This is the accessible text file for GAO report number GAO-05-748 
entitled 'Medicaid Financing: States' Use of Contingency-Fee 
Consultants to Maximize Federal Reimbursements Highlights Need for 
Improved Federal Oversight' which was released on June 28, 2005. 

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Report to the Chairman, Committee on Finance, U.S. Senate: 

United States Government Accountability Office: 

GAO: 

June 2005: 

Medicaid Financing: 

States' Use of Contingency-Fee Consultants to Maximize Federal 
Reimbursements Highlights Need for Improved Federal Oversight: 

GAO-05-748: 

GAO Highlights: 

Highlights of GAO-05-748, a report to the Chairman, Committee on 
Finance, U.S. Senate: 

Why GAO Did This Study: 

Medicaid--the federal-state health care financing program covering 
nearly 54 million low-income people at a cost of $276 billion in fiscal 
year 2003--is by its size and structure at risk of waste and 
exploitation. Because of challenges inherent in overseeing the program, 
administered federally by the Centers for Medicare & Medicaid Services 
(CMS), GAO in 2003 added Medicaid to its list of high-risk federal 
programs. To help administer the program, states may employ consultants 
in a number of roles, sometimes under contracts whereby payment is 
contingent upon the consultant's performance. 

GAO was asked to report on states' use of contingency-fee consultants. 
GAO examined the extent to which (1) states are using contingency-fee 
consultants for projects to maximize federal Medicaid reimbursements, 
(2) claims from contingency-fee projects in selected states are 
consistent with federal law and policy, and (3) states and CMS are 
overseeing claims from such projects. 

What GAO Found: 

As of 2004, 34 states--up from 10 states in 2002--used contingency-fee 
consultants to implement projects to maximize federal Medicaid 
reimbursements. Projects varied widely, and because of certain risk 
factors--including a nationwide growth in dollars--GAO focused on 
claims in five categories (see table). Contingency-fee consultants in 
the 2 states GAO reviewed, Georgia and Massachusetts, have developed 
projects in all five categories. From these and other projects, for 
state fiscal years 2000 through 2004, Georgia obtained an estimated 
$1.5 billion in additional federal reimbursements and Massachusetts 
obtained an estimated $570 million. These states paid contingency fees 
of more than $90 million. 

In Georgia, Massachusetts, or both states, GAO identified claims from 
contingency-fee projects in the five categories reviewed that were 
problematic because they appeared to be inconsistent with current 
policy or were inconsistent with federal law; others undermined 
Medicaid's fiscal integrity. For example, for services provided to 
children in state custody residing in private facilities, a Georgia 
project claimed increased federal Medicaid reimbursements on the basis 
of the facilities' estimated costs, which were often higher than the 
state's actual payments to the facilities. Problematic projects often 
involved categories of claims where federal law and policy were 
inconsistently applied, evolving, or not specific. Problematic projects 
also involved Medicaid payments to government entities, which can 
facilitate the inappropriate shifting of state costs to the federal 
government. 

The states and CMS have provided limited oversight of claims associated 
with contingency-fee projects. CMS has not routinely collected 
information enabling it to identify claims or projects developed by 
contingency-fee consultants to maximize federal reimbursements, despite 
long-standing recognition that such claims are at risk of being 
inconsistent with federal requirements. Problems GAO identified 
illustrate the urgent need to address broader issues in oversight and 
financial management. CMS has taken steps to strengthen its financial 
oversight of Medicaid, but the agency can do more to reduce the risk of 
current and emerging financing schemes, including responding to prior 
GAO recommendations. 

Five Categories of Medicaid Claims Reviewed by GAO: 

Category of claims: Targeted case management services; 
Service: Services to help a defined group of beneficiaries gain access 
to needed medical, social, educational, and other services. 

Category of claims: Rehabilitation services; 
Service: Services to reduce a mental or physical disability and restore 
an individual to the best possible functional level. 

Category of claims: Supplemental payment arrangements; 
Service: Payments to a class of health care providers, such as nursing 
homes, up to a predefined limit. 

Category of claims: School-based services; 
Service: Medicaid-covered medical services provided by schools, such as 
diagnostic screening or physical therapy, or the administrative cost of 
providing these services. 

Category of claims: Administrative costs; 
Service: Costs the states incur in administering their Medicaid 
programs. 

Source: GAO based on CMS information. 

[End of table]

What GAO Recommends: 

GAO recommends that CMS improve oversight of contingency-fee projects 
and states' reimbursement-maximizing methods. In comments, CMS said its 
initiatives substantially respond to the recommendations, and the 
states said that their projects comply with law. GAO maintains that 
additional actions are needed. 

www.gao.gov/cgi-bin/getrpt?GAO-05-748. 

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact Kathryn G. Allen at (202) 
512-7118. 

[End of section] 

Contents: 

Letter: 

Results in Brief: 

Background: 

Most States Have Employed Contingency-Fee Consultants in a Wide Range 
of Reimbursement-Maximizing Projects: 

Claims from Contingency-Fee Projects Are Not Always Consistent with Law 
or Current Policy and Can Undermine Medicaid's Fiscal Integrity: 

Limited State and CMS Oversight of Claims from Contingency-Fee Projects 
Raises Concerns about Medicaid Financial Management: 

Conclusions: 

Recommendations for Executive Action: 

Agency and State Comments and Our Evaluation: 

Appendix I: Description of Contingency-Fee Projects Referred for 
Additional Review: 

Appendix II: Summary of Selected HHS OIG Reports on School-Based Claims 
in States Employing Consultants: 

Appendix III: Comments from the Centers for Medicare & Medicaid 
Services: 

Appendix IV: Comments from the State of Georgia and GAO's Response: 

Appendix V: Comments from the Commonwealth of Massachusetts and GAO's 
Response: 

Appendix VI: GAO Contact and Staff Acknowledgments: 

Related GAO Products: 

Tables: 

Table 1: Five Categories of Medicaid Claims Reviewed by GAO: 

Table 2: CMS's 2004 Survey Results Showing Categories of Medicaid 
Claims in Which States Had Projects Developed with Contingency-Fee 
Consultants, January 1999-June 2004: 

Table 3: Five Categories of Medicaid Claims Where Contingency-Fee 
Consultants Are Helping States Maximize Federal Medicaid 
Reimbursements: 

Table 4: Selected States' Consultant Projects Leading to Improper 
School-Based Medicaid Claims, as Reported by HHS OIG: 

Figures: 

Figure 1: The Typical Medicaid Payment Process: 

Figure 2: Georgia's UPL Arrangement with Local-Government Health Care 
Providers, State Fiscal Years 2001-2003: 

Abbreviations: 

CMS: Centers for Medicare & Medicaid Services: 
DSH: disproportionate share hospital: 
HCFA: Health Care Financing Administration: 
HHS: Department of Health and Human Services:
OIG: Office of Inspector General: 
OMB: Office of Management and Budget: 
TCM: targeted case management: 
UMMS: University of Massachusetts Medical School: 
UPL: upper payment limit: 

[End of section]

United States Government Accountability Office: 

Washington, DC 20548: 

June 28, 2005: 

The Honorable Charles E. Grassley: 
Chairman: 
Committee on Finance: 
United States Senate: 

Dear Mr. Chairman: 

Medicaid--the federal-state program financing health care for certain 
low-income children, families, and individuals who are aged or 
disabled--covered almost 54 million people at an estimated cost of $276 
billion in federal fiscal year 2003. By a formula established in law, 
the federal government paid from 50 to 77 percent of each state's 
reported Medicaid expenditures that fiscal year.[Footnote 1] We have 
previously reported that the challenges inherent in overseeing a 
program of Medicaid's size, growth, and diversity put the program at 
high risk for waste, abuse, and exploitation and led us in 2003 to add 
Medicaid to our list of high-risk federal programs.[Footnote 2] 
Medicaid has long been subject to states' seeking to maximize federal 
reimbursement. Within broad federal guidelines, states administer their 
Medicaid programs by paying qualified health providers for a range of 
covered services provided to eligible beneficiaries and then seeking 
reimbursement for the federal share of those payments. States may 
employ consultants to serve a number of valid Medicaid-related roles, 
such as adding needed staff or a particular expertise, and these 
consultants may save both the federal government and states money by, 
for example, identifying when claims were paid inappropriately and are 
subject to recovery. Some consultants may serve under contingency-fee 
contracts, whereby a consultant's fee is based, or contingent, upon 
performance, and these contingency fees are not eligible for federal 
Medicaid reimbursement except in certain cases.[Footnote 3] In the 
current environment of steadily rising Medicaid costs straining federal 
and state budgets,[Footnote 4] states' use of contingency-fee 
consultants can be problematic, particularly if controls are inadequate 
to ensure that any additional federal reimbursements are allowable 
Medicaid expenditures. 

The federal government and states each have responsibilities for 
administering Medicaid programs and for ensuring that Medicaid funds 
are spent appropriately on covered services provided to eligible 
beneficiaries. The Centers for Medicare & Medicaid Services (CMS), 
within the Department of Health and Human Services (HHS), administers 
Medicaid at the federal level, establishing policies and reviewing and 
approving state Medicaid plans, which describe how each state's program 
will operate. These written plans are considered to be comprehensive 
commitments by the states to supervise and administer their Medicaid 
programs. Further, when submitting claims for federal reimbursement, 
each state must certify that the claimed expenditures--including claims 
for payments the state made to providers for medical services and 
claims for the state's administrative expenses--are consistent with 
federal regulations and the state's approved Medicaid plan. We have 
earlier reported on the high-risk nature of the Medicaid program and on 
various states' use of financing schemes, some involving consultants, 
to inappropriately increase federal reimbursements.[Footnote 5] Some of 
these reports have raised questions about the appropriateness of claims 
for federal reimbursement developed by contingency-fee consultants and 
whether state and CMS oversight of claims developed by contingency-fee 
consultants is sufficient. 

You asked us to provide information about states' use of contingency- 
fee consultants and whether resulting projects and claims are 
consistent with federal law and policy. In this report, we address the 
following questions: 

1. To what extent are states using consultants on a contingency-fee 
basis to develop projects to help them maximize federal Medicaid 
reimbursements?

2. To what extent are the claims from projects developed by contingency-
fee consultants to maximize federal Medicaid reimbursements in selected 
states consistent with federal law and policy?

3. To what extent do selected states and CMS oversee the claims from 
projects developed by contingency-fee consultants to maximize federal 
Medicaid reimbursements?

To examine the extent to which states are using consultants on a 
contingency-fee basis to develop projects to maximize Medicaid 
reimbursements, we obtained information from the HHS Office of 
Inspector General (OIG), CMS, and state officials. We also inventoried 
projects developed by the major contingency-fee consultants employed by 
two states, Georgia and Massachusetts. We selected these states in part 
on the basis of information provided by CMS, which indicated that the 
states had employed contingency-fee consultants for multiple 
reimbursement-maximizing projects. To assess the extent to which claims 
from such projects were consistent with Medicaid law and policy, we 
analyzed selected projects in Georgia and Massachusetts in five 
categories of Medicaid claims (see table 1). We concentrated on 
projects in these five categories because--on the basis of factors such 
as nationwide growth in dollars claimed, the results of our past 
reviews, and work by HHS OIG to assess the appropriateness of claims in 
these categories--we judged them to be of particularly high 
risk.[Footnote 6] Because of the number and complexity of contingency- 
fee projects in Georgia and Massachusetts, we did not review all such 
projects in the two states. Instead, we supplemented our present review 
with related work in other states, including our prior reviews and 
assessments by HHS OIG, CMS, and state auditors. Where HHS OIG had 
assessed states' claims--in particular, Massachusetts's school-based 
claims--we did not perform a separate assessment. To evaluate state and 
CMS oversight of states' claims from projects developed by contingency- 
fee consultants, we reviewed the policies and procedures that selected 
states and CMS use to monitor consultant performance. We conducted our 
work in accordance with generally accepted government auditing 
standards from March 2004 through June 2005. 

Table 1: Five Categories of Medicaid Claims Reviewed by GAO: 

Category of claims: Targeted case management services; 
Service: Services to help a defined group of beneficiaries gain access 
to needed medical, social, educational, and other services. 

Category of claims: Rehabilitation services; 
Service: Services to reduce a mental or physical disability and restore 
an individual to the best possible functional level. 

Category of claims: Supplemental payment arrangements; 
Service: Payments to a class of health care providers, such as nursing 
homes, up to a predefined limit. 

Category of claims: School-based services; 
Service: Medicaid-covered medical services provided by schools, such as 
diagnostic screening or physical therapy, or the administrative cost of 
providing these services. 

Category of claims: Administrative costs; 
Service: Costs the states incur in administering their Medicaid 
programs. 

Source: GAO based on CMS information. 

[End of table]

Results in Brief: 

Most states have used contingency-fee consultants to help implement a 
wide range of projects to maximize federal Medicaid reimbursements. CMS 
reports that, according to a survey it conducted in 2004, 34 states had 
used contingency-fee consultants for this purpose, an increase from 10 
states reported to have done so in 2002. Over the past few years, 
states' claims in some of the five categories we examined have grown 
substantially in dollar amounts. For example, during fiscal years 1999 
through 2003, combined state and federal spending for one category of 
Medicaid services--targeted case management--increased by 76 percent, 
from $1.7 billion to $3 billion, across all states. In Georgia and 
Massachusetts, consultants have developed a wide range of projects 
across several categories of Medicaid services. Reimbursement- 
maximizing projects generated an estimated $1.5 billion in additional 
federal reimbursements during fiscal years 2000 through 2004 in Georgia 
and nearly $570 million in Massachusetts. For those additional 
reimbursements, Georgia paid its consultant about $82 million in 
contingency fees, and Massachusetts paid its consultants about $11 
million in contingency fees. 

We identified claims from projects developed by contingency-fee 
consultants that appeared to be inconsistent with current CMS policy, 
claims that were inconsistent with federal law, and claims from 
projects that undermined the fiscal integrity of the Medicaid program. 
We identified concerns in each of the five categories of claims we 
reviewed, including: 

* Targeted case management: Consultants in Georgia and Massachusetts 
helped the states maximize federal reimbursements by claiming costs for 
targeted case management (TCM) services that, under state plan 
amendments approved by CMS before 2002, appear to be inconsistent with 
CMS's current policy, which does not allow federal Medicaid 
reimbursement for TCM services that are an integral component of other 
state programs providing the services. For example, Georgia and 
Massachusetts claimed and received federal Medicaid reimbursement for 
TCM services for youths in their juvenile justice systems. Starting 
around 2002, CMS has disapproved proposed state plan amendments for 
similar TCM services in other states, stating that the costs are the 
responsibility of the state. In fiscal year 2004, Massachusetts 
received an estimated $68 million in federal reimbursements for TCM 
services as a result of contingency-fee projects. Georgia received 
about $12 million in fiscal year 2003 for its TCM project. 

* Rehabilitation services: Georgia's consultant helped the state 
increase federal reimbursements for rehabilitation services provided 
through state agencies by $58 million during state fiscal years 2001 
through 2003. The consultant suggested that two state agencies--which 
pay private facilities for providing room and board, rehabilitation, 
and other services to children in state custody--base their claims for 
Medicaid reimbursement on the private facilities' estimated costs, 
instead of on what the agencies actually paid those facilities. The 
state agencies increased the amount claimed for Medicaid reimbursement 
without increasing the amount paid to the facilities. In some cases, 
the amount state agencies claimed for rehabilitation services alone 
exceeded what they paid for all the services the facilities provided to 
children. 

Two factors shared by projects we reviewed signal areas where claims 
are at high risk of being problematic, that is, inconsistent with 
federal law or current policy or the federal-state cost-sharing 
structure and fiscal integrity of the Medicaid program. One factor was 
that the projects occurred in categories of Medicaid claims where 
federal policy had been inconsistently applied, was evolving, or was 
not specific. CMS, for example, has not consistently applied its policy 
when approving state plans to cover TCM expenditures eligible for 
federal reimbursement, and it has not clarified its guidance about 
appropriate supplemental payment arrangements, despite its concerns 
about states' claims in both these areas. A second factor was that 
Medicaid payments were made in many cases to state and local-government 
agencies as Medicaid providers, a mechanism that can facilitate an 
inappropriate shift of state costs to the federal government. 

The states we reviewed and CMS provided limited oversight to ensure the 
appropriateness of the projects and associated claims developed with 
assistance from contingency-fee consultants. Georgia's and 
Massachusetts's oversight efforts were limited and insufficient to 
prevent problematic claims associated with contingency-fee projects. 
CMS relies primarily on the states and on its own financial oversight 
activities to ensure the appropriateness of consultant projects and 
claims. Although CMS has periodically identified concerns with 
contingency-fee projects to maximize federal reimbursements, the agency 
has not routinely collected information to identify such projects and 
claims, and it was unaware of many of the specific projects that we 
reviewed. Our findings illustrate the urgent need to address broader 
oversight and financial management issues not limited to situations 
involving contingency-fee consultants. In Georgia and Massachusetts, we 
found problems with claims the states had submitted without consultant 
assistance. We also found that other states have undertaken similar 
reimbursement-maximizing projects on their own. CMS has taken some 
important actions to strengthen its oversight of state Medicaid 
programs, such as its initiative to hire additional financial analysts 
to assess each state's program, but the effectiveness of this 
initiative is not yet known. Moreover, CMS has not yet implemented 
several actions that we have previously recommended on the basis of our 
past work on states' financing schemes and CMS's financial management 
of Medicaid. 

In addition to reiterating several recommendations to CMS and to 
Congress from our prior work, this report contains recommendations to 
the Administrator of CMS to improve the agency's oversight of states' 
use of contingency-fee consultants and to strengthen the agency's 
overall financial management procedures. Doing so would include 
developing guidance to clarify CMS policy, ensuring that such guidance 
is applied consistently among states, and collecting and scrutinizing 
information from states about payments made to units of state and local 
governments. 

In commenting on a draft of this report, CMS stated its belief that it 
has already substantially met our recommendations. While acknowledging 
that improper Medicaid payments had unquestionably occurred, CMS 
provided detailed information to support why it believes that it (1) 
was already aware of the concerns identified in projects we examined 
and (2) has taken sufficient action to address these concerns and our 
related recommendations. Although we have added additional information 
on CMS's initiatives to our report, in our view, CMS has not yet 
sufficiently identified or addressed the issues that we found; we 
believe CMS needs to do more to identify contingency-fee projects and 
problematic claims sooner, before large reimbursements have been made 
to states. CMS's current efforts to review states' financing methods-- 
by examining them when states submit proposed state plan amendments and 
obtaining agreement from states to end methods the agency considers to 
be inappropriate--do not ensure that CMS's policies are clear or 
consistently applied to states. States' financing methods, for example, 
may not receive scrutiny if the state does not propose state plan 
amendments. We maintain our position that CMS needs to be more 
proactive and do more to clarify, communicate, and consistently apply 
its policies concerning high-risk areas. 

We also provided a draft of this report to Georgia and Massachusetts, 
which commented on the importance of contingency-fee contracts and 
states' needs for consultants for expertise they otherwise would not 
have. Georgia also commented, however, that our report implied that 
states' use of contingency-fee consultants is somehow illegitimate. We 
acknowledge that use of contingency-fee contracts is allowed under law 
and that states can employ consultants for a number of valid Medicaid 
purposes, but we maintain that our close examination of projects and 
associated claims revealed how reimbursement-maximizing projects can be 
problematic. In contrast to CMS's perspective that the agency had known 
about and was addressing concerns with projects we reviewed in Georgia 
and Massachusetts, both states contend that their claims comply with 
the law. Although most may not be illegal, we maintain our position 
that, because some projects and associated claims we examined have been 
inconsistent with Medicaid's federal-state cost-sharing design or with 
current CMS policy, increased attention is needed to better ensure the 
fiscal integrity of the Medicaid program. 

Background: 

Title XIX of the Social Security Act[Footnote 7] authorizes federal 
funding to states for Medicaid. States have considerable flexibility in 
designing and operating their Medicaid programs, but they must comply 
with federal requirements specified in Medicaid statute and 
regulations. Each state operates its program under a plan that CMS must 
approve for compliance with current law and regulations. CMS must also 
approve any amendments to a state's plan. 

Consultants can provide a wide range of services to states, including 
serving state Medicaid programs. States that lack sufficient in-house 
resources can turn to consultants to add staff or needed expertise. 
Contingency-fee consultants are particularly attractive to budget- 
constrained states because the states do not need to pay them up front, 
agreeing to pay instead a percentage of any additional amounts saved or 
collected (the contingency fee). Consultants may also cost states less 
than developing in-house expertise, as states can hire them for short- 
term or specific projects rather than commit full-time state personnel. 
Consultants can also be attractive because they do not generally count 
against agency staffing ceilings. Regarding Medicaid, consultants can 
help states by performing services such as: 

* analyzing federal and state statutory and regulatory provisions,

* developing or revising state Medicaid policies and procedures for 
consistency with federal requirements,

* assisting states in developing state plan amendments for federal 
approval,

* assisting states in determining payment rates for providers,

* developing cost allocation plans to support claims for administrative 
expenditures,

* training state and local staff in procedures and documentation for 
submitting claims for federal Medicaid reimbursement,[Footnote 8]

* preparing state claims for federal Medicaid reimbursement, and: 

* identifying new methods or projects to maximize federal Medicaid 
reimbursements. 

The typical Medicaid payment process is illustrated in figure 1. When a 
Medicaid beneficiary receives care from a health care provider such as 
a hospital, physician, or nursing home, the provider bills the state 
Medicaid program for its services. The state in turn pays the provider 
from a combination of state funds and federal funds, which have been 
advanced by CMS each quarter.[Footnote 9] The state then files an 
expenditure report, in which it claims the federal share of the 
Medicaid expenditure as reimbursement for its payment to providers and 
reconciles its total expenditures with the federal advance. In addition 
to reimbursement for medical services, the state may claim federal 
reimbursement for functions it performs to administer its Medicaid 
program, such as enrolling new beneficiaries; reviewing the 
appropriateness of providers' claims; and collecting payments from 
third parties, that is, payers other than Medicaid, such as Medicare, 
that may be liable for some or all of a particular health claim. 

Figure 1: The Typical Medicaid Payment Process: 

[See PDF for image]

[End of figure]

States' claims for federal Medicaid reimbursement--including claims 
prepared by or under arrangements developed by consultants--must comply 
with a number of federal statutes and regulations. For example, the 
Social Security Act requires that states provide methods to ensure that 
Medicaid payments are consistent with efficiency, economy, and quality 
of care.[Footnote 10] CMS policy further clarifies and delineates 
requirements with which each state must comply in administering its 
Medicaid program. CMS policy, for example, generally prohibits states 
from claiming federal matching funds on contingency-fee payments, 
including contingency-fee payments among state agencies.[Footnote 11] 
Each state must also comply with cost principles and procedures, such 
as preparing a cost allocation plan to justify its administrative 
claims, as established in Office of Management and Budget (OMB) 
Circular A-87.[Footnote 12]

CMS has an important role in ensuring that state claims comply with 
Medicaid requirements. Within CMS, the Center for Medicaid and State 
Operations is responsible for approving state Medicaid plans and plan 
amendments, working with the states on program integrity and other 
program administration functions and overseeing state financial 
management and internal control processes. The Center for Medicaid and 
State Operations shares Medicaid program administration and financial 
management responsibilities with the 10 CMS regional offices. 
Traditional financial management analysts in each regional 
office,[Footnote 13] numbering about 65 nationwide in fiscal year 2005 
according to CMS officials, are responsible for reviewing states' 
Medicaid claims to determine if expenditures are complete, properly 
supported by the state's accounting records, claimed at the appropriate 
federal matching rates, and allowable in accordance with Medicaid law 
and policy. In addition to CMS, external organizations such as HHS OIG 
and state auditors routinely conduct program and financial audits of 
state Medicaid programs. 

In examining the appropriateness of state Medicaid agency claims for 
health services provided by local school districts, we have reported 
concerns about the role of consultants who were paid on a contingency- 
fee basis to maximize federal Medicaid reimbursements. In particular, 
in June 1999, we testified on the need for federal and state oversight 
of growing Medicaid reimbursements to states for Medicaid outreach and 
other administrative activities provided in schools.[Footnote 14] We 
found that school districts had often contracted with consulting firms 
to perform claims development and reporting activities and that they 
paid these firms fees ranging from 3 to 25 percent of the total amount 
of the federal Medicaid reimbursement for the schools' administrative 
costs. We found that poor guidance and insufficient CMS oversight 
permitted questionable billing practices by states and created an 
environment of opportunism in which inappropriate claims could generate 
excessive federal Medicaid outlays. Our subsequent report in April 2000 
on school-based health services discussed similar concerns with growing 
outlays and insufficient CMS guidance and oversight to prevent improper 
reimbursements.[Footnote 15] Since our 2000 report, CMS has clarified 
guidance on submitting claims for school-based administrative 
activities, applying stricter standards and heightening review of the 
methods states use to identify administrative claims for school-based 
services.[Footnote 16] CMS also disallowed more than $278 million in 
inappropriate claims from one state. 

Most States Have Employed Contingency-Fee Consultants in a Wide Range 
of Reimbursement-Maximizing Projects: 

An increasing number of states are using consultants on a contingency- 
fee basis to maximize their federal Medicaid reimbursements through a 
variety of projects, according to CMS. Contingency-fee consultants in 
the two states we reviewed--Georgia and Massachusetts--have developed 
reimbursement-maximizing projects in each of the five categories of 
claims that we reviewed, generating more than $2 billion during state 
fiscal years 2000 through 2004 in additional federal Medicaid 
reimbursements, mainly in Georgia. 

CMS Surveys Found Increasing Use of Contingency-Fee Consultants for 
Reimbursement-Maximizing Projects: 

CMS surveyed its regional offices in fiscal years 2002 and 2004 and 
found that an increasing number of states were using consultants on a 
contingency-fee basis for projects to maximize federal reimbursements. 
In late 2001, CMS discovered that, contrary to CMS policy prohibiting 
federal reimbursement for contingency fees in most instances, at least 
two states (New Jersey and Virginia) had inappropriately claimed 
federal reimbursements for such fees. Subsequently, CMS surveyed its 
regional offices to identify which states were using contingency-fee 
consultants and for which services. This first survey (spring 2002) 
showed that 10 states were known by regional staff to be using 
contingency-fee consultants for reimbursement-maximizing projects. In 
response, CMS issued two letters, in May 2002 and in November 2002, 
reminding regional offices and states that although states were allowed 
to employ contingency-fee consultants, the contingency fees themselves 
were not eligible for federal reimbursement except in certain 
cases.[Footnote 17]

In June 2004, CMS again surveyed its regional offices to determine how 
many states had entered into contingency-fee contracts with private 
consulting firms to maximize federal reimbursements over the period 
from January 1999 through June 2004. This survey identified 34 states 
involved in contingency-fee contracts to help them maximize federal 
Medicaid reimbursements in a variety of categories. Most frequent were 
claims for services provided to Medicaid-eligible children in schools, 
a category in which contingency-fee consultants have assisted states 
for years. CMS regional offices also reported that 11 states had 
contracts using contingency-fee consultants in multiple areas, some 
having projects in as many as four different categories (see table 2). 

Table 2: CMS's 2004 Survey Results Showing Categories of Medicaid 
Claims in Which States Had Projects Developed with Contingency-Fee 
Consultants, January 1999-June 2004: 

Claims category: School-based health and administrative services; 
Number of states: 16. 

Claims category: Reimbursement maximization (not otherwise specified); 
Number of states: 9. 

Claims category: Family-planning services; 
Number of states: 9. 

Claims category: Targeted case management services; 
Number of states: 5. 

Claims category: Mental health-related administrative services (in 
local-government and community clinics); 
Number of states: 3. 

Claims category: Supplemental payment arrangements; 
Number of states: 2. 

Claims category: Child welfare-related services; 
Number of states: 1. 

Claims category: Administrative cost reports; 
Number of states: 1. 

Claims category: Multiple projects; 
Number of states: 11. 

Source: CMS. 

[End of table]

Our review focused on five categories of claims that we considered at 
high risk of improper payments: TCM services, services for mental or 
physical rehabilitation, supplemental payment arrangements, school- 
based services, and administrative costs (see table 3). For most of 
these categories, CMS expenditure data show that federal reimbursement 
of states' claims in recent years has grown nationwide, sometimes 
substantially. Although CMS's 2004 survey gathered information on 
states' use of contingency-fee consultants, it would not have captured 
states' arrangements established outside the survey period. We 
identified one consultant, for example, who helped two states develop 
upper payment limit (UPL) arrangements, although CMS's 2004 survey did 
not capture these particular states' contracts. CMS does not identify 
the extent to which states' Medicaid claims stem from projects using 
contingency-fee consultants to maximize federal reimbursements. 

Table 3: Five Categories of Medicaid Claims Where Contingency-Fee 
Consultants Are Helping States Maximize Federal Medicaid 
Reimbursements: 

Category of Medicaid claims: Targeted case management services (TCM): 
Case management helps beneficiaries gain access to needed medical, 
social, educational, and other services and coordinates beneficiaries' 
use of providers. TCM enables states to provide case management 
services to a defined group or groups of Medicaid-eligible individuals 
without providing the same service to all Medicaid beneficiaries 
statewide, as normally required by Medicaid law. Groups are targeted 
primarily on the basis of shared characteristics, such as location or 
special health needs; 
Risk: Current CMS policy does not allow federal Medicaid reimbursement 
for TCM services provided by the state if those services are "an 
integral component" of an existing state program.[A] Medicaid 
reimbursement, according to CMS, is intended to enable provision of new 
services to individuals, rather than to pay for services provided by an 
existing state program. CMS data show that during fiscal years 1999 
through 2003, combined state and federal spending for Medicaid TCM 
services increased by 76 percent, from $1.7 billion to $3 billion. 

Category of Medicaid claims: Rehabilitation services: Rehabilitation 
services are intended for the maximum reduction of a physical or mental 
disability and to restore an individual to the best possible functional 
level. Covered services may include occupational and physical therapy, 
mental health services, and treatment for addiction. The benefit is 
optional, that is, state Medicaid programs are not required to cover 
the service but may do so at their own option; 
Risk: CMS financial management officials told us that Medicaid coverage 
of rehabilitation services is not well defined because varied types and 
levels of service may be considered mental or physical rehabilitation. 
Because rehabilitation services are not reported separately in CMS 
expenditure reports, growth in claims specifically for these services 
is unknown. According to CMS officials, however, states' claims in this 
area present a high risk of abuse. 

Category of Medicaid claims: Supplemental payment arrangements: States' 
Medicaid rates are often lower than the federal Medicare rates to which 
Medicaid upper payment limits (UPLs) rates are tied.[B] Thus, a gap 
often exists between the amount states actually spend to provide 
services to Medicaid beneficiaries and the Medicare-based UPLs. States 
can obtain additional federal funding for the amount under the UPL 
ceiling by making supplemental payments to a class of providers, such 
as nursing homes or hospitals; 
Risk: As we and others have previously reported,[C] some supplemental 
payment arrangements are inconsistent with Medicaid's fiscal integrity 
and federal-state partnership, in particular, those made by states to 
government-owned or government- operated facilities but not retained by 
those facilities. We consider such payments to be illusory. Although 
Congress and CMS have taken action to curb excessive UPL arrangements,d 
states continue to operate them. The extent of states' claims for 
excessive UPL payments is unknown. The federal and state UPL 
expenditures through all UPL arrangements grew from an estimated $10.3 
billion in 28 states in fiscal year 2000 to $11.2 billion in 45 states 
in fiscal year 2004. During this period, Congress and CMS acted to 
limit excessive UPL arrangements and associated claims. 

Category of Medicaid claims: School-based services: Schools can help 
identify Medicaid-eligible low-income children, facilitate their 
enrollment in Medicaid, and provide them certain Medicaid-covered 
services. When Medicaid-eligible children receive Medicaid services-- 
such as diagnostic screening or physical therapy--through the school 
system, states can use their Medicaid programs to pay for these 
services. School districts may also receive Medicaid reimbursement for 
the administrative costs of providing school-based Medicaid services; 
Risk: Responding to concerns about the growth and appropriateness of 
Medicaid claims for school-based services, CMS began tracking school- 
based medical and administrative services as a separate budget item in 
fiscal year 2002; the agency issued guidance on appropriate 
administrative billing in 2003. For fiscal years 2002 through 2003, 
total state and federal spending on school-based services grew 8 
percent nationwide, from $1.97 billion to $2.13 billion. Nationwide, 
more than $900 million (state and federal) went toward school-based 
administrative costs in both fiscal years 2002 and 2003. 

Category of Medicaid claims: Administrative costs: The federal 
government will reimburse states, generally at 50 percent, for their 
costs of administering their Medicaid programs. To determine which 
administrative costs the state can attribute to Medicaid, states submit 
a cost allocation plan for HHS approval.[E] This plan establishes the 
methods the state will use to distribute its administrative costs--for 
example, employee time and costs related to providing services to both 
Medicaid-eligible and non-Medicaid-eligible individuals--across 
different funding sources; 
Risk: CMS found in the early 2000s that some states had inappropriately 
claimed contingency fees as a Medicaid administrative cost. In 
addition, a fiscal year 2004 CMS survey showed that at least one state 
was using a contingency-fee consultant to increase administrative 
claims. CMS data show that for fiscal years 1999 through 2003, state 
and federal spending for the states' Medicaid administrative costs grew 
37 percent from $9.5 billion to $13.0 billion.[F]. 

Source: GAO. 

[A] CMS recently reiterated its TCM policy in a 2004 Administrator's 
decision that denied approval of a state plan amendment requested by 
Maryland to provide TCM services to children in the state's foster care 
program. See CMS, Disapproval of Maryland State Plan Amendment No. 02- 
05, Docket No. 2003-02 (Aug. 27, 2004). The Administrator's decision 
was based in part on a statement in the legislative history 
accompanying the legislation authorizing coverage for TCM services that 
payment for TCM services must not duplicate payments to public agencies 
or private entities under other program authorities. See H.R. Rep. No. 
99-453, at 546 (1985). We did not evaluate the basis for CMS's policy 
as part of this review. 

[B] UPL is the upper bound on what the federal government will pay as 
its share of Medicaid costs; it is the federal government's way of 
placing a ceiling on federal financial participation in a state's 
Medicaid program. UPLs are tied to the methodology that Medicare, the 
federal health care program that covers seniors aged 65 and older and 
some disabled persons, uses to pay for comparable services. 

[C] See GAO, Medicaid: Improved Federal Oversight of State Financing 
Schemes Is Needed, GAO-04-228 (Washington, D.C.: Feb. 13, 2004) and 
related products cited therein. 

[D] For example, the Medicare, Medicaid, and SCHIP Benefits Improvement 
and Protection Act of 2000 directed CMS to issue a final regulation to 
limit states' ability to claim excessive federal matching funds through 
UPL supplemental payments. 

[E] Unlike CMS's direct review and approval role for states' Medicaid 
plan amendments, CMS has an advisory review role for the plans that 
state Medicaid agencies prepare for allocating their administrative 
overhead costs; at the national level, HHS's Division of Cost 
Allocation takes the lead in reviewing these cost allocation plans. The 
division generally distributes copies of cost allocation plan sections 
to affected federal agencies, including CMS, for comment. 

[F] These figures include costs associated with school-based 
administration. 

[End of table]

Georgia and Massachusetts Have Extensively Used Contingency-Fee 
Consultants: 

From state fiscal years 2000 through 2004, Georgia used a private 
consulting firm on a contingency-fee basis for multiple reimbursement- 
maximizing projects, including projects in the five Medicaid claims 
categories that we reviewed. The consultant provided numerous services 
on more than 20 projects, such as creating new methodologies for 
developing claims for federal reimbursement, obtaining legal advice to 
support reimbursement-maximizing claims, and pursuing retroactive 
reimbursement for claims that were not previously reimbursed. The 
consultant also helped the state to write state plan amendments and 
cost allocation plans. For example, for five UPL projects, the 
consultant developed the formulas for calculating the state's UPL, 
drafted the state plan amendment to submit to CMS, and drafted provider 
agreements to implement the project. For a project in rehabilitation 
services, the consultant developed a new methodology for developing 
claims for federal reimbursement of payments the state made to 
providers. For TCM projects involving two state agencies, the 
consultant developed revisions to the state's payment rate; drafted the 
state plan amendment to implement the revised rates; drafted revisions 
to state policy manuals; and conducted training sessions with case 
managers, including identifying services that could be considered as 
TCM and explaining how to format their case notes to support Medicaid 
claims. 

Georgia paid the consultant mainly from additional federal Medicaid 
reimbursements generated from the contingency-fee projects, although 
CMS determined that the state did not claim federal reimbursement for 
the contingency fees themselves. Initially, in 1999, Georgia and the 
consultant agreed on a contingency fee based on additional federal 
reimbursement generated by the consultant's projects. For state fiscal 
years 2000 through 2004, the state paid its consultant more than $82 
million in contingency fees. After UPL projects generated for Georgia 
more than $1.2 billion in additional federal Medicaid reimbursements 
for state fiscal years 2001 through 2003, and a dispute developed 
between the state and the consultant about the extent to which the 
additional reimbursements were attributable to the consultant's 
project, the state and the consultant agreed upon an additional $28 
million in fees to be paid over 2 years.[Footnote 18] In total, the UPL 
arrangement and other consultant projects generated an estimated $1.5 
billion in additional federal Medicaid reimbursements for Georgia over 
approximately 5 years. 

Massachusetts has pursued Medicaid reimbursement-maximizing and cost- 
avoidance projects using contingency-fee consultants since the early 
1990s. The state has used various private consulting firms, but since 
state fiscal year 2000, it has relied primarily on a component of the 
University of Massachusetts Medical School (UMMS) to conduct 
reimbursement-maximizing and cost-avoidance projects, including 
projects in rehabilitation services, supplemental payments, and school- 
based services. UMMS has performed a number of services to implement 
these reimbursement-maximizing projects, including assisting in 
drafting state plan amendments and preparing Medicaid claims for 
reimbursement. 

In addition to reimbursement-maximizing projects, Massachusetts's state 
Medicaid agency also obtains other services from UMMS through 
interagency agreements to help operate its Medicaid program. UMMS 
performs many of the state's Medicaid administrative functions, such as 
analyzing claims to identify and recover improper payments paid to 
health providers and training state and local staff on procedures for 
submitting claims.[Footnote 19]

UMMS was compensated in two ways for its services: (1) for selected 
projects, UMMS was paid a contingency fee that came from the additional 
federal funds received by the state for the particular reimbursement- 
maximizing or cost-avoidance project;[Footnote 20] and (2) the state 
paid UMMS from the federal reimbursement for its administrative costs. 
Contingency fees paid to UMMS varied by project, generally from 1 to 15 
percent of additional federal reimbursement generated or costs avoided. 
Administrative costs that were attributable to UMMS were paid by the 
state on the basis of UMMS's reported Medicaid-related costs, according 
to UMMS officials. Each quarter, UMMS reported its Medicaid-related 
costs to the state Medicaid agency, which in turn included these costs 
on the state's quarterly expenditure report to CMS. The state then 
reimbursed UMMS for its reported Medicaid-related administrative costs. 
We could not isolate the amount that UMMS received for administrative 
costs associated with federal Medicaid reimbursement-maximizing 
projects because these costs were combined with those for other 
Medicaid projects, such as pharmacy management and utilization review, 
which UMMS also conducts for the Medicaid agency. For all its Medicaid 
administrative activities, UMMS in state fiscal year 2004 claimed 
approximately $60 million (excluding contingency fees) in state and 
federal Medicaid reimbursements. 

Massachusetts has used other contingency-fee consultants for 
reimbursement-maximizing and cost-avoidance projects, including a 
private consultant that developed a TCM project and rate-setting 
proposal for the state's Department of Youth Services, among others. 
That private consultant still served in state fiscal year 2004 as a 
consultant paid on a contingency-fee basis, helping state agencies with 
various reimbursement-maximizing projects. For state fiscal year 2004, 
Massachusetts paid the private consultant about $4 million in fees from 
contingency-fee agreements for generating nearly $106 million in 
savings and additional federal reimbursements. 

According to the Massachusetts Medicaid agency, the state paid more 
than $57.5 million to contingency-fee consultants during state fiscal 
years 2000 through 2004 for projects that generated almost $1.3 billion 
in funds for the state through all types of reimbursement-maximizing 
and cost-avoidance projects. Some of these projects would have accrued 
savings to Medicaid in which the federal government would have shared, 
such as program integrity efforts to ensure appropriate payments to 
individual providers. Most of the contingency fees (about $37 million) 
were paid to UMMS; other (private) consultants were paid about $20.5 
million. From state fiscal years 2000 through 2004, reimbursement-
maximizing projects generated about $570 million in additional federal 
reimbursements for the state, for which Massachusetts paid consultants 
nearly $11 million in contingency fees. UMMS projects accounted for 
$540 million of the total, for which it was paid $9 million in 
contingency fees. 

Claims from Contingency-Fee Projects Are Not Always Consistent with Law 
or Current Policy and Can Undermine Medicaid's Fiscal Integrity: 

We and others have identified claims from contingency-fee consultant 
projects that appeared to be inconsistent with current CMS policy and 
claims that were inconsistent with federal law. We also identified 
claims from projects that undermined Medicaid's fiscal integrity. Such 
projects and resulting problematic claims arose in each of the five 
categories of claims that we reviewed, either in Georgia or 
Massachusetts or both. During our work we observed two factors that 
appeared to increase the risk of problematic claims. One factor 
involved federal requirements that were inconsistently applied, 
evolving, or not specific; the second involved Medicaid payments to 
government units, which can facilitate the inappropriate shifting of 
state costs to the federal government. 

Contingency-Fee Projects in Selected States Resulted in Problematic 
Federal Reimbursements in Five Categories of Claims: 

In the five categories of Medicaid services we reviewed, we identified 
claims that were problematic in Georgia, Massachusetts, or both. We 
identified claims for TCM services that appear to be inconsistent with 
current CMS policy and claims for rehabilitation services that were 
inconsistent with federal law. In other areas, such as supplemental 
payments, we found claims associated with projects that undermined the 
fiscal integrity of the Medicaid program and the federal-state 
partnership. In addition to our work in Massachusetts and Georgia, we 
identified several reports by HHS OIG about other states, which raise 
issues about the appropriateness of claims stemming from contingency- 
fee contracts for school-based services and for administrative costs. 

Targeted Case Management Services: 

Most of the claims for federal reimbursement of Medicaid TCM services 
in Georgia and Massachusetts that we reviewed appeared to be 
inconsistent with current CMS policy, which does not allow federal 
reimbursement for TCM services that are integral to other state 
programs.[Footnote 21] Under previously CMS-approved state plans, 
consultants helped Georgia and Massachusetts increase federal TCM 
reimbursements.[Footnote 22] In Georgia, the consultant assisted the 
state in increasing federal reimbursement for TCM services provided by 
two state agencies: the Department of Juvenile Justice and the Division 
of Family and Children's Services. The consultant assisted Georgia by 
streamlining the billing process, drafting a state plan amendment 
proposal,[Footnote 23] and increasing the number of Medicaid 
beneficiaries for whom these two non-Medicaid state agencies billed 
case management services, thus reducing costs to the state for 
operating these agencies. In Massachusetts, contingency-fee consultants 
helped the state increase federal reimbursement for TCM services 
provided by three state agencies: the Departments of Social Services, 
Youth Services, and Mental Health. The consultants helped develop state 
plan amendments that established Medicaid coverage for the agencies' 
case management services and assisted with developing and updating the 
rates Medicaid would pay providers for TCM services.[Footnote 24]

In analyzing the TCM projects and the basis for TCM claims, we found 
that Georgia and Massachusetts were claiming federal reimbursement, 
under their CMS-approved state plan amendments, for TCM services that 
appeared to be unallowable under CMS's current TCM policy. 
Specifically, the claims were for services that appeared to be integral 
components of non-Medicaid programs in these states. The states' laws, 
regulations, or policies called for case management services in these 
programs, and the case management services were provided to all 
Medicaid-and non-Medicaid-eligible individuals served by the 
programs.[Footnote 25] For example, all children served by 
Massachusetts's and Georgia's child welfare agencies receive a broad 
range of services to promote their welfare and protect them from abuse 
and neglect. To fulfill this responsibility, state employees provide 
case management services, refer the children to others for services, 
and monitor their well-being and progress. CMS has denied TCM claims 
for similar programs in other states. In fiscal year 2002, for example, 
CMS denied a state plan amendment proposal to cover TCM services in 
Illinois, and in fiscal year 2004 it found TCM claims in Texas 
unallowable, in part because the TCM services claimed for reimbursement 
were considered integral to other state programs. As in Georgia and 
Massachusetts, the TCM services in Illinois were for children served by 
the state's juvenile justice system. In Texas, such children were 
served by the state's child welfare and foster care system. 

In Georgia in fiscal year 2003, the state received an estimated $17 
million in federal reimbursements for TCM claims from the Department of 
Juvenile Justice and the Division of Family and Children's Services, of 
which about $12 million was for services that appeared to be integral 
to non-Medicaid programs. In Massachusetts in fiscal year 2004, the 
state received an estimated $68 million in federal reimbursements 
generated by claims from the Departments of Social Services, Youth 
Services, and Mental Health--the agencies whose TCM projects were 
developed by consultants--for services that appeared to be integral to 
non-Medicaid programs.[Footnote 26] CMS officials agreed with our 
assessment that the claims for TCM services in these two states were 
problematic, and CMS officials noted that they had been aware of the 
potential problems in Massachusetts for some time before our review. 
CMS officials stated that, under an interagency agreement with HHS OIG, 
HHS OIG had initiated an audit of Massachusetts's TCM claims in 
December 2003. At the time of our review, HHS OIG's findings had not 
been released. 

Rehabilitation Services: 

Our review of projects involving rehabilitation services found claims 
that were inconsistent with federal law from a project in Georgia and 
potentially duplicated claims for rehabilitation services in 
Massachusetts. Georgia's contingency-fee consultant helped the state 
develop a project to increase the rates paid by Georgia's Medicaid 
program to two state agencies for rehabilitation services, which in 
effect allowed the state to overpay these agencies for one set of 
services while reducing the agencies' costs for other, non-Medicaid 
services. In Massachusetts, a consultant helped two state agencies 
increase claims for rehabilitation services, potentially duplicating 
other federal Medicaid reimbursements obtained by the state. 

In Georgia, the Department of Juvenile Justice and the Division of 
Family and Children's Services place certain children in state custody 
in private residential care facilities throughout the state. Under 
contract with these state agencies, the residential facilities provide 
various services, including many not covered by Medicaid, such as room 
and board, general supervision, and educational services. The 
facilities also provide rehabilitative counseling and therapy services. 
The facilities receive a per diem payment from the state agencies for 
providing all of these services. The Department of Juvenile Justice and 
Division of Family and Children's Services then bill the state Medicaid 
agency for mental health rehabilitation services, one component of the 
services the agencies pay the private facilities to provide.[Footnote 
27]

As recommended by its contingency-fee consultant, Georgia increased the 
rates at which the state's Medicaid agency paid the Department of 
Juvenile Justice and the Division of Family and Children's Services for 
these rehabilitation services. The per diem amount these agencies paid 
the private facilities, however, stayed the same. Specifically, the 
consultant recommended that the two state agencies claim Medicaid 
reimbursement on the basis of the facilities' estimated costs for 
rehabilitation services, rather than on the state agencies' actual per 
diem payment. Before the project, the state agencies sought Medicaid 
reimbursement for that portion of the per diem payment attributable to 
the facilities' estimated cost for providing rehabilitation services. 
As a result of the change, the state was able to shift costs it had 
previously covered to Medicaid. For example, for one category of 
children, the percentage of the state's per diem paid by Medicaid 
increased from 50 percent under the state's prior method to 87 percent 
under the new method, while the share of the per diem paid by state 
funds decreased from 29 percent to less than 1 percent. In some cases, 
the added reimbursement from the Medicaid agency covered the other 
state agencies' own shares of the per diem payments to the facilities-
-shares that covered the costs of services other than rehabilitation. 
For example, the portion billed to Medicaid of one agency's per diem 
payment to one facility increased from $115 to $162 while that agency's 
own share decreased from $37 to $0. In all, this project increased the 
federal Medicaid reimbursement to the state agencies by $58 million 
during state fiscal years 2001 through 2003.[Footnote 28]

The change in the basis for the expenditures that were claimed for 
Medicaid reimbursement resulted in payments from Georgia's Medicaid 
agency to the Department of Juvenile Justice and the Division of Family 
and Children's Services for services provided by private facilities 
that in some cases were higher than what the agencies paid the 
facilities for all contracted services combined (Medicaid-and non- 
Medicaid-covered). Specifically, for 82 facilities (about 43 percent of 
the residential facilities), the amount the state Medicaid agency 
reimbursed the Department of Juvenile Justice and the Division of 
Family and Children's Services in state fiscal year 2004 exceeded the 
total amount these agencies actually paid the facilities for all 
services, not just rehabilitation services. One facility, for example, 
was paid by the Division of Family and Children's Services $37 per day 
per eligible child for all services covered by the per diem payment, 
but the state agency billed the Medicaid program $62 per day for 
rehabilitation services alone. 

CMS officials agreed with our conclusion that the claims from this 
contingency-fee project were inconsistent with federal law. 
Specifically, the arrangement was not in accord with the statutory 
requirement that payments be consistent with efficiency, economy, and 
quality of care. Further, federal Medicaid funds are intended for 
Medicaid-covered services for eligible individuals on whose behalf 
payments are made, not to subsidize non-Medicaid-covered 
services.[Footnote 29] In discussing Georgia's reimbursement- 
maximizing project, CMS officials also identified a number of 
additional concerns, including whether the billing agencies, as well as 
the facilities they paid, were qualified Medicaid providers; whether 
the facilities' estimates of Medicaid costs were appropriate; and 
whether all services included in the facilities' estimates were 
Medicaid-covered services. After we brought it to the agency's 
attention, CMS initiated a review of this contingency-fee project and 
the allowability of associated claims for federal Medicaid 
reimbursement. 

In Massachusetts, a contingency-fee consultant helped two state 
agencies increase claims for rehabilitation services that potentially 
duplicated federal payments the state had already received because, 
according to CMS officials, the services were to be paid for under the 
state's managed care agreement. The consultant developed and 
implemented a project in which the state's Department of Youth Services 
(the state's juvenile justice agency), for example, started billing 
Medicaid for rehabilitation services that the state agency was 
responsible for providing directly to youth it served. As with 
Georgia's arrangement, the Department of Youth Services billed Medicaid 
for payments the agency made to private facilities that cared for 
youths in the state's juvenile justice system. To the extent that the 
youth served by the department were enrolled in the state's Medicaid 
managed care program, these payments may have duplicated payments the 
state had already received for rehabilitation services provided under 
that program. States typically accept a fixed federal payment per 
person per month for providing a range of services to Medicaid 
beneficiaries enrolled in managed care programs. Rehabilitation 
services are covered by the managed care payment Massachusetts 
receives. CMS officials agreed that it was likely that duplicate 
payments occurred, because a significant portion of the state's 
Medicaid beneficiaries are enrolled in its managed care program. CMS 
officials could not, however, estimate the amount of duplicate 
payments. 

Supplemental Payments: 

Consultants in both Georgia and Massachusetts helped the states 
implement supplemental payment arrangements that claimed federal 
reimbursements on behalf of state and local-government facilities, 
which did not retain the bulk of the Medicaid payments. Although, under 
current law and CMS policy, states are allowed to claim federal 
reimbursements for supplemental payments they make to providers up to 
UPL ceilings, we have earlier reported that payments in excess of a 
provider's costs that are not retained by the provider as payment for 
services actually provided are inconsistent with Medicaid's federal- 
state partnership and fiscal integrity.[Footnote 30] These payments can 
be illusory: that is, the state can benefit from the arrangements by 
appearing to pay the providers more than they ultimately retain while 
the state seeks federal reimbursement on the excess payment. Most of 
the additional federal Medicaid funding generated by Georgia's 
reimbursement-maximizing projects--$1.2 billion during state fiscal 
years 2001 through 2003--came through UPL financing arrangements 
developed by the state's consultant. The consultant developed five 
arrangements--one each for local-government-operated inpatient 
hospitals, outpatient hospitals, and nursing homes and state-owned 
hospitals and nursing homes. During state fiscal years 2001 through 
2003, the state made supplemental payments totaling $2.0 billion to 
nursing homes and hospitals operated by local governments (see fig. 2). 
A sizable share of the $2.0 billion, however, was illusory. In reality, 
the health facilities netted $357 million because they had transferred 
$1.7 billion to the state Medicaid agency through a process known as an 
intergovernmental transfer.[Footnote 31] The state combined this $1.7 
billion with $1.2 billion in federal funds that had been advanced to 
the state through the quarterly advance process. The advanced amount 
represented the estimated federal share of the planned supplemental 
payments to local-government facilities of $2.0 billion. The state thus 
had a funding pool of $2.9 billion at its disposal. From this pool, the 
state made the $2.0 billion in supplemental payments to local- 
government providers and retained $844 million to offset its Medicaid 
expenditures. 

Figure 2: Georgia's UPL Arrangement with Local-Government Health Care 
Providers, State Fiscal Years 2001-2003: 

[See PDF for image]

Note: Totals may not add up because of rounding. 

[End of figure]

Despite actions taken by Congress and CMS to narrow loopholes 
associated with UPL financing schemes, federal reimbursements for 
provider payments made up to the UPL are still allowed under federal 
law and CMS policy. Georgia's arrangement illustrates how current law 
and UPL policy continue to allow states to inappropriately generate 
excessive federal matching payments beyond standard Medicaid payments 
for services. 

Georgia's consultant also developed a UPL arrangement with state-owned 
hospitals. During state fiscal years 2001 through 2003, the state made 
$108 million in UPL payments to state hospitals, which included $64 
million in federal funds. The bulk of the payment, however, was 
illusory, in that the hospitals' net increase in payments was $22 
million. Through this arrangement, the state Medicaid agency was able 
to retain $42 million in additional funds, which it used to offset its 
Medicaid expenditures. In commenting on a draft of this report, the 
state said that it had agreed with CMS to end the aspects of its UPL 
arrangement that resulted in federal reimbursements exceeding the 
state's actual payment to the providers, effective June 30, 2005. 

Massachusetts's consultant similarly assisted the state with increasing 
federal reimbursements through a UPL arrangement. Under a May 2003 
agreement between UMMS and the Massachusetts Medicaid agency, UMMS 
developed a UPL project involving government-owned or government- 
operated nursing facilities, which entailed illusory payments to 
providers.[Footnote 32] As in Georgia, Massachusetts's payments, which 
involved intergovernmental transfers, were illusory because the state 
claimed federal matching for a UPL payment of $8.6 million when the net 
payment increase to the nursing homes was $1.2 million. According to 
the state comptroller's office, the Medicaid agency had in August 2003 
paid UMMS about $155,000 for the project, a contingency fee of 5 
percent of the $3.1 million in additional federal Medicaid 
reimbursements that the project had generated for the state. As with 
Georgia, the state Medicaid agency agreed in August 2004 to end certain 
aspects of its UPL arrangement effective June 30, 2005. 

Massachusetts contracted with UMMS to implement two other types of 
supplemental payment arrangements (involving disproportionate share 
hospital payments), which we were unable to fully evaluate for their 
consistency with federal law and policy. The arrangements are complex, 
requiring substantial documentation to assess. The information we 
received from the state raised legal and policy questions, but the 
state Medicaid agency did not produce the extensive documentation we 
needed within the time frame of our work. We believe that a separate 
study of these arrangements would be required to assess their 
appropriateness. Where appropriate, we have referred information to CMS 
and HHS OIG about projects within the scope of our work that we were 
unable to evaluate (see app. I). 

School-Based Health Services and Associated Administrative Costs: 

HHS OIG has identified concerns with states' school-based claims for 
Medicaid services in Massachusetts and in several other states that 
have relied on the work of contingency-fee consultants. (See app. II 
for a summary of selected HHS OIG reports of states that have used 
contingency-fee consultants.) In Massachusetts, HHS OIG reported on 
concerns with the adequacy of state and UMMS monitoring of claims for 
school-based services to ensure school districts' compliance with 
federal and state requirements, estimating that $2.9 million in 
unallowable Medicaid claims were paid in state fiscal year 
2000.[Footnote 33] HHS OIG found that the state had inappropriately 
submitted claims for services that were not documented as delivered, 
provided by unqualified providers, or provided to students who were 
absent on the dates of the claimed services. According to state 
officials, after further review, CMS, which reviews HHS OIG 
recommendations and issues final disallowances, imposed a $1.2 million 
disallowance. In a separate report on Massachusetts' claims for 
administrative costs related to school-based services, HHS OIG found 
that in state fiscal years 2000 and 2001, the state did not monitor the 
appropriateness of school districts' claims that were compiled by 
UMMS,[Footnote 34] resulting in at least $5 million in unallowable 
claims.[Footnote 35]

In commenting on a draft of this report, Massachusetts officials cited 
a number of actions taken in response to HHS OIG's reports. To 
strengthen oversight of school-based claims, state efforts include 
enhanced training and technical assistance to school districts, 
expanded management reporting, new monitoring and auditing systems, and 
a newly established Director of School-Based Medicaid within the Office 
of Medicaid. 

In the context of documenting Georgia's contingency-fee project related 
to school-based claims, we identified a concern with how Georgia was 
using additional federal reimbursements gained from school-based 
claims. Georgia's contingency-fee consultant assisted the state with 
Medicaid claims for school-based services in a project that generated 
about $54 million in federal Medicaid reimbursements over the 3 years 
the consultant was paid and that, on the basis of state data, we 
estimate continues to generate about $25 million annually.[Footnote 36] 
We found that the school districts were not receiving all of the 
federal Medicaid matching funds that were generated on their behalf--a 
concern we noted in prior reports on state school-based 
claims.[Footnote 37] According to a state official and documents 
provided by the state, the state retained $3.9 million, or 16 percent, 
of federal reimbursements that were claimed on behalf of the school 
districts for state fiscal year 2003, most of which was used to pay its 
contingency-fee consultant and about $1 million of which was used to 
cover the salaries and administrative costs of the five state employees 
who administered school-based claims in Georgia. 

Administrative Costs: 

Our work in Massachusetts and Georgia found that neither state had 
claimed federal reimbursement for contingency fees they had paid their 
consultants. In examining Massachusetts's administrative claims, 
however, we found that, despite a major reorganization of state 
agencies beginning in mid-2003, the state did not submit a complete 
cost allocation plan--which would have provided the basis for its 
administrative claims--reflecting its new organization until December 
2004. As of April 2005, the revised cost allocation plan had not been 
approved by HHS.[Footnote 38] We also found that the state may have 
claimed more in administrative costs related to its contingency-fee 
projects than may have been warranted. For example, according to the 
state's claims for administrative reimbursement for UMMS's costs, 100 
percent of one senior official's salary was claimed as a Massachusetts 
Medicaid administrative expense, even though the official had worked on 
UMMS projects conducted for other states. We also identified an issue 
related to Georgia's claims for administrative costs that we were 
unable to fully evaluate during our work. As discussed in appendix I, 
we have referred information regarding Georgia's administrative claims 
to CMS for further review. 

HHS OIG has recently reported on unallowable administrative expenses in 
states other than Massachusetts related to their use of contingency-fee 
consultants. In October 2004, for example, HHS OIG reported that 
Colorado had received about $180,000 in improper federal Medicaid 
reimbursement because the state had claimed about $359,000 in 
consultant fees that were contingent upon reimbursements from the 
federal government for Medicaid family-planning claims.[Footnote 39] 
The claims were made from April 2002 through December 2003. Similarly, 
in November 2004, HHS OIG reported that Virginia had improperly claimed 
as Medicaid administrative expenditures the contingency fees paid to a 
consultant for federal reimbursement-maximizing services also related 
to family-planning services. From October 2001 through April 2003, the 
state had claimed about $678,000 in unallowable contingency-fee 
payments made to a consultant, the federal share of which was about 
$339,000.[Footnote 40] Both states agreed that they had improperly 
claimed these fees and submitted corrective adjustments. According to a 
CMS official, the agency recouped the states' excessive reimbursements. 

In early 2005, CMS acted upon its concerns about states' Medicaid 
administrative claims. For example, CMS reported that, in some 
instances, evidence showed that states had attempted to shift 
administrative costs associated with other social service programs to 
Medicaid. The President's budget proposal for fiscal year 2006 contains 
an initiative to limit states' allotments for Medicaid administrative 
claims.[Footnote 41]

Two Factors Increase Risk of Problematic Claims: 

We observed two factors in many reviewed projects that appeared to 
increase the risk that claims are problematic, that is, inconsistent 
with federal law or policy, or with Medicaid's federal-state 
partnership and fiscal integrity. One factor was that they came under 
areas of Medicaid claims where federal requirements were inconsistently 
applied, evolving, or not specific, at times resulting in inconsistent 
treatment of states by CMS. Despite CMS's long-standing concern about 
state financing arrangements for both TCM and supplemental payments, 
the agency has not issued adequate guidance to clarify expenditures 
allowable for federal reimbursement. Federal policy for claims in these 
categories has evolved over time, and the criteria that CMS applies to 
determine whether claims are allowable have been communicated to states 
mainly through state-specific state plan amendment reviews or claims 
disallowances, rather than through guidance or regulation. State 
officials, HHS OIG auditors, and CMS financial management staff have 
raised concerns about the lack of, and need for, improved guidance in a 
number of categories that we reviewed. Some officials said that the 
lack of clear CMS guidance has allowed states to develop new financial 
arrangements, or to continue existing ones, that take advantage of gray 
areas. In line with these concerns, we also found that existing 
guidance on allowable claims had been inconsistently applied, had 
evolved over time, or, in the case of rehabilitation services, had not 
been specified. 

* Inconsistently applied policy for allowable TCM services: Although 
CMS began to deny proposed state plan amendments that sought approval 
for Medicaid coverage of TCM services that were the responsibility of 
other state agencies in 2002, states with such arrangements then in 
place, such as Georgia and Massachusetts, were allowed to continue 
them. For other states, CMS had determined that such arrangements were 
not eligible for federal Medicaid reimbursement for several reasons: 
(1) the services were typically integral to existing state programs, 
(2) the services were provided to beneficiaries at no charge, and (3) 
beneficiaries' choice of providers was improperly limited.[Footnote 42] 
CMS, however, had approved Georgia's and Massachusetts's state plan 
amendments for TCM services before 2002. Although CMS has since applied 
these criteria to deny TCM arrangements or claims--for example, in 
Maryland, Illinois, and Texas--it has not yet sought to address 
similar, previously approved TCM arrangements that are inconsistent 
with these criteria. CMS regional officials told us they could not 
reconsider the TCM claims from two agencies in Georgia and four in 
Massachusetts because they were waiting for new guidance that the 
agency was preparing.[Footnote 43] CMS has been working on new TCM 
guidance for more than 2 years, according to agency officials, and as 
of May 2005 this guidance had not been issued. CMS's fiscal year 2006 
budget submission identifies savings that could be achieved by 
clarifying allowable TCM services, but CMS had not published a specific 
proposal at the time we completed our work.[Footnote 44]

* Evolving policy for allowable supplemental payment arrangements: For 
several years, we and others have reported on state financing 
arrangements that allow states to inappropriately generate federal 
Medicaid reimbursement without a corresponding state expenditure. While 
Congress and CMS have taken steps to curb these abuses, states can 
still develop arrangements enabling them to make illusory payments to 
gain federal reimbursements for their own purposes. CMS has recognized 
that states can gain from supplemental, such as UPL, payment 
arrangements through intergovernmental transfers. Since fiscal year 
2003, for example, CMS has worked with individual states to address 
such arrangements and, under this effort, CMS had identified and made 
agreements with Georgia and Massachusetts to change how their UPL 
arrangements operated.[Footnote 45] At the same time, the agency has 
not issued guidance stating its policy on acceptable approaches for 
supplemental payment arrangements, including the allowed methods for 
funding the state's share of the Medicaid program. CMS's budget for 
fiscal year 2006 proposes to achieve federal Medicaid savings by 
curbing financing arrangements that have been used by a number of 
states to inappropriately obtain federal reimbursements. The specific 
proposal, however, had not been published at the time we completed our 
review.[Footnote 46]

* Unspecified policy on allowable Medicaid rehabilitation payments to 
other state agencies: CMS has not issued policy guidance that addresses 
situations where Medicaid payments are made by a state's Medicaid 
agency to other state agencies for rehabilitation services. CMS 
financial management officials told us that states' claims for 
rehabilitation services posed an increasing concern, in part because 
officials believed that states were inappropriately filing claims for 
services that were the responsibility of other state programs. CMS does 
not specify whether claims for the cost of rehabilitation services that 
are the responsibility of non-Medicaid state agencies are allowable. 
CMS's fiscal year 2006 budget submission identifies savings that could 
be achieved by clarifying appropriate methods for claiming 
rehabilitation services. CMS had not published a specific proposal at 
the time we completed our review.[Footnote 47]

Another factor shared by the reimbursement-maximizing projects we 
examined was that they increased Medicaid payments from state Medicaid 
agencies to other state or local-government agencies--that is, to non- 
Medicaid agencies that may serve Medicaid beneficiaries--a mechanism 
that can facilitate an inappropriate shift of state costs to the 
federal government. Medicaid reimbursement to government agencies 
serving Medicaid beneficiaries is allowable in cases where the claims 
apply to covered services and the amounts paid are consistent with 
economy and efficiency. In contrast, the projects and associated claims 
we reviewed showed that reimbursement-maximizing projects often 
involved services and circumstances that Medicaid should not pay for-- 
such as illusory payments to government providers. 

Limited State and CMS Oversight of Claims from Contingency-Fee Projects 
Raises Concerns about Medicaid Financial Management: 

Georgia, Massachusetts, and CMS provided limited oversight of claims 
associated with projects developed with the aid of contingency-fee 
consultants to ensure that they were consistent with Medicaid 
requirements. The two states' measures to oversee contingency-fee 
projects were insufficient to prevent inappropriate claims, and CMS 
officials were not always aware of states' specific projects to 
maximize federal reimbursement. Problems we found with CMS's oversight 
of states' reimbursement-maximizing projects and associated claims 
illustrate the need to address broader financial management issues, 
especially as more states adopt reimbursement-maximizing strategies 
without hiring consultants. 

States Have Taken Some Steps to Ensure Appropriate Claims, but Problems 
Remain: 

Georgia and Massachusetts have taken some steps to oversee the 
contingency-fee consultants they have engaged for reimbursement- 
maximizing projects. Georgia's oversight was conducted primarily 
through a steering committee, formed by the state in 1999, with project 
review and approval responsibility. Specifics of implementing the 
projects were delegated to the state agencies that generated the 
enhanced reimbursements. In some cases, the state Medicaid agency and 
the steering committee disapproved proposed projects because they did 
not comply with Medicaid law or policy. For example, the consultant 
proposed that two state agencies be allowed to bill for TCM for a 
particular client in a given month. The state agency determined that 
this proposal would result in an inappropriate duplicate billing and 
chose to allow only one state agency to bill for TCM services per 
client per month. In addition, although Georgia was not required to 
notify CMS when a new project was developed by the state's consultant-
-and generally did not do so because it believed the authority to 
implement various projects was already included in the state's existing 
approved Medicaid plan--on occasion, it sought the advice of CMS's 
regional office about a project. 

Despite Georgia's review of the consultant's proposed projects, 
however, the state's oversight did not identify problems with some of 
the projects we reviewed. For example, Georgia made several changes in 
its rehabilitation program, including a change in how payment rates to 
private facilities were calculated. As discussed in the rehabilitation 
services section of this report, we believe the revised rates were not 
in accord with requirements that payments be consistent with efficiency 
and economy. CMS officials--who had not been asked to approve the 
states' revised rates--agreed, and during our review began an 
investigation to determine the extent of the problem. 

In Massachusetts, oversight for Medicaid reimbursement-maximizing 
projects has been shared by the state Medicaid agency, which is now in 
the Executive Office of Health and Human Services, and the Office of 
the State Comptroller. The Medicaid agency is responsible for ensuring 
that the state's claims for federal reimbursement are consistent with 
federal requirements. The Comptroller's office reviews and approves 
specific reimbursement-maximizing projects proposed by the Medicaid 
agency, manages the accounts that receive reimbursements generated by 
the projects, verifies and pays the contingency fees, and reports 
program results annually to the state legislature. The Comptroller's 
review has focused on the financial implications of proposals, more 
than on program implications. Recent state legislation authorized the 
Medicaid agency to enter into contingency-fee contracts with UMMS 
without the Comptroller's prior approval and to pay contingency fees up 
to a ceiling of $30 million for state fiscal year 2005. 

The Massachusetts Medicaid agency engaged UMMS to perform many ongoing 
operational functions of its Medicaid program. In February 2004, when 
the Executive Office of Health and Human Services was designated as the 
single state Medicaid agency, and staff of the Medicaid and other state 
agencies were relocated under UMMS, UMMS has assisted the state 
Medicaid agency in carrying out many of its functions. UMMS in 2004 had 
major responsibilities for administering significant operational 
aspects of the Medicaid program, such as conducting program integrity 
and utilization reviews[Footnote 48] and compiling the state's Medicaid 
claims for school-based services, including ensuring the 
appropriateness of such claims.[Footnote 49] At the same time, UMMS has 
also been paid contingency fees by the state Medicaid agency for 
numerous reimbursement-maximizing activities, such as those related to 
school-based claims. 

In addition to its agreements with the Massachusetts Medicaid agency to 
operate portions of the Medicaid program, UMMS also served as a 
contingency-fee consultant to other Massachusetts entities to enhance 
federal Medicaid reimbursements. UMMS officials told us that they have 
contracted on a contingency-fee basis with about 86 of the state's 356 
local school districts to develop their school-based Medicaid 
administrative claims and with about 75 local districts to develop 
school-based health services claims. UMMS therefore administers 
significant operational aspects of the state's system for school-based 
Medicaid services, including overseeing the appropriateness of claims, 
and acts as a contingency-fee consultant to prepare some of those 
claims for some school districts.[Footnote 50] In audits of 
Massachusetts's claims for school-based health services, HHS OIG cited 
inadequate oversight by both the state Medicaid agency and UMMS. HHS 
OIG audited health claims and administrative expenditures from eight 
school districts and found improper claims in both categories.[Footnote 
51] In our view, this dual role--assisting with Medicaid program 
administration, including quality control, and consulting with local 
school districts on a contingency-fee basis--creates an appearance of 
conflict of interest for UMMS, raising questions about UMMS's 
incentives for ensuring that claims for federal Medicaid reimbursement 
are appropriate.[Footnote 52]

The oversight measures that Massachusetts Medicaid officials told us 
they had in place to ensure that reimbursement-maximizing claims 
compiled by UMMS were consistent with federal requirements were 
insufficient to prevent inappropriate claims. The officials told us, 
for example, that they relied on edits in the state's Medicaid 
Management Information System--the computer system that processes 
provider claims for payment--to ensure that the processed Medicaid 
claims were allowable. According to the CMS financial management 
officials who reviewed Massachusetts's claims, however, claims from 
some reimbursement-maximizing projects were not subject to computer- 
based edits. The officials estimated that about 30 percent of the 
state's Medicaid claims, including some of those for managed care and 
supplemental payments, are processed off system--that is, not through 
the state's computerized Medicaid Management Information System--and 
these off-system claims pose a greater concern, they told us, because 
inaccuracies are more common in them. 

CMS Has Limited Oversight of Contingency-Fee Projects and Associated 
Claims: 

CMS did not routinely review projects in Georgia and Massachusetts that 
used contingency-fee consultants and in fact was unaware of some of the 
specific projects to increase federal reimbursements that we reviewed. 
CMS oversight of such projects and the associated claims was limited 
because the agency did not routinely request that states indicate on 
state plan amendments or expenditure reports whether consultants were 
involved in their development. CMS officials told us they relied 
primarily on the states to ensure that projects and claims were 
appropriate. Although CMS surveyed its regional offices in fiscal year 
2004 to identify contingency-fee consultant projects by state, our work 
in Georgia and Massachusetts identified more projects developed with 
assistance from contingency-fee consultants than CMS's survey reported. 
CMS officials told us that they became aware of Georgia's contract with 
its consultant when a local newspaper reported a dispute between the 
state and the consultant. CMS officials overseeing the Massachusetts 
Medicaid program told us they had not examined the relationships 
between the Medicaid agency and UMMS, but they told us that during the 
time of our review they had asked HHS OIG to investigate the 
appropriateness of the state's Medicaid administrative claims, which 
included those attributable to UMMS. HHS OIG's investigation was under 
way when we completed our work. 

CMS has stated that it lacks authority to require states to disclose 
contingency-fee arrangements when states are not seeking federal 
reimbursement for the fees. CMS officials clarified, however, that they 
can request information about the assistance of a contingency-fee 
consultant when agency officials are reviewing state submissions such 
as state plan amendments, cost allocation plans, or expenditure 
reports. Officials said that they did not routinely request such 
information in conjunction with these reviews. In Georgia and 
Massachusetts, we found CMS reviews limited in the extent to which they 
identified concerns with contingency-fee projects and associated claims 
in three areas: 

* CMS review of state plan amendments: Because states' proposals for 
changes to their state plans through amendments might be general in 
nature, CMS may not have details to identify the specific changes that 
would increase claims. Georgia, for example, did not submit a state 
plan amendment about its project to increase payment rates for 
rehabilitation services to children in the state's juvenile justice and 
child protection systems because it had concluded that it could change 
how it claimed Medicaid reimbursement without changing the state plan 
section that authorized the payments. When we discussed this example 
with CMS officials, they told us that when a state's plan is broadly 
written, the state may not always submit amendments to change the plan 
provisions. The CMS officials told us that even in cases where a 
contingency-fee consultant was involved in drafting a state plan 
amendment--for example, to establish new coverage or payment rates-- 
they might not be aware of a consultant's involvement because states do 
not routinely disclose this information to CMS.[Footnote 53]

* CMS review of cost allocation plans: As previously discussed, 
Massachusetts did not submit a complete draft cost allocation plan to 
CMS, reflecting its major reorganization, until December 2004. As of 
April 2005, the revised cost allocation plan had not been approved. CMS 
officials did not explain why Massachusetts was allowed to continue 
claiming federal Medicaid reimbursement for administrative costs on the 
basis of an outdated cost allocation plan, other than to say that 
several other states did not have current plans. Massachusetts's 
officials told us they did not expect major changes as a result of the 
revised cost allocation plan, but the extent of any changes cannot be 
verified until a revised plan is approved. 

* CMS review of Medicaid quarterly expenditure reports: Nothing in the 
quarterly expenditure report indicates when a contingency-fee 
consultant has assisted in developing specific categories of claims, 
making it difficult to identify such claims. CMS regional financial 
analysts responsible for reviewing Massachusetts's expenditure reports 
told us that it was standard practice to defer payment to allow further 
investigation of any claims for new services when they knew that a 
consultant had been involved.[Footnote 54] In such cases, they 
requested and analyzed further information from the state. The ability 
of CMS regional officials to identify potential problems with states' 
claims by analyzing quarterly expenditure reports was limited. Regional 
CMS officials responsible for Massachusetts told us they used standard 
trend and variance analyses to review the reports and also conducted 
some analyses of their own, but they were not confident that these 
reviews were adequate to identify problems. CMS regional analysts are 
able to conduct only a few focused reviews each year of potential 
problems with states' claims identified through their analyses of the 
quarterly expenditure reports, and, they told us, random reviews are 
not feasible.[Footnote 55]

In the CMS regional offices managing Medicaid claims from Georgia and 
Massachusetts, available agency resources--especially in terms of 
experienced analysts relative to the scale and variety of claims--have 
constrained the conduct of financial reviews. Although Georgia claims 
federal Medicaid reimbursements totaling approximately $1.7 billion per 
quarter, CMS has had only one financial analyst assigned to review 
those claims; for Massachusetts, three CMS analysts are responsible for 
reviewing quarterly claims of more than $2 billion. 

Our work in Georgia and Massachusetts also identified an area where 
consultants were advising states and where CMS does not have any 
oversight mechanism. CMS does not review the payment rates that state 
agencies other than the Medicaid agency bill to the Medicaid program 
for services such as TCM. In Massachusetts, each of the four non- 
Medicaid agencies providing TCM services developed its own rate for 
billing the services to Medicaid, in some cases with the assistance of 
the agency's consultant. In state fiscal year 2004, these four agencies 
billed Medicaid a monthly fee for TCM services that ranged from $178 
per person in the Department of Mental Retardation to $454 in the 
Department of Youth Services, according to state officials. Although 
CMS approved a general rate-setting provision as part of the original 
state plan amendments for these agencies' case management services, the 
actual payment amounts are generally reviewed and approved only by a 
division of the Massachusetts Medicaid agency. CMS does not review 
these state-approved payment amounts, and the HHS Division of Cost 
Allocation reviews cost allocation plans related only to 
administrative, not service, claims. 

Problems Illustrate Need to Improve the Financial Management of 
Medicaid: 

The concerns we identified with the appropriateness of states' Medicaid 
claims stemming from contingency-fee projects illustrate the urgent 
need to address the issues we have identified with CMS's overall 
financial management of the Medicaid program.[Footnote 56] We 
identified problems with claims in states other than Georgia and 
Massachusetts that have undertaken reimbursement-maximizing activities, 
without employing consultants, in categories of long- standing concern, 
such as supplemental payment arrangements. In March 2004, for example, 
when one state sought consultants for reimbursement- maximizing 
services for Medicaid and other programs, the proposed scope of work 
specifically excluded activities that the state already had under way, 
including Medicaid UPL claims, school-based administrative and service 
claims, eligibility for foster children, and TCM services.[Footnote 57] 
CMS and HHS OIG officials in the Atlanta regional office told us about 
reimbursement-maximizing projects in two states in the region that were 
developed without the use of consultants. 

CMS relies on its standard financial management controls to identify or 
correct any unallowable Medicaid claims that states may submit, 
including those that might be associated with reimbursement-maximizing 
contingency-fee projects. In assessing the appropriateness of claims 
generated from contingency-fee projects in Georgia and Massachusetts, 
we found other examples of potentially unallowable claims that CMS's 
financial management controls had failed to uncover. For example, when 
we discussed Georgia's contingency-fee project for rehabilitation 
services, CMS officials not only agreed with our assessment that the 
additional reimbursements from the project were inconsistent with 
federal law, but also identified concerns about whether the state 
agencies and facilities were qualified providers, cost estimates were 
appropriate, and all services were covered by Medicaid.[Footnote 58] 
Similarly, we identified Medicaid billing concerns in Massachusetts 
that did not stem from the contingency-fee projects: 

* One state agency--the Department of Mental Retardation, which was not 
assisted by a contingency-fee consultant--was billing Medicaid for TCM 
services without appropriate documentation. According to department 
officials, the agency automatically bills Medicaid a monthly fee of 
$178 for each Medicaid-eligible beneficiary in its TCM caseload. The 
department does not verify its billing records with its case managers' 
records to ensure that each beneficiary received a covered service each 
month. Automatic billing for case management services is not allowed 
under Medicaid: to claim federal reimbursement, states must document a 
specific service delivered on a specific date.[Footnote 59] The 
Department of Mental Retardation received about $19 million in federal 
reimbursement for its TCM claims in 2004, according to state officials. 
In commenting on a draft of this report, state officials acknowledged 
that contacts with clients do not necessarily occur each month and that 
the Department of Mental Retardation's billing for TCM was an area for 
improvement. Officials said that a new management information system 
planned for state fiscal year 2006 would allow electronic documentation 
of contacts with clients and automated verification during the billing 
process. 

* Three other Massachusetts agencies--the Departments of Social 
Services, Youth Services, and Mental Health--billed Medicaid for TCM 
services even though the agencies could have been serving some of the 
same beneficiaries. A foster child served by the Department of Social 
Services, for example, could also be a juvenile offender served by the 
Department of Youth Services. State Medicaid officials permitted each 
state agency to bill Medicaid for TCM services and told us they did not 
consider this practice duplicate billing, because they believed the 
agencies provided different services. The officials told us that the 
CMS-approved state plan amendments authorizing TCM services for these 
agencies would show that the services differed. Our review of the 
documents provided by state officials, however, showed that for two 
agencies, the TCM service descriptions were identical[Footnote 60] and 
for all four agencies, including the Department of Mental Retardation, 
the service descriptions were similar.[Footnote 61] State officials 
acknowledged that overlap in eligibility occurred among the agencies 
but said they were unaware of the number of Medicaid beneficiaries for 
whom two or more TCM services were claimed per month or the amount of 
reimbursements claimed for those beneficiaries. In Georgia, in 
contrast, only one agency is allowed to bill for TCM services in a 
given month for a given beneficiary. 

CMS lacks clear, consistent policies to guide the states' and its own 
financial oversight activities. Furthermore, CMS officials have 
expressed concerns about the agency's ability to review states' 
activities in all high-risk areas that the agency has identified. We 
found that CMS has known for some time that two high-risk categories we 
identified--claims generated from consultants paid on a contingency-fee 
basis to maximize reimbursements and claims generated from arrangements 
where state Medicaid programs are paying other state agencies or 
government providers--were problematic. For example, CMS had listed 
these two categories on a financial tracking sheet of high-risk areas 
as of 2000.[Footnote 62] At an October 2003 congressional hearing, the 
CMS Administrator expressed concern that the Medicaid program was 
understaffed and that consultants in the states were "way ahead of" CMS 
in helping states take advantage of the Medicaid system.[Footnote 63]

CMS has undertaken several important steps to improve its financial 
management of the Medicaid program. A major component of the agency's 
initiative is hiring, training, and deploying approximately 100 new 
financial analysts, mainly to regional offices. These analysts will be 
responsible for identifying state sources of Medicaid funding and 
contributing to the review of state budget estimates and expenditure 
reports. As of April 2005, CMS reported that 85 new financial analysts 
had been hired for the regions, and 10 new analysts were on duty in the 
central office. According to CMS, the new analysts have received 
initial training in the central office; two meetings per year are 
planned to bring all new analysts together for continuing education; 
and monthly conference calls take place with all new analysts and 
regional and central office officials. In addition, each region has its 
own conference call every 2 weeks with officials of CMS's new Division 
of Reimbursement and State Financing. This new division, which was 
created in January 2005 to centralize and coordinate federal oversight 
of Medicaid reimbursement and financial issues, comprises the two 
nationwide review teams for state plan amendments and the 10 new 
central office funding specialists. Expectations for the new division 
and its analysts are high and their responsibilities broad; it is too 
soon, however, to assess their overall accomplishments. 

Conclusions: 

Because of its size, complexity, and federal-state structure, the 
Medicaid program has been subject to waste, abuse, and exploitation. 
Our work has found that projects developed by consultants who are paid 
a fee contingent upon additional federal reimbursements that they 
generate pose a financial risk to the program. It is not possible, 
however, to quantify the magnitude of this financial risk, because CMS 
does not routinely request information regarding states' use of 
contingency-fee consultants to assist with reimbursement-maximizing 
projects and associated claims. 

Reimbursement-maximizing projects have generated huge reimbursements 
for states--more than $2 billion in total over a 5-year period for the 
two states we reviewed. Large reimbursements such as these place heavy 
responsibility on CMS to monitor the many complex financing 
arrangements and claims arising from contingency-fee consultants' 
reimbursement-maximizing activities. The concerns we have identified 
with claims from consultants' projects and concerns with states' 
submitting claims that have not been reflected in state plan amendments 
and cost allocation plans illustrate the urgent need for CMS to address 
certain issues in its oversight of states' contingency-fee consultant 
projects and in its overall financial management. In addition, many of 
the problematic financing arrangements we examined involved payments to 
units of state and local government--which states have long used to 
maximize federal Medicaid funding--suggesting that greater CMS 
attention is needed to payments among these units, regardless of 
whether consultants are involved. 

For more than a decade, we have reported on the various methods some 
states have used to inappropriately maximize federal Medicaid 
reimbursement and have made recommendations to end such schemes. CMS 
has taken several steps to respond to our recommendations and to 
address other issues it has identified, including taking steps to hire 
100 new financial analysts and developing budget proposals for fiscal 
year 2006 to clarify policies for allowable claims in several high-risk 
areas. Nevertheless, specific proposals have not yet been set forth, 
approved, or implemented. We continue to encourage CMS to take steps to 
identify and curb opportunistic financing schemes before they become a 
staple of state financing, and further erode the integrity of the 
federal-state Medicaid partnership, and to do so in a manner that 
ensures that policies are clear and consistently applied. With regard 
to specific projects we examined for this report, we commend CMS and 
HHS OIG for steps they have taken to examine claims from these 
projects, including the potential for identifying unallowable claims 
that may involve recovery of federal funds. In addition, addressing our 
prior recommendations to Congress and CMS that remain open could also 
help resolve some of the issues identified in this report. 

* Because states continue to take advantage of financing schemes 
relying on payments to units of state and local government, we believe 
that our earlier recommendation to Congress--to prohibit Medicaid 
payments to government providers that exceed their costs--is still 
valid and would help safeguard federal Medicaid funds.[Footnote 64]

* Because states, often with the assistance of consultants, continue to 
make illusory payments by establishing excessive UPL payment 
arrangements, we reiterate three earlier recommendations that remain 
open: that the Administrator of CMS (1) establish uniform guidance for 
states, setting forth acceptable methods to calculate UPLs; (2) 
expedite financial management reviews of states with UPL 
arrangements;[Footnote 65] and (3) improve state reporting on these 
arrangements.[Footnote 66]

States should not be held solely responsible for inappropriately 
seeking reimbursements where policies have not always been clear or 
clearly communicated. Although CMS has taken steps in recent years to 
minimize the federal financial risk involved in inappropriate financing 
schemes, the agency must also ensure that its policies are clear and 
consistently applied across states. Otherwise, CMS is at risk of 
treating states inconsistently and of placing undue burdens on states 
to comply. Because of the potential for a significant financial impact 
on states that may have relied on excessive federal funding for certain 
services, those states found out of compliance with CMS policy may need 
to be granted a transition period for coming into compliance with 
clarified CMS requirements. 

Recommendations for Executive Action: 

To improve CMS's oversight of projects involving contingency-fee 
consultants and any associated claims for federal Medicaid 
reimbursements, we recommend that the Administrator of CMS take the 
following two actions: 

* 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. 

* 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. 

To strengthen CMS's overall financial management of state Medicaid 
activities, we recommend that the Administrator of CMS take the 
following five actions: 

* 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. 

* 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. 

* 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. 

* Ensure that states submit cost allocation plans as required and 
establish a procedure for their prompt review. 

* On the basis of the findings of this report regarding specific 
projects and billing practices, follow up with states' associated 
claims and recover federal reimbursements of unallowable claims as 
appropriate in Georgia and Massachusetts. 

Agency and State Comments and Our Evaluation: 

We provided a draft of this report for comment to CMS, Georgia, and 
Massachusetts. Each provided written comments, which we summarize and 
evaluate below. 

CMS's Comments and Our Evaluation: 

CMS commented that the draft report did not accurately reflect the many 
activities the agency has taken to address the issues raised in the 
report and that recommendations in the report have already 
substantially been met. CMS believes that many of the problems that the 
draft report highlighted, including those with the projects in the five 
high-risk categories of claims that we selected to review in Georgia 
and Massachusetts, were already known to CMS as problematic. For 
example, CMS said that the five high-risk categories we cited were 
highlighted in the President's budget for fiscal year 2006 as areas in 
need of reform. CMS discussed many steps it had taken in recent years 
to improve the financial management of Medicaid, which it said were 
omitted from the report. Although CMS stated that federal dollars have 
been supplanting state dollars and that the Medicaid program is 
unquestionably paying for things it should not pay for, the agency also 
said it was addressing this problem through work with individual states 
to reach agreements to ensure use of appropriate financing mechanisms 
and to end inappropriate ones. 

We acknowledge that CMS has taken important actions in recent years to 
improve the financial management of Medicaid. We believe our draft 
report recognized these efforts, including CMS's creation of the 
central financial review body called the Division of Reimbursement and 
State Financing, and on the basis of CMS's comments, we have added 
further information to the report. We also acknowledge that we selected 
the two states in our review, Georgia and Massachusetts, because of the 
wide variety of contingency-fee projects in these states that CMS's 
survey had identified, including projects in areas where claims were 
thought to be at high risk or growing in dollar amounts in recent 
years. Although CMS suggested that the scope of our work was limited to 
these two states, we did draw upon our prior work and that of HHS OIG 
to extend our findings. Moreover, we believe that conducting detailed 
work in two states helped us identify systemic issues extending well 
beyond these two states. We further note that we established the scope 
of our work, including areas we considered to be high risk, before 
publication in 2005 of the President's fiscal year 2006 budget that 
reflected CMS's initiatives for improving its policy in these same high-
risk categories of claims. We believe this nexus of our work and CMS's 
stems from our shared objective of protecting Medicaid's fiscal 
integrity. At the same time, we also note that we have raised concerns 
about certain inappropriate financing methods in these high-risk areas 
for many years, that some prior recommendations remain open, and that 
problems remain. In addition to the important steps CMS has taken in 
recent years to improve its policies and oversight, we believe that 
more can and should be done to better ensure the program is operating 
as Congress intended--that is, as a shared federal-state partnership 
providing health care resources for covered services for eligible 
beneficiaries. 

CMS also commented on our specific recommendations, and these comments 
are summarized, along with our response, below. 

* Regarding our recommendations for improved agency oversight of 
states' use of contingency-fee consultants, CMS stated that it does not 
have authority to require states to disclose their use of contingency- 
fee consultants, although it believes it can request such information. 
Consequently, we have adjusted our recommendation to suggest that CMS 
routinely request, rather than require, that states disclose such 
information, and seek legislative authority to require such disclosure 
if states do not do so. CMS also stated that it recognizes that 
contingency-fee consultants are a potential risk factor and that it is 
committed to fully assessing the basis for claims in accordance with 
all relevant requirements. 

* Regarding our recommendations that CMS take certain steps to improve 
its overall financial management of state Medicaid activities, 
including taking certain steps to improve oversight of states' claims 
for payments made to units of government, CMS discussed its initiative 
started in August 2003. Under this initiative, CMS requests information 
from states on their financing methods and terminates those that the 
agency deems are not consistent with the statutory federal-state 
financial partnership. CMS said that, as of June 10, 2005, 23 states 
had agreed to terminate one or more financing practices. Although our 
draft report acknowledged that CMS had undertaken this effort, we have 
added further information to the report about CMS's initiative. We 
maintain, however, that CMS's current state-by-state approach to 
reviewing states' financing methods--by examining them when states 
submit proposed state plan amendments and obtaining agreement from 
states to end them--does not ensure that its policies are clear to 
states or are consistently applied. For example, a state's financing 
methods may not be reviewed if the state does not submit a proposed 
state plan amendment. We maintain our position and associated 
recommendations that CMS do more to clarify, communicate, and 
consistently apply its policies regarding areas that both CMS and we 
have identified as high risk. 

* Regarding our recommendation that CMS establish or clarify and 
communicate its policies on TCM, supplemental payment arrangements, 
rehabilitation services, and Medicaid administrative costs and ensure 
that the policies are applied consistently across states, CMS responded 
that the fiscal year 2006 President's budget proposals would do so. Our 
draft report acknowledged these proposals but also noted that the 
specific proposals had not been released as of June 2005. In the 
absence of concrete proposals and actions to implement them, we believe 
our recommendation remains valid. 

* Regarding our recommendation that CMS ensure that states submit cost 
allocation plans as required, CMS cited existing requirements for 
states to submit cost allocation plans. CMS's comments were not fully 
responsive because our recommendation did not address the need to 
develop new requirements but to ensure compliance with existing 
requirements. We therefore maintain this recommendation. 

Regarding our recommendation from prior work that Congress prohibit 
Medicaid payments to government providers that exceed their costs, CMS 
noted that it included this proposal in the President's fiscal year 
2006 budget. Regarding our prior recommendation that CMS take steps to 
improve its oversight of states' UPL arrangements, CMS noted its 
current state plan amendment review process and its financial 
management review plan for fiscal year 2005 to review high-risk UPL 
arrangements as examples of how it has already responded to our prior 
recommendations. Our draft report described CMS's proposal, which 
parallels the recommendation we made to Congress in 1994,[Footnote 67] 
and CMS's initiative. We revised the report to acknowledge CMS's plans 
to implement our earlier recommendation to review high-risk UPL 
arrangements and note that not all specific recommendations have been 
implemented. 

Regarding our discussion in the draft report about our recommendation 
from prior work that CMS should more effectively and efficiently target 
oversight resources toward areas most vulnerable to improper payments, 
CMS strongly disagreed that its current approach is not effective, and 
it listed numerous actions it has taken since our 2002 report making 
these recommendations. We agree that CMS has taken numerous actions 
since 2002. Because we have an ongoing review of CMS's financial 
management of Medicaid related to our 2002 report findings, we revised 
the report to remove references to our earlier recommendations. 

See appendix III for CMS's written comments. 

State Comments and Our Evaluation: 

Georgia and Massachusetts commented on the importance of contingency- 
fee contracts and states' use of consultants in helping states secure 
resources they otherwise would not have. Massachusetts commented that 
seeking federal resources for people in need when those resources are 
lawfully available is the fiscally responsible thing for states to do. 
The state noted that nothing in law prohibits contingency-fee contracts 
and that in themselves, "contingency-fee contracts do not let states 
off the hook for determining what is and what is not appropriate under 
Medicaid." Georgia commented that the complexity of the Medicaid 
program can and does compel states to turn to expert consultants for 
assistance and said that the report inaccurately suggests that states' 
use of contingency-fee consulting is somehow illegitimate. We 
acknowledge that use of contingency-fee contracts is allowed under law 
and that states can employ consultants for a number of valid Medicaid 
purposes, and our report has made these points. Our key findings, 
however, focus on the need to ensure that financing methods and 
associated claims that stem from contingency-fee projects are 
consistent with federal law, policy, and the fiscal integrity and 
federal-state partnership of the Medicaid program. Our work identified 
concerns with claims from contingency-fee projects that were 
problematic in these respects. 

The two states also commented that the language of the law related to 
coverage of the categories of claims we reviewed--rehabilitation, 
targeted case management, Medicaid administration, school-based 
services, and supplemental payments--is broad or complex, and they 
suggested that they have made good-faith efforts to comply with ever 
evolving federal regulations and policy. Both states believe that their 
claims comply with the law. Regarding claims for payments made above 
what the state was paying individual facilities for rehabilitation 
services, Georgia indicated that one specific example we provided was 
an exceptional case. Nevertheless, when we sought clarification from 
the state on its comments, the state's explanation did not address our 
overall concern about the underlying method for setting Medicaid 
payment rates. We revised the report to reflect the state's comments 
and our continuing concern. Massachusetts noted that little in the way 
of regulation narrows the broad definitions in federal law of covered 
services; that the state's definitions of what Medicaid covers within 
the categories of claims we reviewed fall within long-standing federal 
interpretations; and that GAO's finding the state's definitions 
questionable does not make them illegal or improper. 

Massachusetts agreed with our conclusion that CMS policy in many of the 
areas that we reviewed has been unclear, either because it has been 
inconsistently applied, evolving, or is not specific. At the same time, 
although most methods and resulting claims we question may not be 
illegal, we believe they are inconsistent with the program's federal- 
state cost-sharing design, fiscal integrity, or with current CMS 
policy. For example, some methods used by states, in our view, in 
effect increase the federal share of the Medicaid program beyond what 
has been established by a formula in law and are therefore 
inappropriate. In the report, we clarified the basis for our concerns 
about problematic projects and associated claims we identified. 

Georgia's and Massachusetts's written comments, and our more detailed 
responses, appear in appendix IV and appendix V, respectively. State 
officials also provided us with technical comments, which we have 
incorporated as appropriate. 

As arranged with your office, unless you publicly announce the contents 
of this report earlier, we plan no further distribution of it until 30 
days after its issue date. At that time, we will send copies of this 
report to the Secretary of Health and Human Services, the Administrator 
of the Centers for Medicare & Medicaid Services, and other interested 
parties. We will also make copies available to others upon request. In 
addition, the report will be available at no charge on the GAO Web site 
at http://www.gao.gov. 

If you or your staff members have any questions, please contact me at 
(202) 512-7118. Another contact and major contributors are included in 
appendix VI. 

Sincerely yours,

Signed by: 

Kathryn G. Allen: 
Director, Health Care Issues: 

[End of section]

Appendix I: Description of Contingency-Fee Projects Referred for 
Additional Review: 

This appendix addresses three contingency-fee projects that we included 
in but could not fully assess during the time frames of our review. On 
the basis of the information we obtained during our review, we believe 
that separate studies of these three projects are warranted. We have 
referred information about these projects to the Centers for Medicare & 
Medicaid Services (CMS) and Department of Health and Human Services' 
(HHS) Office of Inspector General (OIG) for additional review. 

In addition to the projects discussed in this report, the University of 
Massachusetts Medical School (UMMS) helped Massachusetts develop two 
supplemental payment arrangements to increase federal reimbursements. 
One project involved supplemental financing known as disproportionate 
share hospital (DSH) arrangements, and one involved federal Medicaid 
reimbursement for medical services to inmates of state correctional 
facilities. 

States are required to make DSH payments to hospitals that care for a 
disproportionate number of low-income patients. By statute, hospitals 
qualifying for DSH payments are subject to a limit on the amount of 
supplemental DSH payments they may receive.[Footnote 68] As with upper 
payment limit (UPL) arrangements, supplemental payments made to 
government providers through DSH arrangements can be illusory: that is, 
the state can benefit from the arrangements by appearing to pay the 
providers more than they ultimately retain and seeking federal 
reimbursement on the excessive payments. In part because of concerns 
that large DSH payments were not being used to support certain 
hospitals but were instead being used for general state financing, 
Congress passed legislation in 1993 and 1997 to restrict states' 
ability to make excessive DSH payments.[Footnote 69] After these 
restrictions were put in place, combined state and federal DSH payments 
declined, totaling approximately $14 billion in fiscal year 2003, down 
from $16 billion in fiscal year 1999. 

One Massachusetts contingency-fee project helped the state increase DSH 
supplemental payments made to four state-owned hospitals. 
Massachusetts's consultant developed projects to take advantage of a 
temporary DSH increase--which increased federal reimbursements by an 
estimated $17 million annually. The consultant calculated new DSH 
limits under the federal rules,[Footnote 70] which allowed temporary 
payments up to 175 percent of unreimbursed costs. To increase the 
amount of DSH payments the state could make to each hospital, the 
consultant also helped the state reduce its standard Medicaid payment 
rates for services provided in these hospitals. This action increased 
the amount of supplemental payments that the state could make and 
potentially require the hospitals to return. 

A second project involved helping Massachusetts to increase federal 
Medicaid reimbursements for medical services to inmates of state 
correctional facilities. Payment records indicated that in state fiscal 
year 2002, the state Medicaid agency paid UMMS nearly $300,000 (a 
contingency fee of 6 percent of about $5 million in additional federal 
Medicaid reimbursement) for its work on the project. Generally, medical 
care for prison inmates is not covered by Medicaid.[Footnote 71] HHS 
OIG reported that a contingency-fee consultant in another state, New 
Jersey, had prepared inappropriate claims that New Jersey used to 
obtain federal reimbursement for DSH claims for state 
prisoners.[Footnote 72] Over a 4-year period, New Jersey 
inappropriately claimed more than $11 million in federal Medicaid 
reimbursements for DSH payments made on behalf of prisoners. HHS OIG 
determined that these payments were unallowable because the state's 
Medicaid plan specifically prohibited DSH payments for inmate hospital 
care. Because medical care for prison inmates can be covered by 
Medicaid under certain circumstances, we sought additional information 
from Massachusetts officials to determine if Massachusetts's 
arrangement was allowable, but we did not receive information within 
the time frames of our review. 

In addition to the contingency-fee projects in Georgia discussed in 
this report, Georgia's consultant also helped the state seek additional 
federal reimbursements for administrative costs. In particular, the 
state Medicaid agency began claiming federal reimbursement for the 
costs of certain activities carried out by county public health 
departments. Using a rate developed by the consultant, the Medicaid 
agency claimed reimbursement for the costs of a variety of health 
department activities serving the public, including school-based 
presentations, presentations to community groups, mass health screening 
events, public information campaigns, and events mobilizing community 
partnerships.[Footnote 73] Costs associated with general health 
education programs promoting healthy lifestyles are not allowable under 
Medicaid, even if a portion of the participants served by the program 
are on Medicaid. The state's description of the activities for which 
claims were made raised questions, but we did not receive information 
we needed within the time frame of our review to make a full 
assessment. 

Because we believe that separate studies of these three projects would 
be required to assess their appropriateness, we have referred 
information about these projects to CMS and HHS OIG for additional 
review. 

[End of section]

Appendix II: Summary of Selected HHS OIG Reports on School-Based Claims 
in States Employing Consultants: 

The Department of Health and Human Services' (HHS) Office of Inspector 
General (OIG) has completed reviews of school-based claims in 18 states 
from November 2001 through June 2005. Although these reviews were not 
specifically targeted at the role of consultants paid on a contingency- 
fee basis, several of the reports found concerns with the 
appropriateness of claims from consultants' projects (see table 4). In 
fiscal year 2005, HHS OIG initiated a review specifically of 
consultants' contingency-fee projects in all categories of claims. 

Table 4: Selected States' Consultant Projects Leading to Improper 
School-Based Medicaid Claims, as Reported by HHS OIG: 

State and HHS OIG report: Florida; Review of Administrative Costs 
Claimed by the Florida Medicaid Agency for School-Based Health 
Services, CIN A-04-00-02-160 (Mar. 22, 2001); 
Consultants' role: Consultants were hired by school districts to handle 
billing for districts' school-based administrative claims; 
HHS OIG finding: Improper administrative claims: In state fiscal year 
1999, the state did not sufficiently oversee school districts' claims. 
HHS OIG auditors identified more than $10 million in unallowable or 
insufficiently documented costs that were in part allocated to 
Medicaid. 

State and HHS OIG report: Massachusetts; Medicaid Payments for School- 
Based Health Services--Massachusetts Division of Medical Assistance, A- 
01-02-00009 (July 14, 2003), and Medicaid School-Based Health Services 
Administrative Costs--Massachusetts, A-01-02-00016 (Sept. 15, 2004); 
Consultants' role: The state Medicaid agency contracted with University 
of Massachusetts Medical School (UMMS) to administer the school-based 
health services portion of state's Medicaid program; 
HHS OIG finding: Improper health services claims: In state fiscal year 
2000, the state and UMMS did not adequately monitor claims for school-
based services to ensure the districts' compliance with federal and 
state regulations and guidance, resulting in an estimated $2.9 million 
in unallowable federal Medicaid claims.[A] Unallowable claims included 
claims for services that were (1) not documented as delivered; (2) 
provided by unqualified providers; (3) claimed more than once--in 
particular, one district claimed some salaries and fringe benefits 
twice--or (4) provided to students who were absent on the days of the 
claimed services; Improper administrative claims: In state fiscal years 
2000 and 2001, the state did not monitor the appropriateness of school 
districts' claims developed by UMMS, claiming some salaries and fringe 
benefits twice, resulting in $5 million or more in overstated claims. 

State and HHS OIG report: Rhode Island; Medicaid School-Based Health 
Services Administrative Costs--Rhode Island, A-01-03-00010 (June 7, 
2004); 
Consultants' role: The state Medicaid agency contracted with UMMS to 
administer the school-based health services portion of state's Medicaid 
program; 
HHS OIG finding: Improper administrative claims: In state fiscal year 
2001, UMMS did not calculate administrative costs in accordance with 
OMB Circular A-87, and the state did not adequately monitor quarterly 
claims prepared by UMMS. UMMS's errors both understated and overstated 
school-based administrative costs, resulting in a net overpayment of 
$123,010 in unallowable federal Medicaid claims. 

State and HHS OIG report: Washington; Review of Washington State's 
Administrative Costs Claimed for Medicaid School-Based Health Services, 
A-10-01-00011 (May 29, 2002); 
Consultants' role: Consultants were hired by school districts and paid 
a percentage of the total amount claimed; district officials relied on 
consultants to ensure proper claiming of administrative costs; 
HHS OIG finding: Improper administrative claims: In state fiscal year 
2000, the state did not properly implement or monitor the school-based 
health services program, resulting in more than $500,000 in unallowable 
federal Medicaid claims. 

Source: GAO based on HHS OIG information. 

[A] CMS subsequently disallowed $1.2 million in unallowable claims. 

[End of table]

[End of section]

Appendix III: Comments from the Centers for Medicare & Medicaid 
Services: 

DEPARTMENT OF HEALTH & HUMAN SERVICES: 
Centers for Medicare & Medicaid Service:
Administrator: 
Washington, DC 20201: 

DATE: JUN 21 2005: 

TO: Kathryn G. Allen: 
Director, Health Care: 
Government Accountability Office: 

FROM: Mark B. McClellan, M.D., Ph.D.: 
Administrator: 

SUBJECT: Government Accountability Office's (GAO) Draft Report: 
MEDICAID FINANCING: States' Use of Contingency-Fee Consultants to 
Maximize Federal Reimbursements Highlights Need for Improved Federal 
Oversight (GAO-05-748): 

We appreciate the opportunity to respond to the above referenced draft 
report dated June 1, 2005. We are concerned that, as currently drafted, 
the report does not accurately reflect the many activities undertaken 
by the Agency to address the issues that are raised. We believe that 
over the 14 month period of this review, we have provided significant 
documentation that demonstrates the recommendations in the report have 
indeed already been substantially met. 

GAO started the review with three questions about contingency fee 
contracts and drew conclusions based on their 14 month, two state, case 
studies. On draft page 48, GAO states, "[m]oreover, many of the 
problematic financing arrangements we examined involved payments to 
state and local government agencies and providers-which states have 
long used to maximize federal Medicaid financing-suggesting that 
greater CMS attention is needed to payments among these state and local 
government entities regardless of whether consultants are involved."

Response-We are at a loss to discern what "greater CMS attention" is 
being requested. The Massachusetts case study on which this report is 
based was originally identified through CMS action. The 10 CMS Regional 
Offices were asked by Central Office to make recommendations for the FY 
2004 supplemental audit program. The Massachusetts Targeted Case 
Management (TOM) audit was one of 27 supplemental audits to be 
approved. Under an intra-agency agreement between CMS and the Office of 
the Inspector General, the OIG initiated the Massachusetts TCM audit on 
December 23, 2003. A recommendation that CMS (or OIG, or other partners 
in program integrity) should do more reviews, might be understandable, 
but quantity is determined by resources that are provided. 

On page 6. GAO states, "Although CMS has periodically identified 
concerns with contingency-fee federal reimbursement-maximizing 
projects, the agency has not routinely collected information to 
identify such projects and claims and was unaware of many of the 
specific projects that we reviewed (emphasis added). Given that CMS had 
in fact identified the Massachusetts TCM issue as a potential problem 
and had requested that the OIG initiate an audit three months prior to 
GAO beginning this study, we cannot help but take exception to this 
statement. 

Continuing on page 6, GAO goes further to state, "[t]he problems we 
(emphasis added) identified with claims from such projects and limited 
CMS oversight and guidance illustrate the urgent need to address 
broader oversight and financial management weaknesses."

Response-This clearly leaves the reader with the impression GAO found 
the Massachusetts TCM issue all on their own with CMS evidently 
uninformed or uninterested. The facts are otherwise. 

On page 7, GAO repeats a 2002 recommendation to "strengthen the 
agency's overall financial management procedures."

Response-On the previous page (page 6), GAO acknowledges that "CMS has 
taken some actions to strengthen its oversight of state Medicaid 
programs, such as its initiative to hire additional financial analysts 
to assess each state's programs ..." but then goes on to say, "but the 
effectiveness of this initiative is not yet known. Moreover, CMS has 
not yet implemented several actions that we have previously recommended 
on the basis of our work on states' financing schemes and CMS' 
financial management of Medicaid."

* GAO mentions only the hiring of the financial analysts but fails to 
acknowledge the creation and evolution of the central financial review 
body now called the Division of Reimbursement and State Finance (DRSF). 
It fails to acknowledge the consideration and disposition of more than 
800 state plan amendments (SPAS) that deal with provider reimbursement. 
It fails to acknowledge that as a result of these reviews more than 20 
states have agreed to revise their intergovernmental transfer (IGT) 
mechanisms by removing recycling arrangements. This is an ongoing 
review process; as states submit new SPAS, CMS continues to review them 
to ensure they include appropriate financing mechanisms. 

In pages 12 through 15, GAO describes five categories of Medicaid 
claims where contingency-fee consultants are helping states maximize 
federal Medicaid reimbursements. These include targeted case management 
(TCM), rehabilitation services, supplemental payment arrangements, 
school-based services, and administrative costs. 

Response -CMS has taken action in each of these areas since the 2002 
GAO recommendation, including disallowances, disapproval of state plan 
amendments, and legislative recommendations to Congress. 

On page 21, GAO "found that the two states were claiming federal 
reimbursement for TCM services that would likely not be allowed under 
CMS's current TCM policy." On page 22, GAO writes, "CMS officials 
agreed with our assessment that the claims for TCM in these two states 
were problematic."

Response-It would be more accurate to say GAO agrees with CMS. As the 
Report switches to Rehabilitation Services at page 22, it would be 
appropriate to inform the reader that last year during discussions on 
Medicaid legislation, CMS alerted Congressional Committees with 
jurisdiction over Medicaid that the rise in TCM expenditures was a 
subject of abuse and it would be appropriate to curb the growth. 
Furthermore, the President's Budget includes a legislative 
recommendation to address this problem. 

In its section on Supplemental Payments on pages 26 to 29, GAO 
describes the use of contingency fee contractors to develop "illusory" 
financing arrangements but barely acknowledges the work done by CMS in 
this area. CMS has reduced the number-of states with problematic 
funding arrangements from more than 30 to 10. The Administration has 
agreed with GAO's recommendation to Congress to enact legislation to 
prevent these arrangements permanently. The President's current FY 2006 
budget, as well as previous budgets, includes proposals to end these 
practices as previously recommended by GAO. 

On page 36, GAO begins a new section called "Limited State and CMS 
Oversight of Claims from Consultant Projects Raises Concerns About 
Medicaid Financial Management." On the following page (page 37), GAO 
labels a subsection, "`States Take Some Steps to Ensure Appropriate 
Claims, But Problems Remain," a generally positive description that 
suggests progress and responsiveness. By contrast, on page 44, GAO 
attaches a rather negative label, "Weaknesses in CMS Oversight Raise 
Concerns About the Financial Management of Medicaid" and states, "[t]he 
concerns we identified with the appropriateness of states' Medicaid 
claims stemming from contingency-fee projects illustrate the urgent 
need to address weaknesses that we identified with CMS's overall 
financial management of the Medicaid program."

Response-CMS has been addressing inappropriate financing mechanisms for 
over two and a half years. CMS is ending inappropriate financing 
methods; it is disapproving state plans to prevent inappropriate 
claiming; it has increased disallowances substantially over the 
previous Administration; third party collections and cost avoidance 
have increased by more than $6 billion between 2002 and 2004; the 
Administration has proposed legislation on TCM, rehabilitative 
services, limiting public providers to cost, and net expenditures. On 
page 47, GAO reports that "CMS has undertaken several steps to improve 
its financial management of the Medicaid program," but the next page 
(page 48) flatly states, "it is too soon, however, to assess their 
accomplishments."

In its conclusions on page 48, GAO states "the urgent need for CMS to 
address weaknesses." yet makes no concrete recommendations for what 
this means. On the same page (page 48), GAO calls for "greater CMS 
attention ..." but has apparently paid little attention to what has 
been accomplished. 

We do not dismiss the notion that the involvement of contingency-fee 
consultants, (CFCs) in generating Medicaid claims may be a factor in 
assessing risk. In that regard, CMS will continue to fully consider 
that as one of many significant factors in our oversight of the 
Medicaid program, including our review of states' Medicaid claims. 

Specifically, page 3 of the draft report (and by extension in its 
recommendations) addresses and seeks to determine the answers to three 
questions. First, what is the extent of states' use of CFCs in 
generating federal Medicaid claims? Second, to what extent are such 
claims consistent with Federal requirements? Finally, how much do 
selected states and CMS provide oversight for such claims? In a June 3, 
2005 exit teleconference with CMS, the GAO made a point of recognizing 
the positive and appropriate use of consultants by states. Page 8 of 
the report explicitly reiterates this and lists a number of services 
that consultants perform to "help states." However, the basic question 
and premise of the report, regarding states' use of consultants (CFCs 
or otherwise), is ultimately not answered in the report. For example, 
the proportion of the total state claims (even for the two states which 
were the main subject of the report) associated with the use of 
consultants that are inappropriate is not indicated. Rather, the 
approach taken by GAO is to identify claims with CFC involvement that 
were already known or suspected to be inappropriate in order to support 
its final recommendations. However, the report does not demonstrate 
this relationship. 

We reiterate that there are a number of factors associated with risk in 
the Medicaid program, one of which may be the involvement of CFCs. This 
has been the subject of other GAO reports as well, and we do recognize 
and appreciate GAO's efforts in this regard. 

As discussed below, over the past few years, in part using GAO's work. 
CMS has enhanced its oversight efforts. As indicated in our response, 
CMS will continue those efforts. 

Examples of CMS fiscal oversight activities that are omitted from this 
report include, but are not limited to the following: 

* During the GAO's review, CMS provided detailed information to the GAO 
regarding a more stringent CMS Medicaid State plan review process, 
which began in August of 2003. This review process effectively 
facilitated the termination of State Medicaid UPL payment programs that 
redirected Medicaid funding for other uses including non-Medicaid 
purposes (i.e., "illusory payments"), which has been illogically 
addressed in this report as a continuing fiscal oversight problem. 
Moreover, the strengthening of CMS fiscal oversight under the Medicaid 
State plan review process was articulated in an April 28, 2004 letter 
to the Honorable Senator Charles E. Grassley, several weeks after the 
GAO began its review. During that review, details of that letter and 
the details of this review process were shared by CMS with the GAO. 
Unfortunately, this improved CMS State plan review process and its 
ultimate success is omitted from the subject draft report, which 
includes recommendations as if the GAO was aware of such activities. 

* CMS provided the GAO with our FY 2005 financial management review 
work plan, which included the planned financial management reviews of 
many of the financing arrangements with which this report takes issue. 
Again, the subject draft report makes no mention of these activities 
and makes recommendations as if the GAO was not aware of such 
activities. 

* CMS informed the GAO that the President's FY 2006 Budget includes a 
provision limiting Medicaid payments to government providers to cost. 
However. the GAO references findings from an earlier report continuing 
to support the need for such legislation as if it was unaware of the 
provision already included in the FY 2006 budget. 

* During this review, CMS carefully explained to the GAO that uniform 
UPI, guidance would not deter what the GAO refers to as "illusory 
payments", and that addressing the permissibility of the non-Federal 
share (i.e., State share) of these payments through the state plan 
amendment review process is the effective mechanism to end "illusory 
payments." However, the GAO's continues to reiterate the need for such 
guidance which clearly demonstrates a complete misunderstanding of the 
fiscal issues. 

In addition, we are providing these comments on the .specific 
recommendations contained in the report: 

I. CMS' oversight of projects involving contingency fee consultants and 
associated claims far Federal Medicaid reimbursement. 

This section of the draft report recommends that CMS (pave 50): 

(i) Require States to disclose their use of contingency-fee consultants 
when relevant to State submission of State Medicaid documents, such as 
State plan amendment proposals, cost allocation proposals, and 
expenditure reports; and,

(ii) 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. 

CMS Response: 

(i) Although 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, we fully recognize that they can be a 
factor associated with risk in the program. In that regard, although we 
do not generally require the disclosure of CFC arrangements, we are 
committed to reviewing these submissions to the fullest extent possible 
under our authority to determine the allowability of states' claims and 
programs when relevant. We would suggest that GAO recommend legislation 
to require stales to disclose their use of CFCs as a direct way of 
curbing their inappropriate use. 

(ii) CMS and the Department of Health and Human Services does have 
explicit authority and the mandate under statute and/or regulation to 
review states' claims as contained or relate to their SPA, CAP, and 
expenditure report submittals. In those review processes, we can 
request any documentation deemed necessary in order for us to determine 
whether such claims are consistent with all relevant federal 
requirements. Again, 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. 

II. CMS' overall financial management of State Medicaid activities. 

This section of the draft report recommends that CMS (page 51): 

(i) Require States to identify-in Medicaid-related documents such as 
SPAs, CAPS, and expenditure reports-claims for payments made to units 
of government, such as State-and local-government-owned or-operated 
facilities and related organizations; and,

(ii) Enhance CMS review of States' Medicaid documents, such as SPAS, 
CAPS, and expenditure reports, specifically reviewing payments States 
are making to units of government, including the methodology for the 
rates paid to government units and the basis for any related claims, 
and take appropriate action to prevent or recover unallowable claims. 

CMS Response: 

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. This examination is 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. 

During that SPA review process, CMS has discovered that some states 
utilize financing techniques that do not comport with the statutory 
requirements that establish the federal-state partnership. 
Specifically, CMS has discovered that several states make claims for 
federal matching funds associated with Medicaid payments to health care 
providers, even though the health care providers are not ultimately 
allowed to receive or retain these payments. Instead, through the 
"guise" of intergovernmental transfers (IGTs), state and/or local 
governments require the health care provider to forgo and/or return 
certain Medicaid payments to the state (on the same day in many 
instances), which effectively shifts the cost of the Medicaid program 
to the federal taxpayer. 

The result of such an arrangement is that the health care provider is 
unable to retain the full Medicaid payment amount to which it was 
entitled (even though federal funding was made available based on the 
full payment), and the state and/or local government may use the funds 
returned by the health care provider for costs outside the Medicaid 
program and/or to help draw additional Federal dollars for other 
Medicaid program costs. The net effect of this re-direction of Medicaid 
payments is that the federal government bears a greater level of actual 
Medicaid program costs than the federal statute authorizes. 

Through our state plan amendment reviews, we have determined that in 
some instances states are using Federal Medicaid dollars to supplant 
the required state share for their Medicaid programs, and in other 
instances are re-directing the Federal Medicaid dollars to otherwise 
pay for care associated with non-Medicaid uninsured populations. Once 
the effective Federal share (FMAP) is raised through various financing 
and transfer mechanisms, however, it becomes impossible to determine 
what items and programs are now being financed with Medicaid dollars. 
Federal dollars are supplanting state dollars and the Medicaid program 
is unquestionably paying for things that it should not be paying for. A 
Federal dollar "recycled" to supplant the non-Federal Medicaid dollar 
means that the non-Federal dollar is available for spending for other 
state purposes (including traditional state responsibilities such as 
roads, bridges, foster care or schools).]

As of June 10, 2005, CMS has reviewed over 800 Medicaid reimbursement 
SPAS under the process outlined above. Twenty-three states have agreed 
to terminate one or more financing practices that increase the federal 
share of the cost of providing Medicaid services, effective with the 
end of their State fiscal year 2005. CMS has identified an additional 
ten states with similar financing mechanisms that are in the process of 
terminating such arrangements. 

This section of the draft report further recommends that CMS (page 51): 

(i) Establish or clarify, and communicate CMS policy on targeted case 
management (TCM), supplemental payment arrangements, rehabilitation 
services, and Medicaid administrative costs and ensure that the 
policies are applied consistently across all States. 

CMS Response: 

(i) With respect to TCM and rehabilitation services, the FY 2006 
President's budget contains proposals which would clarify the 
definitions for such services such that payment would be precluded 
under Medicaid for the costs of activities which are an integral part 
of other services or inherent to the operation of other Federal or 
state programs. This will ensure a more consistent application of such 
policies nationwide. Additionally, this proposal would reduce the 
federal matching rate to 50 percent for TCM services. Note, for the 
period April 2002 through April 2004, CMS disapproved seven TCM and one 
rehabilitation SPA on the basis that the activities were integral 
components of other programs services such as in the areas of case 
management, foster care and juvenile justice. Over the same period, 8 
states withdrew their TCM proposals, understanding the potential for 
them not being approved. 

As indicated in the draft report, the claiming by states for 
administrative costs involves the process of submittal by the state of 
cost allocation plan (CAP) amendments in accordance with requirements 
contained in federal regulations. Furthermore, since the CAP, by 
definition relates to costs which cut across a number of state 
programs, the CAP submission and review process typically involves the 
coordination of CMS and the Department of Health and Human Services at 
the federal central office and regional office levels, as well as 
across state and local governmental units. As indicated, in the 
regulations. the federal government and in particular the Division of 
Cost Allocation in the Department has explicit authority and mandate to 
review states' CAP proposals. CMS is committed to working with all our 
partners and stakeholders involved in this process, to clarify the 
requirements and the CAP process, and to ensure that states submit the 
CAPS in accordance with these requirements. 

Finally, this section of the draft report recommends that CMS (page 
51): 

(i) Ensure that States submit cost allocation plans and State plan 
amendments as required and establish a procedure for their prompt 
review; and,

(ii) On the basis of the findings of our report regarding specific 
projects and billing practices, conduct follow-up of States' associated 
claims and recover Federal reimbursements of unallowable claims as 
appropriate. 

CMS Response: 

(i) The authority, requirements, and conditions under which States must 
submit CAPS and SPAS are explicitly contained in statute and 
regulations. For example, the Code of Federal Regulations at 45 CFR 95 
subpart E, containing the regulatory provisions for CAPS, requires 
States to submit a cost allocation plan 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. As indicated, the requirements to submit CAPS and/or 
amendments already exist. Under the current operational process with 
respect to OAPs that involve the Medicaid program, CMS has primary 
responsibility to review and provide its assessment to the Department. 
Furthermore, CMS is committed to working with all our partners and 
stakeholders involved in this process, to clarify the requirements and 
the CAP process, and to ensure that states submit the CAPS in 
accordance with these requirements. 

(ii) Our Boston and Atlanta Regional Offices are already working in 
conjunction with the Office of Inspector General to pursue the 
particular findings as relates to the associated claims by the States 
in order to identify and recover any unallowable claims, in accordance 
with all relevant Federal requirements. 

III. GAO's reference to prior recommendations as a solution to curb 
Medicaid financing schemes: 

This section of the draft report recommends that CMS (page 49): 

(i) Because States continue to take advantage of financing schemes 
relying on payments to State and local government agencies and 
providers, CMS's earlier recommendation to Congress-to prohibit 
Medicaid payments to government providers that exceed their costs-is 
valid and would help safeguard Federal Medicaid funds;

(ii) Because States, often with the assistance of consultants, continue 
to make illusory payments by establishing excessive UPL payment 
arrangements, we restate three earlier recommendations that remain 
open: that the Administrator of CMS (1) establish uniform guidance for 
States that would set forth acceptable methods to calculate UPLs; (2) 
expedite financial management reviews of States with UPL arrangements; 
and, (3) improve State reporting on these arrangements; and,

(iii) Because CMS does not have an effective strategy for focusing its 
resources on areas of high risk, we reiterate recommendations we made 
in our 2002 report that the Administrator of CMS take actions to more 
effectively and efficiently target oversight resources towards areas 
most vulnerable to improper payments. 

CMS Response: 

(i) As explained in detail above, States are not receiving SPA approval 
related to financing schemes on payments to State and local government 
agencies and providers. In addition, under the CMS SPA review process, 
States are required to terminate existing arrangements by the end of 
their FY 2005. Moreover, CMS informed the GAO that the President's FY 
2006 Budget already includes a provision limiting Medicaid payments to 
government providers to cost. 

(ii) As of June 10, CMS has reviewed over 800 Medicaid reimbursement 
SPAS under a review process that requires the termination of any 
financing mechanisms that contradict the intent of the Federal-State 
partnership. Twenty three states have agreed to terminate one or more 
financing practices that contradict the intent of the Federal-State 
partnership and ten (10) States with similar financing mechanisms are 
in the process of terminating such arrangements. 

In addition, we have included a financial management review for each of 
the above mentioned UPI, arrangements in our FY 2005 work plan, which 
was shared with the GAO during this review. We believe such activities 
respond completely to this prior (and now current) recommendation and 
we are confused by the lack of attention devoted to such activities in 
this draft report. 

(iii) We strongly disagree with the characterization throughout the 
report and in this recommendation that CMS does not have an effective 
strategy for financial management and oversight of the program, and in 
particular, for focusing our resources on such activities. The 
following highlights the many activities demonstrating the CMS 
oversight approach: 

* There is multi-tiered strategy for developing, focusing and enhancing 
our resources in the oversight of Medicaid program: 

- Beginning with FY 2002, CMS developed and institutionalized a 
structured Regional Office (RO) Financial Management (FM) work plan; 
this incorporated intensive planning with a consistent and centralized 
national approach for reviewing states claims. 

- This work plan approach, in explicit response to GAO recommendations, 
incorporates risk assessment and explicitly was for the purpose of 
focusing FM resources. 

- An integral component of the work plan is identifying areas of high 
risk and performing RO focused FM reviews on such areas: 

* Beginning with FY 2003 CMS developed an interagency (IA) agreement 
with OIG for the express purpose of conducting additional FM reviews in 
high risk areas as identified in a coordinated approach with CMS and 
the OIG. 

* OIG, in coordination with CMS, develops its own FY work plan which 
focuses on areas of high risk. 

* Formation of the Division of Reimbursement & State Financing which 
provides a central means for CMS to review states' financing 
arrangements while ensuring consistent policy application. 

* PERM Project. 

* Refinement of State Plan Process and incorporation of "5 funding 
questions," providing for a national consistent strategy in reviewing 
and approving state plans. 

* Hiring of "100 FTEs" for express purpose of FM and funding reviews. 

* National training efforts of new and existing FM staff. 

[End of section]

Appendix IV: Comments from the State of Georgia and GAO's Response: 

GEORGIA DEPARTMENT OF COMMUNITY HEALTH: 
2 Peachtree Street, NW: 
Atlanta, GA 30303-3159: 

Tim Burgess, Commissioner: 
Sonny Perdue, Governor: 

www.communityhealth.state.ga.us: 

June 14, 2005: 

Kathryn G. Allen: 
Director, Health Care: 
United States Government Accountability Office: 
Washington, D.C. 20548: 

Re: MEDICAID FINANCING: States' Use of Contingency-Fee Consultants to 
Maximize Federal Reimbursements Highlights Need for Improved Federal 
Oversight (GAO-05-748). 

Dear Ms. Allen: 

Thank you for the opportunity to respond to the draft report MEDICAID 
FINANCING States' Use of Contingency-Fee Consultants to Maximize 
Federal Reimbursements Highlights Need for Improved Federal Oversight 
(GAO-05-748). 

Medicaid is an extremely complex program. The Medicaid statute has been 
called "among the most completely impenetrable texts within human 
experience.... Congress also revisits the area frequently, generously 
cutting and pruning in the process and making any solid grasp of the 
matters addressed merely a passing phase." Rehabilitation Ass'n v. 
Kozlowski, 42 F. 3d 1444, 1450 (4th Cir. 1994). It is nearly impossible 
for state Medicaid agency staff to keep abreast of the multitude of 
both new requirements and new opportunities that result from Congress' 
frequent amendments to the Medicaid law. I can only imagine that CMS 
itself also has difficulty keeping up with the changes and trying to 
appropriately administer the program, since on the one hand they are 
expected to keep a rein on federal spending, while on the other they 
are expected to provide technical assistance to the states to enable 
them to access any available federal funds. 

This complexity can and does compel states to turn to expert 
consultants for assistance. I believe that states would require the 
assistance of consultants even if they could not pay for the 
consultants' services on the basis of contingent fees (the federal 
share of non-contingent fees is clearly chargeable to the federal 
government). Moreover, state Medicaid agency officials, who have an 
obligation to protect state treasuries, would be remiss if they did not 
avail themselves of expert assistance to improve the administration of 
their Medicaid programs. CMS itself makes widespread use of consultants 
in designing innovations in the Medicare program and other programs it 
administers, and there is nothing inappropriate about the states' 
similar activities. 

While Georgia understands that your office was asked by Senator 
Grassley to review the use of contingency-fee arrangements, the draft 
report really has little to do with states' use of Medicaid 
consultants, regardless of how they are paid. Rather, the consistent 
theme in the report is the manner in which CMS applies policy and 
monitors states' compliance with such. GAO's concerns would be no 
different if states had initiated policy and reimbursement changes with 
a consultant paid by a non-contingent fee, or even without the aid of a 
consultant. It seems unfair to circulate a report that inaccurately 
suggests that states' use of contingent-fee consulting arrangements is 
somehow illegitimate (especially given the fact, which the draft report 
confirms, that in most cases, including Georgia's, states have not 
asked the federal government to share in the cost of such contracts, 
but have paid the consultants exclusively with non- federal funds). 

That being said, your report reviewed five specific Medicaid 
categories. I'll address each one of them, as they relate to Georgia, 
separately: 

1. Targeted Case Management - Georgia disagrees with your contention 
that CMS can or should disallow claims for targeted case management 
(TCM) on the ground that the case management activities have been paid 
for under (or are an "integral" part of) state programs. Congress 
specifically directed, through section 8435 of Public Law 100-647 
(1988), that CMS "may not fail or refuse to approve an amendment to a 
State plan ... that provides for coverage of case-management services 
described in section 1915(8)(2) ... or to deny payment to a State for 
such services ... on the basis that the State had paid or is paying for 
such services from non-Federal funds." CMS approved Georgia's state 
plan amendment to cover these services, as it was required to do by 
federal law. Any agency efforts, by "stated policy" or otherwise, to 
restrict TCM by child welfare and juvenile justice staff at this point 
not only would be contrary to approved State plans but cannot be 
squared with the statutory guarantee that recipients may receive a 
covered service from any qualified provider that undertakes to provide 
the service. Georgia has not "inappropriately shifted state costs to 
the federal government."

2. Rehabilitation Services - Medicaid coverage of rehabilitation 
services is authorized by federal regulations that permit states to 
cover "any medical or remedial services recommended by a physician or 
other licensed practitioner of the healing arts, within the scope of 
his practice under State law, for maximum reduction of physical or 
mental disability and restoration of a recipient to his best possible 
functional level." 42 C.F.R.  440.130(d). The state, per an approved 
state plan amendment, determines the cost of rehabilitation services 
based on actual cost reports and time study information submitted by 
each participating provider. The state has not and is not asking for 
FFP for amounts in excess of cost. Your example of one facility that 
was paid $37 per day for all services, while Medicaid was billed $62 
per day for the rehabilitation services, was an exceptional 
circumstance; this inadvertent practice has been ended. 

3. Supplemental Payment Arrangements - As cited in your report, 
Congress and CMS have taken action to curb inappropriate Upper Payment 
Limit (UPL) arrangements. While Georgia asserts it has historically 
administered the state's UPL programs in compliance with existing 
federal regulations, the state has agreed to make changes to the 
financing of its UPI, programs beginning in state fiscal year 2006. By 
preexisting agreement with CMS, as of July 2005, the state will no 
longer require participating facilities to transfer an amount of 
intergovernmental transfers (IGT's) larger than the amount necessary to 
cover the non-federal share of their supplemental payments. 

4. School-Based Services - It is incorrect to report that Georgia has 
withheld 16% (or any amount) of federal reimbursements from school 
systems participating in the Medicaid program. School systems receive 
100% of federal funds associated with their Medicaid claims. The state 
charges a 16% fee that is used to support the administrative costs 
necessary to ensure all participating school systems are complying with 
program requirements; however, that fee is paid exclusively from local 
funds. Those efforts include ensuring that claims are based solely on 
Medicaid-eligible students; that the provision of Medicaid-eligible 
services are appropriately documented; that parents have provided 
permission for the school system to bill Medicaid for their child's 
services; and that billed services are included in the child's 
individualized education plan. All of these monitoring activities are 
necessary to satisfy CMS that the state's program is appropriately 
reimbursing school systems for medically necessary services provided to 
Medicaid-eligible children. CMS recently completed a review of the 
state's program and we have been informed that CMS was satisfied that 
Georgia was in compliance with all applicable federal regulations and 
CMS policies. 

5. Administrative Costs - As you noted, Georgia has not claimed federal 
reimbursement for contingency fees paid to our consultants. It is 
incorrect to suggest that Georgia paid its consultants from additional 
federal Medicaid reimbursements generated from contingency fee 
projects. Contingency fees have been paid from state or local funds 
only. 

The state believes it has made a good-faith effort to comply with ever- 
evolving federal regulations and policy and makes no apologies for the 
legitimate use of state-funded consultants in aiding the state in its 
administration of the Medicaid program. Again, I appreciate the 
opportunity to respond. 

Sincerely,

Signed by: 

Tim Burgess: 

CC: Abel Ortiz, Health Policy Director, Governor's Office, State of 
Georgia: 
Tim Connell, Director, Office of Planning and Budget, State of Georgia: 
B.J. Walker, Commissioner, Department of Human Resources, State of 
Georgia: 
Albert Murray, Commissioner, Department of Juvenile Justice, State of 
Georgia: 

The following is our response to the State of Georgia's comments. 

GAO's Response to the State of Georgia's Comments: 

Our responses to Georgia's comments are numbered below to correspond 
with the state's various points (reproduced on pp. 67-69). Georgia 
generally stated that (1) the state's claims for targeted case 
management (TCM), rehabilitation services, and supplemental payments 
were made under state plan provisions approved by the Centers for 
Medicare & Medicaid Services (CMS) and (2) we incorrectly concluded 
that the state used federal funds generated from reimbursement- 
maximizing projects to pay consultants. We have revised the draft to 
indicate that claims were made under approved state plans. Also, we 
noted in the draft report that Georgia complied with federal 
requirements in that it did not claim federal reimbursement for the 
contingency-fee payments. As discussed below, however, state documents 
indicated that additional federal funds generated by reimbursement- 
maximizing projects were the source of the state's contingency-fee 
payments to its consultant. 

The state provided us with specific comments in five areas, which we 
summarize and respond to as follows: 

4. Georgia commented that we were incorrect in contending that CMS can 
or should disallow Medicaid claims for TCM because they are an integral 
part of other state programs. Georgia stated that a statute provides 
that CMS may not deny payment to a state on the basis that the state 
was paying for the services from nonfederal funds, and it also said 
that CMS had approved Georgia's state plan amendment to cover these 
services. We based our evaluation of Georgia's TCM claims on CMS's 
current policy, including the agency's actions in disallowing TCM 
claims or state plan amendments in other states, and we have focused 
our concerns on the inconsistent application of CMS's TCM policy. In 
applying this policy, CMS had considered arguments similar to those 
raised by Georgia, and the CMS Administrator's decision (September 
2004) upheld the application of CMS's current TCM policy. Although we 
did not evaluate the legal basis for CMS's TCM policy, we maintain our 
position that CMS's policy should be clarified and consistently applied 
among states. 

5. Regarding rehabilitation services, Georgia stated that it has not 
and is not asking for federal matching funds in excess of costs. We 
disagree. We found that in some cases the state agencies' claims to 
Medicaid were based on facilities' costs exceeding the agencies' actual 
payments to individual facilities. This situation resulted from the 
agencies' decision to base claims for payment on the facilities' 
estimated costs, rather than on the per diem rate they paid to these 
facilities. According to the state, one example described in the report 
of a Medicaid claim that exceeded payments to the facility for all 
services, was an exceptional circumstance. The state also indicated 
that this inadvertent practice was ended for all facilities as of April 
1, 2004. Although we sought clarification from the state on its 
comments, the state did not address our finding that the underlying 
methods for setting Medicaid payment rates was flawed. 

6. Regarding supplemental payments, Georgia asserted that it has 
historically administered its upper payment limit (UPL) program in 
compliance with existing federal regulations and also stated that it 
has agreed with CMS to change the financing of its UPL programs 
beginning in state fiscal year 2006. The state said that, as of July 
2005, it will no longer continue the practice we described in our draft 
report. We revised the report to reflect the state's agreement with CMS 
regarding the state's supplemental payments to government providers. 

7. Regarding school-based claims, Georgia commented that we erred in 
reporting that the state withheld 16 percent of the federal 
reimbursements from the reimbursement-maximizing project involving 
claims for services and administrative costs of schools. The state also 
said the schools receive 100 percent of the federal reimbursements 
generated and that state fees, which support the administrative costs 
necessary to ensure that all participating school systems are complying 
with program requirements, are paid exclusively from local funds. 
During our review, however, the state provided us a written explanation 
and a spreadsheet showing what was paid to schools, indicating that it 
had withheld 16 percent of the federal reimbursements from the school- 
based project and that participating schools received 84 percent of the 
federal reimbursements. 

8. Regarding administrative claims, Georgia commented that we 
incorrectly suggested that the state paid its consultants from 
additional federal Medicaid reimbursements generated from contingency- 
fee projects. We disagree. Our conclusion was based on the contract 
that the state signed with its reimbursement-maximizing consultant. The 
contract states that the contractor (consultant) acknowledges and 
agrees that no payment is due from the state agencies or the state of 
Georgia under the contract from state-appropriated funds. Further, the 
contract explicitly states that the "Contractor's only source of 
compensation shall be funds (in the percentage specified in 
Contractor's Proposal) generated from Contractor's performance under 
this Contract."

The state also provided us with technical comments, which we have 
incorporated as appropriate. 

[End of section]

Appendix V: Comments from the Commonwealth of Massachusetts and GAO's 
Response: 

The Commonwealth of Massachusetts: 
Executive Office of Health and Human Services:
One Ashburton Place, Room 1109: 
Boston, MA 02108:

MITT ROMNEY: 
Governor:

KERRY HEALEY: 
Lieutenant Governor:

RONALD PRESTON:
Secretary:

June 15, 2005:

Ms. Kathryn Allen: 
Director, Health Care:
US Government Accountability Office: 
Washington, DC 20548:

Dear Ms. Allen:

Enclosed are the Commonwealth's comments on your draft report entitled 
"Medicaid Financing: States' Use of Contingency-Fee Consultants to 
Maximize Federal Reimbursements Highlight Need for Improved Federal 
Oversight" (GAO-05-748).

I appreciate the opportunity to comment on your Draft Report, and your 
willing participation in telephone conversations last week. I note that 
you agreed with a number of our points and anticipate that they will be 
reflected in your next draft.

Eleven years as the Associate Regional Administrator for Medicaid in 
Boston gives me considerable empathy for CMS's concerns with 
contingency-fee contracts and coverage for rehabilitation, case 
management, administration, school-based services and supplemental 
payments. I regularly ordered auditing of consultant-generated claims, 
and I regularly fretted over the breadth of these services.

Still, I had to acknowledge then and I trust CMS acknowledges now that 
nothing in the law prohibits contingency-fee contracts, as long as the 
rates fall within broad requirements for the efficient administration 
of Medicaid. Also, in many instances, these contracts provide states 
with resources they otherwise would not have for vital administrative 
tasks to ensure services to Medicaid beneficiaries. In themselves, 
contingency-fee contracts do not let states off the hook for 
determining what is and what is not appropriate under Medicaid. In 
Massachusetts' case, to ensure compliance with federal law, our legal 
and program staffs review what our contractors do and how they do it.

As for rehabilitation, case management, administration, school-based 
services and supplemental payments - Medicaid covers these, and the 
language of the law is broad.

There's little in the way of regulation to narrow these definitions. 
With regard to these and other areas, not only is it appropriate, it's 
the fiscally responsible thing to do for states to seek federal 
resources for people in need when those resources are lawfully 
available. In Massachusetts' case, our definitions of these five areas 
fall within longstanding federal interpretations. I appreciate there 
are arguments that Medicaid coverage should be narrower than it is or 
more narrowly interpreted than it has been. However, considering the 
many years of existing practice and policy interpretations, if CMS 
wants more restrictive coverage, legislation must narrow the law or 
regulations must narrow the interpretation of the law.

I trust GAO will distinguish between questionable federal policy and 
what is improper under federal law. GAO may find contingency-fee 
contracts and broad coverage in these five areas to be questionable 
policy, but that does not make them illegal or improper. In that the 
federal rules are broad, states should apply them broadly.

Sincerely, 

Signed by: 

Ronald Preston: 
Secretary: 
Executive Office of Health and Human Services:

Enclosure:

GAO's Response to the Commonwealth of Massachusetts's Comments: 

Our responses to Massachusetts's comments are numbered below to 
correspond with the state's various points (reproduced on pp. 73-85). 
Massachusetts generally stated that (1) nothing in the law prohibits 
contingency-fee contracts, as long as rates fall within broad 
requirements for the efficient administration of Medicaid; (2) 
contingency-fee contracts provide states with resources they otherwise 
would not have for vital administrative tasks; (3) states remain 
responsible for ensuring compliance with Medicaid requirements; (4) 
Medicaid statute and regulations are broadly stated; and (5) states 
have the responsibility to seek federal resources to help people in 
need when those resources are lawfully available. The state also 
provided us with updated information, which we have incorporated in our 
report. 

Massachusetts's detailed comments and our responses follow. 

General Comments: 

Massachusetts noted that the state's funding methods differed from the 
typical payment process we describe in the report's "Background" 
section. We revised the report to reflect that the state advances from 
state funds both the federal and nonfederal share of Medicaid payments 
and then seeks federal reimbursement for those expenditures. 

9. Massachusetts commented that we did not sufficiently distinguish 
between "inappropriate, but lawful" activities and activities that 
violate specific statutes or regulations. We revised the report to 
clarify our concerns related to the projects we examined and to more 
clearly distinguish the basis for our concerns related to the projects 
that we reviewed. 

10. Massachusetts commented that it was acting in accord with its state 
plan approved by the Centers for Medicare & Medicaid Services (CMS). We 
revised the report to clarify that CMS had approved Massachusetts's 
state plan amendments for targeted case management (TCM) services for 
each of the four state agencies providing these services. We did not, 
however, assess whether each of the four agencies' activities were 
consistent with the approved state plan. In addition, we described 
projects in other states to illustrate the inconsistent application of 
CMS policy. 

11. See response 2. 

Comments on States' Use of Contingency-Fee Consultants: 

12. Massachusetts commented that we focused too much on increased 
claiming and did not adequately consider the reasons for spending 
increases and the role of contingency-fee consultants. We disagree. Our 
presentation of increased federal expenditures was descriptive and was 
one factor we considered in selecting categories of claims to review. 
In this section of the report, we drew no conclusions regarding the 
appropriateness of state claims. As we stated in the draft report, we 
agree that consultants can have a legitimate role in helping states 
administer their Medicaid programs. 

13. Massachusetts commented that we discussed projects only in five 
selected areas. On the basis of additional information provided by the 
state, we revised our report to include summary financial information 
on other University of Massachusetts Medical School (UMMS) projects, 
including third-party liability and coordination of benefits 
activities. Nevertheless, in response to the congressional request for 
this review, our scope was to include contingency-fee projects in 
revenue-maximizing areas; more detailed review of other projects was 
therefore beyond our scope. 

14. Massachusetts commented that contingency-fee payments from one 
state agency to another do not benefit any other party. Our concern is 
not that one state agency may profit from another. Rather, we are 
concerned that the two state agencies operating in concert could 
inappropriately generate additional federal funds. 

Comments on Consistency of Contingency-Fee Projects with Law or Policy: 

15. Massachusetts commented that we are applying CMS policies that have 
not been well articulated and that CMS has approved its state plan 
amendments for TCM programs. We use Massachusetts's TCM programs to 
illustrate the difficulties states encounter when dealing with unclear 
CMS guidance and potential disparate treatment by CMS. We acknowledge 
that CMS approved Massachusetts's state plan amendments for its TCM 
programs and clarified the report accordingly. Our concern remains, 
however, that these TCM programs do not appear to be consistent with 
CMS's current TCM policy and are similar to proposals from other states 
that CMS is currently denying. 

16. Massachusetts commented that we relied on a January 2001 letter as 
CMS policy and that we used criteria--whether the service was 
authorized by state law, regulation, or policy--that appear 
inconsistent with provisions of the Technical and Miscellaneous Revenue 
Act of 1988. We did not rely on CMS's January 2001 letter as CMS 
policy. We used the State Medicaid Manual (4302) and the September 
2004 Administrator's decision (Docket No. 2003-02) as CMS policy in 
this area. In addition, because CMS has not defined services that are 
integral to another state program, we used the existence of state law, 
regulation, or policy as an indicator, not a determinant, that TCM 
services were integral to non-Medicaid programs. 

17. Massachusetts commented that managed care payments for children 
served by the Department of Youth Services do not include 
rehabilitation provided by state agencies; thus, payments to state 
agencies for rehabilitation services for these children would not be 
duplicative. As described in the draft report, we continue to be 
concerned about the potential duplication of coverage because (1) 
rehabilitation services are included in the statewide managed care 
program, which includes children served by other state agencies, and 
(2) it is unclear whether the Department of Youth Services' managed 
care rates include rehabilitation services provided by private 
providers (as opposed to state agencies), so Medicaid could be paying 
both private and public providers for the same service. CMS officials 
agreed with our concerns. 

18. Massachusetts did not agree that certain aspects of its upper 
payment limit (UPL) arrangement--those the state agreed with CMS to end 
in June 2005--were inappropriate. While the state's documentation did 
not provide sufficient detail for us to assess the aspects of the UPL 
arrangement that it had agreed to end, we revised our characterization 
of the state's agreement. Nevertheless, we maintain our view that 
illusory supplemental payments in which providers net only a small 
portion of the supplemental payments--such as those made in 
Massachusetts--are inconsistent with Medicaid's federal-state 
partnership. 

19. Massachusetts commented that it had undertaken a number of efforts 
to strengthen oversight of school-based Medicaid claims and provided 
additional information on two reports from the Department of Health and 
Human Services' (HHS) Office of Inspector General (OIG). We revised the 
report to reflect Massachusetts's efforts to improve oversight of its 
school-based claims. We also revised the report to clarify that, upon 
further review, CMS did not impose the full HHS OIG-recommended 
disallowance of $2.9 million but, rather, imposed a $1.2 million 
disallowance. 

20. Massachusetts disagreed with our view that UMMS's role as a 
contingency-fee consultant working for school districts to prepare 
their claims and as a contingency-fee consultant working for the state 
to monitor school district claims creates the appearance of a conflict 
of interest. On the basis of our discussions with UMMS and state 
Medicaid agency officials and our review of state documents, we 
maintain our view but revised the report to more specifically show 
UMMS's role in ensuring the integrity of those claims submitted by 
schools, including reviewing and performing quality-control measures on 
local school cost information. 

21. Massachusetts disagreed with our finding in the draft report that 
UMMS had inappropriately charged salaries for two senior UMMS officials 
as Medicaid administrative expenditures, providing an agreement between 
the Medicaid agency and UMMS as support. Regarding one official, we 
maintain our view that UMMS charged excessive time as a Massachusetts 
Medicaid administrative expenditure. Although UMMS charged 100 percent 
of the official's salary as a Massachusetts expenditure, time sheets 
provided by the state Medicaid agency showed that in some months, the 
UMMS official charged from 2 to 5 percent of his time to "out-of-state" 
projects. Whether the official worked for the Medicaid agency or UMMS, 
time spent on out-of-state projects should not be claimed as a 
Massachusetts Medicaid administrative expenditure. Regarding discussion 
of a second official's time charges, we removed references to this 
official in the report on the basis of additional information provided 
by the state. 

Comments on State and CMS Oversight of Contingency-Fee Projects: 

22. Massachusetts commented that the draft report focused on state 
Medicaid agency policy, not operations, and that it disagreed that 
state policies are inappropriate. In our review of individual projects 
and state Medicaid agency oversight, we examined and reported on both 
the procedures and the policies the state Medicaid agency had in place 
to oversee the activities of its contingency-fee consultants. We 
maintain our view that some state Medicaid agency policies, such as 
those allowing multiple agencies to bill Medicaid for the same service 
for the same beneficiary each month and supplemental payments that do 
not fully accrue to providers, are inappropriate. 

23. Massachusetts commented that the Department of Mental Retardation's 
contact with clients does not necessarily occur each month, although we 
found the department had automatically billed Medicaid for its TCM 
caseload each month. The state agreed that the agency's billing was an 
area that can be improved and that a new management information system 
planned for state fiscal year 2006 would allow automated verification 
of client contacts during the billing process. We revised the report to 
reflect the updated figure for the department's claims in state fiscal 
year 2004. 

24. Massachusetts commented that its policy of allowing multiple 
agencies to bill Medicaid for TCM services for the same beneficiary 
each month did not constitute inappropriate double-billing. We reviewed 
information provided by the state during our review and concluded that 
the state did not provide convincing evidence that the TCM services 
provided by the four state agencies were unique. We discussed the 
matter with CMS and HHS OIG officials, and they concurred with our 
conclusion. We continue to believe that further review is needed. 

25. Massachusetts commented that its project for supplemental 
disproportionate share hospital (DSH) payments was authorized by 
Congress and approved by CMS and that the state disagreed with our view 
that such payments can be illusory. We did not question the state's 
authority to make supplemental DSH payments up to 175 percent of 
unreimbursed costs, consistent with statutory authority to do so for a 
2-year period. Rather, our concern was that hospitals should benefit 
from increased federal reimbursements and Massachusetts's arrangement 
appeared to result in lower payments to hospitals, despite increased 
claims for federal reimbursement. Because we did not fully assess the 
state's DSH payment process and net payments to hospitals, our concerns 
remain, and we believe that further review is warranted. 

[End of section]

Appendix VI: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Katherine Iritani (206) 287-4820: 

Acknowledgments: 

Major contributors included Terry Saiki, Tim Bushfield, Jill M. 
Peterson, Ellen M. Smith, Ellen W. Chu, Helen Desaulniers, and Kevin 
Milne. 

[End of section]

Related GAO Products: 

High-Risk Series: An Update. GAO-05-207. Washington, D.C.: January 
2005. 

Medicaid Program Integrity: State and Federal Efforts to Prevent and 
Detect Improper Payments. GAO-04-707. Washington, D.C.: July 16, 2004. 

Medicaid: Intergovernmental Transfers Have Facilitated State Financing 
Schemes. GAO-04-574T. Washington, D.C.: March 18, 2004. 

Medicaid: Improved Federal Oversight of State Financing Schemes Is 
Needed. GAO-04-228. Washington, D.C.: February 13, 2004. 

Medicaid Financial Management: Better Oversight of State Claims for 
Federal Reimbursement Needed. GAO-02-300. Washington, D.C.: February 
28, 2002. 

Medicaid: HCFA Reversed Its Position and Approved Additional State 
Financing Schemes. GAO-02-147. Washington, D.C.: October 30, 2001. 

Medicaid: State Financing Schemes Again Drive Up Federal Payments. GAO/ 
T-HEHS-00-193. Washington, D.C.: September 6, 2000. 

Medicaid in Schools: Improper Payments Demand Improvements in HCFA 
Oversight. GAO/HEHS/OSI-00-69. Washington, D.C.: April 5, 2000. 

Medicaid in Schools: Poor Oversight and Improper Payments Compromise 
Potential Benefit. GAO/T-HEHS/OSI-00-87. Washington, D.C.: April 5, 
2000. 

Medicaid: Questionable Practices Boost Federal Payments for School- 
Based Services. GAO/T-HEHS-99-148. Washington, D.C.: June 17, 1999. 

Medicaid: States Use Illusory Approaches to Shift Program Costs to 
Federal Government. GAO/HEHS-94-133. Washington, D.C.: August 1, 1994. 

FOOTNOTES

[1] States with lower per capita incomes receive higher federal 
matching rates. The federal government also matches states' costs for 
administering the Medicaid program, generally at 50 percent. Federal 
Medicaid matching rates were increased temporarily by 2.95 percentage 
points from April 1, 2003, through June 30, 2004, pursuant to title IV 
of the Jobs and Growth Tax Relief Reconciliation Act of 2003. See Pub. 
L. No. 108-27,  401(a)(3), 117 Stat. 752, 764-765. 

[2] GAO, High-Risk Series: An Update, GAO-05-207 (Washington, D.C.: 
January 2005). 

[3] Contingency fees are eligible for federal Medicaid reimbursement 
when a contingency-fee contract (1) results in cost-avoidance savings 
or recoveries in which the federal government would share, (2) is 
competitively procured, and (3) the savings upon which the contingency- 
fee payment is based are adequately defined and the payments documented 
to the Centers for Medicare & Medicaid Services' satisfaction. 

[4] We estimate that the average annual rate of growth for the Medicaid 
program from 1999 through 2003 was 9.2 percent. 

[5] A list of related GAO products appears at the end of this report. 

[6] To review growth in dollars claimed, we reviewed CMS data from 
states' Medicaid expenditure reports. To assess the reliability of 
these data, we discussed data quality control procedures and reviewed 
related documentation with CMS officials. We determined that the data 
were sufficiently reliable for the purposes of this report. 

[7] 42 U.S.C.  1396, et seq. (2000). 

[8] Throughout this report, we use the term reimbursement to refer to 
federal funds received by states from CMS for the federal share of 
states' claimed Medicaid expenditures. States generally receive such 
funds through a reconciliation process whereby an advance from CMS is 
reconciled with states' claimed expenditures. We use the term payment 
to refer to funds used by state Medicaid programs to pay Medicaid 
providers for providing Medicaid services. 

[9] Each quarter, states submit to CMS an estimate of their Medicaid 
expenditures for the upcoming quarter. CMS then authorizes the states 
to draw on federal funds to pay the federal Medicaid share. 
Massachusetts officials said that the state fully funds Medicaid 
payments and is reimbursed by the federal government. 

[10] 42 U.S.C.  1396a(a)(30) (2000). 

[11] State Medicaid agencies, for example, may employ other state 
agencies to perform administrative activities and pay them on a 
contingency-fee basis. CMS's guidance notes that contingency-fee 
payments made to another government unit for Medicaid administrative 
activities, whether made directly by the Medicaid agency or made by 
another unit and reported to CMS through the Medicaid agency, are not 
allowable for federal reimbursement. 

[12] OMB Circular A-87 applies to federal grants to state and local 
governments. It establishes principles and standards to provide a 
uniform approach to determining allowable costs and promoting effective 
program delivery, efficiency, and better relationships between federal 
and other governmental units. The circular establishes requirements 
enabling states to allocate allowable central services costs to 
operating agencies, such as the state Medicaid agency, by developing 
cost allocation plans. An approved cost allocation plan allows the 
state to assign some of the costs of centralized administrative and 
support services to the agencies that use them on a reasonable and 
consistent basis. State agencies such as Medicaid may then claim 
federal reimbursement for those administrative costs as allowed by 
Medicaid statute. 

[13] As discussed later in this report, as part of a new financial 
management effort, CMS has an initiative under way to hire 
approximately 100 new financial analysts with responsibilities 
different from those of CMS's traditional financial management 
analysts. 

[14] GAO, Medicaid: Questionable Practices Boost Federal Payments for 
School-Based Services, GAO/T-HEHS-99-148 (Washington, D.C.: June 17, 
1999). 

[15] GAO, Medicaid in Schools: Improper Payments Demand Improvements in 
HCFA Oversight, GAO/HEHS/OSI-00-69 (Washington, D.C.: Apr. 5, 2000). 

[16] CMS, Medicaid School-Based Administrative Claiming Guide (May 
2003). 

[17] The May 2002 letter instructed CMS regional administrators to 
remind states that federal matching funds were generally not available 
for contingency-fee contracts and, where CMS had inadvertently approved 
such arrangements, federal matching funds would cease at the end of the 
remaining term. The November 2002 letter provided guidance to regional 
offices on criteria that states must meet to receive reimbursement for 
contingency fees paid to consultants. 

[18] The state and the consultant disagreed on the contingency-fee 
payment for UPL payments to local-government hospitals and nursing 
homes. The state and consultant agreed to an $81 million compromise fee 
in 2003. At the time of this agreement, the state had already paid the 
consultant about $25 million, and the remaining $56 million was to be 
paid in yearly installments of $14 million, with the final installment 
due in June 2006. 

[19] By ownership, UMMS is not a private consultant, although it shares 
several characteristics with private consultants. We included UMMS in 
our review because of these shared characteristics, specifically (1) 
CMS identified and reported UMMS as a contingency-fee consultant; (2) 
the consulting work UMMS does for Massachusetts is done under 
"interdepartmental service agreements," which state officials describe 
as contracts; (3) UMMS is paid a contingency fee by the state for many 
of its state projects; and (4) UMMS officials said the medical school 
serves as a contingency-fee consultant for other states and as a 
subcontractor for other consultants. 

[20] For example, UMMS was paid a contingency fee of $115,000 in state 
fiscal year 2004 for increasing state claims for family-planning 
services provided by managed care organizations. 

[21] See State Medicaid Manual 4302 and CMS, Disapproval of Maryland 
State Plan Amendment No. 02-05, Docket No. 2003-02 (Aug. 27, 2004). 

[22] CMS approved the states' TCM amendments before 2002. 

[23] The state plan amendment revised the state's existing TCM 
provision (approved by CMS in March 2002) to change the payment rate. 

[24] Contingency-fee payments for TCM claims ended in 2003. According 
to Massachusetts officials, the consultants continued to assist the 
agencies in processing their TCM claims after 2003 but no longer 
received a contingency fee. 

[25] CMS's statements regarding TCM services do not define the phrase 
"integral component" but, rather, indicate that the agency considers 
whether the services are related to other programs. In the absence of a 
CMS definition, we considered (1) whether case management was called 
for by state law, regulation, or policy; (2) whether case management 
was provided to all Medicaid-and non-Medicaid-eligible clients served 
by the program statewide; and (3) whether the services were similar to 
those that were provided by states whose TCM state plan amendments or 
claims had been denied by CMS. 

[26] In examining CMS expenditure reports, we found that both Georgia 
and Massachusetts had categorized non-TCM services, such as 
rehabilitation services, as TCM. We obtained estimates from the states 
of the amount the states had claimed for TCM services. 

[27] Specifically, the state Medicaid agency was billed for 
"therapeutic residential intervention services," which are defined by 
the state as comprehensive rehabilitation services consistent with the 
diagnosis and treatment needs of the child's condition. Therapeutic 
residential intervention provides mental health treatment services for 
emotionally disturbed and severely emotionally disturbed children. 
According to state officials, these rehabilitation services were 
covered under the state plan provision authorizing early and periodic 
screening, diagnostic, and treatment services, which are comprehensive 
screening and treatment services that states provide to children and 
adolescents younger than 21. 

[28] In addition to the new method for billing Medicaid, the 
contingency-fee project also helped Georgia expand the number of 
Medicaid beneficiaries and private facilities for which rehabilitation 
services were billed. 

[29] See 42 U.S.C.  1396 and 1396a(a)(30) (2000). 

[30] See, for example, GAO, Medicaid: Intergovernmental Transfers Have 
Facilitated State Financing Schemes, GAO-04-574T (Washington, D.C.: 
Mar. 18, 2004), and GAO-04-228. 

[31] Intergovernmental transfers are a tool that state and local 
governments use to carry out their shared governmental functions, such 
as collecting and redistributing revenues to provide essential 
government services. 

[32] The project description indicated that UMMS agreed to help the 
state "put the mechanisms in place required to carry out the related 
intergovernmental transfer of funds back to the state."

[33] HHS OIG, Medicaid Payments for School-Based Health Services-- 
Massachusetts Division of Medical Assistance, A-01-02-00009 
(Washington, D.C.: July 14, 2003). 

[34] State officials, in comments on a draft of this report, noted that 
the state had disagreed with OIG's finding and noted that no 
disallowance had been issued by CMS as of June 2005. 

[35] HHS OIG, Medicaid School-Based Health Services Administrative 
Costs--Massachusetts, A-01-02-00016 (Washington, D.C.: Sept. 15, 2004). 

[36] We did not assess whether the school-based health services that 
the state claimed were allowable. 

[37] In particular, our earlier reports found that in some states, 
school districts received only a small portion of the federal funds 
that were claimed on their behalf because states and contingency-fee 
consultants shared in the reimbursements. Rather than fully reimbursing 
schools for their Medicaid-related costs, some states retained as much 
as 85 percent of federal Medicaid reimbursements. According to several 
state officials, because states funded a portion of local education 
activities, Medicaid services provided by schools were partially funded 
by the state. Under this reasoning, some states believed they should 
receive a share of the federal reimbursements claimed by school 
districts. See GAO/T-HEHS-99-148 and GAO/HEHS/OSI-00-69. 

[38] The Massachusetts Comptroller's office proposed an interim 
revision to the cost allocation plan in a letter dated March 10, 2004, 
but reviewers in CMS region I noted that the letter spoke only of the 
consolidation of human resource functions and not of broader 
reorganization issues. In an April 2004 memo to the HHS Division of 
Cost Allocation, CMS regional reviewers commented that the interim 
revision contained inconsistencies and mathematical errors and 
recommended that the state revise and resubmit its proposal. Another 
draft submitted in September 2004 was incomplete and could not be 
reviewed. In December 2004, the state submitted a revision of the 
September draft, which was under review as of April 2005. 

[39] HHS OIG, Contingency Fees Claimed by Colorado as Medicaid 
Reimbursement, A-07-04-01009 (Washington, D.C.: Oct. 29, 2004). 

[40] HHS OIG, Review of Virginia's Contingency Fee Payments for 
Maximizing Federal Revenues Claimed by Its Medicaid Managed Care 
Program, A-03-04-00213 (Washington, D.C.: Nov. 9, 2004). 

[41] The CMS Administrator's performance budget for fiscal year 2006 
proposes to establish individual state allotments for Medicaid 
administrative claims. CMS's budget request notes that the open-ended 
financing of Medicaid administrative claims does not encourage states 
to administer the program as efficiently as possible. CMS estimates 5- 
year budget savings of $1.1 billion from its proposal. See the Centers 
for Medicare & Medicaid Services' performance budget for fiscal year 
2006. 

[42] A CMS Administrator's decision denying a proposed state plan 
amendment from Maryland to cover TCM services articulated criteria that 
CMS has applied to evaluate state TCM plan amendments. See CMS, 
Disapproval of Maryland State Plan Amendment No. 02-05, Docket No. 2003-
02 (Aug. 27, 2004). 

[43] A CMS official stated that the agency's most recent guidance on 
TCM, issued in January 2001, contained problems and errors that caused 
confusion regarding appropriate TCM claims when non-Medicaid state 
agencies were involved. 

[44] The CMS Administrator's performance budget for fiscal year 2006 
proposes to clarify allowable TCM services and align federal 
reimbursement for TCM services with an administrative matching rate of 
50 percent. CMS estimates 5-year budget savings of $1 billion from 
reducing the reimbursement for TCM to the administrative matching rate. 

[45] In commenting on a draft of this report, CMS said that 23 states 
had agreed to terminate one or more financing practices that increased 
the federal share of the cost of providing Medicaid services, effective 
with the end of their state fiscal year 2005. CMS had identified an 
additional 10 states with similar financing mechanisms that are in the 
process of terminating such arrangements. Assessing the provisions of 
CMS agreements with individual states is part of an ongoing GAO review. 

[46] The budget proposes to build on CMS's efforts to curb questionable 
financing practices by (1) recovering federal funds claimed for covered 
services but retained by the state and (2) capping payments to 
government providers at no more than the cost of furnishing services to 
Medicaid beneficiaries. CMS estimates 5-year budget savings of $5.9 
billion from this proposal. GAO has recommended since 1994 that 
Congress consider legislation to prohibit Medicaid payments to 
government providers that exceed the providers' actual costs. See GAO, 
Medicaid: States Use Illusory Approaches to Shift Program Costs to 
Federal Government, GAO/HEHS-94-133 (Washington, D.C.: Aug. 1, 1994). 

[47] The CMS Administrator's budget for fiscal year 2006 further 
clarifies CMS's concern that states have attempted to shift costs 
associated with other social service programs to Medicaid. The budget 
proposes to clarify allowable services that may be claimed as 
rehabilitation. CMS estimates 5-year budget savings of $2 billion from 
its proposal to clarify allowable TCM and rehabilitation services. See 
the Centers for Medicare & Medicaid Services' performance budget for 
fiscal year 2006. 

[48] State Medicaid agencies are required to implement program 
integrity and utilization reviews to ensure the proper and efficient 
administration of their programs by preventing, detecting, and 
controlling fraud and abuse. Program integrity reviews focus on 
ensuring the accuracy of payments to providers, including detection and 
recovery of overpayments that may result from billing errors, failures 
in computerized claims processing systems, or fraud. Utilization 
reviews generally include surveillance and analysis of Medicaid service-
use patterns to ensure that the services are used appropriately, 
according to the state Medicaid plan, and that beneficiaries are not 
receiving either too many or too few services. 

[49] Among several provisions in the interdepartmental services 
agreement for school-based services, UMMS agreed to "[e]stablish and 
maintain procedures for claiming medical service costs related to 
Medicaid spending at local schools"; "establish and maintain procedures 
for claiming costs at local schools associated with the administration 
of the Medicaid program"; "review and perform quality-control measures 
on local school cost information, prior to the compilation of such data 
for the quarterly submission to CMS"; and "make quarterly policy and 
program recommendations to EOHHS for the school based provider group."

[50] Under its agreement to administer the state's school-based 
services program, UMMS is responsible for establishing procedures and 
training district staff, reviewing and submitting claims, and compiling 
administrative costs. For this work, UMMS is paid a contingency fee of 
1 percent of federal reimbursements generated, up to $950,000 per 
fiscal year, and it is reimbursed for 50 percent of its costs via the 
state's Medicaid administrative claims. 

[51] See HHS OIG A-01-02-00009 (July 14, 2003), and HHS OIG A-01-02- 
00016 (Sept. 15, 2004). 

[52] We identified another potential concern, outside the scope of our 
review, related to UMMS subcontracts with an organization with which 
UMMS officials were affiliated. Three UMMS officials sit on the boards 
of directors of two related nonprofit corporations. In state fiscal 
years 2003 and 2004, UMMS paid one of these related corporations more 
than $2.4 million for subcontracted work. We notified CMS regional 
officials of our concerns. 

[53] Another problem with state plan amendment reviews, which CMS has 
taken steps to rectify, arose because regional offices used to have 
responsibility for reviewing and approving state plan amendments, and 
review criteria were not always consistently applied among the regional 
offices. Since July 2002, CMS has taken several actions to centralize 
its reviews and approvals of many state plan amendments. 

[54] The officials also told us that since 2004, any deferrals of 
claims must be approved by the CMS central office. 

[55] When regional CMS officials identified an area of concern, they 
told us they typically referred it to the regional OIG office for in- 
depth audit; each regional office can conduct only a few focused 
reviews each year to quickly assess the nature and scope of potential 
problems. 

[56] See, for example, GAO, Medicaid Financial Management: Better 
Oversight of State Claims for Federal Reimbursement Needed, GAO-02-300 
(Washington, D.C.: Feb. 28, 2002). This report found that CMS's systems 
for financial oversight of state Medicaid programs were limited. We 
recommended a range of approaches to strengthen internal controls and 
target limited resources, including that CMS revise its existing risk- 
assessment efforts to more effectively and efficiently target oversight 
resources to areas most vulnerable to improper payments. An ongoing GAO 
review is assessing CMS's progress in implementing related 
recommendations. Also, in a 2004 report on state financing schemes (see 
GAO-04-228) we recommended that CMS improve oversight of state UPL 
projects, including issuing guidance to states and setting forth 
acceptable methods to calculate UPLs. These recommendations remain 
open. 

[57] See The State of Arizona Request for Proposals for Revenue 
Maximization Services, Solicitation # AD040501, as amended, 
https://spirit.az.gov/applications/spirit./pro.nsf/docnum/adsm-
5xfr40?open (downloaded May 20, 2005). 

[58] Federal Medicaid reimbursements to the state in fiscal year 2003 
for these services totaled about $38 million. 

[59] Documentation for TCM claims must include the date of service; 
name of recipient; name of provider agency and person providing the 
service; nature, extent, or units of service; and place of service. See 
Section 4302.2 (L) of the State Medicaid Manual. 

[60] Specifically, the state plan sections for both the Department of 
Youth Services and the Department of Social Services defined TCM 
services in exactly the same language to include the following case 
manager activities: "collection of assessment data; development of an 
individualized plan of care; coordination of needed services and 
providers; home visits and collateral contacts as needed; maintenance 
of case records; and monitoring and evaluation of client progress and 
service effectiveness." (Collateral contacts include family members and 
others involved in the beneficiary's care.)

[61] For example, all four state agencies covered TCM services whose 
purpose was facilitating clients' access to services, conducting 
assessments or collecting assessment data, and monitoring and 
evaluating client progress. 

[62] In 2001, CMS asked each regional office to complete a risk 
assessment to identify the extent to which states in each region had 
attributes warranting closer CMS financial oversight and scrutiny. The 
identified risk factors that regional staff were asked to assess 
included areas where federal policy was unclear, states' use of a 
contingency-fee consultant to maximize reimbursements, and payments to 
public providers in which state Medicaid agencies may lack an incentive 
to monitor and control expenditures. Regional officials were to base 
their assessment of these and other risk factors on their working 
knowledge of each state. 

[63] Thomas Scully, Administrator, CMS, responding to questions at a 
hearing, Challenges Facing the Medicaid Program in the 21st Century: 
Hearing before the Subcommittee on Health, House Committee on Energy 
and Commerce, 108th Cong., 1st Sess., Oct. 8, 2003. 

[64] GAO/HEHS-94-133. 

[65] In commenting on a draft of this report, CMS said that its fiscal 
year 2005 work plan includes plans to conduct many of these reviews. 

[66] GAO-04-228. 

[67] See GAO/HEHS-94-133. 

[68] DSH payments were an early Medicaid payment area subject to 
inappropriate state financing arrangements. As in UPL arrangements, 
states made unusually large DSH payments to certain hospitals, which 
then returned the bulk of the payments to the states. In response to 
these arrangements, Congress capped the amount of DSH payments that 
each hospital could receive and limited the total amount of DSH 
payments that each state could make to all hospitals. See 42 U.S.C. 
1396r-4(f) and (g) (2000). 

[69] Omnibus Budget Reconciliation Act of 1993, Pub. L. No. 103-66,  
13621, 107 Stat. 312, 629-32; Balanced Budget Act of 1997, Pub. L. No. 
105-33,  4721, 111 Stat. 251, 511. 

[70] In 2000, Congress generally increased the DSH limit for certain 
hospitals from 100 percent to 175 percent of unreimbursed costs, for a 
2-year period effective as of state fiscal years beginning after 
September 30, 2002. See Medicare, Medicaid, and SCHIP Benefits 
Improvement and Protection Act, Pub. L. No. 106-554, App. F,  701(c), 
114 Stat. 2763A-463, 2763A-571. 

[71] See 42 C.F.R. 435.1008(a)(1). 

[72] HHS OIG, Review of Acute Care Hospital Prison Inmate Expenditures 
Claimed by New Jersey to the Disproportionate Share Hospital Program 
for the Period July 1, 1997, through June 30, 2001, A-02-02-01028 
(Washington, D.C.: Jan. 9, 2004). 

[73] We earlier reported a similar concern related to school-based 
services. In reviewing states' approaches to billing for school-based 
services, we found that CMS (then called the Health Care Financing 
Administration, or HCFA) had found states inappropriately seeking 
Medicaid reimbursement for school-based activities, including general 
health screenings, communication with families, and staff training. 
HCFA interviews with a sample of staff who had charged their time to 
these activities showed that staff members did not know what Medicaid 
covered, where or how to apply for Medicaid, or who might qualify for 
coverage. See GAO/HEHS/OSI-00-69. We have also reported a concern that 
provider payments for school-based services in several states were not 
specifically linked to the receipt of services because claims for 
reimbursement were triggered simply by school attendance. See GAO, 
Medicaid in Schools: Poor Oversight and Improper Payments Compromise 
Potential Benefit, GAO/T-HEHS/OSI-00-87 (Washington, D.C.: Apr. 5, 
2000). 

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