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The Medicaid program, overseen by the Centers for Medicare & Medicaid Services (CMS), spends more on medical and health-related services than any other federal program (except Medicare).  GAO designated Medicaid as high risk in 2003 because of concerns about federal oversight of this large, growing, and complex program.

Medicaid covered about 75 million people in fiscal year 2018, at an estimated cost of $629 billion—$393 billion of which was paid by the federal government. CMS has projected that Medicaid spending will grow at an average rate of 5.7 percent per year from fiscal years 2017 through 2026. In fact, Medicaid spending is expected to reach $1 trillion by fiscal year 2026.

Growth Trends in Total Medicaid Spending by Eligibility Group

Both the federal government and the states fund Medicaid and are jointly responsible for overseeing it. The states can choose (within broad federal requirements) how to oversee, finance, and deliver care through their Medicaid programs—which has resulted in 56 different Medicaid programs across the states and territories.

Medicaid’s ongoing transformation—due to the aging population, increased spending per enrollee, and expansion of state programs—emphasizes the need for improved program oversight.  CMS faces oversight challenges in four areas: improper payments, appropriate use of program dollars, Medicaid data, and access to quality care.

Improper payments

Estimated improper payments—including payments made for people not eligible for Medicaid or for services not actually provided—was 9.8 percent of Medicaid spending ($36.2 billion) in fiscal year 2018. CMS needs to improve the effectiveness of its oversight of improper payments and related payment risks, particularly in the following areas.

Managed care: Managed care organizations (MCO) provide a specific set of Medicaid services to beneficiaries for a set payment from states (referred to as capitated payments). These payments are generally paid on a per beneficiary per month basis, and can help states reduce Medicaid costs. However, there are risks related to such state MCO payments and risks with payments from MCOs to providers.

Payment Risks Related to State Medicaid Program Payments to Managed Care Organizations (MCO)

^a Examples of data issues include inaccurate encounter data, MCO reported costs that are not allowable, overpayments that are not adjusted, or data that do not reflect changes in care delivery practices that have affected MCO costs.

^b Examples of unfulfilled contract requirements may include an MCO not establishing an adequate provider network, reporting inaccurate encounter data for services, or not reporting the amount of overpayments the MCO made to providers.

• Provider eligibility: States and MCOs face challenges in screening MCO providers to ensure that only eligible providers participate in Medicaid. For instance, data used for screening are fragmented across multiple databases and federal agencies, and MCOs are not required to make their data on ineligible providers publicly available.
• Beneficiary eligibility: CMS and the states need to ensure that only eligible individuals are enrolled in Medicaid, and CMS needs to ensure that state expenditures for enrollees (including enrollees newly eligible as a result of the Patient Protection and Affordable Care Act expansion) are correctly matched by the federal government.

Appropriate use of program dollars

States have significant flexibility in how they finance and deliver Medicaid services. While this flexibility is an important aspect of the program, it could also mean that some Medicaid dollars are spent for activities and services that are not allowed by the program, or that do not have clear value to beneficiaries.

• Demonstrations: States and CMS can test new coverage and service delivery approaches under section 1115 of the Social Security Act. CMS had approved demonstrations to test new Medicaid approaches for nearly three-quarters of states as of November 2016. However, conclusive results on the effectiveness of these demonstrations are not available because CMS has not required timely evaluations of demonstrations from states. Further, CMS neither requires that federal evaluations results be made public, nor consistently monitors the money spent on these demonstrations.

Federal Demonstration Expenditures as a Percentage of Total Federal Medicaid Expenditures, by State, Fiscal Year 2015

• Supplemental payments: These payments, which are made to providers (such as local government hospitals) but not linked to specific beneficiary services, are growing.  However, CMS does not know the extent to which individual providers receive these payments nor whether these payments are economical or efficient as required by federal law. States have also increasingly relied on funds from other sources, such as local governments and taxes from health care providers, to finance the nonfederal share of their Medicaid programs. However, reliance on providers and local governments for Medicaid funding can create incentives that result in cost shifts to the federal government. 
• General oversight of expenditures: CMS has saved over $5 billion in the past 4 years by identifying errors in state spending reports, such as finding expenditures that lacked supporting data or were not allowed under Medicaid rules. However, CMS is not targeting these reviews on states and expenditures that present the highest risk.   Therefore, it may be missing chances to save additional federal dollars.

Medicaid data                                                             
CMS lacks accurate, complete, and timely Medicaid data, which affects its ability to oversee Medicaid programs.

• CMS needs to ensure that the data collected through the Transformed Medicaid Statistical Information System (T-MSIS) are timely, complete, and comparable. All states, the District of Columbia, and Puerto Rico are currently submitting T-MSIS data. However, CMS has yet to fully ensure the quality of these data, or articulate specific plans and associated time frames for using these data for oversight.

• The need for improved data is particularly relevant to managed care due to its increasing share in terms of enrollment and spending. CMS has provided states with limited information on how to ensure reliability of managed care encounter data, which is key to setting appropriate rates and overseeing MCOs.

Examples of Medicaid Managed Care Encounter Data Uses

^a Federal law requires capitation rates to be actuarially sound, meaning that they must be certified by an actuary as being reasonably calculated for the populations expected to be covered and for the services expected to be furnished under contract, among other things. See 42 U.S.C. § 1396b(m)(2)(A)(iii); 42 C.F.R. § 438.4 (2017).

^b HEDIS is a standardized dataset designed by the National Committee for Quality Assurance and used by health plans to measure performance on various dimensions of care and service, including effectiveness of care, access and availability of care, experience of care, utilization and risk adjusted utilization, and relative resource use.

^c Under the Medicaid Drug Rebate Program, pharmaceutical manufacturers agree to pay rebates to states in order to have their outpatient drugs covered by Medicaid.

Access to quality care

Medicaid enrollees have diverse health needs, and CMS oversight helps ensure that they have access to quality care.

Medicaid beneficiaries who need long-term care can get services in their homes, community settings, or in an institution (such as a nursing home). Many states contract with MCOs to provide this care.
However:  

• CMS does not consistently require states to report information on beneficiary concerns or provider shortages for long-term care services provided by MCOs.
• CMS lacks comprehensive data on critical incidents of abuse, neglect, and exploitation in Medicaid assisted-living services because current guidance on what states should identify and report annually on these incidents is unclear.

Selected Incidents Defined as Critical for States’ Largest Medicaid Programs Providing Assisted-Living Facility Services, as Reported by 48 States, 2014

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• All About Medicaid
• Reducing Government-wide Improper Payments

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