Medicaid
Ongoing Federal Oversight of Payments to Offset Uncompensated Hospital Care Costs Is Warranted Gao ID: GAO-10-69 November 20, 2009In addition to standard Medicaid payments, hospitals receive supplemental payments for uncompensated costs of care provided to uninsured and Medicaid patients. These supplemental payments are referred to as disproportionate share hospital (DSH) payments. Hospitals may also receive non-DSH supplemental payments. In fiscal year 2006, DSH payments totaled about $17 billion and non-DSH supplemental payments exceeded $6 billion. Hospitals' DSH payments are limited to their uncompensated care costs, that is, their costs for covered care less Medicaid and other payments. Concerns have been raised about the accuracy of DSH payment limits, particularly as states may estimate limits using data that are not audited or up to date. The Government Accountability Office (GAO) was asked to examine (1) how state DSH payments in 2006 compared to DSH payment limits, and (2) certain aspects of states' calculations of 2006 DSH payment limits. In selected states, GAO analyzed state Medicaid payment data and interviewed officials from the states and from the Centers for Medicare & Medicaid Services (CMS), the federal agency that oversees Medicaid.
In four states selected on the basis of their large supplemental payments, state-reported DSH payments varied widely as a percentage of the hospital-specific DSH payment limits that the states calculated. DSH payments to 682 hospitals in California, Michigan, New York, and Texas ranged from less than 1 percent to more than 169 percent of DSH payment limits. GAO identified a small number of hospitals in three states--California, New York, and Texas--that received DSH payments in excess of their hospital-specific DSH payment limits, and officials from these states reported that they had taken or plan to take actions to correct the excess payments. The four states paid government-operated hospitals a relatively high proportion of their estimated DSH payment limits, with state-operated psychiatric hospitals called institutions for mental diseases receiving the largest relative payments in three states. In examining the four states' calculations of 2006 DSH payment limits, GAO found that two of the four states' hospital-specific DSH limits for 2006 were not calculated appropriately; that is, the states did not take into account all Medicaid payments the hospitals received. Specifically, when estimating hospital uncompensated care costs for the purpose of calculating their 2006 DSH payment limits, for 91 hospitals in California and 88 hospitals in Texas the states did not, as required, take into account the non-DSH supplemental Medicaid payments the hospitals had received. In addition, in light of a series of reports from the Department of Health and Human Services' Office of Inspector General that found that a number of states had used data that did not accurately represent hospitals' costs, GAO examined whether the four states used updated data for calculating DSH payment limits, and had their state-calculated DSH payment limits or the data used to calculate them independently audited.GAO found that none of the four states (1) consistently updated 2006 hospital DSH payment limits and (2) subjected hospital DSH payment limits to an independent audit. However, California, Michigan, and New York had processes to update their DSH payment limits to reflect actual costs and used data from sources subject to an audit for some hospitals. Under a final rule that CMS issued in December 2008, during the course of GAO's review, all states will be required to use actual cost data for hospital-specific DSH payment limits and have their DSH payment limits independently audited. Although the 2008 final rule set a December 2009 deadline for states to report to CMS the results of their independent audits of 2005 and 2006 DSH payments, there will be a transition period before the agency will take any action on such reports. California's experience indicates that implementing the requirements of CMS's 2008 final rule could have a substantial effect on hospital-specific DSH payment limits in the future. In 2006, the state reduced DSH payment limits for 22 hospitals by over 49 percent after applying a methodology based on audited and updated data.
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Director: Team: Phone:GAO-10-69, Medicaid: Ongoing Federal Oversight of Payments to Offset Uncompensated Hospital Care Costs Is Warranted
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Report to the Ranking Member, Committee on Finance, U.S. Senate:
United States Government Accountability Office:
GAO:
November 2009:
Medicaid:
Ongoing Federal Oversight of Payments to Offset Uncompensated Hospital
Care Costs Is Warranted:
GAO-10-69:
GAO Highlights:
Highlights of GAO-10-69, a report to the Ranking Member, Committee on
Finance, U.S. Senate.
Why GAO Did This Study:
In addition to standard Medicaid payments, hospitals receive
supplemental payments for uncompensated costs of care provided to
uninsured and Medicaid patients. These supplemental payments are
referred to as disproportionate share hospital (DSH) payments.
Hospitals may also receive non-DSH supplemental payments. In fiscal
year 2006, DSH payments totaled about $17 billion and non-DSH
supplemental payments exceeded $6 billion. Hospitals‘ DSH payments are
limited to their uncompensated care costs, that is, their costs for
covered care less Medicaid and other payments. Concerns have been
raised about the accuracy of DSH payment limits, particularly as states
may estimate limits using data that are not audited or up to date. GAO
was asked to examine (1) how state DSH payments in 2006 compared to DSH
payment limits, and (2) certain aspects of states‘ calculations of 2006
DSH payment limits. In selected states, GAO analyzed state Medicaid
payment data and interviewed officials from the states and from the
Centers for Medicare & Medicaid Services (CMS), the federal agency that
oversees Medicaid.
What GAO Found:
In four states selected on the basis of their large supplemental
payments, state-reported DSH payments varied widely as a percentage of
the hospital-specific DSH payment limits that the states calculated.
DSH payments to 682 hospitals in California, Michigan, New York, and
Texas ranged from less than 1 percent to more than 169 percent of DSH
payment limits. GAO identified a small number of hospitals in three
states”California, New York, and Texas”that received DSH payments in
excess of their hospital-specific DSH payment limits, and officials
from these states reported that they had taken or plan to take actions
to correct the excess payments. The four states paid government-
operated hospitals a relatively high proportion of their estimated DSH
payment limits, with state-operated psychiatric hospitals called
institutions for mental diseases receiving the largest relative
payments in three states.
In examining the four states‘ calculations of 2006 DSH payment limits,
GAO found that two of the four states‘ hospital-specific DSH limits for
2006 were not calculated appropriately; that is, the states did not
take into account all Medicaid payments the hospitals received.
Specifically, when estimating hospital uncompensated care costs for the
purpose of calculating their 2006 DSH payment limits, for 91 hospitals
in California and 88 hospitals in Texas the states did not, as
required, take into account the non-DSH supplemental Medicaid payments
the hospitals had received. In addition, in light of a series of
reports from the Department of Health and Human Services‘ Office of
Inspector General that found that a number of states had used data that
did not accurately represent hospitals‘ costs, GAO examined whether the
four states used updated data for calculating DSH payment limits, and
had their state-calculated DSH payment limits or the data used to
calculate them independently audited. GAO found that none of the four
states (1) consistently updated 2006 hospital DSH payment limits and
(2) subjected hospital DSH payment limits to an independent audit.
However, California, Michigan, and New York had processes to update
their DSH payment limits to reflect actual costs and used data from
sources subject to an audit for some hospitals. Under a final rule that
CMS issued in December 2008, during the course of GAO‘s review, all
states will be required to use actual cost data for hospital-specific
DSH payment limits and have their DSH payment limits independently
audited. Although the 2008 final rule set a December 2009 deadline for
states to report to CMS the results of their independent audits of 2005
and 2006 DSH payments, there will be a transition period before the
agency will take any action on such reports. California‘s experience
indicates that implementing the requirements of CMS‘s 2008 final rule
could have a substantial effect on hospital-specific DSH payment limits
in the future. In 2006, the state reduced DSH payment limits for 22
hospitals by over 49 percent after applying a methodology based on
audited and updated data.
What GAO Recommends:
GAO recommends that CMS ensure that states account for all Medicaid
payments, including non-DSH supplemental payments, when calculating DSH
payment limits. CMS agreed with GAO‘s recommendation.
View [hyperlink, http://www.gao.gov/products/GAO-10-69] or key
components. For more information, contact Katherine Iritani at (202)
512-7114 or iritanik@gao.gov.
[End of section]
Contents:
Letter:
Background:
DSH Payments Varied Widely Relative to State-Calculated Hospital DSH
Payment Limits, with Relatively Higher Payments Made to Government-
Operated Hospitals:
Not All Reviewed States Accounted for Non-DSH Supplemental Payments,
Consistently Updated DSH Payment Limits, or Subjected DSH Payment
Limits to Independent Audits:
Conclusions:
Recommendations for Executive Action:
Agency and External Comments and Our Evaluation:
Appendix I: Objectives, Scope, and Methodology:
Appendix II: Issues Related to Disproportionate Share Hospital Payments
in Two States:
Appendix III: Comparison of Disproportionate Share Hospital Payments to
Payment Limits by Categories of Hospitals:
Appendix IV: Comments from the Department of Health & Human Services:
Appendix V: GAO Contact and Staff Acknowledgments:
Related GAO Products:
Tables:
Table 1: Examples of Congressional Actions to Control DSH Spending and
Improve Accountability of DSH Payments, 1990 through 2003:
Table 2: Number of Hospitals That Received a DSH Payment, Range of DSH
Payments as a Percentage of State-Calculated Hospital DSH Payment
Limits, and Range of DSH Payment Amounts by State, State Fiscal Year
2006:
Table 3: Comparison of Federal Share of DSH Payments to IMDs to IMD
Payment Limits for Federal Fiscal Year 2006, by State:
Table 4: Audit Status of the Sources of Data Used by States in
Calculating 2006 DSH Payment Limits, by State:
Table 5: Number of Hospitals and DSH Payments as a Percentage of State-
Calculated DSH Payment Limits by Operating Organization and State,
State Fiscal Year 2006:
Table 6: Number of Hospitals and DSH Payments as a Percentage of State-
Calculated DSH Payment Limits by Hospital Type and State, State Fiscal
Year 2006:
Table 7: DSH Payments, State-Calculated DSH Payment Limits, and DSH
Payments as a Percentage of Limits Grouped by State, Operating
Organization, and Type of Hospital, State Fiscal Year 2006:
Table 8: Hospitals' Share of Total Uncompensated Care Costs, Hospitals'
Share of Total DSH Payments, and Total DSH Payments by State, Operating
Organization, and Hospital Type, State Fiscal Year 2006:
Table 9: DSH Payments, Non-DSH Supplemental Payments, and Total
Supplemental Payments by State, Operating Organization, and Hospital
Type, State Fiscal Year 2006:
Figures:
Figure 1: Basic Components for Calculating Hospital DSH Payment Limits:
Figure 2: DSH Payments as a Percentage of State-Calculated DSH Payment
Limits, by State and Operating Organization, State Fiscal Year 2006:
Figure 3: DSH Payments as a Percentage of State-Calculated DSH Payment
Limits by State and Hospital Type, State Fiscal Year 2006:
Figure 4: Three States' Standard Medicaid and Medicaid DSH Payments to
Government-Operated IMDs as a Percentage of the Hospitals' Total
Operating Costs, State Fiscal Year 2006:
Abbreviations:
CMS: Centers for Medicare & Medicaid Services:
DSH: disproportionate share hospital:
FMAP: federal medical assistance percentage:
HHS: U.S. Department of Health & Human Services:
IMD: institution for mental diseases:
MMA: Medicare Prescription Drug, Improvement, and Modernization Act:
OIG: Office of Inspector General:
UPL: upper payment limit:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
November 20, 2009:
The Honorable Charles E. Grassley:
Ranking Member:
Committee on Finance:
United States Senate:
Dear Senator Grassley:
Medicaid, a program that finances health care for certain low-income
individuals, is a significant source of funding for hospitals, which
receive billions of dollars both in standard Medicaid payments related
to specific services for Medicaid patients and in Medicaid supplemental
payments.[Footnote 1] The federal government and the states share in
the cost of Medicaid, with the federal government matching at least 50
percent of state expenditures for Medicaid services and administration.
In 2003, we designated Medicaid as a high-risk program, in part because
of state financing arrangements in which states made large,
inappropriate supplemental payments to government providers.[Footnote
2] A large component of Medicaid supplemental payments is
disproportionate share hospital (DSH) payments, which are designed to
help offset hospitals' uncompensated costs for serving Medicaid and
uninsured low-income individuals. Many state Medicaid programs have
also established other supplemental payments, which are also funded in
part with federal dollars, to supplement standard Medicaid payments and
help offset the costs of care provided to individuals covered by
Medicaid. For example, over the years many states have used the
flexibility under Medicaid's upper payment limit (UPL) to make
supplemental payments to hospitals and other providers that were
separate from and in addition to standard Medicaid payments and DSH
supplemental payments. For purposes of this report, we refer to these
other Medicaid supplemental payments as non-DSH supplemental payments.
In May 2008, we reported that states made at least $23 billion in
Medicaid DSH and non-DSH supplemental payments during fiscal year 2006--
nearly three-quarters as DSH payments--but that the exact amount was
unknown because states did not report all their payments.[Footnote 3]
Congress has taken certain actions to help ensure the integrity of
Medicaid DSH payments. For example, in 1991, Congress limited overall
federal expenditures for DSH payments and established DSH allotments
for states, which are annual limits on federal matching funds available
for payments made by each state to qualifying hospitals.[Footnote 4] In
1993, Congress created a hospital DSH payment limit capping the amount
of DSH payments a state may pay to an individual hospital.[Footnote 5]
As a result, under federal law, a hospital's DSH payments may not
exceed a hospital's uncompensated care costs; that is, the costs
incurred in furnishing hospital services during the year to Medicaid
patients and the uninsured, net of Medicaid payments made to the
hospital and of payments made by uninsured patients for those
services.[Footnote 6]
In response to continuing concerns about the integrity of DSH payments,
Congress and the Centers for Medicare & Medicaid Services (CMS), the
agency within the Department of Health and Human Services (HHS) that
oversees the Medicaid program, took additional steps in the late 1990s
and early to mid-2000s to ensure the appropriateness of states' DSH
payments to hospitals.
* In 1997, Congress created a second type of DSH payment limit, which
restricted the total amount of DSH payments a state could make to
institutions for mental diseases (IMD) or other mental health
facilities as a group.[Footnote 7]
* In 2002, CMS clarified in a letter to state Medicaid directors
[Footnote 8] that states must account for non-DSH Medicaid supplemental
payments when estimating uncompensated care costs; that is, non-DSH
supplemental payments must be considered Medicaid payments for the
purpose of estimating uncompensated care costs and calculating the
associated hospital DSH payment limits.[Footnote 9]
* In 2003, Congress mandated improved accountability for DSH payments
under the Medicare Prescription Drug, Improvement, and Modernization
Act of 2003 (MMA), by providing that the Secretary of HHS require,
beginning in federal fiscal year 2004, states to submit annual,
independent certified audits of their DSH programs and annually report
information on their DSH programs. Required report information includes
the hospitals that received DSH payments, the amount of DSH payments
they received, and other information the Secretary determines is
necessary to ensure the appropriateness of states' DSH
payments.[Footnote 10] In 2005, CMS issued a proposed rule in response
to these DSH auditing and reporting requirements.[Footnote 11] As
discussed later in this report, CMS did not finalize this rule until
December 2008, during the course of this review.[Footnote 12]
Concerns about state DSH programs and CMS's oversight and
accountability for DSH and non-DSH supplemental payments have
continued. In 2006, HHS's Office of Inspector General (OIG) published a
summary of findings from prior reviews of 10 states' DSH payments. The
HHS OIG found that one state's DSH payment limits and associated DSH
payments were not accurate because the state did not account for non-
DSH supplemental payments. They also found the states that used
historical cost and payment data to estimate hospitals' uncompensated
care costs would have significantly lowered their DSH payments and
payment limits if they had updated the limits with actual cost data
once they became available. In our May 2008 report, we reported
additional concerns about CMS's ability to oversee state DSH programs
given the lack of information it collected on states' Medicaid
supplemental payments. We found that CMS did not require states to
report hospital-specific data, such as data on the DSH and non-DSH
supplemental payments made to each hospital. Such data are needed to
ensure that (1) states account for non-DSH supplemental payments when
calculating hospital uncompensated care costs and associated DSH
payment limits and (2) DSH payments to individual hospitals do not
exceed these limits.[Footnote 13]
This report responds to your request for information on how states' DSH
payments to individual hospitals and categories of hospitals compare to
hospital DSH payment limits and on state methods for estimating
uncompensated care costs.[Footnote 14] For selected states, this report
examines the following.
1. How 2006 DSH payments to individual hospitals and categories of
hospitals compare to 2006 hospital DSH payment limits.
2. Certain aspects of states' methods for estimating uncompensated care
costs for the purpose of calculating hospitals' 2006 DSH payment
limits.
To determine how DSH payments to hospitals and categories of hospitals
compared to hospital DSH payment limits in selected states, we obtained
state-reported DSH payments for state and federal fiscal year 2006 and
state-calculated DSH payment limits for fiscal year 2006 for all
hospitals,[Footnote 15] including IMDs, that received a DSH payment.
[Footnote 16] We obtained this information for four selected states--
California, Michigan, New York, and Texas--which were included in our
May 2008 report on Medicaid supplemental payments. These states
represented those that reported making the largest total amount of DSH
and non-DSH supplemental payments in 2005. Although Massachusetts was
included in our May 2008 report, we excluded the state from this review
because it did not make DSH payments in 2006.[Footnote 17] For the four
states selected for this review, we examined DSH payments as a
percentage of hospital DSH payment limits and determined whether these
payments exceeded the limits.[Footnote 18] We also obtained information
from a CMS database that allowed us to categorize hospitals by
operating organization (government or private) and hospital type
(children's, general, or IMD) and performed additional comparisons
between payments and hospital-specific limits across different hospital
categories.[Footnote 19] Because of past concerns about DSH payments to
state-operated IMDs, we identified total DSH payments made to IMDs in
each state and compared the federal share of these payments to each
state's IMD DSH payment limit for federal fiscal year 2006 as published
in the Federal Register.[Footnote 20] We also compared Medicaid and DSH
payments to these hospitals to state data on each hospital's total
operating costs. We reviewed relevant Medicaid laws, regulations, and
policy documents and discussed with CMS officials the federal
requirements on DSH payment limits for individual hospitals and for
IMDs as a group.
We examined two aspects of selected states' methods for calculating DSH
payment limits: (1) the extent to which states accounted for non-DSH
supplemental payments, as required, when estimating uncompensated care
costs for the purpose of calculating 2006 hospital DSH payment limits,
and (2) the extent to which states updated hospital DSH payment limits
with actual cost data for 2006 when they became available and had their
state-calculated hospital DSH payment limits and the data used to
calculate them independently audited. To assess these aspects of state
hospital DSH payment limit calculations, we reviewed documentation of
state methods in state Medicaid plans and state policy guidance
provided by state officials. We reviewed relevant federal Medicaid
policy documents and discussed related CMS policies with CMS officials.
We also obtained and reviewed the data and calculations states used to
estimate uncompensated care costs for state fiscal year 2006. We
discussed state methods and data with state officials and reviewed
documentation needed to determine the extent to which states updated
2006 DSH payment limits with 2006 cost and payment data, when they
became available, and had their payment limits independently audited.
In addition, we determined the extent to which the data sources states
used to calculate DSH payment limits were subject to independent audit,
for example by a public accounting firm or a state auditing agency.
Beyond these two aspects of state methods for estimating hospital
uncompensated care costs, we did not examine the states' methods for
estimating uncompensated care costs. In addition, we did not
independently test data used by states to estimate uncompensated care
costs for the purpose of calculating DSH payment limits. That is, we
did not audit states' data sources or determine the extent to which
they accurately captured costs and payments related to inpatient and
outpatient services to Medicaid enrollees or low-income uninsured
individuals. We requested that the states review the data they reported
to us and confirm that they were complete and accurate. We also checked
for missing data and inconsistencies in the data. We determined that
the state data on 2006 DSH payments and 2006 state-calculated hospital
DSH payment limits were sufficiently reliable for the purposes of
comparing state-reported DSH payments to state-calculated DSH payment
limits. The information we obtained from the four states cannot be
generalized to all states.
We conducted this performance audit from June 2008 through October 2009
in accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe that
the evidence obtained provides a reasonable basis for our findings and
conclusions based on our audit objectives.
Background:
Title XIX of the Social Security Act established Medicaid as a federal-
state partnership that finances health care for certain low-income
individuals, including children, families, the aged, and the
disabled.[Footnote 21] In 2008, Medicaid provided health coverage for
over 62 million individuals. Within broad federal requirements, each
state operates and administers its Medicaid program in accordance with
a CMS-approved state Medicaid plan. These plans detail the populations
served, the services covered (such as physician services, nursing home
care, and inpatient hospital care), and the methods used to calculate
payments to providers. Qualified health care providers are paid for
rendering covered services to Medicaid beneficiaries.[Footnote 22] The
federal government matches state Medicaid expenditures for services
according to a state's federal medical assistance percentage (FMAP).
The FMAP is based on a statutory formula under which the federal share
of a state's Medicaid expenditures for services may range from 50 to 83
percent.[Footnote 23]
All state Medicaid programs make supplemental payments--that is,
payments that are separate from and in addition to those made at a
state's standard payment rates--to certain providers. For the purposes
of this report, we classified supplemental payments into two general
categories: DSH and non-DSH.
* DSH payments. Under federal law, states are required to make DSH
payments to hospitals that serve a disproportionate share of low-income
individuals.[Footnote 24] Congress established DSH payments to
hospitals in 1981 when changes were made to the methods states could
use to determine Medicaid hospital payment rates, in response to
concerns about the effects those changes could have on hospitals
serving large numbers of Medicaid and low-income individuals.[Footnote
25]
* Non-DSH payments. Most states also make non-DSH supplemental payments
to providers, though unlike DSH payments, these payments are not
required. In reviewing the purposes of the non-DSH supplemental payment
programs in five states, we reported in May 2008 that in some cases,
the states' reported purposes for their non-DSH programs were similar
to those of DSH programs in that they provided supplemental payments to
hospitals serving Medicaid, indigent, or uninsured individuals, or a
combination of these groups. Non-DSH supplemental payments include
those made under Medicaid's UPL.[Footnote 26] Federal Medicaid
regulations define the UPL as a ceiling on federal matching of Medicaid
expenditures.[Footnote 27] This ceiling is based on what Medicare--the
federal health care program for seniors aged 65 and older and some
disabled individuals--would pay for comparable services. States'
standard payment rates for providers are, in practice, often less than
the UPL, and states have established programs to make non-DSH
supplemental payments to providers that are above standard Medicaid
payments but below the UPL.
Much attention has been focused on Medicaid supplemental payments, in
part because of their growth and size and also because of concerns that
we and others have raised. From 1994 through 2007, we issued reports on
various inappropriate payment arrangements whereby states received
federal matching funds by making large, often temporary, supplemental
payments to certain government providers.[Footnote 28] In May 2008, we
found that CMS's Medicaid expenditure reports showed that between
October 2005 and September 2006 states made approximately $17 billion
and $6 billion in DSH and non-DSH supplemental payments, respectively,
but states did not report all non-DSH payments.
Under federal Medicaid law, states must restrict DSH payments made to
an individual hospital to a hospital's annual uncompensated care costs
for hospital services provided to Medicaid and uninsured patients.
[Footnote 29] Specifically, uncompensated care costs are defined as
those incurred in furnishing inpatient and outpatient services by the
hospital to individuals who either are eligible for Medicaid or have no
health insurance (or other source of third-party coverage), net of any
Medicaid payments and payments by uninsured patients. Hospitals collect
cost information by inpatient, outpatient, and other types of services
as well as information on the amount of services provided to Medicaid,
uninsured, and other patient populations. States then combine the cost
information with information on the amount of services provided to
Medicaid and uninsured patients to estimate the costs related to
providing hospital services to these patients. For example, when
estimating inpatient costs for Medicaid patients, a state may multiply
the average cost of a day of inpatient care by the number of days of
inpatient care provided to Medicaid patients. Generally, to determine
the uncompensated care costs for Medicaid patients, states subtract
Medicaid payments from the hospital's estimated Medicaid costs.
[Footnote 30] Through this process, states calculate hospital DSH
payment limits. The methods and data sources used to determine
uncompensated care costs for the purpose of calculating DSH payment
limits may vary by state. Figure 1 illustrates the basic components of
the hospital DSH payment limits as identified by CMS.
Figure 1: Basic Components for Calculating Hospital DSH Payment Limits:
[Refer to PDF for image: illustration]
Medicaid costs minus Medicaid revenues equals Estimated uncompensated
care costs for Medicaid patients.
Uninsured costs minus Uninsured revenues equals Estimated uncompensated
care costs for uninsured patients.
Estimated uncompensated care costs for Medicaid patients[A] plus
Estimated uncompensated care costs for uninsured patients equals
Hospital DSH payment limit.
Medicaid costs include:
* Inpatient and outpatient fee-for-service (FFS) Medicaid costs;
* Inpatient and outpatient Medicaid managed care costs.
Medicaid revenues include:
* Inpatient and outpatient Medicaid FFS payments;
* Payments from Medicaid managed care organizations;
* Medicaid non-DSH supplemental payments;
* Other payments made on behalf of Medicaid-eligible patients.
Uninsured costs include:
* Inpatient and outpatient costs for hospital services provided to
patients with no source of third-party coverage.
Uninsured revenues include:
* Revenues from or on behalf of patients with no source of third-party
coverage.
Source: GAO analysis of CMS information.
[A] Hospital-specific DSH limit calculations must account for
situations where Medicaid revenues exceed Medicaid costs. When
calculating a hospital's DSH payment limit, a state must account for
such a Medicaid surplus by subtracting it from the hospital's
uncompensated care costs for uninsured patients.
[End of figure]
Since the early 1990s, a variety of legislative actions have been taken
at the federal level to control federal spending and improve
accountability of DSH payments, including the 1993 hospital DSH payment
limits and the 1997 payment limit for IMDs as a group (see table 1).
Within these requirements states have broad flexibility in how they
distribute their DSH funding among DSH-eligible hospitals.
Table 1: Examples of Congressional Actions to Control DSH Spending and
Improve Accountability of DSH Payments, 1990 through 2003:
Congressional action: In 1991, Congress limited overall federal
expenditures for DSH and established allotments limiting federal DSH
funds to individual states[A];
Condition: Rapid growth in DSH expenditures, from just under $1 billion
in 1990 to almost $17 billion in 1992.
Congressional action: In 1993, Congress set a limit on DSH payments to
individual hospitals equivalent to a hospital's uncompensated care
costs[B];
Condition: Inappropriate payment arrangements through which some states
made unusually large DSH payments to government hospitals, which then
returned the bulk of the payments to the state.
Congressional action: In 1997, Congress limited the total amount of DSH
payments states could make to IMDs or other mental health
facilities[C];
Condition: A large share of DSH payments were paid to state-operated
psychiatric hospitals, where they were used to pay for services not
covered by Medicaid or were returned to the state treasuries.
Congressional action: In 1997, Congress required that states provide an
annual report to the Secretary of HHS describing DSH payments made to
each hospital[D]; In 2003, Congress provided that the Secretary was to
require states to submit annual DSH reports and independent certified
audits of DSH payments[E];
Condition: Lack of information on state DSH programs, including the
hospitals receiving DSH payments and the amount of DSH payments
received.
Source: GAO.
[A] Medicaid Voluntary Contribution and Provider-Specific Tax
Amendments of 1991, Pub. L. No. 102-234, § 3, 105 Stat. 1793, 1799-1803
(1991) (codified, as amended, at 42 U.S.C. § 1396r-4(f)). Congress
capped total annual federal DSH payments at 12 percent of total
Medicaid expenditures, excluding administrative costs. Out of this
amount, each state was to receive its federal allotment based on a
formula, which generally was capped at 12 percent of the state's total
Medicaid expenditures for the federal fiscal year.
[B] Omnibus Budget Reconciliation Act of 1993, Pub. L. No. 103-66, §
13621, 107 Stat. 312, 629-632 (1993) (codified, as amended, at 42
U.S.C. § 1396r-4(g)).
[C] Balanced Budget Act of 1997, Pub. L. No. 105-33, § 4721, 111 Stat.
251, 511-514 (1997) (codified, as amended, at 42 U.S.C. § 1396r-4(h)).
[D] Balanced Budget Act of 1997, Pub. L. No. 105-33, § 4721(c) 111
Stat. 251, 514 (1997) (codified, as amended, at 42 U.S.C. § 1396r-
4(a)(2)).
[E] Medicare Prescription Drug, Improvement, and Modernization Act of
2003, Pub. L. No. 108-173, § 1001(d), 117 Stat. 2066, 2430-2431 (2003)
(codified, as amended, at 42 U.S.C. § 1395r-4(j)). In 2005, CMS issued
a proposed rule to implement the statutory auditing and reporting
requirements and a final rule implementing these requirements was
published in December 2008, during the course of this review.
[End of table]
Despite these actions, concerns have continued regarding state DSH
programs, particularly about the accuracy of states' calculation of
hospital-specific DSH payment limits and the extent to which CMS
ensures federal requirements are followed. During the early 2000s, the
HHS OIG reported significant overpayments to hospitals resulting from
states not using accurate methods or data for estimating hospitals'
uncompensated care costs for the purpose of calculating DSH payment
limits. Specifically, in a series of reports issued between 2001 and
2004, the OIG found that (1) one state did not account for non-DSH
supplemental payments when calculating DSH payment limits, and (2) some
states calculated DSH payment limits using historical data that were
not updated, even when cost data from the relevant payment year were
available.[Footnote 31] The OIG found that if states had updated
hospital DSH payment limits with cost and payment data for the year the
payments were made, the states' hospital DSH payment limits and DSH
payments would have been significantly lower.[Footnote 32] The OIG
stated that the lack of specific federal requirements contributed to
excess DSH payments, and recommended that CMS issue regulations
requiring states ensure that DSH payments are updated to reflect actual
incurred costs. In response to the OIG report, CMS indicated that when
it finalized its 2005 proposed DSH rule, which addressed the auditing
and reporting requirements in the MMA, it would require states to
ensure that DSH payment limits are updated to reflect cost and payment
data for the payment year. In addition, our May 2008 report found that
five states making large supplemental payments had multiple
supplemental payment programs from which they made payments and that
payments were concentrated on a small proportion of providers. We also
found that some providers received substantial payments from more than
one program, and that CMS was not collecting the facility-specific
information needed to ensure that states' payments were not exceeding
the hospital-specific DSH limits. We recommended that CMS expedite
issuance of a final rule in response to the auditing and reporting
requirements in the MMA. The agency issued the final rule in December
2008, during the course of this review.
DSH Payments Varied Widely Relative to State-Calculated Hospital DSH
Payment Limits, with Relatively Higher Payments Made to Government-
Operated Hospitals:
In the four states we reviewed, state DSH payments varied widely
relative to the state-calculated DSH payment limits. The four states
paid government-operated hospitals a relatively high proportion of
their state-calculated DSH limits. State-operated IMDs received the
largest relative payments in three states.
Four States' 2006 DSH Payments Ranged Widely as a Percentage of State-
Calculated Hospital DSH Payment Limits:
When we compared 2006 DSH payments to the 2006 hospital DSH payment
limits calculated by the four selected states--California, Michigan,
New York, and Texas--we found that, for the 682 hospitals that received
DSH payments in these states, DSH payments varied widely relative to
state-calculated DSH payment limits. Hospitals' DSH payments ranged
from less than 1 percent to more than 169 percent of state-calculated
DSH payment limits. Three states--California, New York, and Texas--made
DSH payments to a small number of hospitals that exceeded the 2006 DSH
payment limits.[Footnote 33] Specifically, 5 of 147 hospitals in
California, 1 of 226 hospitals in New York, and 9 of 182 hospitals in
Texas received payments in 2006 that exceeded their state-calculated
DSH payment limits. However, officials from these states reported that
they had taken or planned to take the following actions to correct the
excess payments:
* Officials from California and New York reported that, as of September
2009, they had not completed the reconciliation processes they have in
place for certain DSH hospitals, including those that we identified as
receiving payments exceeding limits.[Footnote 34] They indicated that
once their 2006 DSH payment limits were finalized as part of this
process, DSH payment limits would be based on actual incurred costs for
2006, and that they would reduce DSH payments as necessary to correct
for excess payments.
* Texas officials reported that they had identified and addressed the
excess payments we identified. They provided documentation indicating
that the state had reduced 2007 DSH payments to eight of the nine
hospitals overpaid in state fiscal year 2006 by an amount equal to the
total excess payments made to the hospitals in 2006.[Footnote 35]
The dollar amount of 2006 DSH payments to individual hospitals also
varied widely, ranging from 1 cent to more than $395 million. (See
table 2.) California reported both the lowest and the highest DSH
payment amounts: the state made a total of only $160 in DSH payments to
96 private hospitals and paid $2 billion in DSH payments to 51
government hospitals.[Footnote 36] Before state fiscal year 2006,
private hospitals in California received a substantial amount in DSH
payments, but beginning in state fiscal year 2006, the state converted
these payments to non-DSH supplemental payments, referred to as "DSH
replacement" payments.[Footnote 37]
Table 2: Number of Hospitals That Received a DSH Payment, Range of DSH
Payments as a Percentage of State-Calculated Hospital DSH Payment
Limits, and Range of DSH Payment Amounts by State, State Fiscal Year
2006:
State: California[A];
Number of hospitals: 147;
DSH payments as a percentage of state-calculated DSH limits: Low:
