Office of Budget

Plan for Improvement in the GAO High Risk Area of Medicaid

July 2008
High Risk Area: Medicaid

In its 2007 report on High Risk areas, the GAO used a typology of risk for the Medicaid program that focused on several areas. The GAO focused on:

• Financing methods that leverage federal funds inappropriately;
• Waiver programs that inappropriately increase the federal government�s liability; and
• Inappropriate billing by providers serving program beneficiaries.

In response to the GAO report, we planned the following specific activities.

Focus Area: Financing Methods that Leverage Federal Funds Inappropriately

Background

Description of Problem: Since August 2003, CMS has been requesting information from States regarding detail on how States are financing their share of the Medicaid program costs under the Medicaid reimbursement State plan amendment (SPA) review process. Through this review process, CMS noticed that the enhanced payments some States make to health care providers are not financed in a manner consistent with the Federal statute. Specifically, CMS discovered that several States made claims for Federal matching funds associated with certain Medicaid payments, which the health care providers were not ultimately allowed to retain. Instead, through the guise of the intergovernmental transfer process, State and/or local governments required the health care provider to forgo and/or return certain Medicaid payments to the State, which effectively shifted the cost of the Medicaid program on the Federal taxpayer. CMS has worked with 30 States to terminate such practices. While GAO acknowledges that CMS has made improvements in this area, GAO believes that further efforts should be undertaken to strengthen the fiscal accountability of the Medicaid program. GAO states that CMS has not developed a financial management strategic plan for Medicaid, incorporated the use of key Medicaid data systems into its oversight of states� claims, or clarified and communicated its policies in several high risk areas, including supplemental payment arrangements.

Corrective Action Plan: A number of GAO reports have focused on this issue. In our discussion we reference these in terms of open and closed recommendations.

Open Recommendations

1. Issue guidance to clarify allowable financing arrangements, consistent with Medicaid payment principles (GAO-07-214).

   This recommendation has been met, but delayed due to Congressional moratorium.

   Supporting information: Many States have argued that guidance with respect to State Medicaid financing practices was inconsistent with Federal Medicaid statutory authority and reflected a change in approach or policy for overseeing States� Medicaid financing arrangements. While the CMS initiative is consistent with Federal Medicaid statutory provisions, on May 25, 2007, CMS placed final rule CMS-2258-FC (Cost Limit for Providers Operated by Units of Government and Providers to Ensure the Integrity of Federal-State Partnership) on display at the Federal Register, available at 72 Fed. Reg. 29748 (May 29, 2007) to clarify the appropriate Medicaid State financing sources, including the use of intergovernmental transfers and certified public expenditures. The final rule also reaffirms the retention of payment requirements, consistent with the CMS oversight initiative. Public Law 110-28, enacted on May 25, 2007, instructed CMS to take no action to implement this final regulation for one year. On May 23, 2008, the U.S. District Court for the District of Columbia ruled, in Alameda County Medical Center v. Leavitt, that the Department of Health and Human Services had violated this Congressional moratorium. The decision did not address the underlying validity of the reforms contained in the final rule, but did remand the final rule back to the Department. Finally, on June 30, 2008, the President signed the Supplemental Appropriations Act, 2008, which further prevents the CMS from finalizing and/or implementing the regulation until after March 31, 2009.

2. Provide each State CMS reviews under its initiative with specific and written explanations regarding agency determinations on the allowability of various arrangements for financing the non-Federal share of Medicaid payments and make determinations available to all States and interested parties (GAO-07-214).

   This recommendation has been met.

   Supporting information: Throughout CMS� initiative to closely examine State Medicaid financing practices, States have complained about consistent and transparent treatment. Under CMS� oversight initiative, all States were treated in a consistent manner with respect to the review process and the policy application. The GAO concludes in this report that the treatment of States was consistent with Medicaid payment principles. The affected States have subsequently moved to alternative methods of financing or have terminated certain payment arrangements altogether. In an effort to expedite the State Plan Amendment (SPA) review process, CMS often held conference calls with States to understand the State�s financing and to discuss issues. It is not standard practice for CMS to document each communication with a State during the SPA review process.

   CMS has properly documented the results of such communications through the revisions made by an affected State to its Medicaid State plan and to the related financing in question. This is further documented through CMS approval of such SPA, which included all relevant statutory sections under which the Medicaid SPA review was conducted. The SPA review process does not lend itself to CMS providing detailed written guidance to States nor does Federal law or regulations require such detailed explanation.

   Under future financing initiatives, CMS will make determinations on permissible financing arrangements available to States and interested parties.

3. Create permanent funding specialist positions (GAO-06-705).

   This recommendation has not been closed because CMS has no authority to implement such recommendation.

   Supporting information: The funding specialist positions are presently funded through Health Care Fraud and Abuse Control (HCFAC) dollars. The funding level for this activity is negotiated annually. CMS has repeatedly requested that the funding for the funding specialist positions be made permanent. To date, such requests have been rejected.

   These positions have been critical to CMS augmenting its financial management review activities nationally and are instrumental to providing up-front technical assistance to States. As a result, CMS can communicate in a proactive manner and address Medicaid financing issues before they develop into potentially adversarial deferral or disallowance actions.

4. Determine what systems projects are needed to further enhance data analysis capabilities (GAO-06-705).

   This recommendation has not been closed.

   Supporting information: It has been recommended by GAO that CMS enhance the information used in the oversight of State Medicaid 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 implementation of the new Medicaid Integrity Program. In addition, to address previous barriers to accessing 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 management staff received an introduction to the use of the Datamart tools during their orientation. Finally, OIG is conducting a review to determine if MSIS is sufficiently current, accurate and comprehensive for detecting Medicaid fraud, waste and abuse.

Closed Recommendations

1. Routinely request that states disclose their use of contingency-fee consultants when submitting state Medicaid documents, such as state plan amendment proposals, cost allocation proposals, and expenditure reports, and, in the event that states do not voluntarily provide this information seek legislative authority to require disclosure (GAO-05-748).

   This recommendation has been met.

   Supporting information: CMS does not have the authority to require States to disclose their use of contingency-fee consultants (CFCs) in their submissions of State plan amendments (SPAs), cost allocation plans (CAPs), and expenditure reports. However, CMS does have explicit authority and the mandate under statute and/or regulation to review State�s claims as contained or relate to their SPA, CAP, and expenditure report submittals. In those review processes, we can and do request any documentation deemed necessary in order for us to determine whether such claims are consistent with all relevant Federal requirements. We recognize that CFCs are a potential risk factor and are committed to fully assess the basis for claims in accordance with all relevant requirements and authorities. Legislation was sought through the Deficit Reduction Action of 2005 to specifically address this issue, but the legislation was not enacted.

   CMS is examining alternative methods of review and will work to develop a method to be used on a regular basis to determine the use of contingency fee contracts in order to help guide future focused financial management reviews.

2. Enhance CMS review of state Medicaid documents for which states have used a contingency-fee consultant and take appropriate action to prevent or recover federal reimbursements associated with unallowable claims (GAO-05-748).

   This recommendation has been met.

   Supporting information: CMS has continually enhanced its review of all supporting documentation related to Medicaid reimbursement, including those resulting from contingency-fee consultant contracts that are proactively brought to the attention and made available to CMS, and has taken the necessary steps to recover inappropriate funding or correct any problems that have been identified.

3. Require that states identify � in Medicaid-related documents such as state plan amendments and expenditure reports � arrangements or claims for payments that involve payments to units of state or local government, such as state and local government owned or operated facilities (GAO-05-748).

   This recommendation has been met.

   Supporting information: CMS has undertaken very specific oversight activities that address this recommendation. Since August 2003, CMS has been requesting information from States regarding detail on how States are financing their share of the Medicaid program costs under the Medicaid reimbursement SPA review process. The standard funding questions and examination related to State financing of the Medicaid program are applied consistently and equally to all States under the SPA review process. New SPA proposals will not be approved until CMS has determined that the State is securing appropriate non-Federal funding to finance its share of its Medicaid program or has agreed to terminate financing practices that do not appear consistent with the statutory federal-state financial partnership.

4. Enhance CMS review of states� Medicaid documents, such as state plan amendments, cost allocation plans, and expenditure reports, specifically reviewing payments states make to units of government, including the methodology behind payment rates to government units and the basis for any related claims, and take appropriate action to prevent or recover unallowable claims (GAO-05-748).

   This recommendation has been met.

   Supporting information: See response to closed recommendation #3. In addition, where problems are identified CMS has taken the appropriate action to recover inappropriate funding or correct any problems that have been identified.

5. Establish or clarify and then communicate CMS policies on TCM, supplemental payment arrangements, rehabilitation services, and Medicaid administrative costs and ensure that the policies are applied consistently across all states (GAO-05-748).

   This recommendation has been met but in some cases delayed due to Congressional moratoria.

   Supporting information: With respect to supplemental payment arrangements, in May 2007 CMS placed a final regulation (CMS-2258-FC) on display clarifying Medicaid State financing requirements for all Medicaid payments, including supplemental payments. However, legislation was enacted instructing CMS to take no action to implement this final regulation for one year. As mentioned earlier, a U.S. District Court ruling in May 2008 found that CMS had violated the Congressional moratorium and remanded the final rule back to the Agency. Section 6052 of the Deficit Reduction Action of 2005 clarifies the law with respect to case management and targeted case management and requires CMS issue regulations. On December 4, 2007, CMS issued an interim final regulation (CMS-2237-IFC) for case management services. The effective date for this regulation is March 3, 2008. On August 13, 2007, CMS issued a proposed rule (CMS-2261-P) clarifying Medicaid coverage of rehabilitation services. However, Congressional action prevents CMS from issuing a final regulation before June 30, 2008. Finally, on December 28, 2007, CMS issued a final regulation (CMS-2287-F) to eliminate Federal Medicaid reimbursement for administrative activities performed by school employees or contractors and for transportation of students from home to school and back. Due to Congressional action, CMS cannot implement these provisions prior to June 30, 2008.

   On June 30, 2008, the President signed the Supplemental Appropriations Act, 2008, which prevents CMS from finalizing and/or implementing any of the above mentioned regulations until after March 31, 2009.

   CMS will explore clarifying claiming of other Medicaid administrative activities through regulation or other written guidance.

6. Ensure that states submit cost allocation plans as required and establish a procedure for their prompt review (GAO-05-748).

   This recommendation has been met.

   Supporting information: The authority, requirements, and conditions under which States must submit cost allocation plans (CAP) are explicitly contained in statute and regulations. The Code of Federal Regulations at 45 CFR subpart E, containing the regulatory provisions for CAPs, requires States to submit a CAP which describes the procedures for allocating costs, must be in conformance with OMB Circular A-87, and contains sufficient information in such detail to permit a determination on the allowability of costs submitted. These provisions also require the States to promptly amend their CAPs and submit them to the Department if there are changes relevant to the related costs under the plan. Under the current operational process with respect to CAPs that involve the Medicaid program, CMS has primary responsibility to review and provide its assessment to the Department. CMS is working with the Division of Cost Allocation within the Department to coordinate and strengthen review of cost allocation plans to ensure proper application of all Federal requirements.

Expected Outcomes of CMS� Actions: Medicaid is a vitally important program that serves very vulnerable populations. The Federal government must fulfill its obligations to fund its share of the cost of providing Medicaid services to the individuals who are eligible for Medicaid, but Medicaid is a partnership with the states and both must meet their obligations to fund their share of the program. We believe the lack of transparency and accountability in Medicaid financing undermines public confidence in the integrity of the program as it is impossible to track the flow of taxpayer dollars. Such arrangements, regardless of the merits, are hidden in archaic, nearly indecipherable language that may be further re-interpreted over time, placing Federal and State dollars at risk as well as creating tensions and jealousies among the states.

We believe the actions undertaken to date and planned will continue to strengthen fiscal accountability in the Medicaid program and ensure that Medicaid funds are used to provide Medicaid services to Medicaid beneficiaries. In addition, based upon prior GAO recommendations, CMS has instituted numerous changes to the handling of its internal Medicaid financial management processes that GAO has acknowledged have improved the handling of Medicaid financial issues at the Federal level. CMS is now more effective in identifying and addressing Medicaid financial issues.

Accomplishments

Milestones

Impediments/Challenges

Metrics

Remarks

CMS has been able to monitor and validate the effectiveness of these corrective measures through success in the State Plan Amendment (SPA) review process and consolidation of reimbursement and financing policies. Since August 2003, we have reviewed over 1400 SPAs that involve health care provider reimbursement methodologies. About 10 percent of these have been disapproved or withdrawn by the state because of potential improper financing. We worked with 30 states to remove improper Medicaid financing practices with only 3 States still challenging the statutory and regulatory requirements regarding State financing of their share of Medicaid program costs. For those 3 States, CMS has taken appropriate action by either the denial of Medicaid reimbursement SPAs and/or disallowances of claims for Federal financial participation (FFP).

The success of CMS� efforts to restructure its internal Medicaid financial management processes are evidenced through the ongoing work of the funding specialists and our other Medicaid financial management staff to reduce outstanding FFP at risk and providing proactive feedback to States on financing proposals. The establishment of concrete goals to reduce risks in Medicaid financial management and establishment of methods of tracking progress in pursuit of such goals will further ensure the effectiveness and sustainability of CMS� financial management activities.

Focus Area: Waiver Programs that inappropriately increase the Federal government�s financial liability

Background

Description of Problem: The GAO has repeatedly criticized section 1115 demonstration practices with respect to budget neutrality:

• HHS Secretary has authority to allow states to test new ideas for achieving program objectives;
• Programs must be �budget neutral� � programs that increase federal financial liability beyond what it would have been without the program should not be approved;
• GAO contends that HHS has permitted States to use questionable methods to demonstrate budget neutrality.

Corrective Action Plan: The Department has developed an overarching monitoring plan to mitigate Federal risk with respect to budget neutrality. This plan is outlined below:

• To ensure that the Department only approves budget-neutral demonstrations, the Department, in conjunction with the Office of Management and Budget, reviews, negotiates, and makes decisions on awarding proposals from States.
• We will continue this collaborative process, and seek ways to improve the process to ensure that approved programs are budget neutral and advance the objectives of the Medicaid program.
• The Department, in support of a new Program Assessment Rating Tool (PART) performance measure, is implementing an improved program for monitoring budget neutrality. The goal of the PART measure and commitment of the Department is to ensure that approved demonstrations are routinely monitored for budget neutrality using appropriately measured results for FY 2007 and beyond.

Expected Outcomes: Federal approvals of Medicaid demonstrations will continue to use sound methodologies for determining budget neutrality. Since the only reason a Medicaid section 1115 demonstration would not be budget neutral is because a state is exceeding its predetermined spending ceiling, we expect the measures outlined above to assist in ensuring budget neutrality is maintained through our ongoing monitoring efforts. In particular, meeting the targets of the relevant PART goal will mean that budget neutrality monitoring reviews are accomplished at timely intervals.

Accomplishments

Milestones

Impediments/Challenges

Metrics

Remarks

Enforcement

When the Department found that the State of Wisconsin�s BadgerCare section 1115 demonstration had exceeded its budget neutrality limit, the State was required to return $10.15 million to the Federal government.

GAO has neglected to highlight that budget neutrality is the Department�s own long-standing policy and not a requirement imposed by statute. There are multiple methods for determining that a demonstration program is budget neutral to the Federal government, two of the most common being aggregate spending ceilings and per-member per-month (PMPM) spending ceilings.

Anew PART goal was developed to ensure adherence to a monitoring schedule for budget neutrality reviews.

Focus Area: Inappropriate Billing by Providers Serving Program Beneficiaries

Background

Description of Problem: Despite efforts to improve fiscal integrity and financial management, the Medicaid program remains high risk due to concerns about the program�s size, growth, and diversity, as well as the adequacy of fiscal oversight. GAO contends that there has been a wide disparity between the level of staff and financial resources that CMS has expended to support and oversee state activities to control fraud and abuse, and the amount of federal Medicaid dollars at risk of fraud and abuse.

Corrective Action Plan: The Deficit Reduction Act of 2005 (DRA) created the Medicaid Integrity Program and appropriated funds to fight fraud and abuse. As required by the DRA, CMS issued a comprehensive 5-year plan in July 2006 that outlined CMS� organizational structure and initial activities to begin implementing the Medicaid Integrity Program.

Expected Outcomes: Congress has provided CMS with the resources to establish the Medicaid Integrity Program. The Medicaid Integrity Program will provide a unique opportunity to identify, recover, and prevent inappropriate Medicaid payments and will allow CMS to support the efforts of State Medicaid agencies through a combination of oversight and technical assistance.

Accomplishments

Milestones

Impediments/Challenges

Remarks

The MIP represents a renewed effort to detect and prevent Medicaid program fraud and abuse. Together with our State and Federal stakeholders, CMS is taking steps to assure the integrity of the program. Planning for and implementing the MIP provides CMS with an opportunity to strengthen its leadership of State and federal program integrity efforts. CMS welcomes both the challenges and opportunities presented by the DRA to improve Medicaid integrity.

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