year 1999 and fiscal year 2000 reasonable costs per visit, which
states were allowed to determine using their prior definitions of
reasonable costs. Beginning in fiscal year 2002, BIPA PPS payment rates
were to be adjusted annually for inflation by the MEI. In addition,
BIPA required that payments to FQHCs and RHCs be adjusted for increases
or decreases in the scope of services provided. States also were
required to make supplemental payments to FQHCs and RHCs that provide
services to Medicaid patients enrolled in a capitated managed care
plan.[Footnote 15] BIPA allowed states to use an alternative
methodology to pay an FQHC or RHC as long as the FQHC or RHC agreed to
the alternative methodology and the methodology resulted in payment to
the FQHC or RHC of an amount that was no lower than the amount
otherwise required under the BIPA PPS.[Footnote 16]
In June 2001, we reported that payments to FQHCs and RHCs under the new
BIPA PPS would likely be constrained.[Footnote 17] The report noted
that because states were allowed to continue to use their prior methods
for determining reasonable costs in establishing the 2001 base payment
rate under the BIPA PPS, the initial PPS rates for FQHCs and RHCs might
be below their actual costs. Additionally, the 2001 base PPS rate could
be lower than what an FQHC or RHC received in 2000 because the base
rate was an average of fiscal years' 1999 and 2000 costs. Furthermore,
BIPA did not specify that the initial 2001 payment rates be updated for
inflation from 1999 through 2001. We also reported that the specific
inflation index BIPA required states to use, the MEI, increased at a
lower rate than other measures of inflation that some states had
previously used to adjust FQHCs' payment rates.
State Plan Approval Process:
To comply with BIPA's January 1, 2001, effective date, states were
required to submit a state plan amendment (SPA) for the new FQHC and
RHC Medicaid payment requirements by the end of the first quarter of
2001 (March 31, 2001).[Footnote 18] To aid states in meeting this
deadline, CMS provided them with standard language that they could
submit as a placeholder SPA that would allow them to comply technically
with the submission deadline.[Footnote 19], [Footnote 20] According to
CMS, states could subsequently update their SPAs with the specifics of
their methodology before CMS review.
Once CMS receives a SPA, it has 90 days to approve it, disapprove it,
or request additional information from the state.[Footnote 21] Upon
receipt of any additional state information requested, CMS has an
additional 90 days to approve or disapprove the SPA.[Footnote 22]
According to CMS, its regional offices have primary responsibility for
review and approval of SPAs but coordinate with headquarters, which is
responsible for making any final disapprovals.
States' Implementation of BIPA PPS and Alternative Methodologies Raises
Certain Issues:
Our analysis of states' implementation of the BIPA PPS and alternative
methodologies identified certain issues regarding the appropriateness
of some states' Medicaid payment systems for FQHCs and RHCs. Most
states (39) used the BIPA PPS and just under half of states (25) used
the BIPA option of an alternative methodology to pay at least a portion
of their FQHCs, RHCs, or both. (See app. III for the portion of FQHCs
and RHCs, by state, paid under each methodology.) States took an
average of slightly more than a year from the legislation's January 1,
2001, effective date to complete implementation of their BIPA PPS, and
a few states had not completed implementation as of June 1, 2004. We
found two significant issues with states' implementation of the BIPA
PPS. First, some states' BIPA PPS payment rates may be inappropriate
because the states did not include all Medicaid-covered FQHC and RHC
services in the rates. Second, as of June 1, 2004, over half of states
using the BIPA PPS had not determined how they would meet the
requirement to adjust their BIPA PPS rates for a change in scope of
services. States implementing an alternative methodology generally used
either cost-based reimbursement or a PPS with features that differed
slightly from the BIPA PPS. We found one issue with states'
implementation of alternative payment methodologies. In establishing
their alternative payment methodologies, some states did not ensure
that payments to FQHCs and RHCs were at least equal to what the BIPA
PPS would pay, as required by law.
BIPA PPS Implemented in Most States, but Issues Exist:
The BIPA PPS was implemented in most states, but we noted issues with
the appropriateness of some states' methodologies. Thirty-nine states
used the BIPA PPS to pay at least a portion of their FQHCs, RHCs, or
both--27 used it for both FQHCs and RHCs, 6 used it for FQHCs only, and
6 for RHCs only. While a few states had yet to completely implement
their BIPA PPS as of June 1, 2004, it took the remaining states an
average of 15 to 16 months to complete implementation of their
methodologies. We found two issues with some states' BIPA PPSs. Of the
states using the BIPA PPS, more than a third reported that they did not
include all Medicaid-covered FQHC and RHC services in their BIPA PPS
payment rates and over half had either not defined procedures for
adjusting FQHCs' and RHCs' BIPA PPS rates for a change in scope of
services, an adjustment required by BIPA, or not specified what would
constitute such a change.
Implementation of BIPA PPS for FQHCs:
Thirty-three of 51 states reported using the BIPA PPS to pay some
portion of their FQHCs. The BIPA PPS was the only payment methodology
used for FQHCs in 27 of the states, while in the remaining 6 states
only a portion of FQHCs received Medicaid payments under the BIPA PPS
(see table 1).[Footnote 23]
Table 1: States' Use of the BIPA PPS to Make Payments to FQHCs, as of
June 1, 2004:
Portion of FQHCs: All;
Number of states: 27;
States: Alabama, Connecticut, Delaware, District of Columbia, Florida,
Georgia, Hawaii, Idaho, Illinois, Indiana, Kentucky, Louisiana, Maine,
Maryland, Minnesota,[A] Mississippi, Montana, Nevada, Ohio, Oklahoma,
Oregon, Pennsylvania, Rhode Island, South Dakota, Tennessee,
Washington, and Wyoming.
Portion of FQHCs: Most (50% to 0% to
