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Management Issue 4: Medicaid Administration

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Management Challenge:

The Federal share of Medicaid outlays in FY 2006 exceeded $180 billion. The Federal share, known as the Federal Medicaid Assistance Percentage, is determined annually by a statutory formula based on State average per capita income and generally ranges from 50 to 83 percent in the various State programs.

State Financing Arrangements

Over the past 6 years, OIG’s work has identified significant problems in State Medicaid financing arrangements involving the use of intergovernmental transfers (IGT). Specifically, OIG found that six States inappropriately inflated the Federal share of Medicaid by more than $3 billion by requiring providers operated by units of government, such as county-owned nursing homes, to return Medicaid payments to State governments through IGTs. Once the payments are returned, funds cannot be tracked, and they may be used by the States for purposes unrelated to Medicaid. This practice shifts the cost of Medicaid to the Federal Government, contrary to Federal and State cost sharing principles. Although this practice can occur with any type of Medicaid payment to facilities operated by units of government, OIG identified serious problems in Medicaid supplemental payments to public hospitals and long term care facilities available under the upper payment limit (UPL) rules.

Federal Overpayments

In addition, OIG has identified significant Federal overpayments involving school-based health services, disproportionate share hospital (DSH) payments, and targeted case management services. For example, OIG has consistently found that schools have not adequately supported the claims submitted to States for school-based health services. Particularly in New York, OIG identified significant overpayments involving speech therapy and transportation claims. From 2004 through 2006, OIG issued six reports questioning unallowable Federal funds to the New York Medicaid program totaling more than $1 billion. Major findings included payments for services that were not sufficiently documented, services not authorized, and services rendered by providers who did not have required qualifications. In another example, in a 2006 roll-up report, OIG found that in 9 of the 10 DSH programs reviewed, States made DSH payments that exceeded the hospital specific limits by approximately $1.6 billion ($902 million Federal share). In another 2006 report, OIG also identified a State Medicaid agency that claimed Federal funding totaling $86 million for unallowable targeted case management services. Contrary to Federal regulations, the targeted case management claims included social workers’ salary costs related to direct social services, such as child protection and welfare services.

OIG is also working closely with DOJ to investigate and pursue False Claims Act cases concerning fraudulent billing of targeted case management and school-based health services. In a case settled in July 2007, the Federal Government entered into an agreement with Maximus, Inc., for $42.6 million to settle allegations that Maximus caused the District of Columbia to submit false claims for targeted case management services that were never provided. As part of the settlement, Maximus also entered into a Corporate Integrity Agreement (CIA) with OIG that contained several unprecedented provisions. Under the CIA, OIG will review Maximus’s contracts and require dissemination of the review findings to Maximus’s clients.

As a result of another investigation by OIG and DOJ, the Medford School District in Oregon agreed to pay the United States $830,000 to settle claims that, from January 1998 until December 2001, the school district improperly billed the Medicaid program for school based health services and transportation expenses that were not properly documented, were for services that did not qualify for school-based health services Medicaid reimbursement, or were for services that students did not actually receive.

Assessment of Progress in Addressing the Challenge:

To curb abuses in State Medicaid financing arrangements, CMS promulgated final regulations (effective March 13 and November 5, 2001, and May 14, 2002) that modified upper payment limit (UPL) regulations pursuant to the Benefits Improvement and Protection Act of 2000. The rules created three aggregate UPLs: one each for private, State, and non-State government-operated facilities. The new regulations will be gradually phased in and become fully effective on October 1, 2008. CMS projects that these revisions will save a total of $79.3 billion in Federal Medicaid funds over the 10-year period from 2002-2011. However, when fully implemented, these regulatory changes will limit, but not eliminate, the risk of Medicaid monies being returned by public providers to the State and then used for non-Medicaid purposes because the regulations do not require the provider to keep and use the enhanced funds to provide medical services to Medicaid beneficiaries.

CMS also has been working with States to stop the inappropriate use of IGTs. CMS should continue to work to ensure that all States eliminate the use of inappropriate IGTs involving supplemental payments made pursuant to UPL regulations, or any other type of Medicaid payment to a provider operated by a unit of government.

In addition, on May 29, 2007, CMS placed a Final Rule with Comment Period, CMS-2258-FC (Cost Limit for Providers Operated by Units of Government and Provisions to Ensure the Integrity of Federal-State Financial Partnership) on display at the Federal Register (May 29, 2007; 72 Fed.Reg. 29748) that would modify Medicaid reimbursement. Consistent with OIG recommendations, this regulation codifies existing statutory authority that health care providers retain the total Medicaid payments received. This change, in addition to the UPL regulatory changes, will help ensure that Medicaid funds are used to provide necessary services to Medicaid beneficiaries. However, Public Law 110-28 prohibits implementation of the regulation for 1 year following the date of enactment, May 25, 2007.

CMS also is developing regulations to clarify policies regarding reimbursement for school-based transportation services and administrative costs, DSH payments, and targeted case management services.



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