- :, ' , . . . .. . ' . . ". , , , 
, ELIGIBILITYERRORS 
RESUL TING

IN MISSPENT FUNDS

THE MEDICAID PROGRAM 
IN 
tJU  Vf(l.l. 
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OFFICE OF INSP 
CTOHG 
NERAL

J 
, OFFICE bF ANAL YSISANDINSPECTIONS , 
MAY 1988
 ' '
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GEN 

OFFICE OF INSPECTR 
The mission of the Office of Inspeqtorc:enera

l(OIG) is to

promote the efficiency , effecti vfOnessandintegdty of
in the United States Department ofU,:alth  programs
(HHS) .  It ,does this by developingmethbdasntdoHduemteacnt iS3enrdvices
fraud; waste arid abuse.  prevent
Created by statute in.
, Inspector General  1976
keeps both the Secretary' ang'  , the 
arid currently  theCongress fully
informed about programs or management problems and
recommends '  orrective action. The 
conducting audits  OIGperforms its mission by
, investigations and inspections with
approximately 1 
200 staff strategically located around the
, country. 
OFFICE OF ANALYSIS AND INSPECTIONS

This report is produced by the Office of Analysis and Inspections

(OAI), one of the three major offices within theOIG.
two are the Office of Audit and the Office of Investigations.
The other

The OAI conducts inspections which are typically short-term

studies designed to determine program effectiveness

and vulnerability to fraud and abuse.  , efficiency

This inspection
, entitled "Eligibility Errors Resulting in

Misspent Funds in the Medicaid Program

" was conducted to

identify the reasons some states are more successful than others

in reducing Medicaid payment errors and to attempt to determine

those factors which prevent some States from meeting their

Medicaid error rate reduction goals. 

This report was prepared by the

Office of Analysis' and Inspectio'n Rse gional " Inspector General
Region IV 
with the headquarters Health Care Branch, Officei no fc oAnnjaulnycstiiso na,nd

Inspections. Participating in 
the project: were the following ,
people: , 
Atlanta Reqion

-Headauarter' 
Ron Kalil '  ' Office
(Project ' Leader) 
Cathaleen Ahern '
Betty Davis

Jim Wilson'

Peggy Daniel 

Paulette, Roberts 
 ELrGIBFILUrTY  ERORS RESUTING IN MISSPEN
PROG 
IN TH MEDICAD 
Richard P. Kusserow  May 1988
Inspector General 
Control No. OAI-04-87-00014
 .................. ..... ....
. . . ...  . ...  ..  . ..  ...  . ..  ..  ..  .. ..  ..  .. ..  ...  .. . .  . . . . . . . .. ..  ..
. . ..  ..  ..  ..  ..  ...   ....    .....     .....     .....     .....     .....     .....    . ... .   . ... .   . ... .   . ... .   . ... .   .. ..  .  .. ..  .  .....     .....  .  . ... .    ......      ......      ......      .......    .   ... .. . . .   . ..... .      .......      . ... ...   .   .. ....  .   . . . ....  .    . .....     .....     .... .  .  . ... .   . .. .. .    .....     .....     .....    . .. . .  . . . . .. .....  .. ... .   ...   . . .
CONTS 
TABLE OF 
EXECUTIVE 
StJY. 
INTRODUCTION. 
Background. 
Purpose of Inspection.....................................

Methodology.  . . . . . . . . . . . 6 
FINDINGS. 
Causes of Medicaid Eligibility Errors..................... 

Threat of Disallowances................................... 

Lower priority Placed on Medicaid Error Reduction......... 

Achievability of Error Goals..............................

AFDC Versus Medicaid Eligibility Payment Error Rate.......

Common Problems states Encounter........................ .

Quality Control as a Management Tool.................... .

Environment for Success................................. .

Successful Activities................................... .

Effectiveness of Corrective Action Planning............. .

CUrrent Federal Role in Corrective Action............... .

CONCLUSION. 
RECOJwNDATIONS. 
Identify and Communicate Effective Management Practices. .

Provide Data to Enhance Corrective Action Initiatives... .

Notify states of Potential Savings...................... .

Provide Special Assistance.............................. .

Establish Incentives for Successful Efforts............. .

Experiment with New Sampling Techniques................. .

Provide Timely and Clear Policy......................... .

APPENDICES................................................... . 
A-1

Effective Techniques and Practices................. .A-l 
State by State Medicaid Payment Error Rates........ . B-l 
Health Care Financing Administration s Comments.... . C-l  EXECUIV SUMY 
PUSE: 
The purpose of this inspection was to: 
identify the reasons some States are more successful than

others in reducing and maintaining a low rate of Medicaid

eligibility errors which result in misspent funds; and

highlight the best practices of States that have 
successfully reduced Medicaid error rates as practices that 
other States should adopt. 
BACKGROUN : Medicaid is a Federally aided, State-administered 
program providing health care to the poor. Generally, local 
welfare agencies process applications for aid, and eligibility is 
based on need. State Medicaid agencies make direct payments to

health care providers for medical services rendered to eligible

recipients. 
The costs of the Medicaid program to Federal and State

Gfoirvsetr-nments are growing dramatically. In Fiscal Year 1966, the

year benefit costs were $1.5 billion. In Fiscal Year 1986 
the benefit costs rose to $42.3 billion. Costs are projected to
rise to $50 billion in Fiscal Year 1988. 
The Medicaid eligibility quality control (MEQC) program reviews

eligibility determinations from a statistically valid random

sample of cases. Payments made to medical providers for

ineligible recipients and overpayments for eligible recipients

who had not properly met beneficiary liability prior to receiving

Medicaid services are used to determine a state I s payment error
. rate. 
By law, states with Medicaid payment error rates exceeding

3 percent are subject to lose a portion of the Federal share of

Medicaid dollars. Although most States have been successful in

reducing their errors below 3 percent, Medicaid errors are

costly. The national 2. 
6 percent error rate in Fiscal Year 1986
cost Federal and state Governments approximately $1.
1 billion in

misspent funds. 
MEODOLOY : This program inspection is based on qualitative 
information gathered from discussions with 151 managers and staff

in 3 Department of Health and Human Services 
(HHS) regional

offices 
, 9 state agencies, and 12 local welfare offices. The 
inspection team also reviewed existing records, pertinent

quantitative data, and applicable Federal and State statutes,

regulations, and policies pertaining to Medicaid eligibility.

FINDINGS: 
Effective state management is the primary reason for success

in error reduction. Successful agencies have a high level

of awareness and commitment to corrective action by managers

and staff, State Medicaid quality control staff visibility

and input into Medicaid policy decisions
, advance

preparation for anticipated changes, systems for
 communication between state and local offices, effective

training for local staff, local office input on policies and

procedures, and effective monitoring of local offices.

Although this kind of expertise exists in the States, no

formal network exists for states to share information on

ways to improve Medicaid eligibility determinations.

A major purpose of the Medicaid eligibility quality control

system is to measure misspent Medicaid funds in each State.

Although it accomplishes its goal, it is not always a useful

management tool to States for corrective action purposes.

While the threat of Federal disallowances puts a sharp focus 
on Medicaid error reduction, the Medicaid program has a 
lower priority in error reduction activities when compared 
to the Aid to Families with Dependent Children (AFDC) and
Food Stamp programs. A major reason is that many states
(all but 12 in Fiscal Year 1985) meet their Medicaid error 
rate goals, while most do not meet their AFDC error rate 
goals (47 in Fiscal Year 1985). Yet, in Fiscal Year 1985, 
misspent funds in the Medicaid program cost Federal and 
State Governents a combined $1.01 billion, while misspent 
funds in the AFDC program amounted to ,$918 million. 
Several States either have difficulty achieving the

3 percent national standard or have had volatility in their

error rates over the past few years. Yet, there is no

national system to provide special assistance to those

states in identifying specific causes of errors and

designing corrective action measures.

While punitive measures exist by law for States exceeding

the 3 percent error rate, there are no rewards or incentives

for States below 3 percent. Some States have been

consistently below 3 percent for many years. Yet, little

recognition or incentives are available to States and

individuals in those States for outstanding performance.

New sampling techniques, like Nebraska's retrospective

sampling technique described in appendix A, may help improve

precision of the error rate and also provide additional data

to assist in corrective action. Yet, States are unwilling

to adopt retrospective sampling for reasons outlined in this

report. 
States report they often have to implement Medicaid program

changes prior to the promulgation of Federal regulations or

policy, and, when the Federal guidelines are finally

received, the language is sometimes confusing and lends

itself to various interpretations. Further, States are

concerned about eligibility requirements that are

incompatible with medical needs and about Health Care

Financing Administration (HCFA) proposals to redefine
"technical errors " which may raise error rates. States 
feel achievability of error rate goals depends on program
stability.  RECOMMATIONS : A. 5 percent decrease in the Medicaid 
eligibility error rate nationally, based on Fiscal Year 1988

Medicaid benefit cost projections, would result in a savings to

Federal and State Governents of $250 million. The HCFA needs to 
take a more active role in partnership with States to reduce and

contain Medicaid eligibility errors which result in misspent

funds. The following recommendations are addressed to HCFA:

The HCFA should publish a compendium or catalog of error 
reduction techniques on a periodic basis. States should 
submit specific successful practices found to be helpful in 
reducing or maintaining low errors, and a contact person 
furter 
should be listed for  information. 
The HCFA should	 develop strategies to distinguish areas

where one state
 can help another and coordinate this effort 
both regionally	
and nationally. 
The HCFA should hold regular meetings, both in regions and

nationally, that focus on Medicaid eligibility and related

corrective action. Attendees should include State and

Federal Medicaid quality control and program policy staff.

The HCFA should publish case error rate data annually by

element and by State to assist in tracking the progress of

States in error reduction efforts. The information can be

used in addition to payment error data to determine areas of

weakness which corrective action can address.

The HCFA should alert State officials annually to the actual

costs associated with misspent Medicaid funds--not only the

Federal portion exceeding 3 percent but also the total

Federal and State dollars misspent in each State.

The HCFA should identify States having difficulty reducing

errors to a consistently low rate and provide special

assistance through the HCFA regional offices. This could

consist of determining the specific causes of errors and

assisting in the design of corrective action measures.

The HCFA should establish annual awards to recognize states 
which have error rates below the 3 percent national 
standard. Another method to recognize successful States 
would be to ' seek legislation to allow credits for States
with error rates below 3 percent. 
A successful State that 
might rise above the rate during one quality control sample 
period could use accumulated credits to offset
disallowances. 
The HCFA should offer incentives for States to demonstrate

sampling techniques. One incentive would be to waive

disallowances for a period of time and allow a State the

option of returning to its previous sampling system.

The HCFA should issue Medicaid policy in a timely manner to 
provide States with the lead time to properly implement
changes. Policies 
should be written clearly to lessen the 
likelihood of different error-causing interpretations.

iii  COMMS 
FROM HCFA: The HCFA believes "that many of the report I s 
recommendations fail to take into account the congressional role 
in the existing MEQC program.  Due to this congressional
interest, HCFA believes it does not have a completely free hand 
to manage MEQC. 
We do not believe that congressional interest precludes

implementing the recommendations outlined in this report.

Although some of the findings of the inspection illustrate

limitations of the current MEQC system, the majority of the

recommendations address actions HCFA should take to assist States

in reducing eligibility errors, regardless of the way the errors

are counted for disallowance purposes. 
Because eligibility
errors are costly to Federal and state Governents, we believe it 
to be a critical responsibility of HCFA in its role as technical 
advisor to State agencies to facilitate the initiation of 
successful corrective action measures.  INTODUCTION

BACKGROUND 
Medicaid Proaam 
The Medicaid program is a Federally aided, state-administered

program under which the Federal Government pays from 50 to

78 percent (depending on a state's per capita income) of the

cost of providing health services to the poor. Medicaid 
was authorized by title XIX of the Social Security Act

(42 U.  C. 1396) and became effective on January 1, 1966.

The individual states are responsible for designing, 
establishing, and operating their Medicaid programs under the 
provisions of title XIX and the Department of Health and Human
Services 
(HHS) regulations. Within broad Federal limits, states 
set their own reimbursement rates for covered health services, 
and they normally make payments directly to providers who render 
to eligible individuals. 
the service  Generally, eligibility for
Medicaid can cover two groups of people. The first group is the 
" which includes persons receiving public
categorically needy, 
assistance under the Aid to Families with Dependent Children 
(AFDC) and Supplemental Security Income (SSI) prnog Aratm  s. The 
second group is referred to as "medically needy.  the option
of each State, persons who do not meet the "categorically needy"
requirements because of excess income or resources, but cannot 
afford to pay for necessary health care, can be made eligible for
Medicaid. The following table lists national estimated Medicaid 
recipients for Fiscal Year 1987 according to HHS statistics: 
YE 
MEDICAID RECIPIENS FISCA  1987 
Aged 65 and over,  million
Blind and Disabled  million
Adul ts in AFDC Families  million 
Children under 21  10.  million
Other  1.4  million 
Unduplicated Medicaid

Beneficiaries  23. 3 million 
Medicaid programs differ greatly from state to State because of 
variations such as benefits offered, groups covered,  income and 
resource standards, and levels of reimbursement. 
The Medicaid "State plans" required for each State list the

eligibility criteria for Medicaid, the scope of services covered, 
and the method the State will use to administer the program. The 
Health Care Financing Administration (HCFA) then monitors State
Medicaid operations to ensure that they conform to Federal 
requirements and the approved state plans.  According to HCFA statistics, the costs of the Medicaid program 
to Federal and state Governents have grown dramatically since 
its beginning. In Fiscal Year 1966, the first-year benefit costs
were $1. 5 billion. In Fiscal Year 1980, the benefit costs rose 
to $25. 2 billion and in Fiscal Year 1986 increased to $42.

billion. The following table illustrates the rise in total state

and Federal Medicaid benefit costs since the program'
s inception:

TRENDS OF MEDICAID PROGRAM BENEFIT PAYMENTS

COMBINED FEDERAL AND STATE EXPENDITURES

$ BILLIONS

1974 
1966  1970  1978  1982  1986 
YEARS 
According to a 1986 HCFA projection, benefit costs will rise to

$50 billion in Fiscal Year 1988.

Medicaid Eliaibilitv OUalitv Control System

Since the early 1970s, HHS, States, and the Congress have been 
concerned with the high incidence of erroneous Medicaid payments. 
In 1975, HHS issued regulations requiring states to initiate a 
Medicaid quality control system. Since that 
time, there have
been revisions to the system. CUrrently, erroneous medical
assistance payments due to eligibility and beneficiary liability 
errors are detected through the State and Federal Medicaid 
Eligibility Quality Control System 
(MEQC). 
For quality control purposes, the Medicaid population is

stratified by the State into AFDC and Medical Assistance Only

CMAO) cases. The AFDC stratum normally includes the same cases

included in the quality control sample for the AFDC program. 
The 
MEQC accepts the eligibility determination decision of the AFDC 
quality control program. Those cases found eligible under the 
AFDC quality control system are considered eligible for Medicaid.

However, if the sample case is found ineligible in the AFDC

quality control review, Medicaid quality control staff review the

case to determine if it meets eligibility criteria for Medicaid

under another coverage code. The MAO stratum includes all other
 .. 
Medicaid cases where eligibility is the responsibility of the

state. In 
each stratum, the, MEQC operation draws a
representative sample of cases from the eligibility file and

reviews eligibility determinations for a specific month. 
Then,
paid claims of the sampled cases are identified for the month

being reviewed. A payment error 
rate is determined for each

sample period by computing the ratio of erroneous payments for

medical assistance to the total payments for medical assistance.

The following flow chart diagrams the state MEQC process:

MEDICAID ELIGIBILITY QUALITY CONTROL PROCEBS 
8TATEWIDE 
MEDICAID POPULATION

Q C  SAMPLE  Q C  .""'LI 
"POO  II A8AN 
ONY 
o ''' 
('o:; .., 
MEDICAID  Q C 
. ELIGIIILITY REVIEW 
a. a. 
."'---A..  O'OL"''QD 'o..L I' ..  TA8ULATION 0,. 
11.1',.""  PAID CLAIW. 
CCATlOfYeIC 
ElIiUT  SI RATD 
After completion of the State I s review 
, HCFA regional office
quality control staff conduct a re-review to validate the
accuracy of the State's findings. To do this, a subsample is
extracted from the State' s sample. 
Differences between the 
Federal and State MEQC reviews are then reconciled to produce an
official state error rate for the period. 
There are two sampling
periods per year for the MEQC review: October through March and

April through September.
 ... 
Disallowances for PaYment Errors

States were required by the "Michel Amendment" (section 201 of 
the Labor-HEW Appropriations Bill for Fiscal Year 1980) 
regulations to set a series of payment error rate goals beginning 
in Fiscal Year 1981 to reduce their payment error rate in one-
third increments to reach a 4 percent payment error rate by
Septemer 30, 
1982. The 4 percent error rate for Medicaid was to 
be a national standard for all fiscal years thereafter. In 1982, 
section 133 of the Tax Equity and Fiscal Responsibility Act
(TEFR) authorized a 
3 percent payment error standard beginning 
in the April through September 1983 sample period. 
Those States which fail to meet the established standard during
each sample period are subj ect 
to lose a portion of the Federal
share of Medicaid benefit costs. The amount, referred to as a

disallowance, is based on the difference between the State'

official payment error rate and the applicable standard for each

fiscal year. Beginning April 1983 a prospective quarterly
withholding based on a State' 
s estimated error rate was mandated 
by section 1903 (u) (1) (C) of the Social Security Act; i.  , funds 
are withheld in advance for each calendar quarter a State's error 
rate is expected to continue above the imposed error rate 
standard. The withholdings are reconciled with the actual error 
rate (when available) and disallowance amounts. States that have 
error rates above the national standard can administratively
appeal the final disallowance to HCFA. 
If the error rate exceeds 
the national standard, then a State is given the opportunity to 
demonstrate that the disallowance should not be imposed because 
the State made a good faith effort to meet the national standard. 
From Fiscal Years 1981 through 1985, a total of $155. 6 million of 
prewaiver disallowances have been levied. The numer of States 
that did not meet their error rate standard ranged from 12 to 17 
per year during this 5-year period. 
Studv of Oualitv Control Svstems

Section 12301 of the 1986 Consolidated Omibus Budget
Reconciliation Act included a requirement for studies to be 
conducted of the quality control systems of the Aid to Families 
with Dependent Children (AFDC) and Medicaid programs. 
Independent studies are to be conducted by HHS and the National 
Academy of Sciences. Both studies are to examine"  how best to 
operate such systems in order to obtain information which will 
allow program managers to improve the quality of administration, 
and provide reasonable data on the basis of which Federal funding 
witheld for 
may be  States with excessive levels of erroneous 
payments. "  Costs of Medicaid Payment Errors

Not all Medicaid overpayments based on eligibility are subject to 
a Federal disallowance. Only the Federal share of Medicaid 
erroneous payments which exceed the national standard (currently
3 percent) can be withheld. 
For example, in Fiscal Year 1985
approximately $584.8 million of Federal Medicaid benefits were 
misspent due to eligibility errors; of that amount only
$32. 2 million is recoverable in prewaiver disallowances (i.e.,
the Federal share that exceeded 3 percent). Yet
, the States'
share of these misspent funds, combined with the nonrecoverable 
Federal share, amounts to more than $1 billion in Medicaid 
misspent dollars due to eligibility errors in Fiscal Year 1985

alone. 
PUSE 
OF INSPECTION 
This program inspection report identifies the reasons some States

are more successful than others in reducing and maintaining low

Medicaid eligibility payment errors. 
The best practices used in

States which have successfully reduced Medicaid eligibility error

rates are highlighted as practices which other States should

adopt. The fOllowing issues are addressed in this program

inspection: 
Has the threat of Federal disallowances affected states in

their mission to reduce Medicaid eligibility payment errors?

What priority do the State and local welfare agencies place

on Medicaid eligibility error reduction activities?

Are there common problems which States are encountering in

attempting to reduce and maintain low Medicaid error rates?

Are quality control findings useful as a management tool to

State program managers and staff in developing corrective

action plans to reduce Medicaid eligibility payment errors?

Why are some States more successful than others in reducing

and maintaining low Medicaid error rates and what could

States with higher rates learn from the successful States?

What measures are currently being taken by States to reduce

Medicaid eligibility payment errors?

How and to what extent have Medicaid corrective action

activities been used effectively in error rate reduction?

What type of Federal assistance
, if any, is needed to help

States reduce eligibility payment errors in the Medicaid

program?  MEODOLOY 
This program inspection is not designed to be a statistically

valid research study, compliance review, audit, or program

monitoring activity. Rather, this program inspection uses

qualitative information gathered from the people most directly

involved in Medicaid eligibility payment error reduction

activities. Existing records and quantitative data are used as

appropriate to the inspection, e.g., copies of state and local

corrective action plans which include QC types and frequency of

special studies conducted in error reduction by the

errors 
agency itself or in conjunction with a contractor  materials on

practices and techniques States and local welfare agencies are

using to effectively reduce and maintain low Medicaid eligibility

payment error rates.

The data collection and analysis plan included mainly on-site 
personal discussions and the review of applicable Federal and
State statutes 
, regulations, and pOlicies. Discussions were held
with 151 respondents in 3 Department of Health and Human Services 
o(HfHfSi)c eresg.i onal offices, 9 State agencies, and 12 local welfare
Respondents were in the following categories: 
Numer of 
Respondents  Cateaorv 
Federal Regional Health Care 
Financing Administration (HCFA) 
Program and Quality Control 
Managers and Staff 
state Agency Administrators and

Medicaid Program POlicy, 
Corrective Action, and

Quality Control Managers and

Staff 
Local Welfare Office Managers and Staff

151  Total All Respondents  FINDINGS 
CAUSES OF MEDICAID ELrGIBILITY ERORS 
Respondents at all levels report the highest dollar errors, those

with the most significant impact on the error rate, generally

occur in cases where the client is in a medical care facility.

This care is expensive, and, according to those interviewed,

eligibility determinations for clients needing this type of care

are the most susceptible to high-dollar errors caused by

unreported or inaccurately reported resources, primarily property

and bank accounts. State and local respondents attribute this to

several factors: 
Clients in medical care facilities often have difficulty

handling their own affairs, and the information used to

determine eligibility must be obtained from a responsible

relative. Errors may occur because the relative is either

not knowledgeable about a resource, does not monitor the

increasing value of a resource (for example, interest

payments to a bank account nearing the resource limit), or

hides the resource in order to make the client appear to be

eligible. 
Some banking institutions are not cooperative in searching

for or verifying clients I accounts. A verification 
procedure used by many States is to check with local banks 
to determine if accounts exist for the clients. The search 
is time consuming and costly to banks. 
For this reason,
they are reluctant to respond to the requests since state 
agencies are unable to pay for the banks' services. 
It is often difficult to determine if property is legally

available to the client. This is particularly 
true when the

property is jointly owned, in trust, or willed.

THT 
OF DISALWANCES 
The threat of Federal disallowances has aided most States in 
their efforts to reduce Medicaid eligibility payment errors by 
keeping the issue before top management in the state. 
The threat 
of disallowances for Medicaid, AFDC, and Food Stamp programs has 
the attention of upper level management. 
Imposing Federal
disallowances on States that exceed the 3 percent national 
standard has helped to put a sharp focus on error reduction. 
States are spending time and resources to improve accuracy in 
eligibility determinations, not only for Medicaid
, but also for
the AFDC and Food Stamp programs. State agency staff and
managers who are responsible for Medicaid error reduction are 
continually working to either reduce errors or keep errors low. 
However, high-dollar cases found in error in the MEQC sample can
drive the error rate up. 
Many State respondents whose States
have error rates below 3 percent do not feel secure because of
 the threat of high-dollar cases in error being included in the 
sample. "We can never relax, " was how one state official put it. 
There are no rewards or incentives for States below 3 percent.

Some States have been consistently below 3 percent for many

years. 
Yet, little recognition or incentives are available to

States and individuals in those States for outstanding

performance. 
While admitting that the threat of disallowances has helped bring 
attention to error reduction, many state respondents did not like 
Governent. 
the concept of disallowances by the Federal  They
reported that the integrity of the program has always been a 
maj or concern of states, even prior to disallowances. 
LOWE PRIORITY PLACED ON MEDICAD EROR REDUCTION 
While the threat of disallowances puts a focus on error 
reduction, the Medicaid program in many states has a lower 
priority in error reduction activities when compared with the 
AFDC and Food Stamp programs. The main reasons are: 
Most States are currently below 3 percent in the Medicaid 
program and not subject to a Federal disallowance, while 
most States are above the national standard in the AFDC and 
Food Stamp programs and, therefore, subject to a
disallowance. 
Consequently, more attention is given to the 
programs with higher error rates. 
In States where the Medicaid agency is separate from or 
independent of the agency or organizational unit that 
administers the AFDC and Food Stamp programs, the Medicaid 
agency usually contracts with the other agency or unit to 
determine eligibility. In the contract agency; AFDC and 
Food Stamps come first because the agency is totally 
responsible for those programs. In the Medicaid agency,
eligibility is a small part of the operation. Most activity 
is concentrated on services provided after the client is 
certified: e.g., claims and payments to providers.
Medicaid' s access to the local welfare offices, where 
eligibility is determined, is usually through the State 
agency that administers the AFDC program. 
At the local offices, Medicaid is considered important, but the

main focus for corrective action is on AFDC and Food Stamps. 

overcome this attitude, many States have caseworkers who

specialize in MAO cases, as opposed to having generic caseworkers 
who determine eligibility for many programs. These cases 
generally involve elderly or disabled persons receiving 
institutional care and are the more costly cases. As one State 
Medicaid corrective action officer said, "since we specialize MAO 
adult cases, we create our own priority at the local offices.  ACHIEVABILITY OF EROR GOAL 
The 3 percent national standard for the Medicaid program is

achievable. All but 11 states are 
below 3 percent in Fiscal
Year 1986. Many states have been for several years. The 
national average in Fiscal Year 1986 (latest available data) is
6 percent. 
However, most respondents believe that states have 
"bottomed out" or are beginning to "bottom out" in achieving the

lowest error rates possible. 
They reason that the Medicaid
program is very complex and that new factors can cause the error

rate to increase. For example, there is widespread concern that

the proposed rules in the Federal Register 
(Vol. 52, No. 16,
January 26, 1987) regarding the definition of technical errors 
can raise the Medicaid error rate. Technical errors are defined 
as errors in eligibility conditions that, if corrected, would not 
result in a difference in the amount of medical assistance paid. 
By law, these errors are not counted when determining the error 
rate in Medicaid. The HCFA has 
proposed to exclude from the
definition of a technical error those errors resulting from a 
failure to obtain Social Security numers and the 
failure to 
assign to the Medicaid program the rights to such third-party
benefits as insurance payments. Therefore
, these errors would
then be counted when computing the error rate. 
It should be 
noted that the AFDC program counts technical errors for 
disallowance purposes. Technical errors account for 
approximately 15 percent of all AFDC errors
, or 1 percent to
5 percent of the national payment error rate. 
It remains to be

seen what impact the exclusions mentioned above will have on the

Medicaid program with regard to eligibility payment errors.

AFDC VEUS MEDICAD ELrGIBILrTY PAYM EROR RATE 
Both the AFDC and Medicaid programs are based on a recipient I s
needs. Both 
programs are administered by state agencies, and, in
most states, they are located in the same agency. 
Eligibility
for both programs is determined at the same local welfare 
offices. A family eligible for AFDC is also eligible for
Medicaid. In fact, 
more than two-thirds of the Medicaid 
recipients nationally are comprised of the AFDC population. 
Both
the AFDC and Medicaid quality control systems that determine the 
extent of errors in each State have similar review processes.
Medicaid accepts ,
the AFDC quality control findings for the AFDC
stratum in the Medicaid quality control sample. 
Most of the 
cases in the Medicaid quality control sample are from the AFDC
quality control sample. 
Therefore, at least on the surface, it
stands to reason that the Medicaid eligibility payment error rate 
should ride on the success or failure of the AFDC payment error 
rate--the more AFDC eligibility payment errors
, the more Medicaid
eligibility payment errors. Yet, the AFDC 
national payment error
rate for Fiscal Year 1985 is 6.
15 percent, with 47 States not
meeting their error reduction goals. 
In Medicaid, the national
payment error rate for the same year was 2.
7 percent, with only
12 States not meeting their error reduction goals. 
With few
exceptions 
, no distinct differences exist in the states  commitment to error reduction. In fact, as previously noted, the

priority to reduce errors is higher in AFDC. Yet, AFDC continues

to have a much higher error rate. The following are reasons

based on discussions with local, state, and Federal staff and

inspection team observations, as to why Medicaid has a lower

payment error rate:

Many of the quality control cases determined to be AFDC

ineligible for payment purposes are determined to be

Medicaid eligible. The following are situations where this

can happen:

Technical errors currently do not count in Medicaid as

they do in AFDC. 
An AFDC case found to be ineligible 
in the quality control review due to a technical error 
still may be considered eligible for Medicaid. 
Many of the AFDC cases determined to be ineligible in

the AFDC quality control review can be eligible for

Medicaid under a different coverage code.

The majority of Medicaid dollars are spent by the elderly 
population whose circustances are less likely to change.
They generally have a fixed income and have fewer changes in
lifestyles. 
Therefore, if the correct eligibility 
determination is made initially, the case is less subject to

errors. Local offices that conduct thorough front-end

eligibility reviews and periodic redeterminations usually

keep their Medicaid eligibility errors in check.

In caSeS with erroneous payments due to excess resources,

the amount of the error is the lesser of:

the amount of the medical payments made on behalf of

the family or individual for the review month, or

the difference between the actual amount of countable

resources of the family or individual for the review

month and the state's applicable resources standard.

For example, if a case has erroneous medical payments

of $1,000 in the review month and the actual amount of

resources exceeded the state I 
s standard by $400 then 
the lesser of the two, the $400, would be the erroneous

payment, not the $1, 000 in medical claims. In AFDC,

excess resources would result in erroneous payments of

the entire benefit amount. This Medicaid quality

control policy is allowed by legislation, and State

respondents feel strongly that this is the correct way

to count errors: only count the portion of the error

that makes the recipient ineligible, not the entire

amount.  COMMON PROBLE STATES ENCOUN 
Although most states are under the targeted error rate, they

continually grapple with policy issues that make the containment

of errors difficult. The difficulty 
is largely due to the

increase of coverage groups, untimely and unclear ,
Federal pOlicy,
and eligibility requirements that are incompatible with medical
needs. 
Although the national error rate has steadily declined
from 3. 
8 percent in Fiscal Year 1981 to 2.6 percent in Fiscal
Year 1986 (see appendix B), States are concerned that if program

changes continue they will not be able to keep the error rate

under 3 percent. 
Increase Of Coveraae GrouDs

with regard to eligibility, there is no single Medicaid program 
per se; it is a patchwork of spin-offs from the AFDC and SSI
programs. There are in 
excess of 15 mandatory coverage groups
and another 20 or so optional groups that a state can choose to

include. The criteria used for determining eligibility for each

group, or category, may be similar; however, each group has a

unique qualifier. For 
example, an employed mother who loses AFDC

eligibility due to an increase in earnings can be eligible for an

additional 4 months of Medicaid, while an employed mother who

loses AFDC eligibility due to the loss of AFDC earned income

disregards can be eligible for Medicaid for 9 months.

To furter complicate eligibility determinations, in the last few

years, Congress has made the criteria for cash assistance

programs more restrictive but has not imposed the same

/ regulations on the Medicaid program. Consequently, the
, eligibility 
requirements for Medicaid often are qualified by such
statements as "
would be eligible for AFDC except.... " In
addition
dis, Corngreess hgas craeatedr nedw covserag.e g roups to compensate
for reductions in the cash programs. 
One such example is the
previously mentioned group eligible for 9 months of Medicaid if 
AFDC benefits are terminated due to the loss of earned income
A program with so many sets of eligibility criteria makes it

difficult for States to put together a package for local welfare

offices to use in determining eligibility. 
The criteria

although similar, have significant differences which make the

program prone to errors.

Federal PoliCY

states report a problem receiving timely 
, comprehensive Federal

policy. To comply with effective dates set by Congress, States

often have to implement changes prior to the promulgation of

Federal regulations or policy, and when Federal guidelines are

finally issued, the language often is confusing and lends itself

to various interpretations. This lack of clear policy 
means that
States must take the risk that their interpretation will not 
match that of the Federal quality control reviewer. To address  this problem, some states write to HCFA with their interpretation

and request that HCFA respond if the interpretation does not

comply with Federal intent. The states which use this practice

feel this provides them some protection against errors caused by

a conflicting interpretation. 
states also encounter problems keeping abreast of all the changes
for the various categories of assistance. 
since the methodology 
for determining Medicaid eligibility is tied to cash assistance 
programs, the laws and regulations may be found in various 
sources; e.g., title XIX (Medicaid), title IV-A (AFDC), title IV
D (child support enforcement), and title IV-E (foster care and 
adoption) . To keep up with the changes, states must subscribe to 
clearinghouses that review and sort all the laws. 
with such a complicated program to administer, states need timely

and clear interpretations of the Federal statutes to ensure

accuracy in determinations of eligibility.

Effects Of Annl vina Cash Assistance Methodoloa 
Although the purpose of the Medicaid program is to provide 
medical services to the poor, states often find it difficult to 
make eligibility requirements associated with cash assistance 
programs compatible with the need for medical care. Therefore 
to meet a client's immediate medical need, a state may fail to 
apply a cash assistance policy that would prevent the client from
being eligible for Medicaid. 
To illustrate, according to SSI 
regulations, a client whose resources exceed the allowable State 
standards as of 12:01 a.m. on the first day of the month must be 
considered ineligible for the entire month. Applying this policy 
to the Medicaid program places an undue hardship on the client. 
For example, an applicant who needs nursing home care but is $100 
over the resource limit is ineligible for the entire month,
al though the nursing 
home charge for that month would far exceed
the client' 
s resources. Two States report that to provide 
assistance to clients in need they sometimes deliberately ignore 
a regulation and just take the error should the case be in a 
quality control sample.

Another problem in applying cash assistance methodology is that 
cash assistance regulations sometimes conflict with Medicaid 
regulations or are not applicable to the Medicaid program. When 
the policy reads "use SSI methodology, " States must determine 
which parts of the methodology can be used and which parts 
cannot. A wrong decision could result in an error. 
OUALITY CONTOL AS A MAAGEM TOL 
There is a link between the Medicaid quality control sampling

system and corrective action to reduce errors. The better the

quality control data, the more the information can be used to

establish reliable trends for corrective action. Some state

respondents believe that it is difficult to have the quality
 tcoonotrlo.l  function serve as a disallowance tool and a management

Because disallowances are tied to MEQC, it is difficult to 
make the best use of payment error data for identifying problems.

The following are reasons why the payment error data are not

always a useful management tool:

The numer of cases in the 
quality control sample is not

sufficient to do trend analysis by geographic area within a

state and by error element. The MEQC system will identify

the trends statewide, but the data are not sufficient to

focus on a given local office. To illustrate, one state

with 159 county welfare offices has 275 MAO cases for each

quality control sample period. In addition, as stated

previously, Medicaid serves many categories of assistance.

Therefore, MEQC data, while statistically valid for

disallowance purposes, do not reflect error trends for

geographic areas within a state or for each category of

assistance. Many states address this by conducting

enhanced, or targeted, quality control reviews as a

management tool. For example, if certain geographic areas 
of the State or certain program elements are more prone to 
errors 
, additional sampling (not part of the official MEQC 
review) is conducted to determine the extent of the problem 
and help design corrective action measures to reduce those 
errors. 
Cases identified in the quality control sample as ineligible

are not counted as errors when there are no paid claims for

the review month. These cases are ineligible but there is
no payment error. However, these cases have the potential

to have a payment error. "Luck of the draw" in the quality

control sample plays an important part of whether or not

cases found to be ineligible also have medical claims for

that review month. Because payment error rate data do not 
reflect all errors, States use case error data as a 
management tool to supplement the payment error rate data. 
A case error rate is the estimated percent of cases in a 
universe that had errors regardless of dollars associated 
with the cases. The MAO case error rate for Fiscal Year
1985 was approximately 8. 
5 percent nationally. Reducing 
case errors through corrective action reduces the potential

for payment errors. States with consistently low payment

error rates also have low case error rates.

The payment error rate for Medicaid eligibility can

fluctuate from sample period to sample period and not give a

true picture of that State's performance. The volatility

due to utilization by Medicaid recipients in the sample1

e., high versus low or no medical claims in the review

month. For example, in one State visited, the error rates
in the last four quality control sample periods showed 
extreme fluctuation. The error rates were 2. 
4, 6. 0, 1. 
and 7. 5 percent, respectively. One $6, 000 case found to be 
4 percent. In 
ineligible raised the error rate 2. another
State 
, five ineligible cases accounted for 82 percent of the  payment errors. Even more dramatic, one state (not in the 
inspection sample) recently went from 2.4 percent (April
through september 1985 sample period) to 12.5 percent 
(October through March 1986 sample period). It was reported 
that a single case was primarily responsible for the 
increase. The payment error rate is not just based on

eligibility: it is also based on how sick a person is in the

review month. As one State corrective action official put

it, "It can work for you, or it can work against you.

Respondents in states that have had a consistently low error

rate also voiced concern about the effect high-dollar cases

found to be erroneous can have on the error rate. One state

quality control director stated: 
"I'll tell you one thing, if a majority of the States 
were above 3 percent, you would hear a lot more 
complaining about the sampling methods regarding high-
dollar cases. Since most states are currently below 
the 3 percent tolerance, the issue is left alone. What 
it comes down to is, basically, why change to another 
system of counting errors and take a chance on the
error rate going up? 
So states do the best they can to 
avoid disallowances in Medicaid. 
Nebraska' 
s Medicaid program has an innovative quality control 
sampling system that began in Fiscal Year 1984 as a demonstration 
proj ect. It is called retrospective sampling. The advantages of
such a system are that it helps avoid volatility of the error 
rate caused by high-dollar cases, and it produces data that are 
helpful in identifying error trends for corrective action. This 
system stratifies cases into high, medium, and low or no-paid
claims. The error rate is determined for each stratum and then 
weighted to determine the overall error rate. This method of 
stratifying and focusing on paid claims helps avoid fiuctuation 
of the error rate. Since there are more cases in the sample with 
paid claims, especially high-dollar claims, there are more 
dollars to divide into when computing the error rate. This helps
avoid the "luck of the draw" with regard to high-dollar cases. 
Retrospective sampling also helps in corrective action because 
enough cases are sampled in the medium and high-dollar strata to 
, established. It 
enable reliable error trends to be is a good
management tool because it helps identify errors where there are
dollars. 
Respondents in other States either were not familiar with

retrospective sampling or voiced several concerns as follows:

There are too many unknowns in retrospective sampling to

take a chance, especially in predominately urban States.

new way of counting errors may penalize a state currently

under 3 percent. Also, start-up costs and implementation

problems are unknown.
 The current system of including error cases with no claims

helps keep the error rate from rising.

states which have integrated quality control sampling

(Medicaid combined with AFDC and/or Food stamps) cannot

convert to retrospective sampling without additional costs.

In recent proposed rules, HCFA is allowing retrospective 
sampling as an option and is considering mandating it in the
future. '
The HCFA believes that this sampling technique improves 
the precision of the Medicaid eligibility payment error rate by 
stratifying Medicaid cases according to their dollar value. 
furter 
Appendix A gives a  description of Nebraska I s 
retrospective sampl ing . 
ENONM 
FOR SUCCESS 
Local welfare offices determine eligibility for AFDC, Food 
stamps , and Medicaid. The staff is required 
to know and apply
different sets of criteria, standards
, and definitions. This
built-in complexity sets the climate for misinterpretation and 
misapplication of policy. 
The potential is there for making

errors. States having success in error reduction have created

systems in their operations to improve the accuracy of

eligibility determinations statewide. These systems help reduce

errors and improve services to clients. 
States do this by
effectively managing the Medicaid program. 
They maintain control
of the program and create accountabilities throughout the
statewide network. The State 
agencies have a presence in local
offices and create credibility by keeping local offices involved.

States with good management systems have the ability to maintain

low errors. Isolated problems or breakdowns are quickly

identified, and proper corrective action is initiated to remedy

the situation. Successful States adhere to the following

practices in their day-to-day operations:

There is a high level of awareness and 
commitment to

corrective action in every part of the 
operation. That

awareness and commitment are generated 
from the top down.

Medicaid quality control staff have high visibility and

input on Medicaid policy decisions.

There is a system in place to provide easy communication

between State and local offices.

Staff at the State and local levels are well-trained on

policies and procedures.

State agencies use local input to develop, write, and
implement policies and procedures. They are responsive to
the needs of local offices.  There is effective monitoring of local offices to improve

accuracy. 
Policy changes are kept to a minimum.

state staff plan for impending congressional policy changes.

They start planning early to get local offices I input and

prepare material and training on the changes in order to

prevent tight time frames to implement policy.

Early planning also gives states time to think through

policies to avoid distributing one policy interpretation to

thereafter. 
the local offices and then having to change it shortly

staff in successful States do not rely on one particular activity

to reduce or maintain low error rates. They understand the

system in which their state operates and learn how to achieve

goals within that system.

SUCCESSFU ACTIVTIES

sumary of activities 
The following is a brief  states have found 
successful to reduce and maintain low error rates. However, 
these activities are most effective in states that have 
established the environment for success. 
SDecialization of MAO caseloads  particularly institutional 
care cases. 
Revised state Dolicv manuals--designed with input from

caseworkers, easy to understand, and kept current.

Consistent. reaular trainina  preferably designed with input

from quality control staff and conducted statewide by the

same trainer(s) so that all staff members get identical

information. 
Taraeted corrective action--strategies designed to reduce

errors in a specific locality or error element.

SUDDlemental aualitv control  eviews--concentrated record

reviews to correct potential 
quality control errors and

identify error trends.

SUDervisorv or second-Dartv review--case record reviews of a
percentage of the case 
load with an increased number of cases
read for error-
prone workers. The reviews may cover all
points of eligibility or only an error-prone element, such 
as resources.  Corrective action canels or committees
--to develop, approve,

and evaluate corrective action measures that target the

causes of errors. The panels are most effective when

quality control managers and decision makers serve on them.

Front-end verification--intensive investigation, including
up-to-date 
, on-line computer matches, prior to case
approval. 
Performance accraisal reviews--specific 
, quantifiable
performance standards for workers, supervisors, and offices. 
Quality work is recognized in an identifiable manner, such
as an award or a luncheon.

Timelv redeterminations--to avoid the continuation of

erroneous benefits.

Appendix A lists effective practices and techniques States in the

inspection sample are using to successfully reduce errors.

EFFECTIVSS OF CORRCTIV ACTION PLAG 
Corrective action planning is effective in error reduction. 
Since the AFDC agency or organizational unit in each state is 
responsible for errors related to AFDC cash assistance
, Medicaid
corrective action usually concentrates on the MAO stratum. 
The
effectiveness of corrective action planning seems to be dependent 
on three factors: commitment
, continuity, and monitoring.
. Successful plans are 
developed with input from all staff involved
wsittahf Mfe.d icaid eligibility, including Medicaid quality control

developing the plans,
and theiTrop -lecveol mmanmagierst amree innvotlve d is conveyed to all inl  evels of staff. 
The

corrective action plan sent to HCFA integrates these activities

and strategies. Successful corrective action planning is an

ongoing process with frequent monitoring of the quality control

findings to identify problems and move to correct them as quickly 
as possible. Regularly scheduled communication occurs among 
foru
quality control, program, and local staff. This provides a 
for potential problems to be identified and resolved before they

become errors.

The close working relationship between the State Medicaid quality 
control, corrective action, and program policy staff is a key to 
successful error reduction. This helps facilitate better
communication about the identification and causes of eligibility 
errors and ways to remedy the situation through corrective
action. In 
many States, Medicaid quality control is a driving 
force behind corrective action and has a direct input into the

corrective action process. Although there is a 
fine line between

identifying errors for disallowance purposes and helping to

correct them, States have maintained the integrity of both

functions. The Medicaid 
quality control assistance is beneficial

to local offices. The State 
Medicaid quality control reviewers

help local eligibility staffs improve their accuracy in
 eligibility determinations by meeting with them to explain how a

review is conducted and the types of things that they look for in

determining whether a case is eligible. Many states are

emulating the Medicaid quality control reviewer's process at the

local offices by having caseworkers conduct the same types of

verification checks that the Medicaid quality control reviewer

does. 
CU 
FEDER ROLE IN CORRCTrv ACTON 
, state agencies see themselves as a support to local offices to
, provide them with the 
tools needed to do accurate work in 
eligibility determinations. By the same token, states view the 
Federal agencies as a support to state operations: i.e., to 
provide states with the information necessary to administer 
programs efficiently and effectively. Based on our findings,
HCFA does not view itself as that support in regard to corrective
action. It 
appears HCFA's role, aside from review and comment on 
required annual state corrective action plans, is to use the MEQC

system as a disallowance tool to recoup Federal Medicaid dollars

that exceed the 3 percent national standard.

The following are quotes from HCFA staff:

"One way to get the states to lower their error rate is not

through corrective action but, rather, to lower the

tolerance level from 3 percent to zero. On everyhing over

zero, the Feds get their share back, so nothing is lost.

"Recovering money from states is a high priority. When a 
state is over 3 percent and' money is witheld, it makes our
office look good. 
Of course it makes the state look bad, 
but it shows we are doing a good job. 

"Corrective action is less than 1 percent of our workload.

It is the opinion of some state and HCFA regional office

respondents that HCFA's main focus is Medicare, not Medicaid.

outside of the quality control function, Medicaid does not get

the attention it should. While respondents recognize that the

Medicaid program is a state responsibility, they point out that

eligibility regulations and policy emanate from the Federal

level. 
It should be pointed out that the MEQC system at the state and 
Federal level is visible, with clearly defined structures and 
functions. While state and Federal quality control staff may 
foru
from time to time disagree on issues, at least there is a 
to discuss issues relating to quality control matters. 
For 
example, there is presently a Medicaid Quality Control Technical
Advisory Group 
(TAG) composed of representatives of states which 
meet periodically with HCFA representatives. Another example is 
Pulic 
the National Association of  Welfare QC Directors. This is 
a very active and effective organization which not only includes  Medicaid but also the AFDC and Food stamp programs. This 
organization has meetings and newsletters to keep states informed
on quality control matters. 
participants also include Federal 
representatives. No such entity exists for corrective action.

While the National Association of Pulic Welfare QC Directors

does include items on its agenda for corrective action, it is

essentially a quality control organization. 
foru for 
There is no national  corrective action. with national 
direction lacking, each state is left to its own devices. This
finding is not new. 
A 1981 General Accounting Office (GAO) 
Medicaid Qualitv Control Is Not Realizinq Its 
report, entitled 

Full Potential  (HR-82-6), states: 
"HCFA central office has depended heavily on the regional

offices to provide leadership to the states for corrective

action programs. Yet, the regions were doing little to aid

the states with their problems. 

The GAO report concludes that HCFA has not provided effective
leadership or clear direction '
for the Medicaid corrective action
program. This inspection 
found that to still be true.  CONCLUSION 
The Medicaid program is complex and in constant flux; thus, it

has a high susceptibility to payment errors. states are

organized differently with not only State-administered and

county-administered programs but also varying degrees of

organizational structures and functions within these frameworks.

Added to these differences are variations in socioeconomic

characteristics, program options, automated systems, case load

size, and the qualifications of caseworkers. 
In addition to 
these complexities, there exists the dichotomy between the basic

needs of the client and the problems of local and State staff

grappling with intricate, ever-changing policies. Yet, under 
these circumstances, State and local agencies are performing well

but always feel the constant pressure to improve.

It can be reasoned that misspent funds due to Medicaid 
eligibility errors are not a major problem nationally compared 
with the AFDC program. All but 11 States were below the 
3 percent national standard in Fiscal Year 1986 (latest available 
data), and the national payment error rate was 2.6 percent. The
AFDC program, on the other hand, was at 6.15 percent in Fiscal
Year 1985 (latest available data), with 47 States above the 
3 percent national standard. However, the Medicaid program 
nearly three times larger than the AFDC program in terms of 
dollars spent on recipients. Using Fiscal Year 1985 data 
compare the two programs, misspent funds based on quality control 
eligibility errors in Medicaid cost Federal and State Governments
a combined $1. 01 billion (2. 
7 percent error rate x $37. 5 billion 
in benefit costs) compared to $918 million in AFDC (6. 15 percent
error rate x $14.93 billion in payments to clients). Since most

of the States are below 3 percent in Medicaid, only a small

percentage of the Federal share of misspent funds is recoverable.

Even those dollars that are recoverable by HHS/HCFA are passed on

as costs to the States. Thus, there are no savings to the

taxpayer as a result of disallowances.

As health care costs in Medicaid continue to rise each year by 
several billions of dollars, misspent funds will rise 
proportionately if the Medicaid payment error rate remains at the
current 2. 6 percent. To illustrate
, in Fiscal Year 1988, 
Medicaid costs to Federal and State Governents are projected to
reach $50 billion. Therefore, a 2. 6 percent error rate will cost
Federal and state Governents about $1. 
3 billion in misspent
funds. These misspent funds in Medicaid only address errors

related to eligibility. They do not include misspent funds due

to third-party liability errors or claims processing errors.

In addition, the proposed regulations regarding ,the definition of

technical errors can raise the Medicaid error rate as noted in

the findings of this report. It is unknown what impact these
errors will have on the error rate. Using Fiscal Year 1988
Medicaid cost projections, a .5 percent rise in the Medicaid 
eligibility error rate nationally will cost Federal and State
Governents an additional 
$250 million in misspent funds  , a . 
annually. Likewise 5 percent decrease in the national error 
rate from 2. 6 to 2. 1 percent would save $250 million annually.

This study found that the success of the program to date has been 
the states' role in providing local offices with the tools
necessary to do accurate work. 
However, while some states are 
struggling to reach a 3 percent error rate, many States below
3 percent report that they have gone as far, as they can. The 
best that they can hope for, given the complexities of the 
program and the quality control "luck of the draw, " is to 
maintain the rate that they have. 
While HCFA has provided leadership and direction at the national

level for Medicaid quality control in terms of counting

eligibility and beneficiary liability errors, HCFA's role to date

in corrective action for eligibility errors has been minimal. 
Although HCFA reviews and comments on corrective action plans, it 
needs to be more involved in working as a partner with the States 
to identify areas that have a potential for errors and explore 
cost effective ways to help reduce those errors. Corrective 
action on a national scale can help address Federal and state 
misspent funds while continuing to provide health care to those 
in need.  RECOMMDATIONS 
A . 5 percent decrease in the Medicaid eligibility error rate 
nationally, based on Fiscal Year 1988 Medicaid benefit cost 
projections, would result in a savings to Federal and state 
Governents of $250 million. Although HCFA supports the efforts 
of and meets with the Medicaid TAGs, it needs to take a more 
active role in promoting corrective action to remedy Medicaid 
eligibility errors. The HCFA staff should work with States in a 
partnership role to assist them in their continuing efforts to 
reduce and contain errors. The following recommendations, based
on findings 
, are addressed to HCFA: 
IDENIFY AN COMMCATE EFFCTIV MAAGEM PRCTICES 
Findina 
Effective State management is the primary reason for success in

error reduction. Successful programs adhere to the following

practices in day-to-day operations:

Managers and staff have a high level of awareness and

commitment to corrective action.

State Medicaid quality control staff is highly visible and

has input into Medicaid policy decisions.

The State agency maintains management control over the

program and prepares for anticipated changes.

The State agency is cognizant of local office needs by

having systems to provide easy communication between State

and local offices, effective training for local staff, local

office input on policies and procedures, and effective

monitoring of local offices.

The State has specialized staff to deal with Medicaid cases

rather than generic workers who deal with eligibility for

many programs.

However , no formal network exists for States to share information 
on ways to improve Medicaid eligibility determinations. 
Many
respondents believe that the expertise already exists in the 
States, but it needs to be coordinated so that States can learn 
from each other. In fact, the HCFA region V office, when

informed of this inspection, sent reports completed in 1982 and

1984 showing outstanding corrective action initiatives and

proposals in the region. This type of format, updated annually,

could be useful to States on a national basis.

Recommendations 
The HCFA should publish a compendium or catalog of error

reduction techniques on a periodic basis. States should

submit specific successful practices found to be helpful in
 reducing or maintaining low errors, and a contact person

should be listed for further information.

The HCFA should develop strategies to distinguish areas

where one state can help another. Staff in one State can

share its expertise with staff from another State. The HCFA

could help coordinate this effort both regionally and

nationally. 
The HCFA should organize regularly scheduled meetings, both

in regions and nationally, that focus on Medicaid

eligibility and related corrective action. Attendees should

include Medicaid quality control and program policy staff at

the state and Federal levels.

ENCE 
PROVIDE DATA TO  CORRCTIV ACTION INTIATIVS 
Findina 
A major purpose of the Medicaid eligibility quality control

system is to measure misspent Medicaid funds in each State.

Although it accomplishes its goal, it is not always a useful

management tool to States for corrective action purposes.

Case error rate data are a useful management tool to supplement
payment error data. Case errors identify the causes of the 
errors upon which corrective action is established.  By reducing
case errors through corrective action, States reduce the 
potential for payment errors. 
Recommendation 
The HCFA should publish case error rate data annually by element

and by State to assist in tracking the progress of States in

error-reduction efforts. The information 
can be used in addition

to payment error data to determine areas of weakness which

corrective action can address.

POIAL 
NOTIFY STATES OF  SAVINGS 
Findina 
Al though there 
is great concern in the Medicaid program about the 
loss of Federal dollars due to disallowances for eligibility 
errors 
, there is little emphasis on the loss of the State dollars 
and other Federal dollars associated with misspent Medicaid
funds. 
While the threat of Federal disallowances puts a sharp focus on

Medicaid error reduction, the Medicaid program has a lower

priority in error reduction activities than the AFDC and Food

Stamp programs. A major reason 
is that many States meet their

Medicaid error rate goals, while most do not meet their AFDC and

Food Stamp error rate goals. 
In Fiscal Year 1985, for example,
 Medicaid had a 2. 7 percent error rate nationally with only 12 
states not meeting their goals, and AFDC had a 6. 15 percent error 
rate nationally with 47 States not reaching their goals. 
Naturally, people will tend to give priority to reducing high 
error rates. In Fiscal Year 1985, however, misspent funds in the 
Medicaid program cost Federal and State Governents a combined 
$1. 01 billion, while misspent funds in the AFDC program amounted 
to $918 million. 
Recommendation 
The HCFA should alert State officials annually to the actual

costs associated with misspent Medicaid funds--not only the

Federal portion exceeding 3 percent, but also the total Federal

and State dollars misspent in each State.

PROVIDE SPECIAL ASSISTANCE

Findina 
Several States either have difficulty achieving the 3 percent 
national standard or have had high volatility in their error
rates over the past few years. Yet 
, there is no national system 
to assist States in identifying causes of error and taking 
appropriate corrective action measures. 
Recommendation 
The HCFA should identify states which have difficulty reducing 
their errors to a consistently low rate and provide special 
assistance through the HCFA regional offices. This could consist 
of determining the specific causes of the errors and assisting in 
the design of corrective action measures to address the problem. 
INCEIVS 
ESTABLrSH  FOR SUCCESSFU EFFORTS 
Findina 
While punitive measures exist by law for States exceeding the 
3 percent error rate, there are no rewards or incentives for 
States below 3 percent. Most States have been successful in 
reducing errors below the Federally mandated 3 percent. Some 
States have been consistently below 3 percent for many years. 
Yet, little recognition or incentives are available to States and 
individuals in those States for outstanding performance. 
Further
, a State can be consistently below 3 percent for years, 
only to find a sample period where one or a few high-dollar cases 
are in error. This can raise the error rate above 3 percent and 
subj ect the State to a disallowance.  Recommendation 
The HCFA should establish an annual awards procedure to recognize

states which have error rates below the 3 percent national

standard. Another method to recognize successful States would be

to seek legislation to allow credits for States with error rates

below 3 percent. A successful State that might rise above the

rate during one quality control sample period could use

accumulated credits to offset disallowances.

EXPER 
WITH NE SAMLIG TECHOUES 
Findinq 
New sampling techniques, like Nebraska's retrospective sampling

technique described in appendix A, may help improve precision of

the error rate and also provide additional data to assist in

corrective action. Yet, States are unwilling to adopt

retrospective sampling for several reasons outlined in this

report . 
Recommendation 
The HCFA should offer incentives for States to demonstrate new

sampling techniques. One incentive 
would be to waive

disallowances for a period of time and allow a State the option

of returning to its previous sampling system.

CL 
PROVIDE TIMLY AN 
POLrCY 
Findinq 
States report they often have to implement Medicaid program

changes prior to the promulgation of Federal regulations or

policy, and when the guidelines are finally received, the

language is sometimes confusing and lends itself to various

interpretations. 
Recommendation 
The HCFA should issue Medicaid policy in a timely manner to 
provide States with sufficient lead time to properly implement
changes. Policies 
should be written clearly to lessen the
likelihood of different interpretations that could cause

eligibility errors. States could 
implement changes in a manner

similar to Virginia's practice described in appendix A.
 APPENIX A

EFFECTrV TECHQUE AN 
PRCTICES 
This section highlights some practices and programs which States

consider to be effective and/or innovative. 
The practices may
not be exclusive to the State identified, nor does this section

list all the practices employed by the particular State.

NE JEEY 
To improve program administration, all eligibility functions have 
recently been brought under the Division of Medical Assistance 
and Health Services within the Departent of Human Services. 
This gives a single agency control of the program and prevents 
fragmentation of responsibilities. The Medicaid quality control 
staff plays a significant role in the management of New Jersey' 
Medicaid program and is consulted in all decisions affecting 
eligibility. Through a numer of 
management strategies, New
Jersey has been able to maintain a low Medicaid error rate.

Monitorino of OUalitv Control Errors

A sumary report of 
each quality control error is sent to the
county that committed the error, and that county has 3 weeks to

respond to the notice. If the county agrees with the finding,

staff must notify quality control of the action taken to correct 
furter 
the problem and prevent  occurrences. State program staff
gets copies of the initial reports; however, it is the Medicaid

I responses. If

quality control staff that monitors the counties 
the corrective action is not acceptable
, the counties are

contacted for additional information.

The quality control unit uses the error reports to evaluate

corrective action activities in place and to develop new

strategies. Errors are analyzed by county, region, and type of
problem. The collective findings are 
reviewed quarterly and are
discussed with field service supervisors who monitor work in the
counties. 
Countv Manaoement Renorts

County welfare agencies are evaluated annually by performance 
standards set by the Department of Human Services. 
The 
guidelines of the review are very specific as to the subjects to
be examined and the methods used for evaluating the elements.

The review is thorough, and the results are provided to each

county agency and county executive officer who supervises the

county director. The State 
feels that publication of these

management reviews has a major impact on error reduction.

A-l  Comunication 
Realizing the importance of communication among all the

eligibility functions (and particularly between the state and

local offices), New Jersey has established avenues that

facilitate contact between the "players. 
New Jersey has a comprehensive regional network of Medicaid staff

which allows each county to have at least one regional

representative exclusively. with this 
ratio, regional staffs are

able to spend most of their time in county offices providing

technical assistance and monitoring local activities.

The state office staff (program, quality control, and corrective

action) meet with the regional directors and field service 
supervisors once a month and with the county Medicaid supervisors 
foru to 
bimonthly. These meetings serve as a  discuss problems
corrective action, and impending policy changes.

The Medicaid Corrective Action Panel meets quarterly and is

chaired by the Medical Assistance Division Director. 
All areas

of eligibility responsibility are represented, and membership is

comprised of high-level managers who have the authority to see

that activities approved by the panel are implemented.

Policy Develonment

To minimize the negative effect of implementing program changes

New Jersey starts planning for the changes well in advance of

implementation dates. Designated 
staff members monitor all

proposed Federal regulations and policy changes. 
Managers are

assigned to respond to the proposals
, follow the proposals

progress, and lead the planning for possible implementation.

When the policy is received from HCFA, the state'
for implementation is well underway.  s preparation

The lead time gained by
planning early gives the state time to take the actions needed

for a smooth implementation.

GEORGIA 
Georgia I S Medicaid error rate has fluctuated over the last few
sample periods. In an attempt to  reduce and stabilize the rate
to avoid disallowances
, the state has implemented a number
practices. 
SDecialization 
There are specialized SSI-
related Medicaid eligibility staff at

the local level. These positions 
are on the highest caseworker
pay grade. Specialization 
means that fewer people are involved
with the program, and these caseworkers are required to know only

one program thoroughly. Since the 
Medicaid staff numer so few, 
A-2
 caseworkers are able to receive more direct support from the

State office, providing more consistent application of policy

throughout the State. Examples of this direct support are:

Caseworkers are assigned to regions (as opposed to county

offices) with one front-line supervisor per region. 
These 
supervisors get policy clarifications directly from the

State office and do not have to go through several layers of

the organization.

state office staff conduct quarterly training sessions for

front-line Medicaid supervisors and visit each region at

least once a quarter. The topics for training 
may be new

policy or a review of current policy in which errors are

occurring. 
The State office staff provides programmatic training for

new caseworkers once a 
quarter and provides refresher

training as needed.

Supervisorv Reviews

A random sample of MAO cases is reviewed each month for areas 
that are prone to errors. The review criteria for SSI-related 
Medicaid cases requires that caseworkers do extensive research, 
verification, and documentation of resources, which is the
State' 
s major error element. The review process is as follows: 
Front-line supervisors review a specified number of cases

each month.

In urban counties, administrative supervisors review a

sample of those cases to check the supervisors' reviews.

State office staff review a sample of cases that have been

reviewed by local offices.

Computer programs are used to compile the findings so errors can

be identified by worker, unit, county, region, or error element.

Decision Tree

A program for use with a personal computer has been written to

assist caseworkers in screening an applicant'
s eligibility for

AFDC-related Medicaid. After the caseworker 
answers a series of

questions, the computer determines the appropriate category of

assistance and potential eligibility. The information is

available both on-line and printed. 
This procedure does not

replace the application process; however
, it helps the worker

identify which set of eligibility criteria is to be used in

processing the application. 
A-3
 MICHIGAN 
In Michigan, there is evidence of commitment from the top,
starting at the Governor's office. To maintain a low
 error rate 
Michigan uses a numer of targeted strategies. 
Corrective Action Snecialization

Specialization of the corrective 
action function exemplifies the

commitment to error-reduction by
 making corrective action a 
priority. 
The highly visible Office of Quality Improvement has been

established at the direction of the Governor and reports to the

Director of Social Services. 
The Office of Quality Improvement
is responsible for reducing errors in the Medicaid, AFDC
, and

Food Stamp programs. The function is accomplished by identifying

causes of errors, initiating remedies, and coordinating with

county offices for implementation.

Fifty-five quality assurance specialists have been located in

county offices to coordinate corrective action at the local

level. These specialists analyze local findings
strategies  , develop local

, and provide local managers with timely and relevant 
information on the status of errors. 
The quality assurance

specialists have evolved from a reduction of quality control

staff, and its expertise is now utilized in a related function.

The State places emphasis on the coordination of information

among the quality assurance specialists, county managers

, and

State managers to share problems and remedies. 
Local Office Automation

BUdget computations are made by caseworkers on personal computers

located in each local office. 
After eligibility is established,

pertinent information is transmitted to the statewide system for

the issuance of benefits. Michigan finds this type 
of system, as

opposed to an integrated statewide system, easy to update and

useful in monitoring activity on a case.

Case Reviews

Supervisors review a percentage of cases to identify problem 
areas or workers that need special training. This practice is
considered essential to error reduction.

Kent Countv (Grand Ranids) Denartent of Social Services 
This county might well be used as a model 
in dealing with the

containment of errors in an urban county, 
and the office has

hosted many observers from other States. 
County staff attributes

its low error rates to:

A-4
 use of local office automation to compute eligibility

budgets and track caseload activity;

case reviews of all points of eligibility and targeted

reviews of specific error-prone elements;

structuring of the eligibility worker's time to ensure

maximum efficiency;

clearly defined performance standards for timeliness and

accuracy (agreed upon by both management and workers) 

consistent, regular monitoring of worker and management

performance; 
worker and management involvement in quality circles; and

procedure and policy interpretations formalized in writing

to ensure uniform application.

NORT CAOLrNA

Nort 
Al though  Carolina I s county offices are locally
administered, the Division of Medical Assistance works in close

cooperation with them. 
Some of the many practices the State
employs to maintain consistently low error rates follow:

Medicaid Error Reduction Committee CMEC)

This committee meets quarterly and is a key to communications 
between the state and local offices. 
Counties that have errors 
are directly involved in the corrective action process by
participating on this committee. 
In the meetings, county staff
learn the severity of the potential Federal disallowances and the 
potential loss of dollars to their counties due to incorrect 
eligibility determinations. County staff is involved 
in the 
development of strategies, such as the revision of manual
material, forms, and training procedures. 
The MERC is also 
designed to motivate county supervisors to focus their attention 
on error reduction in the county offices. 
The MERC meetings are
also used as a vehicle for sharing successful administrative
practices. 
ROC Flash"

This is an on-line message sent monthly by the State Medicaid

Quality Control Section to county offices via the State computer

system. It provides local staff with error-reduction tips and

verification techniques. It also identifies 
problems and methods
to prevent future occurrence. The "
directive  QC Flash" is not a policy
, but rather a means to transmit information quickly to 
address error reduction. 
A-5  Corrective Action Record Review (CA) 
This is a review that can be used as a corrective action

management tool to identify error trends in all the counties.

This enhanced, or supplemental, sample is outside the Federal

quality control sample required for, disallowance purposes but
uses the same standards. The quality 
control analysts review
approximately 25 records per county. 
A detailed report of each
case is shared with appropriate county staff, and the state 
monitors their corrective action. The CAR has helped in the
reduction of agency-caused errors in institutional care cases and
has helped reduce the state I 
s case error rate. 
Administrative Letters 
At the end of each 6-month sample period, the state Division of

Medical Assistance sends to county directors and Medicaid

supervisors a compilation of the errors found by quality control

staff. This administrative letter analyzes each error by type

cause, and county. It also 
suggests corrective action methods
for the prevention of errors. This letter is used as a training
tool to help prevent similar errors from occurring in future

samples.

Recoaition

Certificates are awarded to counties that have no Medicaid errors

in any given sample period. 
A star on the certificate indicates

one consecutive error-free sample period
etc.  , two stars indicate two

! consecutive periods, 
Counties which earn recognition often
' receive publicity 
through their local newspapers. This
recognition is an effective and low-cost incentive for counties

to maintain low error rates.

NEBRAKA 
Nebraska received approval of a waiver to implement retrospective

sampling in Fiscal Year 1984. Nebraska felt that
, by reviewing

only cases with claims, they could pinpoint areas where large

amounts of money are likely to be misspent.

The following is a brief description of how Nebraska'
s sampling

system works: 
The month reviewed is 4 months prior 
to the month the sample
is pulled; therefore, claims for the
paid.  review month have been
(For example, a case selected in November is reviewed 
for July eligibility.

A large numer of cases are selected (in 
November) and
claims (from July) are identified. 
A-6  The claims are sorted by dollar value into three strata:
low , medium, and high. Then, some cases with no claims are 
added to the low stratum. 
Samples are selected from each stratum and quality control

reviews are performed on the related eligibility cases.

Since eligibility is determined retrospectively (July),
Medicaid claims have been processed (by November), and an
error rate can be determined immediately upon completion of 
the quality control review. 
Nebraska sees the following as advantages of this system:

It offers a more precise picture of errors because rates are

not determined by the "luck of the draw.

By reviewing an increased numer of cases with paid claims,
the State is 
able to identify the most costly types of
errors. 
Enough cases are sampled in the high and medium-dollar 
strata to establish more reliable error trends that are used 
to develop corrective action measures. 
The system requires no significant increase (or decrease) in
staff or administrative costs. 
Nebraska' s maj or fear when requesting the demonstration proj ect 
was that the State error rate would increase due to the

concentration of cases with paid claims, especially since some of

those claims were very high. However, this did not 
occur; since

retrospective sampling was implemented in 1984, the state 
s error

rate has been in the 1 percent range.

VIGIN 
This State has consistently maintained a low error rate by 
emphasizing a close working relationship among quality control,
policy , corrective action, 
and local offices. To complement this
management, Virginia employs a numer of corrective action 
measures. 
New Worker Trainina

The State has provided each region with a video training package
to be used for new workers. 
The package is divided into modules
which can be updated easily. The training itself 
is provided by
regional program specialists and is offered in at least one
region every month. 
The purpose of this training is to bring all
staff to the same level of understanding and ensure that policy

instruction is consistent.

A-7  Special Corrective Action 
(SCAI 
If a local agency's quality control error rate exceeds a

specified tolerance level set by the State, that agency is

classified as an SCA agency. 
state managers meet with the SCA

agency staff members and provide them with analysis data and 
impact projections. The agency then 
develops a corrective action
plan that must include specific activities depending on whether 
the concentration of errors is caused by the agency or clients. 
The plan must be approved by the State, which monitors the
agency' s activities on a weekly basis. 
Development of the special corrective action program is a joint

effort between the State and local agency, and the monitoring is

maintained for at least 6 months (through the next quality

control sample period). 
The State makes available to the SCA

agency the support needed to carry out the plan and, when needed 
assists with funding projects, such as a computer-generated
questionnaire sent to clients. 
Issuance of Policy

Virginia limits the issuance of new policy to once a quarter in

an attempt to prevent errors caused by constant changes. In 
addition, this systematic method of policy release gives local

agencies better control over their own workloads. 
They know

when to expect and plan for changes. 
The quarterly issuances are

also accompanied by training. 
The only exceptions to this plan

, are 
made to meet Federally mandated or court-ordered 
/ implementation dates. 
When policies change, Virginia starts planning early for

implementation. State staff 
keep abreast of statutory changes

and begin formulating State policy and procedures as soon as a
change is passed by Congress. 
From reading the law itself, State
officials usually can determine the intent, and they immediately

start drafting manual material and developing training. 

When
Federal guidelines (or interpretations) are finally received, 
minor changes to the material might need to be made, but most of
the work has already been done. 
By starting early, the agency
has time to solicit county input and think the policy through 
which decreases the need for having to make changes once the 
policy has been issued. 
In other words, they start early to
allow themselves enough time to do it right the first time. 
To prevent the misinterpretation of information that can cause

errors in eligibility determinations
, policy questions and

answers are put in writing. 
This procedure is handled speedily

through the use of a turnaround form that is initiated by the

local office. It is 
routed to the regional specialist and is

forwarded to the State office if the question cannot be answered

at the regional level. 
The turnaround form is completed by hand

A-8
 (to eliminate time needed for typing), and a time limit for

responding is imposed. The form also can be used by local

offices to comment on policies or procedures. Thus, 
this form

helps prevent the misapplication of policy and facilitates

communication between the state and local offices.

Reqional Attornevs General

Seven regional offices serve as links between the state and local
agencies. Assistant 
Attorneys General are located in each region
to assist local agencies in legal matters. 
These attorneys serve
the Medicaid program by reviewing legal documents such as deeds,

trusts 
, and wills to determine the availability of a resource to
the client. 
OKLOMA 
The following is a brief description of some of the activities 
the Oklahoma Department of Human Services is undertaking to
reduce Medicaid errors.

state and Reqional Corrective Action Committees

Each of the five regions has a corrective action committee

comprised of county and regional staff. 
In addition to

recommending new corrective action strategies
, this committe

reviews eligibility determination cases from the region to

identify error-prone areas and training needs. The reading of

cases by a group of peers from another county is reported to be

an excellent error deterrent. 
The State Corrective Action Committee meets bimonthly and reviews

every error case to identify error types and causes. 
The 
activities of the regional committees are also, discussed
, and

their recommendations are considered by the State committee for

implementation. 
Case Reviews

In addition to the case readings done by the regional corrective

action committees, Oklahoma conducts ongoing and targeted case

reviews. Each supervisor is required to read a fixed percentage 
of cases from each caseworker, depending on the worker I s 
level of
experience. The results are 
used to identify causes of errors
and need for training. Twice a 
year, all institutional care

cases are reviewed by regional field representatives, since

errors in these cases have substantially contributed to previous

error rates. 
Weeklv Corrective Action Memos

The Corrective Action Unit compiles a weekly error report which

is sent to counties to be used as a training tool. 
The report is

A-9
 .' 
a detailed sumary of each error type and cause. 
It also gives
the review month and the date of the onset of the error.

SOUT CAOLrA 
South Carolina, through the following strategies, has reduced its

error rate in Fiscal Year 1986 to 2.
7 percent.

Medicaid OUalitv Control Taraeted Samle 
(MOCTS) 
This is a statistically valid sample drawn from specific error-

prone counties or error-prone eligibility categories. This
supplemental sample is over and above the official quality 
control sample which is used to determine Federal disallowances. 
The review uses quality control standards, and an error rate is 
established for a given county or eligibility category. Findings
are used to identify weaknesses so that measures can be taken to 
eliminate problems. The MQCTS is 
used solely as a management
tool for corrective action and is among the State'
s most
effective practices. 
TraininQ-
Regional training is conducted for county staff on a quarterly

basis. 
Long-term care cases are specialized in the county 
offices, and those workers and supervisors are ,
trained to enhance
their case-processing skills. The same 
people conduct the
training in each region so all staff receive the same

information. New and revised 
policies and procedures are also an

' integral part of the training sessions.

Medicaid Planninq Task Force

This task force has been formed to evaluate current corrective

action initiatives and to assist in the development of Medicaid

training. The committee is comprised of 12 county supervisors,

with representation from large, medium, and small counties. 
The
quality control staff attend the meetings to offer assistance and
expertise. The task 
force is divided into three subcommittees 
that are given the responsibility for developing recommendations

in the following areas:

development of a supervisory review system;

revisions needed to all forms and computer reports; and

statewide or county-specific corrective action measures.

SDecial Reviews

A printout of institutional care cases is sent to each county,

office. Workers complete desk reviews of cases that have

resources near the resource limit (in excess of $1,
499) to ensure

that the resources have not exceeded the limit.

A-lO  ComDrehensive Medicaid Proaam Review (CMR)

This review is a managerial tool that can be adapted to assess a
specific county's performance or any program component in
Medicaid. The obj ect of CMR is to: 
provide assistance in error detection and correction;

identify weaknesses in program administration; and

provide technical assistance for the operation of the

Medicaid program.

The CMR is comprised 
of five parts: 
general program knowledge assessment;

corrective action assessment;

eligibility case record review;

Early Periodic Screening, Diagnostic, Testing case record

review; and

fOllow-up training.

This initiative assists program staff in identifying weaknesses

of individuals, counties, or programs. It also establishes a 
framework within which State program staff can provide fOllow-up

monitoring and training for county staff.

Taraeted Corrective Action

In Fiscal Year 1985, approximately 48 percent of the agency-
caused errors occurred in 13 percent of the State'
s counties. 
For this reason, South Carolina has targeted corrective action 
strategies to those counties. The initiatives may include 
specific technical assistance, county visits, CMPR, or MQCTS. 
MAYL 
Prior to the April through September
1985 sample period,

Maryland' s error rate had been under the Federal tolerance.

State officials attribute the recent error rate increase to a

particular State policy they are now changing. In addition, they

are stepping up corrective action in 
the Medicaid program.

Specific practices include:

direct training of local staff by the State office;

policy clearances provided directly by the State office to

local offices;

A-ll  development of a second party, or supervisory, review of a

percentage of Medicaid cases; and

development of a case management system to ensure that case

records and case processing are uniform across the state.

A-l2  ., c

APPENIX B

STATE BY STATE MEDICAD PAYM 
EROR RATE 
The following table is a State by State Medicaid payment error

rate by year from Fiscal Year 1981 through Fiscal Year 1986.

The two pages of charts following the table show the Medicaid
payment error rates, by fiscal year, for States in the inspection
sample. 
B-l
  
D
O
I
R
E
P
  6 8 7  85  7  5  5 
6 9 35 08 1 9 8
198 1. 1.1. 1.1. 1. 1. 19
 
.
P
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S
 
ES
 5  2  3* 8  64 5 . -
RAT 198 1. 1.1. 1.1. 1. PR
  A
R  
O E
R C
R N
E I
NT ' 1984  1.8  1.2
 1.l  1.6
 1.5 1.6  1.6 1.l
 1. 7  TA S
E A
M D
Y  
A 5
P p. 8
  e 9
TY S3  6 9 l  9 4  4
  1
LI -r. 198 1. 1.1. 1.1. 1. R.
I p A
B A M
I  
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I  
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D 8 . .  O
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9 O S
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R
NATIONAL AVERAGE
 REGION I Connecticut Maine Massachusetts New Hampshi re Rhode Island Vermont
 REGION II New Jersey New York  REGION III
Delaware Dist. of Co1. Maryland
PennsylvaniaVirginia West Virginia  REGION IV Alabama Florida GeorgiaKentucky Mississippi North Carolina South Carolina Tennessee  *VIRGINIA' S ERROIS INCOMPLETE.  6  4  2 l  6  5 5  l  6  2 2 5 0 
8 9 53 3 78 3 0 5224
19 1. 1.4.  1. 1. 1. 1. 1. 1.1.1.1.
ES
 5  9  7  8  l  5  1 4 1  9 
AT 98 1. 1.  1. 1. 1. 1.1.1. 1.
R 1
 
R
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  4  3  4 8  0 0 0  4  5 
T 8 . .. ... . .
N 9 1 11 111 1 1
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T S3  7  2 3  4  2 
LI -.98 1.  1.1. 1. 1.
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-- 98 1. 4.  1.
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a
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   o
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EGION V
Illinois Indiana MichiganMinnesota
Ohio
Wisconsin EGION VI Arkansas LouisianaNew MexicOklahoma Texas  EGION VIIIowa Kansas Missouri Nebraska  EGION VIIColorado Montana North DakSouth DakUtah Wyoming  EGION IX Arizona Cali forniHawaii Nevada 
R R R R R    
6 52
8 28
9 ..
1 11
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T 8  
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 ROLI NiI  1-1986  TION

Y
ERF A 8 C
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IBIY C981 MA  YE TES
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P " ,

APPENIX C

HETH CA 
FINANCING ADMIISTRTION'S COMMNTS 
The comments on the following pages are from HCFA in response to
our draft report. We have incorporated many of the editorial 
comments into this final report.

The HCFA believes "that many of the report's recommendations fail 
to take into account the congressional role in the existing MEQC 
program.  Due to this congressional interest, HCFA believes it 
does not have a completely free hand to manage MEQC. 
We do not believe that congressional interest precludes

implementing the recommendations outlined in this report. 
Although some of the findings of the inspection illustrate 
limitations of the current MEQC system, the majority of the 
recommendations address actions HCFA should take to assist States 
in reducing eligibility errors, regardless of the way the errors
are counted for disallowance purposes. 
Because eligibility
errors are costly to Federal and State Governents, we believe it 
to be a critical responsibility of HCFA in its role as technical 
advisor to State agencies to facilitate the initiation of 
successful corrective action measures. 
C-l
 (, 
Health Care 
'ARTMENT OF HEALTH &. HUMAN SERVICES  Financing Administration 
Memorandum

JEC 2 i: 1987

am L. Roper, M.D. / 

i strator  lA 
5 is
raft Report - Eligibility Errors Resulting in Misspent Funds in the 
aid Program (OAI-04-87-000l4) 
,tum 
nspector General 
e of the Secretary 
ve reviewed with interest the OIG report on the Medicaid Eligibility

ty Control (MEQC) program.

into 
nd that many of the report' s recommndations fail to take 
nt the congressional role in the existing MEQC program. In order to 
operly balanced, it is important that the report include a discussion 
is congressional role. Specifically, the report should describe some 
e confl i ct i ng congress i ona 1 act i  ns related to qua li ty contro lover 
ast several years. The report states that in 1980 the appropriations 
established the 4 percent tolerance level and that in 1982 the Tax 
y and Fiscal Responsibility Act of 1982 (TEFRA) lowered the tolerance 
to 3 percent. However, what has been 1 eft out of the report is the 
nued congressional concern with the Federal government taking 
lowances based on the quality control systems. For example, in 1984 
on 2373(c) of the Deficit Reduction Act of 1984 (DEFRA) established a 
orium on MEQC penalties for a certain category of errors. This 
on was recently clarified (or strengthened) in section 9 of the 
3ar)e .a nd Medicaid Patient and Program Protection Act of 1987 (P.
Section 12301 of the Consolidated Omnibus Budget Reconciliation 
COBRA) in 1986 included a requirement for comprehensive studies of 
ty control in both ,the Aid to Families with Dependent Children (AFDC) 
he Medicaid programs. The reports are currently due in December and 
ending clearance by Executive DMB. (A similar 
requirement was 
lished for the Food Stamp program.  Finally, included in the current 
version of the 1987 reconciliation legislation is a continuation

gh 1988 of a broad moratorium, established in COBRA, applied to bo

aid and AFDC. (The moratorium originally applied only to AFDC).

summary of Congressional actions is provided to show (1) that 
ess is acutely interested in MEQC, (2) that HCFA does not have a 
etely free hand to run the MEQC program, and (3) that Congress is 
ently not sure what the correct policy should be towards the
ction ormisspent monies identified through the 
MEQC program. The 
eport does not address these concerns and implies that HCFA has 
ete discretion on how it might proceed in this area. This is not tne 
Further, any actions taken before the COBRA required reports are

eted and Congress, HCFA, and the Family Support Administration have

C-2  Page 2

There can be no argument that pol icies should be written clearly and 
issued in a timely fashion. It is HCFA's goal to do just that and we have 
done so in many instances in the past. It is not always possible,
however , to control legislative or court.imposed deadlines for policy 
changes. Those dead1 i nes often do not permi t suffi c i ent 1 ead time for 
policy changes to be implemented, however HCFA has no choice but to abide 
by those mandates. We will continue to work diligently to ensure that as 
much lead time for implementation as is possible and reasonable is given 
and that our policies are expressed in as clear an  concise a way as
possible. 
Page 15, Paragraph 3 - HCFA had an integral part in the retrospective

sampling process, and continues to strongly urge its adoption by any

State. The reasons listed by the States for not adopting it center around

relatively minor start-up costs or the desire not to have a more accurate

error rate. 
Page 22, Paragraph 2 - The report says, "many States below 3 percent have

gone as far as they can.  Nothing in the report supports this conclusion.

Page 22, Paragraph 3 - We disagree that HCFA offers minimal corrective

action assistance to the States. Among other things, HCFA requires each

State to report annually on its corrective actions and our regional

offices review and provide technical assistance on these plans.

Page 23, Paragraph 1 - During the past annual conference of the State 
Medicaid Directors' Association, jointly sponsored by HCFA and the 
American Public Welfare Association, we announced our decision to 
centralize funding for Technical Advisory Group (TAG) travel, and to
develop a consistent po1icy' for utilizing TAGs. Comprised of technicians 
and specialists in particular fields, TAGs meet with HCFA po1icymakers and 
program specialists to resolve policy and implementation problems. This 
decision was made in direct response to State Medicaid Directors
' calls 
for more interaction with HCFA po1icymakers. We believe that this effort 
will resolve many issues that are inherent in a program as complex as 
Medicaid. 
Page 26, Paragraph 2 - The normal Medicaid match rate system gives States
considerable incentive to avoid making erroneous paymnts. 
On average the 
States pay 45 percent of the costs of the Medicaid program. Therefore the 
States save a significant amount, along with the Federal government, when 
they avoid paymnt errors. In addition, establishing an incentive program 
could be quite costly to the Federal government if it rewarded those

States that had already implemented appropri ate management controls to

avoid errors. Also, such an incentive program would be judged unfair if

it did not reward past State performance. Finally, congressional action

would be necessary to establish such a program, and until the COBRA

reports have been completed Congress is unlikely to make any changes to

the current MEQC program.

C-5