Medicaid Financial Management
Steps Taken to Improve Federal Oversight but Other Actions Needed to Sustain Efforts Gao ID: GAO-06-705 June 22, 2006Medicaid--the federal-state health care financing program--covered over 56 million people at a cost of $295 billion in fiscal year 2004, the latest fiscal year for which complete data are available. The Centers for Medicare & Medicaid Services (CMS) is the federal agency responsible for overseeing states' Medicaid programs and ensuring the propriety of expenditures reported by states for federal reimbursement. In 2002, GAO reported on weaknesses in CMS's oversight of Medicaid financial management and made recommendations to CMS to strengthen its oversight process. In fiscal year 2003, CMS started receiving funds from the Health Care Fraud and Abuse Control (HCFAC) program to help improve Medicaid financial management. GAO was asked to evaluate CMS's financial management activities, including following up on prior recommendations. In this report, GAO examined (1) the extent to which CMS has improved its ability to identify and address emerging issues that put federal Medicaid dollars at risk and (2) how CMS used funds for Medicaid from the HCFAC account.
CMS has undertaken several steps to improve its Medicaid financial management activities, including its efforts to oversee state claims for federal reimbursement and to identify payment errors. CMS hired about 90 funding specialists, thus enhancing its ability to address high-risk state funding practices that inappropriately increase federal costs. CMS also created a new unit that centralized responsibility for approving state plan amendments related to reimbursement. CMS continued to identify billions of dollars in questionable federal reimbursement through focused financial reviews. CMS also set goals aimed at reducing questionable federal reimbursement and holding financial managers accountable and enhanced its internal processes for tracking results of its financial management activities. These and other efforts, such as CMS's approach for measuring payment errors under the Improper Payments Information Act, represent improvements in the processes that CMS uses in its oversight of states. While these actions also address previously identified weaknesses and recommendations from our 2002 report, it is too soon to assess the impact they will have on improving overall financial management and addressing emerging issues that put federal Medicaid dollars at risk because some have just recently been initiated and results are not known yet. Further, there are a number of previously identified weaknesses that the agency has not yet addressed. Specifically, CMS has not instituted mechanisms to measure how the risk of inappropriate federal reimbursement has changed as a result of corrective actions taken. In addition, CMS has not incorporated the use of the Medicaid Statistical Information System database into its oversight of states' claims or other systems projects intended to improve its analysis capabilities. Further, CMS has not developed profiles to document information on state fraud and abuse controls to use in its oversight of state claims. Finally, CMS has not developed a strategic plan specific to its Medicaid financial management activities. Because these issues are important to further improving and sustaining CMS's oversight activities, we reiterate and build on our prior recommendations in these areas. During fiscal years 2003 through 2005, CMS received almost $46 million from the HCFAC account that it used to help fund programs related to its oversight of the Medicaid program, including about $12 million for the funding specialists for fiscal years 2004 and 2005. The funding specialist positions have been funded on an annual basis with appropriations from the HCFAC account. There is the chance that adequate funding might not be provided through the HCFAC process in any given year for the funding specialists; therefore, creating permanent funding specialist positions is important. CMS used the other $34 million for other projects such as researching options for automating the Medicaid state plan process, and interagency agreements with the OIG to conduct audits of high-risk areas. GAO obtained documentation to support the use of HCFAC funds for these projects.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Team: Phone:GAO-06-705, Medicaid Financial Management: Steps Taken to Improve Federal Oversight but Other Actions Needed to Sustain Efforts
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Report to the Chairman, Committee on Finance, U.S. Senate:
United States Government Accountability Office:
GAO:
June 2006:
Medicaid Financial Management:
Steps Taken to Improve Federal Oversight but Other Actions Needed to
Sustain Efforts:
GAO-06-705:
GAO Highlights:
Highlights of GAO-06-705, a report to the Chairman, Committee on
Finance, U.S. Senate
Why GAO Did This Study:
Medicaid”the federal-state health care financing program”covered over
56 million people at a cost of $295 billion in fiscal year 2004, the
latest fiscal year for which complete data are available. The Centers
for Medicare & Medicaid Services (CMS) is the federal agency
responsible for overseeing states‘ Medicaid programs and ensuring the
propriety of expenditures reported by states for federal reimbursement.
In 2002, GAO reported on weaknesses in CMS‘s oversight of Medicaid
financial management and made recommendations to CMS to strengthen its
oversight process. In fiscal year 2003, CMS started receiving funds
from the Health Care Fraud and Abuse Control (HCFAC) program to help
improve Medicaid financial management. GAO was asked to evaluate CMS‘s
financial management activities, including following up on prior
recommendations. In this report, GAO examined (1) the extent to which
CMS has improved its ability to identify and address emerging issues
that put federal Medicaid dollars at risk and (2) how CMS used funds
for Medicaid from the HCFAC account.
What GAO Found:
CMS has undertaken several steps to improve its Medicaid financial
management activities, including its efforts to oversee state claims
for federal reimbursement and to identify payment errors. CMS hired
about 90 funding specialists, thus enhancing its ability to address
high-risk state funding practices that inappropriately increase federal
costs. CMS also created a new unit that centralized responsibility for
approving state plan amendments related to reimbursement. CMS continued
to identify billions of dollars in questionable federal reimbursement
through focused financial reviews. CMS also set goals aimed at reducing
questionable federal reimbursement and holding financial managers
accountable and enhanced its internal processes for tracking results of
its financial management activities. These and other efforts, such as
CMS‘s approach for measuring payment errors under the Improper Payments
Information Act, represent improvements in the processes that CMS uses
in its oversight of states. While these actions also address previously
identified weaknesses and recommendations from our 2002 report, it is
too soon to assess the impact they will have on improving overall
financial management and addressing emerging issues that put federal
Medicaid dollars at risk because some have just recently been initiated
and results are not known yet. Further, there are a number of
previously identified weaknesses that the agency has not yet addressed.
Specifically, CMS has not instituted mechanisms to measure how the risk
of inappropriate federal reimbursement has changed as a result of
corrective actions taken. In addition, CMS has not incorporated the use
of the Medicaid Statistical Information System database into its
oversight of states‘ claims or other systems projects intended to
improve its analysis capabilities. Further, CMS has not developed
profiles to document information on state fraud and abuse controls to
use in its oversight of state claims. Finally, CMS has not developed a
strategic plan specific to its Medicaid financial management
activities. Because these issues are important to further improving and
sustaining CMS‘s oversight activities, we reiterate and build on our
prior recommendations in these areas.
During fiscal years 2003 through 2005, CMS received almost $46 million
from the HCFAC account that it used to help fund programs related to
its oversight of the Medicaid program, including about $12 million for
the funding specialists for fiscal years 2004 and 2005. The funding
specialist positions have been funded on an annual basis with
appropriations from the HCFAC account. There is the chance that
adequate funding might not be provided through the HCFAC process in any
given year for the funding specialists; therefore, creating permanent
funding specialist positions is important. CMS used the other $34
million for other projects such as researching options for automating
the Medicaid state plan process, and interagency agreements with the
OIG to conduct audits of high-risk areas. GAO obtained documentation to
support the use of HCFAC funds for these projects.
What GAO Recommends:
GAO is making two recommendations to the CMS Administrator to create
permanent funding specialist positions and determine what systems
projects are needed to further enhance data analysis capabilities. CMS
agreed with our findings and recommendations.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-06-705].
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Linda Calbom at (202) 512-
8341 or calboml@gao.gov.
[End of Section]
Contents:
Letter:
Results in Brief:
Background:
Steps Taken to Improve Oversight Activities but Some Previously
Identified Weaknesses Remain:
Use of HCFAC Funds to Enhance Medicaid Oversight Initiatives:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendix I: Scope and Methodology:
Appendix II: Status of Prior Recommendations:
Appendix III: Comments from the Centers for Medicare & Medicaid
Services:
Appendix IV: GAO Contact and Staff Acknowledgments:
Related GAO Products:
Tables:
Table 1: Medicaid Spending in Fiscal Years 2003 and 2004:
Table 2: Issues Consistently Planned for Focused Financial Reviews in
Fiscal Years 2003 through 2006:
Table 3: Issues To Be Audited by the OIG in Fiscal Years 2003 through
2005:
Table 4: Discretionary HCFAC Funds for CMS and CMSO's Allocation:
Table 5: Medicaid Financial Management Projects and Their HCFAC
Allocations for Fiscal Years 2003 through 2005:
Table 6: Recommendations Made in GAO-02-300 - Medicaid Financial
Management: Better Oversight of State Claims for Federal Reimbursement
Needed (February 2002):
Figure:
Figure 1: CMS Organizational Chart:
Abbreviations:
CMS: Centers for Medicare & Medicaid Services:
CMSO: Center for Medicaid and State Operations:
DFM: Division of Financial Management:
DRSF: Division of Reimbursement and State Financing:
FMAR: Financial Management Activities Report:
GPRA: Government Performance and Results Act:
HCFAC: Health Care Fraud and Abuse Control:
HHS: Department of Health and Human Services:
MSIS: Medicaid Statistical Information System:
OIG: Office of Inspector General:
PERM: Payment Error Rate Measurement:
SCHIP: State Children's Health Insurance Program:
United States Government Accountability Office:
Washington, DC 20548:
June 22, 2006:
The Honorable Charles E. Grassley:
Chairman:
Committee on Finance:
United States Senate:
Dear Mr. Chairman:
Medicaid--the federal-state program financing health care for certain
low-income children, families, and individuals who are aged or
disabled--covered over 56 million people at an estimated cost of $295
billion in fiscal year 2004. Within broad federal guidelines, states
administer their Medicaid programs by paying qualified health providers
for a range of covered services provided to eligible beneficiaries and
then seeking reimbursement for the federal share of those payments. The
Department of Health and Human Services' (HHS) Centers for Medicare &
Medicaid Services (CMS) is the federal agency responsible for
overseeing states' Medicaid programs and ensuring the propriety of
expenditures reported by states for federal reimbursement. 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.
For more than a decade, we have reported concerns relating to actions
by some states that result in excessive federal reimbursement. We have
also reported concerns about CMS's oversight of states' claims for
reimbursement and CMS's efforts to detect and reduce improper payments
in the Medicaid program.[Footnote 1] In 2002, we made 13
recommendations to CMS to strengthen oversight of states and certain
activities to address fraud and abuse.[Footnote 2] In 2003, we added
Medicaid to our list of high-risk federal programs[Footnote 3] because
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.
Congress and CMS have taken actions to (1) curtail certain abusive
financing schemes that some states have used to generate excessive
federal reimbursement and (2) strengthen Medicaid fraud and abuse
control activities. Further, CMS received almost $46 million of Health
Care Fraud and Abuse Control (HCFAC)[Footnote 4] funds during fiscal
years 2003 through 2005 for programs related to its oversight of
Medicaid, including hiring new staff to identify and review state
practices related to funding their Medicaid programs.
Because of your continued concern about the stewardship of federal
Medicaid funds, you raised questions about CMS's oversight. The focus
of this report is on CMS's financial management activities, including
its efforts to oversee state claims for federal reimbursement and to
identify payment errors. We also focus on how CMS has responded to our
2002 recommendations to strengthen financial oversight and certain
activities to address fraud and abuse. Specifically, in this report, we
address the following questions:
1. To what extent has CMS improved its oversight, including its ability
to identify and address emerging issues that put federal Medicaid
dollars at risk?
2. How has CMS used funds provided through the HCFAC program that were
specifically for Medicaid?
To identify the extent to which CMS has improved its oversight,
including its ability to identify and address emerging issues that put
federal Medicaid dollars at risk, we performed work at CMS headquarters
and two regional offices. We reviewed and assessed aspects of CMS's
financial oversight processes, which include identifying high-risk
areas in order to develop an annual regional office financial
management workplan and conducting focused financial reviews of high-
risk areas. We reviewed our prior reports, and reports by HHS's Office
of Inspector General (OIG) and others. We also interviewed officials
and staff at the CMS central office in Baltimore, Maryland, and two
regional offices--New York and Chicago.
To determine how CMS used funds from the HCFAC account for fiscal years
2003 through 2005, we obtained from CMS a list of Medicaid projects
that were funded from the HCFAC account during those 3 years. We
obtained and examined documentation from CMS such as invoices; grant
awards; interagency agreements; and accounting, budget, and payroll
records that support the information provided by CMS on how it used
HCFAC funds for that time frame.
See appendix I for more details about our scope and methodology. We
requested written comments on a draft of this report from the
Administrator of CMS or his designee. His written comments are
reprinted in appendix III. We conducted our review from February 2005
to May 2006 in accordance with generally accepted government auditing
standards.
Results in Brief:
CMS has undertaken several steps to improve its Medicaid financial
management activities, including its efforts to oversee state claims
for federal reimbursement and to identify payment errors. CMS hired
about 90 funding specialists who are examining high-risk state funding
practices and working with states to eliminate those practices that
inappropriately increase federal costs. These new staff have enabled
CMS to perform more in-depth reviews of high-risk issues. CMS also
created a new unit, the Division of Reimbursement and State Financing
(DRSF), that centralized responsibility for reviewing state plan
amendments related to reimbursement. The activities of DRSF have
improved CMS's ability to carry out more targeted oversight activities
and have addressed some of our previously reported concerns related to
deploying its resources and its organizational structure. CMS continued
to analyze risks and use focused financial reviews and OIG audits to
identify inappropriate state claims for federal reimbursement and
recommend changes to states' internal control practices. Conducting
focused reviews of issues that CMS identifies through its risk analysis
has helped CMS identify billions of dollars of questionable federal
reimbursement. CMS has also set goals aimed at reducing questionable
federal reimbursement and holding financial managers accountable and
has enhanced its internal processes for tracking results of its
financial management activities. These and other recent efforts such as
CMS's approach to measuring payment errors to comply with the Improper
Payments Information Act of 2002 also address previously identified
weaknesses and recommendations from our 2002 report. However, it is too
soon to assess the impact they will have on improving overall financial
management and addressing emerging issues that put federal Medicaid
dollars at risk because some have just recently been initiated and
results are not known yet. Further, there are other previously
identified weaknesses that the agency has not yet addressed.
Specifically, CMS has not instituted mechanisms to measure how the risk
of inappropriate federal reimbursement has changed as a result of
corrective actions taken. In addition, CMS has not incorporated the use
of the Medicaid Statistical Information System (MSIS) database into its
oversight of states' claims or other systems projects intended to
improve its analysis capabilities. Further, CMS has not developed
profiles to document information on state fraud and abuse controls to
use in its oversight of state claims. Finally, CMS has not developed a
strategic plan specific to its Medicaid financial management
activities. Because these issues are important to further improving and
sustaining CMS's oversight activities, we reiterate our prior
recommendations in these areas.
During fiscal years 2003 through 2005, CMS received almost $46 million
from the HCFAC account that it has used to help fund programs related
to its oversight of the Medicaid program, including about $12 million
for the funding specialists for fiscal years 2004 and 2005. The funding
specialists are currently funded on an annual basis with appropriations
from the HCFAC account. Because CMS competes with other agencies
annually for HCFAC funds, there is the chance that adequate funding
might not be provided through the HCFAC process in any given year for
the funding specialists, and CMS would therefore have to identify
another means to support the funding specialist positions. Creating
permanent funding specialist positions is important, given how CMS has
been using them in performing reviews of high-risk issues. CMS used the
other $34 million of HCFAC funds for other projects such as developing
and enhancing an integrated financial management tool, researching
options for automating the Medicaid state plan process, and interagency
agreements with the OIG to conduct audits of high-risk areas.
In addition to reiterating several recommendations to CMS from our 2002
report, we are making two additional recommendations to CMS to further
improve and sustain its oversight of state claims. Specifically, we
recommend that the Administrator of CMS (1) create permanent funding
specialist positions and (2) determine what systems projects are needed
to further enhance data analysis capabilities.
In written comments on a draft of this report, CMS agreed with our
findings and recommendations and stated that it will continue examining
issues raised in this report, including prior recommendations from our
2002 report that are still outstanding. CMS also stated that it will
work to implement the two recommendations made in this report.
Additional details on CMS's comments and our assessment of them appear
in the Agency Comments and Our Evaluation section near the end of this
report.
Background:
Medicaid is the third largest social program in the federal budget and
one of the largest components of state budgets. States and CMS share
responsibility for instituting financial practices for the Medicaid
program that are in compliance with applicable rules, laws, and
regulations. In general, the federal government matches state Medicaid
spending for medical assistance according to a formula based on each
state's per capita income. The federal contribution ranged from 50 to
77 cents of every state dollar spent on medical assistance in fiscal
year 2004. For most state Medicaid administrative costs, the federal
match rate is 50 percent. For skilled professional medical personnel,
75 percent federal matching is available. States are responsible for
providing the state share of Medicaid funding and submitting plans,
budgets, and expenditure reports to CMS that accurately report on the
administration of their Medicaid programs and how they expend Medicaid
funds. CMS is responsible for reviewing the states' plans, budgets,
expenditures, and operations to ensure compliance with all applicable
laws and regulations. Each state develops its own administrative
structure and establishes its own eligibility standards, scope of
covered services, and payment rates in accordance with Medicaid statute
and within broad federal guidelines. States are required to describe
the nature and scope of their programs in a comprehensive plan
submitted to CMS, with federal funding depending on CMS's approval of
the plan. State Medicaid plans specify the services to be provided and
how the state will establish the amount it will pay for those covered
services. Amendments to states' plans are also subject to approval by
CMS. Table 1 shows the amount of state and federal expenditures for
Medicaid for fiscal years 2003 and 2004, the most recent years for
which data are available.
Table 1: Medicaid Spending in Fiscal Years 2003 and 2004:
Dollars in billions.
State;
FY 2003: $115;
Percent: 41.7;
FY 2004: $121;
Percent: 41.0.
Federal;
FY 2003: $161;
Percent: 58.3;
FY 2004: $174;
Percent: 59.0.
Total;
FY 2003: $276;
Percent: 100;
FY 2004: $295;
Percent: 100.
Source: GAO analysis of CMS data.
[End of table]
CMS's Center for Medicaid and State Operations (CMSO) shares Medicaid
program administration and financial management responsibilities with
the 10 CMS regional offices. Two divisions in CMSO's Finance, Systems,
and Budget Group--the Division of Financial Management (DFM) and DRSF-
-have primary responsibility for Medicaid financial management. Figure
1 outlines CMS's organizational structure related to Medicaid.
Figure 1: CMS Organizational Chart:
[See PDF for image]
Source: CMS.
[End of figure]
DFM's mission includes effectively administering the Medicaid program
budget and grants, financial management policy, and administrative cost
policy processes. Among other things, DFM staff in the central office
are responsible for (1) determining and issuing state grant awards
based on regional decision reports resulting from reviews of budget and
expenditure reports, (2) reconciling state expenditure and budget
reports, (3) reviewing and approving draft focused financial review
reports, and (4) preparing annual financial management workplans based
on input from regional offices.
DRSF's responsibilities include, but are not limited to (1) reviewing
state plan amendments that involve reimbursement, (2) providing
training to and coordinating the work of the funding specialists, (3)
providing technical assistance to states on institutional and
noninstitutional reimbursement, and (4) identifying and addressing
state financing practices that could inappropriately increase federal
Medicaid costs.
CMS has approximately 65 regional financial analysts who are
responsible for performing activities such as (1) reviewing state
quarterly budget estimates and expenditure reports, (2) preparing
decision reports that document approvals for federal reimbursement or
deferrals or disallowances of claims for federal reimbursement, (3)
assisting in assessing issues that put federal Medicaid dollars at risk
and determining which issues to review in a fiscal year, (4) performing
focused financial reviews, (5) providing technical assistance to the
states on financial matters, and (6) serving as liaison to the states
and audit entities.
CMS has about 90 funding specialists who are responsible for, among
other things, (1) gaining an understanding of their assigned state's
organizational structure, program structure, and budget process related
to the state's Medicaid program; (2) assisting in reviews of state plan
amendments; (3) conducting reviews of state financing practices; and
(4) providing technical assistance to the states.
States submit quarterly budget and expenditure reports to CMS. The
financial analysts in the 10 regional offices have traditionally
reviewed these reports and prepared a Regional Office Decision
memorandum which they submit to DFM in the central office. In some
regions, the new funding specialists now have responsibility for
reviews of state budget reports. Also, in some cases, the funding
specialists assist financial analysts with reviews of state expenditure
reports.
Steps Taken to Improve Oversight Activities but Some Previously
Identified Weaknesses Remain:
CMS has undertaken several steps to improve its Medicaid financial
management activities including its efforts to oversee state claims for
federal reimbursement and to identify payment errors. CMS hired about
90 funding specialists who are examining high-risk state funding
practices and working with states to eliminate those practices that
inappropriately increase federal costs. CMS also created a new unit,
DRSF, which reviews state plan amendments for reimbursement to identify
and work with states to eliminate payment methodologies that could
result in higher federal costs. CMS has continued to use focused
financial reviews and OIG audits to identify inappropriate state claims
for federal reimbursement and recommend changes to states' internal
control practices. In addition, CMS recently established a new
performance goal for its Medicaid financial management staff to reduce
cumulative questionable federal reimbursement by 10 percent in fiscal
year 2006. These and other recent efforts represent improvement in
CMS's oversight activities and address weaknesses and recommendations
we identified in our 2002 report. However, it is too soon to assess the
impact they will have on improving overall financial management and
addressing emerging issues that put federal Medicaid dollars at risk
because some have just recently been initiated, and results are not
known yet. Further, there are other previously identified weaknesses
that the agency has not addressed. CMS has not instituted mechanisms to
measure how the risk of inappropriate federal reimbursement has changed
as a result of corrective actions taken. CMS also has not incorporated
the use of the MSIS in its oversight of state claims or other systems
projects intended to help improve its analysis capabilities. Further,
CMS has not developed profiles to document information on state fraud
and abuse controls to use in its oversight of state claims. Finally,
CMS has not developed a strategic plan to guide its financial
management activities. Because these issues are important to further
improving and sustaining CMS's oversight activities, we reiterate our
prior recommendations in these areas.
Additional Staff and Creation of New Division Have Improved Oversight
Activities:
In late 2004, CMS began hiring for 100 new funding specialist
positions.[Footnote 5] These new staff have enabled CMS to perform more
in-depth reviews of high-risk issues. The funding specialists'
positions were established to help CMS gain a better understanding of
how states budget for and finance their portion of Medicaid
expenditures and help CMS proactively identify state payment and
funding practices that could result in inappropriate claims for federal
reimbursement or increased federal costs. These new funding specialists
augment the activities of approximately 65 financial analysts in 10
regional offices who had previously performed many of the state
financial oversight activities, including assisting the financial
analysts with reviews of state budget and expenditure reports. In
addition, the funding specialists performed activities that have
enabled CMS to collect and summarize more information on states'
Medicaid programs to help CMS target its oversight efforts to high-risk
issues such as certain payment arrangements that have been problematic
in the past.
A major activity of the funding specialists during their first year was
the completion of state funding profiles. These profiles document the
states' Medicaid programs' organizational structure, programmatic
structure, and budget process. For many years, states only needed to
provide general information on their payment methodologies, so these
newly created profiles provide more detail to help CMS in its review
and oversight of states' financial issues. For example, the profiles:
* describe the sources of each state's nonfederal share of Medicaid
funds and state payment methodologies; and:
* include a "watch list" section where the funding specialists can
highlight significant funding-related concerns that may need to be
addressed in the future. For example, one state profile identifies a
concern about the state's lack of oversight of the certified public
expenditures certification process for hospitals. This type of
information can be helpful in ensuring proper review of future state
plan amendments, among other things.
CMS officials told us the state funding profiles have been made
available to all CMS staff through CMS's intranet, and said the
profiles will be updated annually to account for changes in state
programs, thus allowing CMS to have current information.
In addition to completing state funding profiles and reviewing state
budgets and expenditures, the funding specialists carry out other
oversight activities, including the following:
* meeting with state Medicaid officials and monitoring state
legislative activity, including hearings, budget sessions, and
committee meetings related to states' Medicaid programs and proposed
bills to proactively identify issues that need CMS attention;
* reviewing state payment arrangements that CMS previously deemed
problematic and that the states agreed to end to determine if the
arrangements have in fact ended;
* assisting in the resolution of OIG audit findings;
* providing technical assistance to the states concerning funding and
financial issues; and:
* attending training and workshops to learn about and stay abreast of
CMS policy and operations.
Directing the activities of the new funding specialists is one of the
efforts of the central office's DRSF, which was created in early 2005.
CMS established DRSF to consolidate responsibility for all state
Medicaid payment policy and funding issues. A role of DRSF is to ensure
that state plan amendments for reimbursement of noninstitutional and
institutional services are consistently reviewed and that CMS policy is
consistently applied across the nation.[Footnote 6] The activities of
DRSF have improved CMS's ability to effectively deploy its resources to
carry out more targeted oversight activities. DRSF's National
Institutional Reimbursement Team and the Non-Institutional Payment
Team[Footnote 7] are part of CMS's effort to collect information on
states' funding methodologies before approving state plan amendments,
including high-risk payment methodologies that have been troublesome in
the past.
DRSF reviews all institutional reimbursement state plan amendments
before they are approved by the Director of CMSO, thus eliminating the
decentralized approval process that had been in place at all 10
regional offices.[Footnote 8] This has helped to clarify the lines of
authority and responsibility for the state plan amendment process--
states still submit amendments to their respective region for review
but they are approved by CMS's central office. DRSF also helped clarify
responsibilities between central and regional office staff by using the
10 central office funding specialists as liaisons to each of the 10
regional offices. The DRSF funding specialists help to ensure that
regional funding specialists are informed and kept up to date on
funding policies and matters. The funding specialists also help in
conducting a series of monthly calls that DRSF has instituted between
the regions and central office financial management staff to improve
communication and coordination. These calls help to ensure that all
staff stay informed and up to date on matters that impact state
claiming and the approval of state plan amendments.
These activities, which we consider significantly underway, help
improve CMS's ability to better target its oversight activities and
specifically address the recommendation in our 2002 report to increase
in-depth oversight of areas of higher risk as identified from the risk
assessment efforts and apply fewer resources to lower risk areas. See
appendix II for a complete listing of our prior recommendations and our
assessment of whether or not each has been fully addressed by CMS's
actions to improve its oversight activities. These activities also help
address our overarching concerns that CMS's organizational structure
created challenges to effective oversight because of unclear lines of
authority and responsibility between the regions and the central
office.
Focused Financial Reviews and OIG Audits Continued to Identify Problems
and Needed Corrective Actions:
In 2001, CMS began a risk analysis process to identify Medicaid issues
that put federal dollars at risk and address those issues by conducting
focused financial reviews or referring the issues to the OIG for its
review. Since then, at the beginning of each fiscal year, central
office and regional office financial management staff work together to
identify risks and plan focused financial reviews of the issues
identified. CMS's financial management staff consider factors such as
the amount of dollars involved, involvement of consultants, and time
elapsed since last audit to identify risk areas. CMS's analyses provide
insight into what some of the continuing problematic Medicaid issues
and potential emerging issues are. Table 2 shows which areas have
consistently been identified as needing in-depth review in fiscal years
2003 through 2006.
Table 2: Issues Consistently Planned[A] for Focused Financial Reviews
in Fiscal Years 2003 through 2006:
Issues: Home-and Community-based Services;
FY 2003: check;
FY 2004: check;
FY 2005: check;
FY 2006: check.
Issues: Administrative Contracts/Claims;
FY 2003: [Empty];
FY 2004: check;
FY 2005: check;
FY 2006: check.
Issues: Medicaid Management Information Systems;
FY 2003: check;
FY 2004: check;
FY 2005: check;
FY 2006: [Empty].
Issues: Disproportionate Share Hospital payments;
FY 2003: check;
FY 2004: check;
FY 2005: check;
FY 2006: check.
Issues: Family Planning Claims;
FY 2003: check;
FY 2004: check;
FY 2005: check;
FY 2006: check.
Issues: Medical Transportation;
FY 2003: check;
FY 2004: check;
FY 2005: check;
FY 2006: check.
Issues: Nurse Aide Training Costs;
FY 2003: [Empty];
FY 2004: check;
FY 2005: check;
FY 2006: check.
Issues: Personal Care Services;
FY 2003: check;
FY 2004: [Empty];
FY 2005: check;
FY 2006: check.
Issues: State Children's Health Insurance Program (SCHIP);
FY 2003: check;
FY 2004: check;
FY 2005: check;
FY 2006: [Empty].
Issues: School-based Services/Claims;
FY 2003: check;
FY 2004: check;
FY 2005: check;
FY 2006: check.
Issues: Skilled Professional Medical Personnel;
FY 2003: check;
FY 2004: check;
FY 2005: check;
FY 2006: check.
Issues: Targeted Case Management;
FY 2003: check;
FY 2004: check;
FY 2005: check;
FY 2006: check.
Issues: Undocumented Aliens;
FY 2003: [Empty];
FY 2004: check;
FY 2005: check;
FY 2006: check.
Issues: Upper Payment Limits;
FY 2003: check;
FY 2004: check;
FY 2005: check;
FY 2006: check.
Issues: Inter-governmental Transfers;
FY 2003: check;
FY 2004: check;
FY 2005: check;
FY 2006: check.
Issues: Certified Public Expenditures;
FY 2003: [Empty];
FY 2004: check;
FY 2005: check;
FY 2006: check.
Source: GAO analysis of CMS's annual workplans.
[A] "Consistently planned" means that the type of review was planned in
at least 3 of the 4 years.
Note: In addition to the issues shown, approximately 60 other issues
were to be reviewed during the 4 fiscal years.
[End of table]
The focused financial reviews of the issues identified from the risk
analyses have helped CMS identify billions of dollars in unallowable
costs outside of those detected through the review of quarterly
expenditure reports, as well as deficiencies in states' financial
management practices. In fiscal years 2003 and 2004, focused financial
reviews resulted in CMS questioning or disallowing about $1.3 billion
and about $1 billion, respectively, of state claims for federal
reimbursement, according to CMS. The value of these reviews lies not
just in identifying disallowances but also in providing feedback on
policy issues and programmatic vulnerabilities, and in elevating the
attention of both states and federal staff.[Footnote 9] CMS conducted
about 57 focused financial reviews each year from fiscal years 2003
through 2005. Starting in fiscal year 2006, the number of planned
focused financial reviews almost doubled from fiscal year 2005 due to
the inclusion of planned reviews to be done by the funding specialists.
We reviewed 35 of the 113 focused financial reviews performed by
regional office financial analysts in fiscal years 2003 and 2004 to
assess (1) the consistency with which the reviews were performed and
reported on and (2) the extent to which states took actions to address
the issues identified by CMS. We concluded that the 35 review reports
were generally consistent across the regions. CMS also provided
information to support that states are taking the recommended actions
to address the issues identified. CMS issued reports to the states that
contained recommendations requesting the states to (1) return federal
reimbursement that CMS determined was not allowable (disallowances),
(2) provide additional documents for CMS to determine the allowability
of questionable claims (deferrals), or (3) improve certain state
controls or processes.
CMS gets additional coverage of risk areas from the reviews conducted
by HHS's OIG. During fiscal years 2003 through 2005, CMS contracted
with OIG using funds from the HCFAC account to conduct 20 or more
audits each year of issues identified from the risk assessment process.
We reviewed interagency agreements between CMS and OIG for fiscal years
2003 through 2005 that provided over $3 million of HCFAC funds each
year for OIG to do 20 or more audits each year relating to Medicaid
issues. The interagency agreements supplemented OIG's overall efforts
to monitor Medicaid. Table 3 shows the issues that OIG agreed to audit
in selected states pursuant to the interagency agreements for fiscal
years 2003 through 2005.
Table 3: Issues To Be Audited by the OIG in Fiscal Years 2003 through
2005:
OIG audit issue: Upper Payment Limit Calculation;
FY 2003: check;
FY 2004: [Empty]
FY 2005: check.
OIG audit issue: School-Based Administrative Costs;
FY 2003: check;
FY 2004: [Empty];
FY 2005: check.
OIG audit issue: School-Based Services;
FY 2003: check;
FY 2004: [Empty];
FY 2005: check.
OIG audit issue: Home-and Community-based Services;
FY 2003: check;
FY 2004: [Empty];
FY 2005: check.
OIG audit issue: Medicaid Administrative Costs;
FY 2003: check;
FY 2004: [Empty];
FY 2005: check.
OIG audit issue: Adult Rehabilitation Services;
FY 2003: check;
FY 2004: [Empty];
FY 2005: check.
OIG audit issue: Waivers for Demonstration Projects;
FY 2003: [Empty];
FY 2004: check;
FY 2005: [Empty].
OIG audit issue: Personal Care Services;
FY 2003: [Empty];
FY 2004: check;
FY 2005: [Empty].
OIG audit issue: Home Health Services;
FY 2003: [Empty];
FY 2004: check;
FY 2005: [Empty].
OIG audit issue: Medicaid/SCHIP Duplicate Payments;
FY 2003: [Empty]; ;
FY 2004: check;
FY 2005: [Empty].
OIG audit issue: Targeted Case Management;
FY 2003: [Empty];
FY 2004: check;
FY 2005: [Empty].
OIG audit issue: Medicaid Management Information Systems Expenditures;
FY 2003: [Empty];
FY 2004: check;
FY 2005: check.
OIG audit issue: Revenue Sharing;
FY 2003: [Empty];
FY 2004: check;
FY 2005: [Empty].
OIG audit issue: Rehabilitation Services for People with Mental
Illness;
FY 2003: [Empty];
FY 2004: check;
FY 2005: [Empty].
OIG audit issue: Institutions for Mental Diseases;
FY 2003: [Empty];
FY 2004: check;
FY 2005: [Empty].
OIG audit issue: Vaccines for Children;
FY 2003: [Empty];
FY 2004: check;
FY 2005: [Empty].
OIG audit issue: Family Planning Services;
FY 2003: [Empty];
FY 2004: check;
FY 2005: [Empty].
OIG audit issue: Skilled Professional Medical Personnel;
FY 2003: [Empty];
FY 2004: check;
FY 2005: check.
OIG audit issue: Provider Overpayments;
FY 2003: [Empty];
FY 2004: check;
FY 2005: check.
OIG audit issue: Provider Tax;
FY 2003: [Empty];
FY 2004: check;
FY 2005: [Empty].
OIG audit issue: Community Mental Health Center Administrative Costs;
FY 2003: [Empty];
FY 2004: check;
FY 2005: check.
OIG audit issue: Graduate Medical Education;
FY 2003: [Empty];
FY 2004: [Empty];
FY 2005: check.
OIG audit issue: Disproportionate Share Hospital Payments;
FY 2003: [Empty];
FY 2004: [Empty];
FY 2005: check.
OIG audit issue: County Administrative Case Management Services;
FY 2003: [Empty];
FY 2004: [Empty];
FY 2005: check.
OIG audit issue: County Administrative Services;
FY 2003: [Empty];
FY 2004: [Empty];
FY 2005: check.
OIG audit issue: Medicaid Buy-In;
FY 2003: [Empty];
FY 2004: [Empty];
FY 2005: check.
OIG audit issue: Physician Supplemental Payment Program;
FY 2003: [Empty];
FY 2004: [Empty];
FY 2005: check.
OIG audit issue: Enhanced Funding for State Government Hospitals;
FY 2003: [Empty];
FY 2004: [Empty];
FY 2005: check.
OIG audit issue: Personal Needs Allowance for Nursing Home Residents;
FY 2003: [Empty];
FY 2004: [Empty];
FY 2005: check.
OIG audit issue: Additional Reimbursement for Nursing Facilities of
Public Hospitals;
FY 2003: [Empty];
FY 2004: [Empty];
FY 2005: check.
OIG audit issue: Medicaid Expenditures for Nursing Facilities;
FY 2003: [Empty];
FY 2004: [Empty];
FY 2005: check.
Source: CMS.
[End of table]
We reviewed 21 audits done by OIG in fiscal year 2004 pursuant to the
interagency agreement to assess (1) the extent of the additional
coverage given to issues identified by CMS as high risk and (2) the
extent to which states took actions to address the issues identified by
OIG. OIG identified about $13.6 million that it believed was
inappropriate federal reimbursement to the states in 15 of the 21
audits. States returned about $4.5 million of disallowed claims
identified in 10 of the 15 audits; CMS was still pursuing the remaining
$9.1 million as of the end of our field work. OIG also made numerous
other recommendations to states to improve their internal controls such
as implementing controls to identify and prevent duplicate payments and
complete reconciliation procedures for overpayments in a timely manner.
Goal for Reducing Questionable Federal Reimbursement Helps Promote
Accountability:
CMS has recently developed a specific goal aimed at reducing
questionable federal reimbursement and evaluating its oversight
activities. CMS has established a goal to reduce by 10 percent in
fiscal year 2006 the amount of federal reimbursement that has been
questioned by CMS or OIG. CMS is collecting data on questionable claims
for federal reimbursement identified from sources such as quarterly
expenditure reviews, focused financial reviews, and OIG audits.
According to a CMS official, as part of this process, CMS has
identified a baseline amount of about $8 billion dollars in cumulative
questionable federal reimbursement, which represents state claims that
(1) CMS has determined may not be allowable or has deferred payment
pending review of additional support from the states, or (2) OIG has
questioned as a result of an audit. The goal for fiscal year 2006 is to
resolve at least 10 percent of this $8 billion by (1) recovering
amounts ultimately determined to be unallowable or (2) determining
after further review that the claims are allowed. CMS officials
acknowledge that the goal may not be attainable each year given the
varying facts and circumstances of the questionable amounts. However,
if properly established and tracked, goals of this nature should help
in improving the effectiveness of CMS oversight activities.
CMS has also included the goal to reduce by 10 percent the amount of
questionable federal reimbursement in the fiscal year 2006 performance
agreements of CMS senior financial managers in the central office.
According to CMS officials, it will continue to hold managers
accountable for this type of goal each fiscal year. CMS has also
included specific goals and performance standards in regional office
financial managers' performance agreements. For example, one regional
office has a goal for its managers to ensure that the financial
analysts and funding specialists complete nine focused financial
reviews and five funding source reviews in fiscal year 2006.
CMS has improved its processes for tracking its financial management
activities and the attainment of the goals it has set. The Financial
Management Activities Report (FMAR) tracks the amount of regional
office resources (staff time, personnel costs, and travel costs) spent
on the various categories of activities in the financial management
workplans. The Financial Issues Report tracks all questionable state
claims for reimbursement identified by regional financial analysts and
funding specialists in focused financial reviews, quarterly expenditure
reviews, and any other activities that could result in a disallowance
or deferral of state claims, including findings from OIG reports. The
Financial Performance Spreadsheet is the CMS tool used to track the
fiscal year 2006 goal to resolve 10 percent of the amount of
cumulative, questioned claims for federal reimbursement.
These actions, which we consider significantly underway, help improve
CMS's ability to monitor, measure, and evaluate its financial oversight
activities and specifically address the following recommendations from
our 2002 report:
* Include specific Medicaid financial oversight performance standards
in senior managers' performance agreements.
* Collect, analyze, and compare trend information on the results of
oversight control activities, particularly deferral and disallowance
determinations, focused financial reviews, and technical assistance.
* Use the information collected above to assess overall quality of
financial management oversight.
Other Efforts Help CMS's Oversight of Medicaid Finances:
CMS has initiated two other programs to help carry out its
responsibility at the federal level for helping ensure the propriety of
Medicaid finances and comply with the Improper Payments Information Act
of 2002[Footnote 10]--the Payment Accuracy Measurement pilot project,
which was initiated in July 2001 and is now called the Payment Error
Rate Measurement (PERM) project, and the Medicare-Medicaid data match
project. Under the PERM program, states use a CMS-developed methodology
to measure state Medicaid payment errors. By fiscal year 2007, CMS
plans to have a national Medicaid payment error rate based on a sample
of states and claims within those states.[Footnote 11] Under PERM,
states will be expected to ultimately reduce their payment error rates
over time by better targeting their activities to prevent and detect
improper payments made to providers. Under the Medicare-Medicaid data
match project, CMS facilitates the sharing of information between the
Medicare and Medicaid programs by matching Medicare and Medicaid claims
information on providers and beneficiaries to identify improper billing
and utilization patterns which could indicate fraudulent schemes.
These two projects, which we consider significantly underway, have
helped CMS's efforts to oversee state Medicaid finances and
specifically address the following two recommendations from our 2002
report:
* Complete efforts to develop an approach to payment accuracy reviews
at the state and national levels.
* Incorporate advanced control techniques, such as data mining, data
sharing, and neural networking, where practical to detect potential
improper payments.
Some Previously Identified Weaknesses in Oversight Activities Have Yet
to be Addressed:
While CMS has taken a number of actions that improve its oversight and
address several weaknesses we identified in our prior report, there are
previously identified weaknesses that the agency has not yet addressed.
Specifically, CMS has not instituted mechanisms to measure how the risk
of inappropriate federal reimbursement has changed as a result of
corrective actions taken. In addition, CMS has not incorporated the use
of the MSIS database into its oversight of states claims or other
systems projects intended to improve its analysis capabilities. CMS
also has not developed profiles to document information on state fraud
and abuse controls to use in its oversight of state claims. Finally,
CMS has not developed a strategic plan specific to its Medicaid
financial management activities.
Measuring how risks have changed--In our 2002 report, we recommended
that CMS develop and institute mechanisms to make risk assessment a
continuous process and to measure whether risks have changed as a
result of corrective actions taken to address them. CMS has processes
in place to identify risks, and management has established procedures
to mitigate important risks, such as detailed reviews of certain high-
risk issues. However, CMS's processes still do not have the elements of
risk management that are key to assessing whether actions to mitigate
risks need to be adjusted either because (1) they are not effective,
(2) they are effective but need to be expanded, or (3) they are no
longer needed because the risks have been resolved or reduced to a
tolerable level.
For example, CMS identified several Medicaid issues as part of its
current risk assessment process that have been the subject of focused
financial reviews across several states, for several years--issues such
as those related to claims for skilled professional medical personnel,
family planning, and school-based administrative services. As discussed
earlier, CMS has issued reports to the states on these issues that
contained recommendations requesting the states to (1) return federal
reimbursement that CMS determined was not allowable (disallowances),
(2) provide additional documents for CMS to determine the allowability
of questionable claims (deferrals), or (3) improve certain state
controls or processes. However, CMS's current risk assessment process
does not indicate how the corrective actions taken to address these
issues have changed their assessment of risk or their future strategies
for mitigating the risk that these issues pose.
To CMS's credit, it has recently taken steps to change policies related
to state claims for targeted case management services,[Footnote 12] an
issue that has been the subject of multiple focused financial reviews.
While it is not clear from CMS's risk assessment why this issue was
given a higher priority than other issues identified from its risk
assessment, CMS officials explained that their process for determining
what might be a high-risk issue comes from continuous coordination
between financial management staff and Medicaid program staff that have
in-depth program knowledge about Medicaid policy and procedures. The
officials further explained that the results of their coordination and
the fact that an issue is a high priority may not be noticeable to
others until policy changes are included, for example, in HHS's budget
submission or other legislation that is signed by the President.
Documenting how the outcomes of detailed reviews are used to determine
whether additional or fewer corrective actions are needed is an
important step in risk management. For fiscal year 2006, CMS is
planning to conduct additional detailed reviews intended to ensure that
states have stopped certain intergovernmental transfers and other
funding practices that have resulted in billions of dollars in
inappropriate federal reimbursement.[Footnote 13] It will be important
to use the results of these follow-up reviews as a basis to determine
whether its prevention and mitigation steps are adequate and effective
and then to adjust them accordingly. Fully documenting the results of
these types of activities will help inform planning for future
mitigation efforts.
Because CMS has not fully implemented mechanisms to measure how risks
have changed as a result of actions to address the risks, we are
reiterating our prior recommendation in this area.
Improving analysis capabilities--In our 2002 report, we recommended
that CMS use comprehensive Medicaid payment data that states must
provide to the national MSIS database. Use of these data could improve
CMS's analysis capabilities. MSIS contains Medicaid program information
including data on billions of claims. This database could be used to
identify trends in certain Medicaid services from prior-year claims
that could be useful in analyzing current-year state claims. According
to a CMS official, CMS has not yet developed the ability to make these
data available for use by the financial analysts and funding
specialists in their oversight activities. Further, only a few CMS
staff with the requisite systems capabilities are currently able to
access and analyze the data. CMS officials said they plan to make these
data more accessible in the future. Because CMS has not yet
incorporated use of MSIS in its oversight activities, we are
reiterating our prior recommendation.
CMS also has not yet completed two other systems projects intended to
help improve its analysis capabilities. CMS started to develop the: (1)
Transactions, Information Inquiry, and Program Performance System
project--an integrated financial management tool intended to link
existing Medicaid data systems and tools; and (2) Automated Medicaid
State Plans Project--a project to explore collecting electronic
submission of state plans that would provide timely access to critical
program information. CMS officials told us that due to funding
constraints, these two projects have yet to be completed. Determining
the systems projects needed to enhance CMS's analysis capabilities is
important given the challenges of evaluating state Medicaid
expenditures and funding practices.
Collecting and using information on state fraud and abuse control
activities--In our 2002 report, we recommended that CMS enhance the
information that it uses in its oversight of state claims by creating
profiles that document each state's activities to oversee its Medicaid
program and prevent fraud and abuse. For example, we recommended that
the profiles include information on provider screening procedures and
payment accuracy studies. CMS currently collects some information on
these and other state program integrity efforts as part of compliance
reviews that are conducted by program integrity staff in DFM and the 10
regional offices.[Footnote 14] These compliance reviews are to assess
whether state Medicaid program integrity efforts comply with federal
requirements such as those governing provider enrollment, claims
review, and coordination with each state's Medicaid Fraud Control
Unit.[Footnote 15] However, CMS officials told us that there is limited
coordination between the staff that conduct the compliance reviews and
the financial management staff that oversee state claims. Further, the
compliance reviews have focused on state compliance and have not
evaluated the effectiveness of the states' fraud and abuse prevention
and detection activities.
CMS is starting to develop strategies as part of the recently created
Medicaid Integrity Program that could address the weaknesses that we
have identified. The Deficit Reduction Act of 2005,[Footnote 16]
enacted in February 2006, provided for the creation of a Medicaid
Integrity Program and required CMS to develop a comprehensive plan for
how it would implement the program. CMS officials have recently begun
to develop the plan and have included proposals for hiring contractors
to assess states' program integrity activities.
Information on states' activities to oversee their Medicaid programs
and prevent fraud and abuse is important to determine the appropriate
level of federal oversight that should be applied to each state's
claims. Because CMS is just starting to develop its plan and results
are not known yet, we are reiterating our prior recommendations in this
area.
Developing a strategic plan to guide Medicaid financial management
activities--In our 2002 report, we reported that CMS was starting
several initiatives, similar to what we are currently reporting, to
bring about improvements in its financial management activities and
oversight. At the time of our 2002 review, CMS did not have a written
strategic plan that described its many oversight activities and
initiatives and the staff responsible for implementing them. Therefore,
we recommended that CMS develop a written plan and strategy for
Medicaid financial oversight. However, CMS still has not published a
comprehensive plan that describes the many aspects of its Medicaid
financial management strategy and its plans for continuing and
sustaining its recent improvement efforts.
A strategic plan is a key management tool that can help clarify
organizational priorities and unify agency staff in the pursuit of
shared goals. Strategic plans are the starting point and basic
underpinning for a system of program goal-setting and performance
measurement. In accordance with the Government Performance and Results
Act of 1993 (GPRA),[Footnote 17] a multiyear strategic plan articulates
the fundamental mission (or missions) of an organization, and lays out
its long-term general goals for accomplishing that mission, including
the resources needed to reach these goals. The clearer and more precise
these goals are, the better able the organization will be to maintain a
consistent sense of direction, regardless of leadership changes.
HHS prepares a strategic plan as required by GPRA.[Footnote 18] The HHS
strategic plan contains eight broad program performance goals related
to the missions and programs of its operating divisions. However only
one goal relates to Medicaid financial management--an overall goal for
all HHS programs to "achieve excellence in management practices."
Unlike the Medicare program that started publishing a separate
comprehensive plan for financial management in fiscal year 2001 that
outlined problems and plans to address weaknesses in the Medicare
program's internal controls, oversight, and financial systems,[Footnote
19] the Medicaid program has not developed its own plan for financial
management that includes an appropriate level of detail to be useful as
a tool to guide its financial managers.
Medicaid officials told us that they have several planning documents--
such as the annual financial management work plans, the FMAR, and the
Financial Issues Report that we previously discussed--that they use in
managing financial management activities. While these documents provide
information on aspects of CMS's financial management activities, they
do not clearly define the mission of Medicaid financial management, lay
out the goals for continuously implementing the mission, or provide a
complete description of the operational processes, skills, technology,
and other resources required to meet CMS's financial management goals
and objectives.
Without a strategic plan, CMS lacks an appropriate "roadmap" to guide
activities for ensuring sound financial management of the Medicaid
program. Therefore, we are reiterating our recommendation in this area.
Use of HCFAC Funds to Enhance Medicaid Oversight Initiatives:
During fiscal years 2003 through 2005, CMS received almost $46 million
from the HCFAC account that it has used to help fund programs related
to its oversight of Medicaid. Congress enacted the HCFAC program as
part of the Health Insurance Portability and Accountability Act of 1996
to consolidate and strengthen ongoing efforts to combat fraud and abuse
in health care programs, including the Medicare and Medicaid programs.
The legislation required the establishment of the national HCFAC
program and it established the HCFAC account within the Medicare
Federal Hospital Insurance Trust Fund, which is funded by
appropriations out of the Trust Fund. The HCFAC program is administered
by HHS and the Department of Justice and is designed to coordinate
federal, state, and local law enforcement activities with respect to
health care fraud and abuse. HHS's OIG, the Federal Bureau of
Investigation, and the Medicare Integrity Program receive direct
appropriations from the HCFAC account, while the Medicaid program must
request funds from the HCFAC account and compete with other HHS
programs, such as the Administration on Aging and the Office of General
Counsel, for allocations from the discretionary part of the HCFAC
account.[Footnote 20] Table 4 shows the discretionary HCFAC funds
available to CMS in fiscal years 2003 through 2005 and the portion
allocated to the Medicaid program run by CMSO for Medicaid financial
management projects.
Table 4: Discretionary HCFAC Funds for CMS and CMSO's Allocation:
Dollars in millions.
Total discretionary HCFAC funds for CMS;
FY 2003: $23.37;
FY 2004: $22.75;
FY 2005: $31.14;
Totals: $77.26.
CMSO allocation;
FY 2003: $9.56;
FY 2004: $17.08;
FY 2005: $18.91;
Totals: $45.55.
Source: CMS and HHS/OIG.
[End of table]
CMSO used this money to help fund projects related to its oversight of
Medicaid. Table 5 shows the various projects for the 3 fiscal years and
the amounts allocated to those projects.
Table 5: Medicaid Financial Management Projects and Their HCFAC
Allocations for Fiscal Years 2003 through 2005:
Dollars in millions.
Projects: Funding specialists (new staff);
FY 2003: [Empty];
FY 2004: $1.69;
FY 2005: $10.36;
Totals: $12.05.
Projects: OIG interagency agreement audits;
FY 2003: $3.01;
FY: 2004: 5.66;
FY: 2005: 3.80; Totals: 12.47.
Projects: Medicare-Medicaid data match project;
FY: 2003: [Empty];
FY: 2004: 3.74;
FY: 2005: 3.26; Totals: 7.0.
Projects: Payment Accuracy Measurement/PERM/SCHIP Error Rate Pilot;
FY: 2003: 3.70;
FY: 2004: 3.81;
FY: 2005: 1.20; Totals: 8.71.
Projects: Transactions, Information Inquiry, and Program Performance
System;
FY: 2003: 2.02;
FY: 2004: 1.68;
FY: 2005: 0.29; Totals: 3.99.
Projects: Other projects;
FY: 2003: 0.83;
FY: 2004: 0.50;
FY: 2005: [Empty]; Totals: 1.33.
Totals;
FY: 2003: $9.56;
FY: 2004: $17.08;
FY: 2005: $18.91; Totals: $45.55.
Source: CMS.
[End of table]
The HCFAC account provided about $12 million to CMS for the funding
specialists for fiscal years 2004 and 2005. The funding specialists
have been funded on an annual basis with appropriations from the HCFAC
account. There is the chance that adequate funding might not be
provided through the HCFAC process in any given year for the funding
specialists; thus CMS officials have told us they would like to pursue
ways of making the funding specialist positions permanent. CMS
officials told us that there was a provision in its fiscal year 2007
budget submission, but the provision was rejected during department-
level discussions, so the funding specialists will continue to be
funded on an annual basis with HCFAC funds. CMS officials also told us
that some of the turnover of funding specialist staff was due to the
uncertainty of funding and whether the positions would become
permanent. Creating permanent funding specialist positions is
important, given how CMS has been using them in performing reviews of
high-risk issues.
Other Medicaid projects included in table 5 that CMS used HCFAC funds
for include:
* interagency agreements between CMS and OIG for OIG audits of high-
risk issues such as family planning services in managed care, skilled
professional medical personnel, upper payment limits, school-based
claims, home-and community-based services, and Medicaid administrative
costs reported by state agencies other than the Medicaid single state
agency;
* Medicare-Medicaid data match project developed to identify improper
billing and utilization patterns by matching Medicare and Medicaid
claims information on providers and beneficiaries;
* Payment Accuracy Measurement, PERM, and SCHIP Error Rate Pilot
Projects, which allow states to test a methodology to determine
improper payment error rates in their SCHIP and/or Medicaid programs;
* Transaction, Information, Inquiry and Program Performance System to
develop and enhance an integrated financial management tool linking
existing CMSO data systems and tools containing critical financial,
statistical, administrative, and other data;
* an organizational study of Medicaid financial processes within CMS
done by OIG under an interagency agreement with OIG;
* a project referred to as the Annuities Project, which used both
qualitative and quantitative research methods to develop a
comprehensive picture of states' experience with the use of annuities
as an asset-sheltering device by Medicaid applicants and their spouses;
* a Waiver Management System Database project, which updated a current
Waiver Management System Database; and:
* a project to research options for automating the Medicaid state plan
process from the creation and submission of state plan amendments at
the state level through approval at the central office and regional
offices.
We obtained documentation to support the use of HCFAC funds for the
above projects.
Conclusions:
Since we last reported in 2002, CMS has made improvements to the
processes it uses in its efforts to oversee states and identify payment
errors. Efforts undertaken, such as the hiring of the funding
specialists, consolidating the review of reimbursement state plan
amendments, and the Medicare-Medicaid data match project have enhanced
CMS's ability to identify issues that put federal Medicaid dollars at
risk. While CMS's actions address previously identified weaknesses and
recommendations from our 2002 report related to (1) targeting resources
to higher risk areas, (2) monitoring performance, (3) establishing
mechanisms for ensuring accountability, (4) developing an approach to
payment accuracy reviews and (5) incorporating advanced control
techniques, it is too soon to assess the impact they will have on
improving overall financial management and addressing emerging issues
that put federal Medicaid dollars at risk because the results of some
efforts are not known yet.
In addition, several weaknesses remain in CMS's oversight that could be
addressed by implementing our prior recommendations that remain open.
Specifically, CMS still lacks processes to adjust oversight activities
for changes in risk; therefore, we reiterate our prior recommendation
related to measuring whether risks have changed as a result of
corrective actions to address them. Also, because CMS has not yet
addressed weaknesses we identified in its analysis capabilities, we
reiterate our prior recommendation for CMS to incorporate using MSIS
data in its analysis of state claims. We also reiterate our prior
recommendations to CMS for collecting and using information on state
fraud and abuse control activities because this information is
important to determining the appropriate level of federal oversight of
state claims.
The absence of a strategic plan could hinder CMS in sustaining its
current efforts and addressing the weaknesses that we have identified.
Therefore, we reiterate our prior recommendation that CMS develop a
strategic plan specific to Medicaid financial management. Also, CMS may
not have the staff and systems needed to continuously identify and
target high-risk issues. Therefore, we stress the importance of
creating permanent funding specialist positions and determining what
systems projects are needed to improve their analysis capabilities.
Recommendations for Executive Action:
To further improve and sustain CMS's oversight of state claims,
including its ability to identify and address emerging issues, we
recommend that the Administrator of CMS take the following two
additional actions:
* Create permanent funding specialist positions.
* Determine what systems projects are needed to further enhance data
analysis capabilities.
Agency Comments and Our Evaluation:
In written comments on a draft of this report, which are reprinted in
appendix III, CMS agreed with our findings and recommendations and
stated that it will continue examining issues raised in this report,
including prior recommendations from our 2002 report that are still
outstanding. CMS also stated that it will work to implement the two
recommendations made in this report. CMS expressed its support for our
recommendation to create permanent funding specialist positions, which
are currently funded with HCFAC dollars, and stated it will consider
alternative approaches to provide adequate resources. CMS further
stated it will follow our second recommendation and begin the process
of determining the system projects that are needed to further enhance
data capabilities. CMS also provided additional information on several
of the activities we reported on, including additional activities of
the funding specialists and actions being taken on our prior
recommendations.
As we agreed with your office, unless you publicly announce the
contents of this report earlier, we plan no further distribution of it
until 30 days from the date of this letter. We will then send copies to
the Secretary of Health and Human Services, Administrator of CMS,
Inspector General of HHS, and other interested parties. Copies will be
made available to others upon request. In addition, this report will be
available at no charge on the GAO Web site at [Hyperlink,
http://www.gao.gov].
If you or your staff have any questions about this report, please
contact me at (202) 512-8341 or calboml@gao.gov. Contact points for our
Office of Congressional Relations and Public Affairs may be found on
the last page of this report. Major contributors are acknowledged in
appendix IV.
Signed by:
Linda Calbom:
Director, Financial Management and Assurance:
[End of section]
Appendix I: Scope and Methodology:
To identify the extent to which the Centers for Medicare & Medicaid
Services (CMS) has improved its oversight, including its ability to
identify and address emerging issues that put federal Medicaid dollars
at risk, we performed work at CMS headquarters and two regional
offices. We reviewed and assessed aspects of CMS's financial oversight
processes, which include identifying high-risk areas in order to
develop an annual regional office financial management workplan and
conducting focused financial reviews of high-risk areas. We reviewed 35
of the 113 focused financial reviews conducted by CMS regional offices
for fiscal years 2003 and 2004. We selected reviews of specific issues
that were reviewed across regions and fiscal years, such as
disproportionate share hospital payments and school-based
administrative services. We did not select certain issues, such as
upper payment limits and intergovernmental transfers, because these
issues have been well-covered in other reports and by CMS's actions. We
looked for consistency of the reviews among regions and fiscal years
and the extent to which states implemented CMS's recommendations. We
obtained and reviewed documentation showing the activities and work
performed by the new funding specialists hired by CMS during 2004 and
2005 as part of its efforts to improve its financial management of the
Medicaid program. We reviewed our prior reports and reports by the
Department of Health and Human Service's Office of Inspector General
(OIG) and others. We also reviewed interagency agreements between CMS
and OIG. We interviewed OIG staff, and CMS officials and staff at the
CMS central office in Baltimore, Maryland, and two regional offices--
New York and Chicago. We selected the New York and Chicago regional
offices to visit based on the number of focused financial reviews we
selected to review that were performed by these regions. Sixteen of the
35 focused financial reviews we selected to review were performed by
these two regions; the remaining 19 focused financial reviews were done
by seven other regional offices. We also considered the Comptroller
General's Standards for Internal Control in the Federal
Government.[Footnote 21]
To determine how CMS used funds from the Health Care Fraud and Abuse
Control (HCFAC) account for fiscal years 2003 through 2005, we obtained
from CMS a list of Medicaid projects that were funded from the HCFAC
account in fiscal years 2003 through 2005. We obtained and examined
documentation from CMS such as invoices; grant awards; interagency
agreements; and accounting, budget, and payroll records that support
the information provided by CMS on how it spent HCFAC funds for fiscal
years 2003 through 2005. We also reviewed the HCFAC program and funding
legislation, 42 U.S.C. §§ 1320a-7c, 1395i(k).
We requested written comments on a draft of this report from the
Administrator of CMS or his designee. His written comments are
reprinted in appendix III. We conducted our review from February 2005
to May 2006 in accordance with generally accepted government auditing
standards.
[End of section]
Appendix II Status of Prior Recommendations:
Table 6: Recommendations Made in GAO-02-300 - Medicaid Financial
Management: Better Oversight of State Claims for Federal Reimbursement
Needed (February 2002):
Recommendation: Risk assessment:
The Centers for Medicare & Medicaid Services (CMS) administrator should
revise current risk assessment efforts in order to more effectively and
efficiently target oversight resources towards areas most vulnerable to
improper payments by taking the following actions;
1. Collecting, summarizing, and incorporating profiles of state
financial oversight activities that include information on state
prepayment edits, provider screening procedures, postpayment detection
efforts, and payment accuracy studies;
2. Incorporating information from reviews of state initiatives to
prevent Medicaid fraud and abuse;
3. Developing and instituting feedback mechanisms to make risk
assessment a continuous process and to measure whether risks have
changed as a result of corrective actions taken to address them;
4. Completing efforts to develop an approach to payment accuracy
reviews at the state and national levels;
Status and action(s) taken:
Recommendations 1 and 2: Open/reiterate; CMS currently collects some
information on state program integrity efforts as part of compliance
reviews that are conducted to assess whether state Medicaid program
integrity efforts comply with federal requirements. Also, CMS is
starting to develop strategies as part of the recently created Medicaid
Integrity Program that include proposals for hiring contractors to
assess states' program integrity activities. Because CMS is just
starting these efforts and results are not known yet, we are
reiterating our prior recommendations in this area;
Recommendation 3: Open/reiterate; CMS's processes still lack elements
of risk management that are key to assessing whether actions to
mitigate risks need to be adjusted either because (1) they are not
effective, (2) they are effective but need to be expanded, or (3) they
are no longer needed because the risks have been resolved or reduced to
a tolerable level. Therefore, we are reiterating our prior
recommendation;
Recommendation 4: Closed implemented; In July 2001, CMS initiated the
Payment Accuracy Measurement pilot project, now called the Payment
Error Rate Measurement (PERM) project. Under the PERM program, states
use a CMS- developed methodology to measure state Medicaid payment
errors. By fiscal year 2007, CMS plans to have a national Medicaid
payment error rate based on a sample of states and claims within those
states. These actions, which we consider significantly underway, help
improve CMS's ability to ensure payment accuracy and address our
recommendation.
Recommendation: Financial oversight control activities; The CMS
administrator should restructure oversight control activities by taking
the following actions;
5. Increasing in-depth oversight of areas of higher risk as identified
from the risk assessment efforts and applying fewer resources to lower
risk areas;
6. Incorporating advanced control techniques, such as data mining, data
sharing, and neural networking, where practical to detect potential
improper payments;
7. Using comprehensive Medicaid payment data that states must provide
in the legislatively mandated national Medicaid Statistical Information
System (MSIS) database;
Status and action(s) taken:
Recommendation 5: Closed implemented; The new funding specialists are
helping CMS to collect and summarize more information on states'
Medicaid programs to help CMS target its oversight efforts to high-risk
issues such as certain payment arrangements that have been problematic
in the past. A major activity of the funding specialists during their
first year was the completion of state funding profiles to help CMS in
its review and oversight of the states' financial issues. For example,
the profiles include a "watch list" section where the funding
specialists can highlight significant funding-related concerns that may
need to be addressed in the future. These actions, which we consider
significantly underway, address our prior recommendation;
Recommendation 6: Closed implemented; CMS developed and implemented the
Medicare-Medicaid data match project. Under this data match project,
CMS facilitates the sharing of information between the Medicare and
Medicaid programs by matching Medicare and Medicaid claims information
on providers and beneficiaries to identify improper billing and
utilization patterns which could indicate fraudulent schemes. These
actions, which we consider significantly underway, address our prior
recommendation;
Recommendation 7: Open/reiterate; CMS has not yet developed the ability
to make these data available for use by the financial analysts and
funding specialists in their oversight activities. The MSIS database is
very voluminous as it contains data on billions of claims. CMS
officials said they plan to make these data more accessible in the
future. Because CMS has not yet incorporated use of MSIS in its
oversight activities, we are reiterating our prior recommendation.
Recommendation: Monitoring performance;
The CMS administrator should develop mechanisms to routinely monitor,
measure, and evaluate the quality and effectiveness of financial
oversight, including audit resolution, by taking the following actions;
8. Collecting, analyzing, and comparing trend information on the
results of oversight control activities, particularly deferral and
disallowance determinations, focused financial reviews, and technical
assistance;
9. Using the information collected above to assess overall quality of
financial management oversight;
10. Identifying standard reporting formats that can be used
consistently across regions for tracking open audit findings and
reporting on the status of corrective actions;
11. Revising Division of Audit Liaison audit tracking reports to ensure
that all audits with Medicaid-related findings are identified and
promptly reported to the regions for timely resolution;
Status and action(s) taken:
Recommendations 8 and 9: Closed implemented; CMS has improved its
processes for tracking the results of financial management activities.
CMS uses several tracking reports--the Financial Management Activities
Report (FMAR), the Financial Issues Report, and the Financial
Performance Spreadsheet. The FMAR tracks the amount of regional office
resources (staff time, personnel costs, and travel costs) spent on the
various categories of activities in the financial management workplans.
The Financial Issues Report tracks all questionable state claims
identified by regional financial analysts and funding specialists in
financial management reviews and any other activities that resulted in
a disallowance or deferral of state claims, including findings from
Office of Inspector General (OIG) reports. The Financial Performance
Spreadsheet is the CMS tool used to track the fiscal year 2006 goal to
resolve 10 percent of the amount of cumulative, questioned claims for
federal reimbursement. These actions, which we consider significantly
underway, help improve CMS's ability to monitor, measure, and evaluate
its financial oversight activities and address our prior
recommendations;
Recommendations 10 and 11: Open; CMS did not agree with these prior
recommendations on audit tracking. During the course of our current
audit, we coordinated with CMS regional office staff on open audit
findings and the status of corrective actions for fiscal year 2004 OIG
audits completed under the interagency agreement. The staff provided us
with a current status on open audit findings that we inquired about. We
did not obtain updated information from the Division of Audit Liaison
in CMS's central office as to whether they have changed their audit
tracking processes.
Recommendation: Organizational structure;
The CMS administrator should establish mechanisms to help ensure
accountability and clarify authority and internal control
responsibility between regional office and headquarters financial
managers by taking the following actions;
12. Including specific Medicaid financial oversight performance
standards in senior managers' performance agreements;
13. Developing a written plan and strategy which clearly defines and
communicates the goals of Medicaid financial oversight and
responsibilities for implementing and sustaining improvements;
Status and action(s) taken:
Recommendation 12: Closed implemented; CMS staff provided us with
fiscal year 2006 performance agreements of CMS senior financial
managers in the central office, and they include goals for improving
financial management. They specifically state that managers are
responsible for achieving the goal of reducing by 10 percent the amount
of cumulative, questioned federal reimbursement. According to CMS, it
will continue to hold managers accountable for the goal of reducing
questionable reimbursement each fiscal year. CMS has also included
specific goals and performance standards in regional financial
managers' performance plans, such as assuring completion of a specified
number of focused financial reviews and funding source reviews. These
actions, which we consider significantly underway, address our prior
recommendation;
Recommendation 13: Open/reiterate; Medicaid officials said that they
have several documents that articulate their plans and strategy.
However, CMS still lacks a published, comprehensive plan that describes
the many aspects of its Medicaid financial management strategy and its
plans for continuing and sustaining its recent improvement efforts.
Therefore, we reiterate our prior recommendation.
Source: GAO.
[End of table]
[End of section]
Appendix III: Comments from the Centers for Medicare & Medicaid
Services:
Department Of Health & Human Services:
Centers for Medicare & Medicaid Services:
Administrator:
Washington, DC 20201:
Date: Jun 19 2006:
To: Linda Calbom:
Director, Financial Management and Assurance:
Government Accountability Office:
From: Mark B. McClellan, M.D., Ph.D. Administrator:
Subject: Government Accountability Office's (GAO) Draft Report:
Medicaid Financial Management. Steps Taken to Improve Federal Oversight
but Other Actions Needed to Sustain Efforts (GAO-06-705):
We appreciate the opportunity to respond to the above referenced draft
report dated June 2006. We are very pleased that the GAO, through this
review, recognized the numerous steps that the Centers for Medicare &
Medicaid Services (CMS) has taken since 2003 to improve its Medicaid
financial management activities, many of which were previously
identified as areas of weakness by the GAO in a 2002 report. Based on
the significant financial management activities initiated by CMS, the
draft report considers as implemented six previous GAO recommendations.
The findings of this draft report clearly reflect CMS' ongoing
commitment to the fiscal integrity of the Medicaid program.
We are also very pleased with the GAO's recommendation to create
permanent funding specialist positions, which are presently funded
through Health Care Fraud and Abuse Control (HCFAC) dollars. As you are
already aware, CMS proposed the hiring of 100 funding specialists in
2003 to augment the financial management review activities nationally.
We believe these 100 additional funding specialists have provided CMS
with an improved ability to strengthen our oversight of the Medicaid
program. Medicaid is a large and complex program with an annual budget
that exceeds $300 billion. Such a significant program warrants a
serious commitment to adequate financial management resources. We will
consider alternative approaches to provide adequate resources.
The CMS further appreciates the identification of nine specific areas
of improvement to Federal oversight in the draft report as follows:
1. Improved efforts to oversee State claims for Federal reimbursement;
2. Improved efforts to identify payment errors;
3. Enhanced ability to address high-risk State funding practices that
increase Federal costs through the hiring of approximately 100 funding
specialists;
4. Creation of a new unit that centralized responsibility for approving
State plan amendments (SPAs) related to reimbursement;
5. Continuation of identifying billions of dollars in questionable
Federal reimbursement through focused financial reviews and OIG audits;
6. Created goals to reduce inappropriate Federal reimbursement;
7. Enhancing internal tracking processes related to results of its
financial management activities;
8. Requiring accountability of financial managers;
9. Measuring payment errors under the Improper Payments Information
Act.
The report also identifies a few areas that were previously identified
by the GAO as weaknesses in CMS financial management processes and for
which the GAO believes the Agency has yet to adequately address. CMS is
committed to further improving all Medicaid financial management
activities and we will continue to examine these issues raised in the
draft report. Moreover, CMS will follow the second recommendation of
the draft report and begin the process of determining the system
projects that are needed to further enhance data capabilities.
We again appreciate the opportunity to comment on what we believe is a
very positive determination made by the GAO on CMS' improvements to its
Federal oversight of Medicaid financial management. We encourage the
GAO to articulate its support of creating permanent funding specialists
in its final report to Congress.
Additional technical comments are attached to this letter under Exhibit
A:
Technical Comments:
Exhibit A:
* We are compelled to acknowledge the efforts of CMS' 65 financial
analysts who were primarily responsible for providing fiscal oversight
of the program until the recent hiring of the funding specialists. We
believe that under our historic resource limitations, our relatively
small staff of 65 financial analysts did a commendable job in Medicaid
financial management prior to the hiring of the funding specialists.
* We wish to emphasize that the funding specialists were hired to fill
a new role within Medicaid financial management. Our traditional
financial management processes of focused financial reviews and CMS-64
reviews are retrospective in nature and have the potential to result in
deferrals or disallowances. While these are critical components of
Medicaid financial management, we hired the funding specialists to
broaden our financial management activities and become more proactive
in addressing high-risk areas. The funding specialists focus on front-
end Medicaid financial management, working with our partners, the
States, throughout the State budget formulation process, wherein
important Medicaid financing decisions are made. Because the Federal
government now has a presence during the State budget process, we are
in a position to provide technical assistance on Medicaid financing
issues to State officials prior to potentially problematic claims being
submitted to CMS. We find this to be a "win-win" for States and CMS
because it allows us to communicate in a proactive manner and address
problems before they develop into potentially adversarial deferral or
disallowance actions. As the GAO also points out, with the increased
resources, we are able to use the expertise of the funding specialists
to enhance our traditional Medicaid financial management process as
well.
* We appreciate the GAO's recognition of our efforts to track our
financial management activities using the Financial Management
Activities Report, the Financial Issues Report, and the Financial
Performance Spreadsheet. We wish to also mention the process we are
using to track the funding specialists' efforts in proactively
identifying potential Federal financial participation (FFP) at risk and
averting FFP at risk. The Funding Specialist Financial & Funding Issues
Report (FSFFIR) is a tool we have developed to capture the results of
the funding specialists' particular focus on proactive examinations of
Medicaid financing proposals and practices. The FSFFIR allows us to
measure the impact of the funding specialists in the important areas of
cost avoidance and cost savings. By coupling the FSFFIR process with
our other efforts to monitor performance in terms of recoveries and
resolutions of outstanding issues, we believe we have a set of tools
that will better reflect the full range of results arising from our
Medicaid financial management activities during the year.
* The 10 Central Office funding specialists have a unique role that
should be amplified beyond what is written in the GAO report.
Generally, they provide cross-cutting technical assistance and policy
direction on Medicaid reimbursement and State financing issues while
serving as the liaison between assigned regional offices and relevant
Central Office organizational groups. In addition to coordinating the
monthly calls including regional office and Central Office financial
staff and supporting the regional office funding specialists, the
Central Office funding specialists review financial management reports,
provide funding-related technical assistance on SPAs and waivers,
review tax proposals submitted by States, assist in the development of
Medicaid financing policy guidance and regulations, coordinate the
Financial Issues Report and the Financial Performance Spreadsheet
processes, and contribute generally to all relevant Central Office
Medicaid financial management functions.
* The GAO report mentions the completion of State Medicaid funding
profiles by the funding specialists during FY 2005. The funding
profiles represent an unprecedented effort by CMS to examine Medicaid
financing in a comprehensive manner. The profiles include information
about the State's budget development; the State's legislative process;
the flow of Medicaid funding within the State; the various Medicaid
payment methodologies the State employs; and high risk areas that
warrant special attention from financial management staff. The funding
profiles were not developed as part of any existing CMS review process;
rather, they allowed CMS to look globally at Medicaid financing within
the State to understand the issues and work proactively to address any
problems. We have been pleased to discover during 2006 that the work
developing last year's Medicaid funding profiles has led to the
identification of several financing issues. Updates to the State
Medicaid funding profiles will be completed by the end of FY 2006. Like
last year, these FY 2006 updates will be made available to all CMS
staff via the intranet.
* The GAO report correctly states that all institutional reimbursement
SPAS are approved by the Director of CMSO, thus eliminating the
decentralized approval process that had been in place at all 10
regional offices. In addition, we wish to point out that the CMSO
Director's office reviews descriptions of all non-institutional
reimbursement SPAS prior to approval by the regional office. This has
produced a more centralized review process for non-institutional SPA's
as well.
* GAO has recommended that CMS enhance the information we use in our
oversight of State claims by creating profiles that document each
State's activities to oversee its Medicaid program and prevent fraud
and abuse. This concept is part of the overall planning and could be
implemented as we bring the new Medicaid Integrity Program (MIP)
organization on line.
* In order to address previous barriers to access to Medicaid
Statistical Information System (MSIS) data, we have implemented a Web-
based statistical summary Datamart which will support review of broad
payment patterns and trends. This tool is readily available, and new
financial auditors received an introduction to the use of the Datamart
tools during their orientation.
* On building electronic State plan processes, we have implemented a
State plan tracking system to monitor SPAS. We have investigated
options for maintaining electronic State plan materials. Some regional
offices are pilot testing approaches. However, implementation of a
broad-based solution remains an intractable problem with questionable
cost-benefit in today's tight IT budgets.
[End of section]
Appendix IV: GAO Contact and Staff Acknowledgments:
GAO Contact:
Linda Calbom, (202) 512-8341 or calboml@gao.gov:
Acknowledgments:
Staff members who made key contributions to this report include
Kimberly Brooks (Assistant Director), Theresa Bowman, Lisa Crye, Abe
Dymond, Diane Morris, Michelle Smith, and Edward Tanaka.
[End of section]
Related GAO Products:
Medicaid Integrity: Implementation of New Program Provides
Opportunities for Federal Leadership to Combat Fraud, Waste, and Abuse.
GAO-06-578T. Washington, D.C.: March 28, 2006.
Medicaid Fraud and Abuse: CMS's Commitment to Helping States Safeguard
Program Dollars Is Limited. GAO-05-855T. Washington, D.C.: June 28,
2005.
Medicaid: States' Efforts to Maximize Federal Reimbursements Highlight
Need for Improved Federal Oversight. GAO-05-836T. Washington, D.C.:
June 28, 2005.
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.
Health Care Fraud and Abuse Control Program: Results of Review of
Annual Reports for Fiscal Years 2002 and 2003. GAO-05-134. Washington,
D.C.: April 29, 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.
Major Management Challenges and Program Risks: Department of Health and
Human Services. GAO-03-101. Washington, D.C.: January 2003.
Medicaid Financial Management: Better Oversight of State Claims for
Federal Reimbursement Needed. GAO-02-300. Washington, D.C.: February
28, 2002.
FOOTNOTES
[1] A list of related GAO products is provided at the end of this
report.
[2] GAO, Medicaid Financial Management: Better Oversight of State
Claims for Federal Reimbursement Needed, GAO-02-300 (Washington, D.C.:
Feb. 28, 2002).
[3] GAO, Major Management Challenges and Program Risks: Department of
Health and Human Services, GAO-03-101 (Washington, D.C.: January 2003).
[4] Congress enacted the HCFAC program as part of the Health Insurance
Portability and Accountability Act of 1996 to consolidate and
strengthen ongoing efforts to combat fraud and abuse in health care
programs, including the Medicare and Medicaid programs. Pub. L. No. 104-
191, tit. II, 110 Stat. 1936, 1991 (Aug. 21, 1996). The legislation
required the establishment of the national HCFAC program and it
established the HCFAC account within the Medicare Federal Hospital
Insurance Trust Fund, which is funded by appropriations out of the
Trust Fund.
[5] As of April 25, 2006, 10 funding specialists were assigned to the
central office and 80 were assigned to the regional offices and
deployed to the states. There were 10 vacant positions in the regional
offices.
[6] We have other ongoing work related to CMS's review process of
proposed state plan amendments and plan to report our results later
this year.
[7] Institutional reimbursement state plan amendments describe how
states will reimburse institutions, mainly hospitals and nursing homes,
for services they provided to Medicaid-eligible individuals.
Noninstitutional reimbursement state plan amendments cover payments to
providers of services, mainly physicians.
[8] Noninstitutional reimbursement amendments are still approved by
regional offices. According to CMS officials, the number of
noninstitutional reimbursement amendments is quite voluminous compared
to institutional-related amendments, but the institutional amendments
involve much larger reimbursement amounts.
[9] Kaiser Commission on Medicaid and the Uninsured, Medicaid's Federal-
State Partnership: Alternatives for Improving Financial Integrity
(February 2004), p. 20.
[10] Pub. L. No. 107-300, 116 Stat. 2350 (Nov. 26, 2002).
[11] For additional information on the PERM project, see GAO, Improper
Payments: Federal and State Coordination Needed to Report National
Improper Payment Estimates on Federal Programs, GAO-06-347 (Washington,
D.C.: Apr. 14, 2006).
[12] Targeted case management services are services which assist an
individual in gaining access to needed medical, social, education, and
other services. Proposed changes are estimated to save $2.1 billion
over 10 years.
[13] CMS has been working with states to terminate certain funding and
payment practices. We have other ongoing worked related to CMS's
oversight of these payment arrangements and plan to report our results
later this year.
[14] According to a CMS official, its Medicaid staff resources
allocated to supporting or overseeing states' antifraud and abuse
operations was an estimated 6.1 FTEs--2.6 FTEs at headquarters and 3.5
FTEs in the regional offices.
[15] As we have reported in the past, CMS has only conducted about
eight state compliance reviews a year due to staffing and funding
constraints.
[16] Pub. L. No. 109-171, § 6034, 120 Stat. 3, 74-78 (2006).
[17] Pub. L. No. 103-62, 107 Stat. 285 (Aug. 3, 1993). See 5 U.S.C.
§306.
[18] 5 U.S.C. § 306.
[19] Kaiser, p. 11.
[20] Discretionary funds are appropriated from the Trust Fund to the
HCFAC account to cover HCFAC program costs in amounts the Secretary of
HHS and the Attorney General certify as necessary. 42 U.S.C. §
1395i(k)(3)(A)(i).
[21] GAO, Standards for Internal Control in the Federal Government,
GAO/AIMD-00-21.3.1 (Washington, D.C.: November 1999).
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