Background

Medicaid is a health care program jointly funded by the federal  government and states to provide care for certain low-income individuals.  The federal government oversees states’ Medicaid programs, and  typically pays from 50 to 83 percent of each state’s allowable Medicaid  costs. Medicaid enrollees are entitled to receive a range of medical  services, including hospital care, physician services, laboratory and other  diagnostic tests, prescription drugs, dental care, and long-term care  services. In addition, Medicaid provides assistance to low-income elderly  individuals who are also eligible for Medicare, called “dual eligibles.”This assistance can include covering Medicare premiums and cost  sharing.

		Medicaid Expenditure Data

MSIS is a national Medicaid eligibility and claims data set, and is the  federal source of Medicaid expenditure data that can be linked to a  specific enrollee. State Medicaid agencies are required to provide CMS,  through MSIS, quarterly electronic files approximately 45 days after a  quarter has ended. These files contain: (1) persons covered by Medicaid,  known as “eligible files”; and (2) adjudicated claims, known as the “paid  claims file,” for medical services reimbursed by the Medicaid program.  Each state’s eligible file contains one record for each person covered by  Medicaid for at least 1 day during the reporting quarter. Individual eligible  files consist of demographic and monthly enrollment data. Paid claims  files contain information on medical service-related claims and capitation  payments.
MSIS data include enrollees’ eligibility status for Medicaid and the  Children’s Health Insurance Program (CHIP), types of services received  by enrollees, and expenditure data. MSIS data are used for policy  analysis, program utilization, and forecasting expenditures. However,  MSIS data are not used to determine the federal share of Medicaid  expenditures, and are not used by the states to manage the daily  operations of their Medicaid programs.
The CMS-64 data set contains program-benefit costs and administrative  expenses that are not linked to individual enrollees. State Medicaid  agencies submit this information 30 days after a quarter has ended by  means of the Quarterly Medicaid Statement of Expenditures for the  Medical Assistance Program—also known as the form CMS-64—within  the Medicaid Budget and Expenditure System. CMS-64 data are reported  at a state aggregate level, such as a state’s total expenditures for such  categories as inpatient hospital services and prescription drugs.  Therefore, unlike MSIS, these data do not include individual expenditure  data on the state’s enrollees or the services they received under  Medicaid. Also unlike MSIS, CMS-64 contains expenditures that are not  linked to specific enrollees, such as supplemental payments including  Disproportionate Share Hospital (DSH) payments. CMS-64 data are the  most-reliable and most-comprehensive information on Medicaid  spending. Agency officials review expenditures submitted through   CMS-64, and use the data to compute the federal financial participation  for each state’s Medicaid program costs.

		Medicaid: A High-Risk Program

Our reports have demonstrated the need for CMS to improve its oversight  of this growing, complex program. In particular, federal internal-control  standards, as documented in GAO’s Standards for Internal Control in the  Federal Government, state that program managers need both operational  and financial data to determine whether they are meeting their goals for  accountability and efficient use of resources in order to make operating  decisions, monitor performance, and allocate resources. Pertinent  information should be identified, captured, and distributed in a form and  time frame that permits people to perform their duties efficiently. These  reports have also identified shortcomings with the MSIS and CMS-64  data sets, particularly in two areas: Medicaid program integrity and  supplemental payments.
See GAO, National Medicaid Audit Programs: CMS Should Improve Reporting and  Focus on Audit Collaboration with States, GAO-12-627 (Washington, D.C.: June 14,  2012). including its expenditures and audit outcomes, program improvements,  and plans for effectively monitoring the program.
We also recently reported that the accountability and transparency of  supplemental payments have been lacking using CMS-64. Specifically,  our work found that states reported $32 billion in DSH and non-DSH  Medicaid supplemental payments during fiscal year 2010. However, the  exact amount of supplemental payments is unknown using CMS-64  because not all states reported their non-DSH supplemental payments  separately from their regular payments. In an earlier report, we also found  that information on non-DSH supplemental payments was incomplete  because states did not provide full information to CMS regarding these  payments. We noted that until reliable and complete information on  states’ supplemental payments is available, federal officials overseeing  the program and others will lack the information they need to review  payments and ensure that they are appropriately spent for Medicaid  purposes.

	MSIS Medicaid Expenditures Amounts Are Generally Less than CMS-64 Expenditure Amounts

MSIS Medicaid expenditure amounts nationwide were generally less than  CMS-64 amounts. For fiscal years 2007, 2008, and 2009, total  expenditures based on MSIS data for the nation were 86, 87, and   88 percent, respectively, of the amounts shown in CMS-64. In fiscal years  2007 through 2009, the difference in Medicaid expenditures between the  two data sets decreased from about $46 billion in fiscal year 2007 to   $43 billion in fiscal year 2009. For fiscal year 2009, the most-recent and  most-complete data available, MSIS showed $323 billion in total  expenditures compared with the $366 billion in CMS-64, a difference of  $43 billion. (See table 1.)
MSIS Medicaid expenditures for individual states were generally less than  CMS-64 amounts. In fiscal years 2007 through 2009, states’ MSIS  Medicaid expenditures ranged from 59 percent to 120 percent compared  with CMS-64. In fiscal year 2009 alone, states’ MSIS Medicaid  expenditures ranged from 59 to 119 percent of those in CMS-64. (See   fig. 1.) Specifically, MSIS Medicaid expenditures were less than CMS-64  amounts in 40 states. These expenditures were greater than CMS-64  expenditures in 6 states, and were similar to CMS-64 expenditures in   5 states.reported in MSIS and CMS-64 by dollar amount in fiscal year 2009.

	Some Factors Could Be Quantified and Accounted for Approximately Half of the Expenditure Difference between the Data Sets

Some—but not all—factors could be quantified to narrow the difference  between MSIS and CMS-64 expenditures. In particular, we adjusted for  expenditures that could not be attributed to individual beneficiaries—one  of the key differences in the design of the data sets. However, we could  not quantify the effect of other factors, such as inconsistent CMS  guidance across the two data sets.

		Differences Attributable to the Design of the Data Sets Could Be Quantified and Adjusted

MSIS is designed to report claims data, and CMS-64 is designed to  reimburse states for their federal share of Medicaid expenditures. As we  have noted, some expenditures that are required to be reported in   CMS-64 do not appear in MSIS, such as when the expenditure is not tied  to an individual enrollee’s claim. After adjusting the MSIS data to include  expenditures for factors not related to individual enrollees’ claims,  Medicaid expenditures for the nation based on MSIS data were 92, 93,  and 94 percent of amounts shown in CMS-64 data, respectively, for fiscal  years 2007, 2008, and 2009. (See table 2.)
For fiscal year 2009, we were able to adjust MSIS data for four factors:  DSH payments, Medicare premiums, national and state rebates for  prescription drugs, and Medicaid health insurance payments. None of  these factors were reported in MSIS because CMS officials indicated they  were not attributed to an individual enrollee.
DSH payments were included under the hospital expenditure category  in CMS-64, but not in MSIS. We adjusted MSIS expenditure data to  account for DSH payments to hospitals. For example, in fiscal year  2009, states reported approximately $88 billion in total hospital  expenditures on CMS-64, which included approximately $18 billion for  DSH payments. Total hospital expenditures in MSIS were at about  $53 billion. Adding the $18 billion in DSH payments to total hospital  expenditures in MSIS increased the percentage of MSIS expenditures  from 60 percent of CMS-64 expenditures to 81 percent. Even after  this adjustment, MSIS hospital expenditures are $17 billion lower than  those on CMS-64, indicating that there are additional factors that  account for the difference in hospital-related expenditures between  the two data sets.
Medicare premiums were included in CMS-64, but CMS did not  require states to report them in MSIS. In addition, Medicaid  payments for enrollees with Medicare coinsurance and deductibles  are included in MSIS, but within the various service types, and cannot  be distinguished from other expenditures. In fiscal year 2009, total  expenditures for Medicare as reported on CMS-64 were  approximately $11 billion, whereas MSIS expenditures for the  Medicare category were $0. Adjusting for the approximately   $11 billion reported in fiscal year 2009 for Medicare premiums in  CMS-64 increased the percentage of total Medicare expenditures in  MSIS from 0 percent of CMS-64 expenditures to 92 percent, or a  difference of $908 million. Thus, the primary factor that accounted for  the difference in Medicare expenditures between the two data sets  can be attributed to the absence of Medicare premium expenditures in  MSIS.
Prescription drug rebates were included in CMS-64, but CMS did not   Prescription drug rebates are  require states to report them in MSIS.made by drug manufacturers to states in a lump sum payment for  Medicaid enrollees who use specific drugs, and therefore are not  connected to individual claims. In fiscal year 2009, total expenditures  for the prescription drugs category, as reported on CMS-64, were  initially about $25 billion. However, there was a reduction to $16 billion  when $10 billion dollars in national and state prescription drug rebates  were included. Total prescription drug expenditures in MSIS were  approximately $25 billion. Adjusting for the $10 billion reported for  prescription drug rebates in CMS-64 decreased the percentage of  MSIS expenditures from 161 percent of CMS-64 expenditures to   99 percent of CMS-64 expenditures. Thus, the difference in reported  prescription drug expenditures can be almost entirely attributed to the  rebates.
Some Medicaid health insurance payments were included in CMS-64  that CMS did not require states to report in MSIS.2009, total expenditures for the managed care and Medicaid premium  assistance expenditure category, as reported on CMS-64, were  approximately $82 billion, of which $3 billion were for Medicaid health  insurance payments not reported in MSIS. Total managed care and  Medicaid premium assistance expenditures, as reported in MSIS,  were approximately $85 billion. Adjusting for the roughly $3 billion for  Medicaid health insurance payments increased the percentage of  MSIS expenditures from 100 percent of CMS-64 expenditures to more  than 103 percent. Therefore, total managed care and Medicaid  premium assistance expenditures in MSIS were greater than those  reported in CMS-64. (Fig. 4 compares the MSIS baseline to the MSIS  adjusted expenditures as a percentage of CMS-64, by expenditure  category, for fiscal year 2009.)

	Concluding Observations

In fiscal year 2009, the difference between MSIS and CMS-64 was   $43 billion. Much of the difference was primarily the result of the different  designs of each data set. CMS uses MSIS data for beneficiary-specific  expenditures, while CMS-64 data are used to compute the federal  financial participation for each state’s Medicaid program costs. However,  even after adjusting for DSH payments, Medicare premiums, prescription  drug rebates, and Medicaid health insurance payments, differences  remain. In fiscal year 2009, total MSIS expenditure data, after  adjustments, showed MSIS at 94 percent of CMS-64 expenditures, which  left billions of dollars unexplained.
The remaining differences between the two data sets are potentially  explained by inconsistencies in CMS guidance and states’ reporting  practices, neither of which can be quantified. In fiscal years 2007 through  2009, CMS provided states with inconsistent MSIS and CMS-64 guidance  regarding expenditure definitions, reporting dates, and reporting of  supplemental payments. Additionally, when compared with CMS-64, state  MSIS data were often delayed beyond the time frames established by  CMS, inconsistent in reporting payments for local government providers,  and were of poor quality.
Taken together, these two data sets have the potential to offer a robust  view of the Medicaid program, enhancing CMS oversight of aggregate  spending trends, per beneficiary spending growth, and cross-state  comparisons, all of which could be useful in improving the financial  integrity of this high-risk program. This is critical given that Medicaid, a  program that GAO identified on our high-risk list, has among the highest  estimated improper payments of any federal program reporting such data.  However, the usefulness of these data sets as oversight tools is limited  because of delays in reporting and unnecessary inconsistencies between  the two data sets, both of which are inconsistent with federal internal  control standards. The 3-year lag in states’ reporting of MSIS data  prevents its use for timely oversight of beneficiary-related utilization and  other spending trends. For example, identifying a difference in hospital  expenditures between MSIS and CMS-64 is of limited use when detected  3 years later. If states were meeting the current requirement of providing  MSIS data 45 days after each quarter, then such comparisons could  provide more useful and timely information.
CMS has recently completed a pilot study aimed in part on improving  MSIS data. CMS has indicated that it will begin implementing aspects of  this initiative in all states by fiscal year 2014. One goal of this initiative is  to integrate state reporting of MSIS with the reporting of CMS-64 data.  However, CMS officials have indicated they have yet to determine a  timeline for this goal. While the initial results of this pilot have not been  finalized, improving the timeliness and consistency of MSIS and CMS-64  data through this effort could aid CMS’s understanding and oversight of  this high-risk program.

	Agency Comments

HHS reviewed a draft of this report and provided technical comments,  which we incorporated as appropriate.
As agreed with your office, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 30 days from the  report date. At that time, we will send copies of this report to the  Secretary of Health and Human Services, the Administrator of CMS, and  other interested parties. In addition, the report will be available at no  charge on the GAO website at http://www.gao.gov.
If you or your staff have any questions about this report, please contact  me at (202) 512-7114 or yocomc@gao.gov. Contact points for our Offices  of Congressional Relations and Public Affairs may be found on the last  page of this report. GAO staff who made key contributions to this report  are listed in appendix VI.

Appendix I: Scope and Methodology

We conducted two types of analysis of Medicaid expenditures for this  report to compare the Medicaid Statistical Information System (MSIS) and  CMS-64 data. First, we conducted a baseline analysis to compare total  expenditures reported to MSIS and CMS-64 nationally and by state. We  also compared reported expenditures by expenditure category. Secondly,  we conducted an adjustment analysis. Specifically, we attempted to  reconcile the expenditures by making adjustments to MSIS on the basis  of the differences we identified in the MSIS and CMS-64 data sets. To the  extent possible, we added expenditures reported in CMS-64, but not  reported in MSIS, to total expenditures in MSIS.
To determine the extent to which MSIS and CMS-64 data sets on  Medicaid expenditures differ, nationally and by state, for fiscal years  2007 through 2009, we conducted a multistep analysis.expenditures from both data sets, we calculated the expenditures  reported in MSIS as a percentage of those reported in CMS-64. We also  determined the percentage difference in total expenditures between the  two data sets, by expenditure category.
Step 1: Obtain MSIS and CMS-64 Data  In order to identify the baseline of total Medicaid expenditures for fiscal  years 2007 through 2009, we obtained from the Center for Medicare &  Medicaid Services (CMS) MSIS and CMS-64 data for each of the 50  states and the District of Columbia.
MSIS data: We obtained the MSIS Annual Person Summary File data,  which CMS officials confirmed were appropriate for our analysis. The  summary file includes monthly enrollment data, but only includes  annual expenditure data by type of service. It is most comparable to  CMS-64 because both data sets provide total expenditures for the  fiscal year. The summary file also includes some enrollment and  expenditure information on the Children’s Health Insurance Program  (CHIP).
CMS-64 data: We used the CMS-64 net expenditures financial  management report within the Medicaid Budget and Expenditure  System. The financial management report is an annual account of  states’ program and administrative Medicaid expenditures, including  federal and state expenditures by expenditure category. The financial  management report also contains information solely related to  Medicaid.
Step 2: Determine Medicaid Expenditures in MSIS for the Fiscal Year on  the Basis of the Number of Medicaid Enrollees  Because MSIS includes both Medicaid and CHIP expenditures, we  separated these expenditures to the extent possible. To do this, we first  determined whether a beneficiary was eligible for Medicaid or CHIP by  using the monthly eligibility code in MSIS. The Annual Person Summary  File ties an entire month’s expenditures to an individual on the basis of his  or her monthly eligibility code. The next step was to remove, to the extent  possible, the CHIP expenditures in order to match MSIS expenditures  with CMS-64. (CMS-64 does not include CHIP expenditures.)
CMS officials indicated that states were able to report CHIP expenditures  within MSIS if they had a Medicaid expansion-CHIP program (i.e., a CHIP  program that operates as part of the Medicaid program), also known as  M-CHIP. Consequently, we were able to distinguish between Medicaid  and M-CHIP spending. We thus removed from all MSIS totals any   M-CHIP expenditures to the extent possible. We determined the number  of months in the fiscal year a beneficiary received benefits under  Medicaid or M-CHIP. On the basis of this count, we prorated the  enrollees’ total expenses for the fiscal year on the basis of the proportion  of the year a person was enrolled in either M-CHIP or Medicaid. If a  person was enrolled in the M-CHIP program for part of the year, then a  portion of the annual spending was apportioned toward M-CHIP. For  example, if a person was enrolled in M-CHIP for 3 months, then a quarter  of the expenditures would be considered M-CHIP, and the remaining  three-quarters of expenditures would be considered Medicaid.  Consequently, the Medicaid expenditures include prorated amounts for  Medicaid and M-CHIP enrollees.
In contrast, CMS officials told us that until fiscal year 2010, states with a  stand-alone CHIP program (i.e., one that is operated separately from a  Medicaid program by the state; also known as S-CHIP) were not  supposed to report these expenditures into MSIS despite the presence of  the S-CHIP eligibility code. CMS officials indicated that any expenditures  associated with S-CHIP should be assumed to be Medicaid expenditures  despite the CHIP eligibility code. Therefore, we included any expenditures  associated with the S-CHIP code as Medicaid expenditures.
Lastly, we included as Medicaid expenditures any other expenditures  associated with all other eligibility categories. These other eligibility  variables included “unknown” and “ineligible,” as well as Medicaid.  Consequently, for states with standalone S-CHIP programs and those  that did not separate out M-CHIP expenditures, the total Medicaid  expenditures may be inflated in MSIS. Similarly, any expenditures  reported under the unknown and ineligible categories that were not  Medicaid expenditures may also inflate Medicaid expenditures.
Step 3: Matching Inconsistent Definitions of Services between MSIS and  CMS-64  MSIS and CMS-64 data consist of expenditures broken down by service  types.definitions of Medicaid service types used in each data set. This is  necessary because, in many instances, a one-to-one match of service  types in MSIS to those in CMS-64 is not possible. For example, in fiscal  years 2007 through 2009, the MSIS Annual Person Summary File had 29  service types, whereas CMS-64 had 43. (See table 3 for a list of MSIS  and CMS-64 service types used in fiscal years 2007 through 2009.)

Appendix II: Total Baseline Medicaid Expenditures in MSIS and CMS-64, by State, Fiscal Year 2009

	State Ohio

Appendix III: Total Adjusted Medicaid Expenditures in MSIS and CMS-64, by State, Fiscal Year 2009

	State Ohio

Appendix IV: Adjusted MSIS Expenditures as a Percentage of CMS-64, by State, Fiscal Year 2009

Appendix V: Adjusted MSIS Expenditures as a Percentage of CMS-64, by State and Expenditure Category, Fiscal Year 2009

Appendix V: Adjusted MSIS Expenditures as a  Percentage of CMS-64, by State and  Expenditure Category, Fiscal Year 2009 Adjustments were made by adding expenditures reported in CMS-64 to those reported in the  Medicaid Statistical Information System (MSIS). Specifically, we added Disproportionate Share  Hospital payments, national and state rebates for prescription drugs, Medicaid health insurance  payments, and Medicare premiums to the expenditures reported in MSIS. No adjustments were made  for acute and long-term support services (LTSS)-noninstitutional and LTSS-institutional.

Appendix VI: GAO Contact and Staff Acknowledgments

	GAO Contact

	Staff Acknowledgments

In addition to the contact named above, Robert Copeland, Assistant  Director; Muriel Brown; Shaunessye Curry; Greg Dybalski; Sandra  George; Giselle Hicks; Drew Long; Jessica Morris; and Monica Perez  Nelson made key contributions to this report.

Related GAO Products

Medicaid: States Reported Billions More in Supplemental Payments in  Recent Years. GAO-12-694. Washington, D.C.: July 20, 2012.
National Medicaid Audit Programs: CMS Should Improve Reporting and  Focus on Audit Collaboration with States. GAO-12-627. Washington,  D.C.: June 14, 2012.
High Risk Series: An Update. GAO-11-278. Washington, D.C.:   February 16, 2011.
Medicaid: CMS Needs More Information on the Billions of Dollars Spent  on Supplemental Payments. GAO-08-614. Washington, D.C.: May 30,  2008.
Medicaid Demonstration Waivers: Recent HHS Approvals Continue to  Raise Cost and Oversight Concerns. GAO-08-87. Washington, D.C.:  January 31, 2008.
Medicaid Financial Management: Steps Taken to Improve Federal  Oversight but Other Actions Needed to Sustain Efforts. GAO-06-705.  Washington, D.C.: June 22, 2006.
Major Management Challenges and Program Risks: Department of  Health and Human Services. GAO-03-101. Washington, D.C.:   January 1, 2003.
Medicaid Financial Management: Better Oversight of State Claims for  Federal Reimbursement Needed. GAO-02-300. Washington, D.C.:  February 28, 2002.

Summary:
Why GAO Did This Study

CMS, within the Department of Health and Human Services, and state Medicaid agencies jointly administer the multibillion-dollar Medicaid program, which finances health care for certain low-income individuals. Medicaid is on GAOs high-risk list because of vulnerabilities to waste, fraud, abuse, and mismanagement. CMS has two data sets that report state Medicaid expenditures. The MSIS data set is designed to report individual beneficiary claims data. The CMS-64 data set aggregates states expenditures, which are used to reimburse the states for their Medicaid expenditures. However, neither data set provides a complete picture of Medicaid expenditures.
GAO was asked to compare MSIS and CMS-64 data. This report (1) examines the extent to which MSIS and CMS-64 expenditure data differ and (2) where possible, quantifies the identified differences between the two data sets. GAO reviewed documents, compared Medicaid expenditure data, and interviewed CMS and state officials. GAO used fiscal years 2007 through 2009 datathe most-recent and most-complete data available.

What GAO Found

Medicaid expenditures in the Medicaid Statistical Information System (MSIS) were generally less than CMS-64 amounts. National expenditures in MSIS were 86, 87, and 88 percent of the amounts in CMS-64 in fiscal years 2007 through 2009, respectively. In fiscal year 2009, MSIS expenditures for states ranged from 59 to 119 percent of CMS-64. Specifically, 40 states reported lower expenditures in MSIS than CMS-64; 5 states and the District of Columbia reported higher expenditures; and 5 states reported similar levels of expenditures.
GAO was able to quantify some, but not all, of the identified differences in expenditures between MSIS and the CMS-64.
GAO adjusted MSIS for expenditures that were not attributed to individual beneficiaries--such as prescription drug rebates. These adjustments increased MSIS to 92, 93, and 94 percent of the amounts in CMS-64 in fiscal years 2007 through 2009, respectively.
GAO could not account for the remaining differences in part because of inconsistencies in the Centers for Medicare & Medicaid (CMS) guidance between the two data sets. For example, CMS officials explained that expenditures for inpatient services as reported by a state in MSIS and as reported in CMS-64 are not necessarily for the same services.
GAO also found that states do not submit timely MSIS information. CMS requires states to submit MSIS data within 45 days and CMS-64 data within 30 days of the end of the quarter. However, states' reporting of MSIS data can be up to 3 years late, whereas CMS-64 data are consistently reported on time. Also, MSIS expenditure data are considered less reliable when compared with CMS-64.
GAO has reported that CMS will need more reliable data for assessing expenditures and measuring performance in the Medicaid program. MSIS and CMS-64 have the potential to offer a robust view of the Medicaid program, enhancing CMS oversight of aggregate spending trends, per beneficiary spending growth, and cross-state comparisons, all of which could be useful in improving the financial integrity of this high-risk program. However, delays in reporting MSIS data and inconsistencies between the two data sets limit their usefulness as oversight tools. CMS has recently completed a pilot study aimed in part at improving the timeliness and consistency of both systems data.
HHS provided technical comments on a draft of this report, which were incorporated as appropriate.