Medicaid
States' Efforts to Maximize Federal Reimbursements Highlight Need for Improved Federal Oversight
Gao ID: GAO-05-836T June 28, 2005
Medicaid--the federal-state health care financing program covering almost 54 million low-income people at a cost of $276 billion in fiscal year 2003--is by its size and structure at significant risk of waste and exploitation. Because of challenges inherent in overseeing the program, which is administered federally by the Centers for Medicare & Medicaid Services (CMS), GAO added Medicaid to its list of high-risk federal programs in 2003. Over the years, states have found various ways to maximize federal Medicaid reimbursements, sometimes using consultants paid a contingency fee to help them do so. From earlier work and a report issued today (GAO-05-748), GAO's testimony addresses (1) how some states have inappropriately increased federal reimbursements; (2) some ways states have increased federal reimbursements for school-based Medicaid services and administrative costs; and (3) how states are using contingency-fee consultants to maximize federal Medicaid reimbursements and how CMS is overseeing states' efforts.
For many years, GAO has reported on varied financing schemes and questionable methods used by states to increase the federal reimbursements they receive for operating their state Medicaid programs. These schemes and methods can undermine Medicaid's federal-state partnership and threaten its fiscal integrity. For example, some states make large supplemental payments to government-owned or government-operated entities for delivery of Medicaid services while requiring these entities to return the payments to the state. This process creates the illusion of valid expenditures in order to obtain federal reimbursement, effectively shifting a portion of the state's share of program expenditures to the federal government and increasing the federal share beyond that established by formula under law. Medicaid funding is available for local school districts for certain health services for eligible children and for administrative costs. To claim increased federal Medicaid reimbursement, however, some states and school districts have used methods lacking sufficient controls to ensure that claims were legitimate. GAO also found funding arrangements among schools, states, and private consulting firms where some states retained up to 85 percent of reimbursements for administrative costs. In some cases, school districts paid contingency fees to consultants. A growing number of states are using consultants on a contingency-fee basis to maximize federal Medicaid reimbursements. As of 2004, 34 states--up from 10 states in 2002--used contingency-fee consultants for this purpose. GAO identified claims in each of five categories of claims from contingency-fee projects that appeared to be inconsistent with current CMS policy, inconsistent with federal law, or that undermined the fiscal integrity of the Medicaid program. Problematic projects often were in categories where federal requirements were inconsistently applied, evolving, or not specific. CMS has taken steps to improve its fiscal management of Medicaid, but a lack of oversight and clear guidance from CMS has allowed states to develop new financing methods or continue existing ones that take advantage of ambiguity and generate considerable additional federal costs.
GAO-05-836T, Medicaid: States' Efforts to Maximize Federal Reimbursements Highlight Need for Improved Federal Oversight
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Highlight Need for Improved Federal Oversight' which was released on
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Testimony:
Before the Committee on Finance, U.S. Senate:
United States Government Accountability Office:
GAO:
For Release on Delivery Expected at 10:00 a.m. EDT:
Tuesday, June 28, 2005:
Medicaid:
States' Efforts to Maximize Federal Reimbursements Highlight Need for
Improved Federal Oversight:
Statement of Kathryn G. Allen:
Director, Health Care:
GAO-05-836T:
GAO Highlights:
Highlights of GAO-05-836T, a testimony before the Committee on Finance,
U.S. Senate:
Why GAO Did This Study:
Medicaid”the federal-state health care financing program covering
almost 54 million low-income people at a cost of $276 billion in fiscal
year 2003”is by its size and structure at significant risk of waste and
exploitation. Because of challenges inherent in overseeing the program,
which is administered federally by the Centers for Medicare & Medicaid
Services (CMS), GAO added Medicaid to its list of high-risk federal
programs in 2003. Over the years, states have found various ways to
maximize federal Medicaid reimbursements, sometimes using consultants
paid a contingency fee to help them do so.
From earlier work and a report issued today (GAO-05-748), GAO‘s
testimony addresses (1) how some states have inappropriately increased
federal reimbursements; (2) some ways states have increased federal
reimbursements for school-based Medicaid services and administrative
costs; and (3) how states are using contingency-fee consultants to
maximize federal Medicaid reimbursements and how CMS is overseeing
states‘ efforts.
What GAO Found:
For many years, GAO has reported on varied financing schemes and
questionable methods used by states to increase the federal
reimbursements they receive for operating their state Medicaid
programs. These schemes and methods can undermine Medicaid‘s federal-
state partnership and threaten its fiscal integrity. For example:
* Some states make large supplemental payments to government-owned or
government-operated entities for delivery of Medicaid services while
requiring these entities to return the payments to the state. This
process creates the illusion of valid expenditures in order to obtain
federal reimbursement, effectively shifting a portion of the state‘s
share of program expenditures to the federal government and increasing
the federal share beyond that established by formula under law.
* Medicaid funding is available for local school districts for certain
health services for eligible children and for administrative costs. To
claim increased federal Medicaid reimbursement, however, some states
and school districts have used methods lacking sufficient controls to
ensure that claims were legitimate. GAO also found funding arrangements
among schools, states, and private consulting firms where some states
retained up to 85 percent of reimbursements for administrative costs.
In some cases, school districts paid contingency fees to consultants.
A growing number of states are using consultants on a contingency-fee
basis to maximize federal Medicaid reimbursements. As of 2004, 34
states”up from 10 states in 2002”used contingency-fee consultants for
this purpose. GAO identified claims in each of five categories of
claims (see table) from contingency-fee projects that appeared to be
inconsistent with current CMS policy, inconsistent with federal law, or
that undermined the fiscal integrity of the Medicaid program.
Problematic projects often were in categories where federal
requirements were inconsistently applied, evolving, or not specific.
CMS has taken steps to improve its fiscal management of Medicaid, but a
lack of oversight and clear guidance from CMS has allowed states to
develop new financing methods or continue existing ones that take
advantage of ambiguity and generate considerable additional federal
costs.
Five Categories of Medicaid Claims Reviewed by GAO:
Category of claims: Supplemental payment arrangements;
Service: Payments to a class of health care providers, such as nursing
homes, up to a predefined limit.
Category of claims: School-based services;
Service: Medicaid-covered medical services provided by schools, such as
diagnostic screening or physical therapy, or the administrative cost of
providing these services.
Category of claims: Targeted case management services;
Service: Services to help a defined group of beneficiaries gain access
to needed medical, social, educational, and other services.
Category of claims: Rehabilitation services;
Service: Services to reduce a mental or physical disability and restore
an individual to the best possible functional level.
Category of claims: Administrative costs;
Service: Costs the states incur in administering their Medicaid
programs.
Source: GAO based on CMS information.
[End of table]
What GAO Recommends:
GAO recommends that CMS improve oversight of contingency-fee projects
and states‘ reimbursement-maximizing methods. Although CMS believes its
recent initiatives substantially respond to the recommendations, GAO
maintains that additional actions are needed.
www.gao.gov/cgi-bin/getrpt?GAO-05-836T.
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]
Mr. Chairman and Members of the Committee:
I am pleased to be here today as you explore issues relating to states'
efforts to maximize federal Medicaid reimbursements and how they can
affect the Medicaid program. Medicaid--the federal-state program
financing health care for certain low-income children, families, and
individuals who are aged or disabled--covered nearly 54 million people
at an estimated total cost of $276 billion in federal fiscal year 2003.
Medicaid is the third-largest mandatory spending program in the federal
budget and one of the largest components of state budgets, second only
to education. The program fulfills a crucial national role by providing
health coverage for a variety of vulnerable populations. Congress has
structured Medicaid as a shared financial responsibility of the federal
government and the states, with the federal share of each state's
Medicaid payments determined by a formula specified by law.[Footnote 1]
The Centers for Medicare & Medicaid Services (CMS), within the
Department of Health and Human Services (HHS), is the federal agency
responsible for the program, and the states design and administer their
programs with considerable discretion and flexibility within broad
federal guidelines. We have previously reported that the challenges
inherent in overseeing a program of Medicaid's size, growth, and
diversity put the program at high risk for waste, abuse, and
exploitation. In 2003, we added Medicaid to our list of high-risk
federal programs.[Footnote 2]
States can design and administer their Medicaid programs in a manner
that helps them ensure that they receive the maximum allowable federal
share of expenditures they incur for covered services provided to
eligible beneficiaries under a CMS-approved state Medicaid plan, as
long as they do so within the framework of federal law, regulation, and
CMS policy. To that end, states can employ consultants to assist them
in performing a number of valid Medicaid-related functions that may
help them to identify and implement ways to obtain additional federal
funds or that may help save money for both the federal government and
states. Consultants, for example, can help identify claims that are
inappropriately paid or that are subject to recovery from other
payers.[Footnote 3] States may choose to pay consultants on a
contingency-fee basis (that is, a percent of the additional federal
reimbursements they generate for the state) to develop various types of
reimbursement-maximizing projects.[Footnote 4] In the current
environment of steadily rising Medicaid costs straining federal and
state budgets, states' use of contingency-fee consultants to maximize
federal reimbursement can be problematic if controls are inadequate to
ensure that additional federal reimbursements are allowable Medicaid
expenditures. We have earlier reported on (1) certain types of
financing schemes that involved some states making illusory payments to
government-owned or government-operated entities such as nursing homes
or hospitals, often through a mechanism known as intergovernmental
transfers (IGTs),[Footnote 5] to obtain increased federal
reimbursements and (2) concerns with practices used by states and
school districts to boost federal payments for school-based
services.[Footnote 6] As part of our body of work on Medicaid financing
issues, today we are releasing a report, undertaken at the Chairman's
request, that addresses states' use of contingency-fee consultants to
maximize federal Medicaid reimbursements.[Footnote 7]
For today's hearing, you asked us to address issues we have identified
in our past and current work concerning some reimbursement-maximizing
strategies used by some states and CMS's oversight of them. In my
testimony, I will describe: (1) how, over the years, some states have
inappropriately increased federal reimbursements, sometimes using IGTs,
through varied state financing schemes; (2) how states have used
questionable methods to increase federal reimbursements for school-
based Medicaid services and administrative costs and the status of
CMS's actions to improve oversight in this area; and (3) how states are
using contingency-fee consultants to maximize federal Medicaid
reimbursements and how CMS oversees states' reimbursement-maximizing
strategies. My testimony is based on several previous reports and
testimonies, including the report we are issuing today, assessing
states' Medicaid financing methods and federal oversight of them. The
work that produced these reports and testimonies was conducted from
June 1993 through June 2005 in accordance with generally accepted
government auditing standards.
In summary, for many years we have reported on the varied financing
schemes and questionable methods that states have used to increase the
federal reimbursements they receive for operating their state Medicaid
programs. In our view, these methods can undermine the Medicaid federal-
state partnership and threaten the fiscal integrity of the program. We
previously reported that:
* Some states have used IGTs to make large supplemental payments to
government-owned or government-operated providers, which have greatly
exceeded the established Medicaid payment rates. Such supplemental
payments create the illusion of valid expenditures for services
delivered to Medicaid beneficiaries and allow states to obtain the
federal reimbursement, only to have the local government providers,
under agreements with the states, transfer the excessive federal and
state payments back to the state. As a result, some states are able to
shift a portion of their share of program expenditures to the federal
government, essentially increasing the federal matching rate beyond
that established under federal law.
* Some states and school districts have used questionable methods to
increase federal Medicaid reimbursement for Medicaid health services
and administrative costs, that is, methods that lacked sufficient
controls to ensure that the claims were legitimate. Medicaid funding is
available for certain health services provided by local school
districts, such as diagnostic screening and physical therapy for
eligible children, including those with disabilities. Medicaid
reimbursement is also available for the administrative costs of
providing school-based Medicaid services. We found funding arrangements
in some states among schools, states, and private consulting firms that
resulted in schools' receiving a small portion of the Medicaid
reimbursements, while some states retained up to 85 percent of Medicaid
reimbursements for school-based health services or administrative
claims. Moreover, some school districts paid contingency fees to the
private consultants who assisted them in preparing and submitting
Medicaid claims, further reducing the net amount the schools received.
As we are reporting today, a growing number of states are using
consultants on a contingency-fee basis to maximize federal Medicaid
reimbursements. As of 2004, 34 states--up from 10 states in 2002--used
contingency-fee consultants for this purpose. We identified some claims
from contingency-fee projects that appear to be inconsistent with
current CMS policy and some that were inconsistent with federal law; we
also found claims that undermined the fiscal integrity of the Medicaid
program. In Georgia and Massachusetts, where we focused our review of
specific projects, selected projects that involved the assistance of
contingency-fee consultants generated a significant amount of
additional federal reimbursements for the states: from fiscal year 2000
through 2004, an estimated $1.5 billion for Georgia and nearly $570
million for Massachusetts. For those additional reimbursements, Georgia
paid its consultant about $82 million in contingency fees, and
Massachusetts paid its consultants about $11 million in contingency
fees. Just to be clear: any state's use of consultants--including
contingency-fee consultants--or any associated growth in federal
reimbursements, is not problematic, in and of itself. However, we
identified concerns in each of the five categories of claims where we
reviewed the states' contingency-fee projects: supplemental payment
arrangements, school-based services, targeted case management,
rehabilitation services, and administrative costs, in either Georgia,
Massachusetts, or both states. We found that problematic projects often
tended to be in areas of Medicaid claims where federal requirements
were inconsistently applied, evolving, or not specific. The lack of
clear CMS guidance has allowed states to develop new financing
arrangements, or to continue existing ones, that take advantage of
ambiguity and result in considerable additional costs to the federal
government.
We believe that the continuing problems we have reported in several
high-risk categories of Medicaid claims illustrate not only the need to
improve oversight of claims stemming from contingency-fee projects, but
also the urgent need for CMS to address certain issues in its overall
financial management and oversight of Medicaid. In our report issued
today, we are reiterating certain recommendations we have previously
made to Congress and to the Administrator of CMS that remain open, as
well as new ones to the Administrator to improve the financial
management and oversight, and fiscal integrity, of the Medicaid
program.
In commenting on a draft of the report issued today, CMS stated that it
has already substantially met our recommendations. While acknowledging
that improper Medicaid payments had unquestionably occurred, the agency
provided detailed information to support why it believes that it (1)
was already aware of the concerns identified in projects we examined
and (2) has taken sufficient action to address these concerns and our
related GAO recommendations. In our view, however, CMS has not
sufficiently identified or addressed the concerns that we identified,
and we believe CMS needs to do more to identify problematic claims
resulting from contingency-fee projects sooner, before large
reimbursements have been made to states. We continue to believe that
CMS needs to do more to clarify, communicate, and consistently apply
its policies concerning certain high-risk areas of the Medicaid
program.
Background:
Title XIX of the Social Security Act[Footnote 8] authorizes federal
funding to states for Medicaid, which finances health care for certain
low-income children, families, and individuals who are aged or
disabled. Although states have considerable flexibility in designing
and operating their Medicaid programs, they must comply with federal
requirements specified in Medicaid statute and regulation. For example,
states must provide methods to ensure that payments for services are
consistent with economy, efficiency, and quality of care.[Footnote 9]
Medicaid is an entitlement program: states are generally obligated to
pay for covered services provided to eligible individuals, and the
federal government is obligated to pay its share of a state's
expenditures under a CMS-approved state Medicaid plan.
Our prior and current work addresses five categories of Medicaid claims
where we are aware that states have reimbursement-maximizing
strategies. Our current work in particular concentrated on these five
categories because--on the basis of factors such as nationwide growth
in dollars claimed, the results of our past reviews, and work by HHS's
Office of Inspector General (OIG) to assess the appropriateness of
claims in these categories--we judged them to be of particularly high
risk. Over the past few years, states' claims in some of these
categories have grown significantly in dollar amounts. The five
categories of claims we examined, and recent trends in claimed
expenditures, are described in table 1.
Table 1: Five Categories of Medicaid Claims Reviewed by GAO Where
States Are Maximizing Federal Medicaid Reimbursements and Trends in
Reported Expenditures:
Category of Medicaid claims: Supplemental payment arrangements: A
common supplemental payment arrangement is known as the upper payment
limit, or UPL, arrangement. UPL is the upper bound on what the federal
government will pay as its share of Medicaid costs; it is the federal
government's way of placing a ceiling on federal financial
participation in a state's Medicaid program. UPLs are tied to the
methodology that Medicare, the federal health care program that covers
seniors aged 65 and older and some disabled persons, uses to pay for
comparable services. The rates that states pay their Medicaid service
providers are often lower than the federal Medicare rates to which
Medicaid UPL rates are tied. Thus, a gap often exists between the
amount states actually spend to provide services to Medicaid
beneficiaries and the Medicare-based UPLs. States can obtain additional
federal funding for the amount under the UPL ceiling by making
supplemental payments to a class of providers, such as nursing homes or
hospitals;
Trends in reported expenditures: Federal and state UPL expenditures
through all UPL arrangements grew from an estimated $10.3 billion in 28
states in fiscal year 2000 to $11.2 billion in 45 states in fiscal year
2004. During this time period, Congress and CMS acted to limit
excessive UPL arrangements and associated claims.[A].
Category of Medicaid claims: School-based services: Schools can help
identify Medicaid-eligible low-income children, facilitate their
enrollment in Medicaid, and provide them certain Medicaid-covered
services. When Medicaid-eligible children receive Medicaid services--
such as diagnostic screening or physical therapy--through the school
system, states can use their Medicaid programs to pay for these
services. School districts may also receive Medicaid reimbursement for
the administrative costs of providing school-based Medicaid services;
Trends in reported expenditures: For fiscal years 2002 through 2003,
combined federal and state spending on school-based services grew 8
percent nationwide, from $1.97 billion to $2.13 billion. Nationwide,
more than $900 million (federal and state) went toward school-based
administrative costs in both fiscal years 2002 and 2003.
Category of Medicaid claims: Targeted case management services (TCM):
Case management helps beneficiaries gain access to needed medical,
social, educational, and other services and coordinates beneficiaries'
use of providers. TCM enables states to provide case management
services to a defined group or groups of Medicaid-eligible individuals
without providing the same service to all Medicaid beneficiaries
statewide, as normally required by Medicaid law. Current CMS policy
does not allow federal Medicaid reimbursement for TCM services provided
by the state if those services are "an integral component" of an
existing state program.[B];
Trends in reported expenditures: For fiscal years 1999 through 2003,
combined federal and state spending for Medicaid TCM services increased
by 76 percent, from $1.7 billion to $3 billion.
Category of Medicaid claims: Rehabilitation services: Rehabilitation
services are intended for the maximum reduction of a physical or mental
disability and to restore an individual to the best possible functional
level. Covered services may include occupational and physical therapy,
mental health services, and treatment for addiction. The benefit is
optional, that is, state Medicaid programs are not required to cover
the service but may do so at their own option;
Trends in reported expenditures: Because rehabilitation services are
not reported separately in CMS expenditure reports, the trend in
expenditures for these services is unknown.
Category of Medicaid claims: Administrative costs: The federal
government reimburses states, generally at 50 percent, for their costs
of administering their Medicaid programs. To determine which
administrative costs the state can attribute to Medicaid, states submit
a cost allocation plan for HHS approval.[C] This plan establishes the
methods the state will use to distribute its administrative costs--such
as employee time and costs related to providing services to both
Medicaid-eligible and non-Medicaid-eligible individuals--across
different funding sources;
Trends in reported expenditures: For fiscal years 1999 through 2003,
combined federal and state spending for the states' Medicaid
administrative costs grew 37 percent, from $9.5 billion to $13.0
billion.[D].
Source: GAO.
[A] For example, the Medicare, Medicaid, and SCHIP Benefits Improvement
and Protection Act of 2000 directed CMS to issue a final regulation to
limit states' ability to claim excessive federal reimbursements through
UPL supplemental payments.
[B] CMS recently reiterated this policy in a 2004 Administrator's
decision that denied approval of a state plan amendment requested by
Maryland to provide TCM services to children in the state's foster care
program. See CMS, Disapproval of Maryland State Plan Amendment No. 02-
05, Docket No. 2003-02 (Aug. 27, 2004). The Administrator's decision
was based in part on a statement in the legislative history
accompanying the legislation authorizing coverage for TCM services that
payment for TCM services must not duplicate payments to public agencies
or private entities under other program authorities. See H.R. Rep. No.
99-453, at 546 (1985). We did not evaluate the legal basis for CMS's
policy as part of this review.
[C] Unlike CMS's direct review and approval role for states' Medicaid
plan amendments, CMS has an advisory review role for the plans that
state Medicaid agencies prepare for allocating their administrative
overhead costs; at the national level, HHS's Division of Cost
Allocation instead takes the lead in reviewing these cost allocation
plans. The division generally distributes copies of cost allocation
plan sections to affected federal agencies, including CMS, for comment.
[D] These figures include costs associated with school-based
administration.
[End of table]
States Have Used Intergovernmental Transfers to Facilitate Financing
Schemes That Inappropriately Increase Federal Medicaid Reimbursements:
For many years, states have used varied financing schemes, sometimes
involving IGTs, to inappropriately increase federal Medicaid
reimbursements. Some states, for example, have made large Medicaid
payments to certain providers, such as nursing homes operated by local
governments, which have greatly exceeded the established Medicaid
payment rate. These transactions create the illusion of valid
expenditures for services delivered by local-government providers to
Medicaid-eligible individuals and enable states to claim large federal
reimbursements. In reality, the spending is often only temporary
because states require the local governments to return all or most of
the money to the states through IGTs. Once states receive the returned
funds, they can use them to supplant the states' own share of future
Medicaid spending or even for non-Medicaid purposes.
As various schemes involving IGTs have come to light, Congress and CMS
have taken actions to curtail them, but as one approach has been
restricted, others have often emerged. Table 2 describes some of the
states' financing schemes over the years and how Congress and CMS have
responded to them.
Table 2: Medicaid Financing Schemes Used to Inappropriately Generate
Federal Reimbursements and Federal Actions to Address Them:
Financing arrangement: Excessive payments to state health facilities;
Description: States made excessive Medicaid payments to state-owned
health facilities, which subsequently returned these funds to the state
treasuries;
Action taken: In 1987, the Health Care Financing Administration (HCFA)
issued regulations that established payment limits specifically for
inpatient and institutional facilities operated by states.
Financing arrangement: Provider taxes and donations;
Description: Revenues from provider-specific taxes on hospitals and
other providers and from provider "donations" were matched with federal
funds and paid to the providers. These providers could then return most
of the federal payment to the states;
Action taken: The Medicaid Voluntary Contribution and Provider-Specific
Tax Amendments of 1991 essentially barred certain provider donations,
placed a series of restrictions on provider taxes, and set other
restrictions for state contributions.
Financing arrangement: Excessive disproportionate share hospital (DSH)
payments;
Description: DSH payments are meant to compensate those hospitals that
care for a disproportionate number of low-income patients. Unusually
large DSH payments were made to certain hospitals, which then returned
the bulk of the state and federal funds to the state;
Action taken: The Omnibus Budget Reconciliation Act of 1993 placed
limits on which hospitals could receive DSH payments and capped both
the amount of DSH payments states could make and the amount individual
hospitals could receive.
Financing arrangement: Excessive DSH payments to state mental
hospitals;
Description: A large share of DSH payments were paid to state-operated
psychiatric hospitals, where they were used to pay for services not
covered by Medicaid or were returned to the state treasuries;
Action taken: The Balanced Budget Act of 1997 limited the proportion of
a state's DSH payments that can be paid to state psychiatric hospitals.
Financing arrangement: Upper payment limit (UPL) for local-government
health facilities;
Description: Federal regulations prohibit Medicaid from paying more
than a reasonable estimate of the amount that would be paid under
Medicare payment principles for comparable services. This UPL applies
to payments aggregated across a class of facilities and not for
individual facilities. As a result of the aggregate upper limit, states
were able to make large supplemental payments to a few local public
health facilities, such as hospitals and nursing homes. The local-
government health facilities then returned the bulk of the state and
federal payments to the states;
Action taken: The Medicare, Medicaid, and SCHIP Benefits Improvement
and Protection Act of 2000 required HCFA to issue a final regulation
that established a separate payment limit for each of several classes
of local-government health facilities. In 2002, CMS issued a regulation
that further lowered the payment limit for local public hospitals.
Source: GAO, Medicaid: Intergovernmental Transfers Have Facilitated
State Financing Schemes, GAO-04-574T (Washington, D.C.: Mar. 18, 2004).
Before June 2001, CMS was known as the Health Care Financing
Administration (HCFA).
[End of table]
A leading variant of these illusory financing arrangements today
involves states' taking advantage of Medicaid's upper payment limit
(UPL) provisions. Although states are allowed, under law and CMS
policy, to claim federal reimbursements for supplemental payments they
make to providers up to the UPL ceilings, we have reported earlier that
payments in excess of the provider's costs that are not retained by the
provider as reimbursement for services actually provided are
inconsistent with Medicaid's federal-state partnership and fiscal
integrity.[Footnote 10] For example, we have reported that by paying
nursing homes and hospitals owned by local governments much more than
the established Medicaid payment rate and requiring the providers to
return, through IGTs, the excess state and federal payments to the
state, states obtain excessive federal Medicaid reimbursements while
their own state expenditures remain unchanged or even
decrease.[Footnote 11] Such round-trip payment arrangements can be
accomplished via electronic wire transfer in less than an hour. States
have then used the returned funds to pay their own share of future
Medicaid spending or to fund non-Medicaid programs.
Problems with excessive supplemental payment arrangements remain,
despite congressional and CMS action to curtail financing schemes. For
example, in our current review of states' use of contingency-fee
consultants, we found an example in Georgia that illustrates how
current law and policy continue to allow states to generate excessive
federal reimbursements beyond established Medicaid provider payments
for covered services. Georgia and its consultant developed five UPL
arrangements using IGTs--one each for local-government-operated
inpatient hospitals, outpatient hospitals, nursing homes and for state-
owned hospitals and nursing homes. Over the 3-year period of state
fiscal years 2001 through 2003, the state made supplemental payments
totaling $2.0 billion to nursing homes and hospitals operated by local
governments (see fig. 1). A sizable share of the $2.0 billion payments
was illusory, however. In reality, the nursing homes and hospitals
netted only $357 million because they had initially transferred $1.7
billion to the state Medicaid agency, through IGTs, under an agreement
with that agency. The state combined this $1.7 billion with $1.2
billion in federal funds, which represented the estimated federal share
of its supplemental payments to local-government facilities of $2.0
billion. The state thus had a funding pool of $2.9 billion at its
disposal. From this pool, the state made the $2.0 billion in
supplemental payments to local-government providers and retained $844
million to offset its other Medicaid expenditures.
Figure 1: Georgia's UPL Arrangement with Local-Government Health Care
Providers, State Fiscal Years 2001-2003:
[See PDF for image]
Note: Totals may not add up because of rounding. See GAO-05-748.
[End of figure]
In our view, the inappropriate use of IGTs in schemes such as UPL
financing arrangements violates the fiscal integrity of Medicaid's
federal-state partnership in at least three ways.
* The schemes effectively increase the federal matching rate
established under federal law by increasing federal expenditures while
state contributions remain unchanged or even decrease. We previously
estimated that one state effectively increased the federal share of its
total Medicaid expenditures from 59 percent to 68 percent in state
fiscal year 2001, by obtaining excessive federal funds and using these
as the state's share of other Medicaid expenditures.[Footnote 12]
* There is no assurance that these increased federal reimbursements are
used for Medicaid services, since states use funds returned to them via
these schemes at their own discretion. In examining how six states with
large schemes used the federal funds they generated, we previously
found that one state used the funds to help finance its education
programs, and others deposited the funds into state general funds or
other special state accounts that could be used for non-Medicaid
purposes or to supplant the states' share of other Medicaid
expenditures.[Footnote 13]
* The schemes enable states to pay a few public providers amounts that
well exceed the costs of services provided, which is inconsistent with
the statutory requirement that states provide for methods that ensure
that Medicaid payments are consistent with economy and efficiency. We
previously reported that, in one state, the state's proposed scheme
increased the daily federal payment per Medicaid resident from $53 to
$670 in six local-government-operated nursing homes.[Footnote 14]
Questionable Methods Have Boosted Federal Reimbursements for School-
Based Claims:
Another category of claims where states have used questionable
practices to maximize federal reimbursements is services provided to
children in schools and associated administrative costs. Medicaid is
authorized to cover services to, for example, Medicaid-eligible
children with disabilities who may need diagnostic, preventive, and
rehabilitative services; speech, physical and occupational therapies;
and transportation. School districts may also receive Medicaid
reimbursement for the administrative costs of providing school-based
Medicaid services. Our work in this area has addressed claims for
Medicaid school-based health services and administration. In 1999, we
found a need for federal oversight of growing Medicaid reimbursements
to states for Medicaid school-based administrative services, including
outreach activities to enroll children in Medicaid.[Footnote 15] In
April 2000, we reported that Medicaid expenditures for school-based
health services totaled about $1.6 billion for services provided by
schools in 45 states and the District of Columbia, while Medicaid
administrative expenditures were about $712 million for costs billed by
schools in 17 states.[Footnote 16] We found that some of the methods
used by school districts and states to claim reimbursement for school-
based health services did not ensure that the services paid for were
provided: some claims, for example, were made solely on the basis of at
least one day's attendance in school, rather than on documentation of
any actual service delivery. Methods used by school districts to claim
Medicaid reimbursement failed in some cases to take into account
variations in service needs among children.
With regard to Medicaid school-based administrative costs, we found
that some methods used by school districts and states did not ensure
that administrative activities were properly identified and reimbursed.
Poor controls resulted in improper payments in at least two states, and
there were indications that improprieties could have been occurring in
several other states. We further found that, in some states, funding
arrangements among schools, states, and private consulting firms
created adverse incentives for program oversight and caused schools to
receive a small portion--as little as $7.50 for every $100 in Medicaid
claims--of Medicaid reimbursement for school-based administrative and
service claims. We reported that 18 states retained a total of $324
million, or 34 percent, of federal funds intended to reimburse schools
for their Medicaid administrative and service claims; for 7 of the
states, this amounted to 50 to 85 percent of federal Medicaid
reimbursement for school-based health services claims. In addition,
contingency fees, which some school districts paid to private
consultants for their assistance in preparing and submitting Medicaid
claims, ranged from 3 to 25 percent of the federal reimbursement,
further reducing the net amount that schools received.
In response to recommendations we made to the Administrator of CMS, CMS
has clarified guidance for states on submitting claims for school-based
administrative activities.[Footnote 17] Subsequent to our work, HHS OIG
conducted reviews of school-based claims in 18 states from November
2001 through June 2005, several of which have identified issues with
the appropriateness of claims related to consultants'
projects.[Footnote 18]
In our own most recent work, we determined that Georgia was retaining a
share of the additional federal reimbursements gained from its claims
for Medicaid school-based services. Georgia's contingency-fee
consultant assisted the state with its Medicaid claims for school-based
services in a project that generated about $54 million in federal
Medicaid reimbursements over the 3 years the consultant was paid and
that, on the basis of state data, we estimate continues to generate
about $25 million annually.[Footnote 19] As before, we found that the
school districts were not receiving all of the federal Medicaid
reimbursements that were generated on their behalf. According to a
state official and documents provided by the state, the state retained
$3.9 million, or 16 percent, of federal reimbursements that were
claimed on behalf of the school districts for state fiscal year 2003,
most of which was used to pay its contingency-fee consultant and about
$1 million of which was used to cover the salaries and administrative
costs of the five state employees who administered school-based claims
in Georgia.[Footnote 20]
States' Use of Contingency-Fee Consultants to Maximize Federal
Reimbursements Highlights Need for Improved Federal Oversight:
A growing number of states are using consultants on a contingency-fee
basis to maximize federal Medicaid reimbursements. CMS reported that,
according to a survey it conducted in 2004, 34 states had used
consultants on a contingency-fee basis for this purpose, an increase
from 10 states reported to have such arrangements in 2002. In the 2
states where we examined selected projects that involved the assistance
of contingency-fee consultants, Georgia and Massachusetts, we found
that the projects generated a significant amount of additional federal
reimbursements for the states: from fiscal year 2000 through 2004, an
estimated $1.5 billion in Georgia and nearly $570 million in
Massachusetts. For those additional reimbursements, Georgia paid its
consultant about $82 million in contingency fees, and Massachusetts
paid its consultants about $11 million in contingency fees. We
identified claims from contingency-fee consultant projects that appear
to be inconsistent with current CMS policy and claims that are
inconsistent with federal law; we also identified claims from projects
that undermine Medicaid's fiscal integrity. Such projects and resulting
problematic claims arose in each of the five categories of claims that
we reviewed in Georgia, Massachusetts, or for some categories, both
states. We observed two factors common to many projects that we believe
increase their risk. First, many projects were in categories of
Medicaid claims where federal requirements for the services have been
inconsistently applied, are evolving, or were not specific. Second,
many projects involved states' shifting costs to the federal government
through Medicaid reimbursements to other state or local-government
entities.
Some Contingency-Fee Projects in Georgia and Massachusetts Resulted in
Problematic Federal Reimbursements:
For the five categories of claims we reviewed where states frequently
used contingency-fee consultants to maximize their federal Medicaid
reimbursements, we identified problematic claims in each category in
either Georgia or Massachusetts or in both states. These projects
resulted in claims that appear to be inconsistent with current CMS
policy and that, for one project, were inconsistent with federal law.
We also identified claims that were inconsistent with the fiscal
integrity of the Medicaid program. I have already discussed our current
findings regarding Georgia's use of IGTs in UPL supplemental payment
arrangements and its project to increase claims for school-based
Medicaid services and administrative costs. We also reviewed Georgia's
and Massachusetts's use of contingency-fee consultants to increase
federal reimbursements for targeted case management services,
rehabilitation services for mental or physical disabilities, and
states' claims for administering their Medicaid programs. In these two
states, our findings were most significant in the areas of targeted
case management and rehabilitation services.
Targeted Case Management:
Georgia and Massachusetts--with the help of their contingency-fee
consultants--developed approaches to maximize federal Medicaid
reimbursements by claiming costs for targeted case management (TCM)
services under state plan amendments that CMS had approved prior to
2002. Georgia's consultant assisted the state in increasing federal
Medicaid reimbursement for TCM services provided by two state agencies:
the Department of Juvenile Justice and the Division of Family and
Children's Services.[Footnote 21] In Massachusetts, contingency-fee
consultants helped the state increase federal reimbursement for TCM
services provided by three state agencies: the Departments of Social
Services, Youth Services, and Mental Health. These case management
services in Georgia and Massachusetts appear integral to the states'
own programs; the states' laws, regulations, or policies called for
case management services in these programs, and the case management
services were provided to all Medicaid-and non-Medicaid-eligible
children served by the programs.[Footnote 22] More recently, CMS has
denied coverage for comparable services by other states because CMS
determined that the services are an integral component of the state
programs providing the services. For example, in fiscal year 2002, CMS
denied a state plan amendment proposal to cover TCM services in
Illinois and in fiscal year 2004 it found TCM claims in Texas
unallowable, in part because the TCM services claimed for reimbursement
were considered integral to other state programs. As in Georgia and
Massachusetts, the TCM services in Illinois were for children served by
the state's juvenile justice system. In Texas, such children were
served by the state's child welfare and foster care system.
In fiscal year 2003, we estimate that Georgia received $17 million in
federal reimbursements for claims for TCM services provided by its two
state agencies, of which about $12 million was for services that appear
to be integral to non-Medicaid programs. In fiscal year 2004,
Massachusetts received an estimated $68 million in federal
reimbursements for services that appear to be integral to non-Medicaid
programs in the three state agencies whose TCM projects were developed
by consultants.[Footnote 23] CMS officials agreed with our assessment
that the claims for TCM services in these two states were problematic.
Rehabilitation Services:
Our review of projects involving rehabilitation services found concerns
with methods and claims in Georgia. Georgia's consultant helped the
state increase federal Medicaid reimbursements for rehabilitation
services provided through two state agencies by $58 million during
state fiscal years 2001 through 2003. The consultant suggested that
state agencies--which pay private facilities under a per diem rate for
providing room and board, rehabilitation counseling and therapy,
educational, and other services to children in state custody--base
their claims for Medicaid reimbursement on the private facilities'
estimated costs, instead of on what the state agencies actually paid
those facilities. The state agencies increased their claims for
Medicaid reimbursement without increasing their payments to the
facilities. In some cases, the state agencies' Medicaid claims for
rehabilitation services alone exceeded the amount paid by the agencies
for all the services the facilities provided to children. Specifically,
for 82 of the residential facilities (about 43 percent), the amount the
state Medicaid agency reimbursed the two agencies in state fiscal year
2004 exceeded the total amount these agencies actually paid the
residential facilities for all services, not just rehabilitation
services. One facility, for example, was paid by the Division of Family
and Children's Services $37 per day per eligible child for all services
covered by the per diem payment, but the state agency billed the
Medicaid program $62 per day for rehabilitation services alone. CMS
officials agreed with our conclusion that claims from this contingency-
fee project were not in accord with the statutory requirement that
payments be efficient and economical.
Two Factors Increase Risk of Problematic Claims:
During our work we observed two factors that appear to increase the
risk of problematic claims. One factor involved federal requirements
that were inconsistently applied, evolving, or not specific; the second
involved states' claiming Medicaid reimbursement for services provided
by other state or local-government agencies. Despite CMS's long-
standing concern about state financing arrangements for both TCM and
supplemental payments, for example, the agency has not issued adequate
guidance to clarify expenditures allowable for federal reimbursement.
Federal TCM and supplemental payment policy for allowable claims in
these categories has evolved over time, and the criteria that CMS
applies to determine whether claims are allowable have been
communicated to states primarily through state-specific state plan
amendment reviews or claims disallowances, rather than through formal
guidance or regulation.
* Inconsistently applied policy for allowable TCM services. In 2002,
CMS began to deny proposed state plan amendments that sought approval
for Medicaid coverage of TCM services that were the responsibility of
other state agencies. CMS had determined that such arrangements were
not eligible for federal Medicaid reimbursement for several reasons:
(1) the services were typically integral to existing state programs,
(2) the services were provided to beneficiaries at no charge, and (3)
beneficiaries' choice of providers was improperly limited.[Footnote 24]
However, CMS approved Georgia's and Massachusetts's state plan
amendments for TCM services before 2002. Although CMS has been applying
these criteria to deny new TCM arrangements--for example, in Maryland,
Illinois, and Texas--it has not yet sought to address similar,
previously approved TCM arrangements that are inconsistent with these
criteria. CMS regional officials told us they could not reconsider the
TCM claims from two agencies in Georgia and four in Massachusetts
because they were waiting for new guidance that the agency was
preparing.[Footnote 25] CMS has been working on new TCM guidance for
more than 2 years, according to agency officials. As of May 2005,
however, this guidance had not been issued. CMS's fiscal year 2006
budget submission identifies savings that could be achieved by
clarifying allowable TCM services, but CMS had not published a specific
proposal at the time we completed our work.[Footnote 26]
* Evolving policy for allowable supplemental payment arrangements. For
several years, we and others have reported on state financing schemes
that allow states to inappropriately generate federal Medicaid
reimbursement without the state's paying its full share. Although
Congress and CMS have taken steps to curb these abuses, states can
still develop arrangements enabling them to make illusory payments to
gain federal reimbursements for their own purposes. Recognizing that
states can unduly gain from supplemental payment arrangements, such as
UPL payment arrangements that use IGTs, since fiscal year 2003 CMS has
worked with individual states to address such arrangements. At the same
time, the agency has not issued guidance stating its policy on
acceptable approaches for UPL payment arrangements, specifically the
use of IGTs and the relationship to state share of spending. CMS's
budget for fiscal year 2006 proposes to achieve federal Medicaid
savings by curbing financing arrangements that have been used by a
number of states to inappropriately obtain federal reimbursements. The
specific proposal, however, had not been published at the time we
completed our review.[Footnote 27]
* Unspecified policy on allowable Medicaid rehabilitation payments to
other state agencies. CMS has not issued policy guidance that addresses
situations where Medicaid payments are made by a state's Medicaid
agency to other state agencies for rehabilitation services. CMS
financial management officials told us that states' claims for
rehabilitation services posed an increasing concern, in part because
officials believed that states were inappropriately filing claims for
services that were the responsibility of other state programs. CMS does
not specify whether claims for the cost of rehabilitation services that
are the responsibility of non-Medicaid state agencies are allowable.
CMS's fiscal year 2006 budget submission identifies savings that could
be achieved by clarifying appropriate methods for claiming
rehabilitation services. CMS had not published a specific proposal at
the time we completed our review.[Footnote 28]
The second factor we observed that increased the financial risk to the
federal government of reimbursement-maximizing projects was that the
projects shifted state costs to the federal government by claiming
Medicaid reimbursement for services provided by other non-Medicaid
state or local government agencies. Medicaid reimbursement to
government agencies serving Medicaid beneficiaries is allowable in
cases where the claims apply to covered services and the amounts paid
are consistent with economy and efficiency. However, the projects and
associated claims we reviewed showed that reimbursement-maximizing
projects often involved services and circumstances that Medicaid should
not pay for--such as illusory payments to government providers.
Problems Illustrate Need to Improve the Financial Management of
Medicaid:
As we describe in the report issued today, the problems we identified
with states' Medicaid claims stemming from contingency-fee projects
illustrate the urgent need to address certain issues in CMS's overall
financial management of the Medicaid program. These issues, however,
are not limited to situations that involve contingency-fee consultants.
We have identified problems with claims in states other than Georgia
and Massachusetts that have undertaken reimbursement-maximizing
activities, without employing consultants, in categories of long-
standing concern, such as supplemental payment arrangements. CMS relies
on its standard financial management controls to identify any
unallowable Medicaid claims that states may submit, including those
that might be associated with reimbursement-maximizing contingency-fee
projects. However, CMS lacks clear, consistent policies to guide the
states' and its own financial oversight activities. Furthermore, in our
previous work on CMS's financial management, we found that the agency
did not have a strategy for focusing its resources most effectively on
areas of high risk.[Footnote 29] In our current work, we found that CMS
has known for some time that two high-risk categories we identified--
claims generated from consultants paid on a contingency-fee basis to
maximize reimbursements and claims generated from arrangements where
state Medicaid programs are paying other state agencies or government
providers--were problematic. For example, CMS had listed these two
categories on a financial tracking sheet of high-risk areas as of
2000.[Footnote 30] At an October 2003 congressional hearing, the CMS
Administrator expressed concern that the Medicaid program was
understaffed and that consultants in the states were "way ahead of" CMS
in helping states take advantage of the Medicaid system.[Footnote 31]
CMS has undertaken important steps to improve its financial management
of the Medicaid program. A major component of the agency's initiative
is hiring, training, and deploying approximately 100 new financial
analysts, mainly to regional offices. These analysts are responsible
for identifying state sources of Medicaid funding and contributing to
the review of state budget estimates and expenditure reports.
Expectations for CMS's new Division of Reimbursement and State
Financing and for the 100 new financial analysts are high and their
responsibilities broad. It is too soon, however, to assess their
accomplishments.
Conclusions:
For more than a decade, we and others have reported on the methods
states have used to inappropriately maximize federal Medicaid
reimbursement and have made recommendations to end financing schemes.
CMS has taken important steps in recent years to improve its financial
management. Yet more can be done.
Many of the problematic methods we examined involved categories of
claims where CMS policy has been inconsistently applied, evolving, or
unspecified. They have also involved increasing payments to units of
state and local government--which states have long used to maximize
federal Medicaid funding, in part because IGTs can help facilitate
illusory payments--suggesting that greater CMS attention is needed to
payments among levels of government, regardless of whether consultants
are involved. We believe that it is important to act promptly to curb
opportunistic financing schemes before they become a staple of state
financing and further erode the integrity of the federal-state Medicaid
partnership. Addressing recommendations that remain open from our prior
work on state financing schemes and on CMS's financial management could
help resolve some of these issues. In addition, in the report being
issued today, we are making new recommendations to the Administrator of
CMS to improve the agency's oversight of states' use of contingency-fee
consultants and to strengthen certain of the agency's overall financial
management procedures. These recommendations address developing
guidance to clarify CMS policy on TCM, supplemental payment
arrangements, rehabilitation services, and Medicaid administrative
costs; ensuring that such guidance is applied consistently among
states; and collecting and scrutinizing information from states about
payments made to units of state and local governments.
Understandably, states that have relied on certain practices to
increase federal funds as a staple for the state share of Medicaid
spending are concerned about the potential loss of these funds. The
continuing challenge remains to find the proper balance between states'
flexibility to administer their Medicaid programs and the shared
federal-state fiduciary responsibility to manage program finances
efficiently and economically in a way that ensures the fiscal integrity
of the program. States should not be held solely responsible for
developing arrangements that inappropriately maximize federal
reimbursements where policies have not been clear or clearly
communicated or where CMS has known of risks for some time and has not
acted to mitigate them. Without clear and consistent communication of
policies regarding allowable claims in high-risk areas, such as those
for TCM and UPL where billions of dollars are claimed each year, CMS is
at risk of treating states inconsistently and of placing undue burdens
on states to understand federal policy and comply with it.
Mr. Chairman, this concludes my prepared statement. I will be happy to
answer any questions that you or Members of the Committee may have.
Contact and Acknowledgments:
For future contacts regarding this testimony, please call Kathryn G.
Allen at (202) 512-7118. Katherine Iritani, Ellen M. Smith, Helen
Desaulniers, and Kevin Milne also made key contributions to this
testimony.
[End of section]
Related GAO Products:
Medicaid Financing: States' Use of Contingency-Fee Consultants to
Maximize Federal Reimbursements Highlights Need for Improved Federal
Oversight. GAO-05-748. Washington, D.C.: June 28, 2005.
High-Risk Series: An Update. GAO-05-207. Washington, D.C.: January
2005.
Medicaid Program Integrity: State and Federal Efforts to Prevent and
Detect Improper Payments. GAO-04-707. Washington, D.C.: July 16, 2004.
Medicaid: Intergovernmental Transfers Have Facilitated State Financing
Schemes. GAO-04-574T. Washington, D.C.: March 18, 2004.
Medicaid: Improved Federal Oversight of State Financing Schemes Is
Needed. GAO-04-228. Washington, D.C.: February 13, 2004.
Medicaid Financial Management: Better Oversight of State Claims for
Federal Reimbursement Needed. GAO-02-300. Washington, D.C.: February
28, 2002.
Medicaid: HCFA Reversed Its Position and Approved Additional State
Financing Schemes. GAO-02-147. Washington, D.C.: October 30, 2001.
Medicaid: State Financing Schemes Again Drive Up Federal Payments. GAO/
T-HEHS-00-193. Washington, D.C.: September 6, 2000.
Medicaid in Schools: Improper Payments Demand Improvements in HCFA
Oversight. GAO/HEHS/OSI-00-69. Washington, D.C.: April 5, 2000.
Medicaid in Schools: Poor Oversight and Improper Payments Compromise
Potential Benefit. GAO/T-HEHS/OSI-00-87. Washington, D.C.: April 5,
2000.
Medicaid: Questionable Practices Boost Federal Payments for School-
Based Services. GAO/T-HEHS-99-148. Washington D.C.: June 17, 1999.
Medicaid: States Use Illusory Approaches to Shift Program Costs to
Federal Government. GAO/HEHS-94-133. Washington, D.C.: August 1, 1994.
FOOTNOTES
[1] By a formula established in law, the federal government matches
from 50 to 83 percent of each state's reported Medicaid expenditures
for medical assistance. States with lower per capita incomes receive
higher federal matching rates. The federal government also matches
states' costs for administering the Medicaid program, generally at 50
percent.
[2] GAO, Major Management Challenges and Program Risks, Department of
Health and Human Services, GAO-03-101 (Washington, D.C.: January 2003).
[3] Consultants can provide a wide range of services to states for
their Medicaid programs. States that lack sufficient in-house resources
can turn to consultants to add staff or needed expertise. Contingency-
fee consultants are particularly attractive to budget-constrained
states because the states do not need to pay them up front. Consultants
can help states by performing services such as identifying new methods
or projects to maximize federal Medicaid reimbursements, training state
and local staff in procedures for documenting and submitting claims,
and preparing state claims for federal Medicaid reimbursement.
[4] Contingency fees generally cannot be claimed for federal Medicaid
reimbursement, unless a contingency-fee contract (1) results in cost-
avoidance savings or recoveries in which the federal government would
share, (2) is competitively procured, and (3) the savings upon which
the contingency-fee payment is based are adequately defined and the
payments documented to CMS's satisfaction.
[5] Intergovernmental transfers are a tool that state and local
governments use to carry out their shared governmental functions, such
as collecting and redistributing revenues to provide essential
government services.
[6] See related GAO products at the end of this statement.
[7] GAO, Medicaid Financing: States' Use of Contingency-Fee Consultants
to Maximize Federal Reimbursements Highlights Need for Improved Federal
Oversight, GAO-05-748 (Washington, D.C.: June 28, 2005).
[8] 42 U.S.C. §§ 1396, et seq. (2000).
[9] 42 U.S.C. § 1396a(a)(30) (2000).
[10] See, for example, GAO-04-574T and Medicaid: Improved Federal
Oversight of State Financing Schemes Is Needed, GAO-04-228 (Washington,
D.C.: Feb. 13, 2004).
[11] In another approach, some states require a few counties to
initiate the transaction by taking out bank loans for the total amount
the states determined they can pay under the UPL. The counties wire the
funds to the states, which then send most or all of the funds back to
the counties as Medicaid payments. The counties use these "Medicaid
payments" to repay the bank loans. Meanwhile, the states claim federal
matching funds on the total amount.
[12] GAO-04-228.
[13] GAO-04-228.
[14] GAO, Medicaid: HCFA Reversed Its Position and Approved Additional
State Financing Schemes, GAO-02-147 (Washington, D.C.: Oct. 30, 2001).
[15] GAO, Medicaid: Questionable Practices Boost Federal Payments for
School-Based Services, GAO/T-HEHS-99-148 (Washington, D.C.: June 17,
1999).
[16] GAO, Medicaid in Schools: Improper Payments Demand Improvements in
HCFA Oversight, GAO/HEHS/OSI-00-69 (Washington, D.C.: Apr. 5, 2000).
States were asked to provide school-based claims data for the most
recent fiscal year for which they were available, which for
approximately half the states was state fiscal year 1999. Most of the
remaining states provided data for state fiscal year 1998, federal
fiscal year 1998, or calendar year 1998; three states provided data for
periods before July 1997.
[17] CMS, Medicaid School-Based Administrative Claiming Guide (May
2003).
[18] See, for example, HHS OIG, Medicaid Payments for School-Based
Health Services--Massachusetts Division of Medical Assistance, A-01- 02-
00009 (Washington, D.C.: July 14, 2003); and HHS OIG, Medicaid School-
Based Health Services Administrative Costs--Massachusetts, A- 01-02-
00016 (Washington, D.C.: Sept. 15, 2004). See GAO-05-748, app. II, for
other HHS OIG reports on school-based services and administration.
[19] We did not assess whether the school-based health services that
the state claimed were allowable.
[20] GAO-05-748.
[21] The consultant assisted Georgia by streamlining the billing
process, drafting state plan amendment proposals, and increasing the
number of Medicaid beneficiaries for whom these two non-Medicaid state
agencies billed case management services, thus reducing costs to the
state for operating these agencies.
[22] For example, all children served by Georgia's and Massachusetts's
child welfare agencies receive a broad range of services to promote
their welfare and protect them from abuse and neglect. To fulfill this
responsibility, state employees provide case management services, refer
the children to others for services, and monitor their well-being and
progress.
[23] In examining CMS expenditure reports, we found that both Georgia
and Massachusetts had categorized non-TCM services, such as
rehabilitation services, as TCM. We obtained estimates from the states
of the amount the states had claimed for TCM services.
[24] CMS most recently explained its policy and rationale in a
September 2004 Administrator's decision denying a proposed state plan
amendment from Maryland to cover TCM services. This decision
articulated the criteria that CMS has applied to deny state TCM plan
amendments.
[25] A CMS official stated that the agency's most recent guidance on
TCM, issued in January 2001, contained problems and errors that caused
confusion regarding appropriate TCM claims when non-Medicaid state
agencies were involved.
[26] The CMS Administrator's performance budget for fiscal year 2006
proposes to clarify allowable TCM services and align federal
reimbursement for TCM services with an administrative matching rate of
50 percent. CMS estimates 5-year budget savings from reducing the
reimbursement for TCM to the administrative matching rate of $1
billion.
[27] The budget proposes to build on CMS's efforts to curb questionable
financing practices by (1) recovering federal funds claimed for covered
services but retained by the state and (2) capping payments to
government providers at no more than the cost of furnishing services to
Medicaid beneficiaries. CMS estimated 5-year budget savings of $5.9
billion from this proposal. CMS's proposal is consistent with a
recommendation that we first made to Congress in 1994 to consider
legislation to prohibit Medicaid payments to government providers that
exceed the providers' actual costs. See GAO, Medicaid: States Use
Illusory Approaches to Shift Program Costs to Federal Government, GAO/
HEHS-94-133 (Washington, D.C.: Aug. 1, 1994).
[28] The CMS Administrator's budget for fiscal year 2006 expresses
CMS's concern that states have attempted to shift costs associated with
other social service programs to Medicaid. The budget proposes to
clarify allowable services that could be claimed as rehabilitation. For
its proposal to clarify allowable TCM and rehabilitation services that
could be claimed, CMS estimates 5-year budget savings of $2 billion.
See Centers for Medicare & Medicaid Services' performance budget
proposal for fiscal year 2006.
[29] See, for example, GAO, Medicaid Financial Management: Better
Oversight of State Claims for Federal Reimbursement Needed, GAO-02-300
(Washington, D.C.: Feb. 28, 2002). This February 2002 report found that
CMS's systems for financial oversight of state Medicaid programs were
limited. We recommended a range of approaches to strengthen internal
controls and target limited resources, including that CMS revise its
existing risk-assessment efforts to more effectively and efficiently
target oversight resources to areas most vulnerable to improper
payments. An ongoing GAO review is assessing CMS's progress in
implementing related recommendations. Also, in a report on state
financing schemes (see GAO-04-228), we recommended that CMS improve
oversight of state UPL projects, including issuing guidance to states
setting forth acceptable methods to calculate UPLs. These
recommendations remain open.
[30] In 2001, CMS asked each regional office to complete a risk
assessment to identify the extent to which states in each region have
attributes warranting closer CMS financial oversight and scrutiny. The
identified risk factors that regional staff were asked to assess
included: areas where federal policy was unclear, states' use of a
contingency-fee consultant to maximize reimbursements, and payments to
public providers in which state Medicaid agencies may lack an incentive
to monitor and control expenditures. Regional officials were to base
their assessment of these and other risk factors on their working
knowledge of each state.
[31] Thomas Scully, Administrator, Centers for Medicare & Medicaid
Services, responding to questions at a hearing, Challenges Facing the
Medicaid Program in the 21st Century: Hearing before the Subcommittee
on Health, House Committee on Energy and Commerce, 108th Cong., 1st
Sess., October 8, 2003.