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The Centers for Medicare & Medicaid Services (CMS) is the agency within the Department of Health and Human Services that oversees the program at the federal level. Because of concerns about inadequate federal oversight of the large and growing program, Medicaid has been designated as high risk. Medicaid’s ongoing transformation—due to PPACA, the aging of the population, and other changes to state programs—highlights the importance of federal oversight, in particular with regards to access to quality care; transparency and oversight; program integrity; and financing and operations.

Access to quality care and utilization: Medicaid enrollees report access to care that is generally comparable to that of privately insured individuals and better than that of uninsured individuals, but may have greater health care needs and greater difficulty accessing specialty and dental care. Children in Medicaid took psychotropic medications at a higher rate than those with private insurance, and over two-thirds of children in Medicaid with a potential mental health need did not receive mental health services.

Figure: Percentages of Medicaid Children with a Potential Mental Health Need that Did Not Receive Certain Mental Health Services in a Calendar Year, 2007-2009

Transparency and oversight: The lack of complete and reliable data on states’ spending and financing of the non-federal share of the program hinders federal oversight.

• CMS does not have the data needed to understand payments states make to individual providers nor a standard process for assessing whether payments are economical and efficient as required by law. Most states have made Medicaid payments to hospitals that significantly exceeded those hospitals’ costs of providing Medicaid services, and there have been cases where the state’s Medicaid payments exceeded the hospital’s total operating costs. States are not required to limit Medicaid payments to Medicaid costs, but payments that greatly exceed Medicaid costs raise questions about whether those payments are economical and efficient, and ultimately used for Medicaid purposes.

Figure: Medicaid Payments Compared with Medicaid Costs for Inpatient Hospital Services in One State, for Selected Hospitals with the Highest Daily Payments, State Fiscal Year 2011

• States have increasingly relied on funds from sources other than state general funds to finance the nonfederal share of their programs, such as health care provider taxes and funds transferred from local governments and local government health care providers. While states are permitted to finance up to 60 percent of the nonfederal share from local government funds, some states have restricted certain types of Medicaid payments to just those providers able to secure local funding, and have made these payments contingent on such funding. Arrangements that make Medicaid payments contingent on local funding of the nonfederal share are counter to CMS policy. Moreover, reliance on providers and local governments for Medicaid funding can create incentives that result in cost shifts to the federal government

Figure: Example of How One State's Use of Non-State Sources to Fund Medicaid Payments to Nursing Facilities Shifted Medicaid Costs to the Federal Government in State Fiscal Year 2012

 

• Improvements in the HHS criteria, policy, and process for approving states’ spending on demonstrations—state projects that may test new ways to deliver or pay for care—are needed to potentially prevent billions of dollars in unnecessary federal spending.

Table: Comparison of 5-Year Medicaid Spending Limits as Approved by the Department of Health and Human Services (HHS) and as Estimated Using Benchmark Growth Rates and Actual Costs for Selected Demonstrations Approved between January 2007 and May 2012

Dollars in millions, federal and state spending
State	HHS-approved	GAO estimate using benchmark growth rates and actual costs	Difference
Arizona	$72,679	$46,382	$26,297
Indiana	10,626	10,211	416
Rhode Island	12,075	11,303	772
Texas	142,394	137,987	4,567
Total	$237,774	$205,723	$32,051

Source:GAO analysis of HHS data | GAO-13-384

Program integrity: With estimated improper payments totaling more than $29 billion in fiscal year 2015, CMS needs to improve the effectiveness of its program integrity efforts to help identify and prevent improper payments, such as payments for non-covered services or services that were billed for but never provided.  

• CMS has not provided sufficient guidance—or sufficiently coordinated with other federal agencies—to help ensure that only eligible providers participate in the Medicaid program.  CMS has taken steps to improve Medicaid program integrity, including establishing requirements that all Medicaid managed care providers enroll with the state Medicaid agency.  However, the two states that screened Medicaid managed care providers as well as the 16 Medicaid managed care plans that GAO reviewed faced challenges in screening providers for eligibility, due to fragmented information and difficulty accessing and using certain databases. Also, the 10 states reviewed used inconsistent practices to make data on ineligible providers publicly available. These factors could result in provider screening efforts that do not identify ineligible providers.
• CMS has not sufficiently minimized the potential for duplicate coverage and coverage gaps for individuals transitioning between Medicaid and health insurance exchange coverage in the 34 states with federally facilitated exchanges.
• There are also gaps in CMS’s efforts to ensure that only eligible individuals are enrolled into Medicaid, and that Medicaid expenditures for enrollees, including enrollees eligible as a result of the PPACA expansion, are matched appropriately by the federal government.
• Five U.S. territories have seen temporary increases in federal Medicaid funding, but there is little assurance that Medicaid funds are protected from fraud, waste and abuse.  Federal and territory officials cited resource constraints and the territories’ smaller Medicaid expenditures as reasons for limited oversight efforts in the territories.

Financing and operations:

• The federal government and states share in the financing of the Medicaid program, with the federal government matching most state expenditures for Medicaid services based on the Federal Medical Assistance Percentage (FMAP) formula, which uses per capita income to calculate each state’s federal matching rate.
  • The current FMAP formula does not adequately address variation in the demand for services in each state, geographic cost differences, and state resources. There are multiple alternative data sources that could be used to develop measures of these state characteristics. Those measures could be combined in various ways to better align federal funding with states’ needs, offering them greater fiscal stability.
  • Also, past efforts to provide states with temporary increases in federal assistance during national economic downturns were not as responsive to states’ economic conditions as they could have been. There are opportunities to improve the timing, amount, and duration of assistance provided to states, such as by using an automatic mechanism to trigger federal assistance and by better targeting assistance based on each state’s level of need. In designing an approach to providing assistance, policymakers could adjust the level of funding and other elements—such as when and how to start, end, and target the assistance—depending on circumstances such as competing budget demands and other state fiscal needs beyond Medicaid. One such option for providing automatic, timely, and targeted assistance during downturns is shown in the figure below. This option relies on economic data (e.g., the monthly employment-to-population ratio or EPOP) to begin assistance.

Figure: Prototype Formula for Temporary Increased FMAP Assistance to States

• Federal spending for Medicaid managed care increased from $27 billion in fiscal year 2004 to $107 billion in fiscal year 2014, and represented 38 percent of total federal Medicaid spending in fiscal year 2014. States’ oversight of Medicaid managed care varies. For example, five of eight states reviewed in 2015 required managed care organizations to annually meet minimum medical loss ratio (MLR) percentages—standards that ensure a certain proportion of payments are for medical care. States also varied in methods used to assign beneficiaries to managed care plans.

Figure: Comprehensive Risk-Based Managed Care Penetration in Medicaid by State, as of July 1, 2013

 

 

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