Background

Within broad federal requirements under Title XIX of the Social Security  Act, each state administers and operates its Medicaid program in  accordance with a state Medicaid plan, which must be approved by CMS.  A state Medicaid plan (1) describes the groups of individuals to be  covered and the methods for calculating payments to providers;   (2) establishes criteria and requirements for providers to be eligible to  receive payments; (3) describes the categories of services covered, such  as inpatient hospital services, nursing facility services, and physician  services; and (4) must be approved by CMS in order for the state to  receive matching funds for the federal share of Medicaid payments it  makes. Any changes a state wishes to make in its Medicaid plan, such as  establishing new Medicaid payments to providers or changing  methodologies for determining provider payment rates, must be submitted  to CMS for review and approval as a state plan amendment.
Federal matching funds are available to states for different types of  payments that states make. For regular, claims-based payments made  directly to providers that have submitted bills for services rendered, states  pay the providers based on established payment rates for the services  provided. For supplemental payments, states generally make monthly,  quarterly, or annual lump sum payments or may include the payments as  adjustments to regular, claims-based payments. Supplemental payments  include Disproportionate Share Hospital (DSH) payments, which states  are required by federal law to make to certain hospitals. These payments  are designed to help offset these hospitals’ uncompensated care costs for  serving large numbers of Medicaid and uninsured low-income  individuals. Many states also make other supplemental payments that  are not required under federal law. These payments include Medicaid  UPL supplemental payments, which are Medicaid payments that are  above the regular Medicaid payments but within the UPL, defined as the  estimated amount that Medicare would pay for comparable services. UPL  supplemental payments, like regular claims-based payments, must be  made for allowable Medicaid expenditures and must comply with  applicable federal requirements. Regular and UPL supplemental  payments are not limited to providers’ costs of delivering Medicaid  services; however, as Medicaid payments, they are intended to pay for  Medicaid-covered services provided to Medicaid beneficiaries and must  by law be economical and efficient. States may also make other  supplemental payments to hospitals, nursing facilities, and other  providers authorized under Medicaid demonstrations. (See app. II for  information on our past concerns about Medicaid supplemental  payments.)
The Medicaid UPL is a ceiling on the amount of federal matching funds a  state may receive for Medicaid payments; it is based on the amount that  Medicare would pay for similar services. Because states’ regular  payments are often lower than what Medicare would pay for comparable  services, states are able to make UPL supplemental payments, which are  separate from and in addition to regular payments, and the federal  government will share in those payments up to the maximum amount  allowed under the UPL. (See fig. 1.)
The UPL is not a provider-specific limit but instead is applied on an  aggregate basis for certain provider ownership types and categories of  services. Specifically, the UPL is applied on an aggregate basis to the  three ownership types—local government, state government, and private.  Separate UPLs exist for providers of inpatient hospital services,  outpatient hospital services, nursing facility services, and physician and  other practitioner services, and for services provided in intermediate care  facilities for the developmentally disabled (ICF/DD).
To obtain federal funding for both regular and supplemental payments,  states submit their estimated aggregate expenditures by type of service to  CMS each quarter for an upcoming quarter. After CMS has approved the  estimate, it makes federal funds available to the state for the purpose of  making Medicaid payments during the upcoming quarter. States typically  make Medicaid payments to providers with a combination of nonfederal  funds and federal funds. Within 30 days of the end of each quarter, states  are required to submit their actual expenditures for the quarter on the  standardized form CMS-64. CMS uses the CMS-64 data, which  aggregates states’ expenditures, to reconcile actual expenditures with  states’ estimates.

	CMS Medicaid Expenditure Reports Include Data on Provider Ownership for 10 Percent of Payments Made in 2011

CMS-64 expenditure reports on Medicaid payments show provider  ownership for 10 percent of total Medicaid payments made in federal  fiscal year 2011. Each quarter, states submit their total Medicaid  payments on the CMS-64 expenditure reports by more than 70 categories  of service. The expenditure reports capture aggregate state expenditures  and are not intended to collect provider-specific payment information.  Provider ownership information is reported for 6 categories of service for  UPL supplemental payments and 2 categories of service for regular  payments, accounting for $40 billion, or 10 percent, of the $414 billion in  Medicaid payments in federal fiscal year 2011.CMS-64 expenditure data that is reported by provider ownership,  payments to government providers accounted for $21 billion, or   52 percent, and payments to private providers accounted for the  remaining $19 billion, or 48 percent. (See fig. 2.) Because states report  their CMS-64 expenditure data at an aggregate state level and not by  provider or by claim, we could not determine the extent to which the  difference in payments to government providers versus private providers  was due to a higher volume of services provided or a larger number of  providers in the ownership group.

	In Three Selected States, Insufficient Data Precluded a Comprehensive Assessment of Medicaid Payments, and Focused Comparisons Possible In Two States Were Inconclusive

Assessing Medicaid payments to individual hospitals was hampered by  insufficient data. In two states with reliable data, Illinois and New York,  our estimates of average daily payments made to government and private  hospitals showed inconclusive trends, but also identified that a small  number of government hospitals were receiving high payments that  warrant oversight. For example, some selected hospitals in each of these  states received Medicaid payments in excess of total operating costs.

		A Comprehensive Assessment of Medicaid Payments to Individual Hospitals in Selected States Was Precluded by Inaccurate and Incomplete Data

Our assessment of Medicaid payments to individual hospitals in three  selected states—California, Illinois, and New York—was hampered by  inaccurate and incomplete state data on Medicaid payments and CMS  claims data on Medicaid payments and days of service. States must  capture and report payment data to CMS, but the data needed to  compare payments by individual provider and provider ownership are not  specifically required. Despite extensive work we conducted in California  to obtain and analyze Medicaid claims and UPL supplemental payment  data, we were unable to compare individual hospitals’ daily payments by  hospital ownership for inpatient hospital services. This was because  California lacked reliable data to enable an assessment of Medicaid  payments made to individual hospitals. The data California provided on its  Medicaid supplemental payments and hospital ownership, neither of  which are reported in MSIS, were not usable due to inconsistent hospital  identification numbers—including state identification numbers and  National Provider Identifiers (NPI)different versions of the data, and missing hospital ownership information.  —payment amounts that changed in  For example, the California Medicaid officials provided their supplemental  payments in over 20 different spreadsheets, each of which represented a  different type of payment and included, by hospital, a hospital  identification number and the payment amount. However, the  spreadsheets used different types of hospital identification numbers  among different spreadsheets, and the California officials were unable to  provide a crosswalk of the different identification numbers. As a result,  hospital payments listed on multiple spreadsheets could not be matched  to determine how much in supplemental payments the state was paying  the individual hospitals, and could not be matched with the MSIS claims  data by hospital.
Although data provided by Illinois and New York were sufficiently reliable  for assessing certain Medicaid payments to individual providers for  inpatient hospital services, both states had Medicaid payment gaps that  precluded assessment of all Medicaid payments the states made. In  Illinois, 3 of the 21 local government hospitals in the state received large  supplemental Medicaid payments that are based on criteria outlined in the  Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act   These payments, which  of 2000 (BIPA)—referred to as BIPA payments.Illinois makes annually, are significant—totaling nearly $750 million  annually. Because these BIPA payments are not for specified Medicaid  services or related to the cost of providing Medicaid services, we did not  include them when determining daily payments. Similarly, states are not  required to report DSH supplemental payments by the uncompensated  care costs related to Medicaid patients versus uninsured patients.  Therefore, we did not include them when determining daily payments.  Illinois, in state fiscal year 2011, paid $335 million in DSH supplemental  payments, of which $304 million was paid to 3 local government  hospitals, $27 million was paid to the state’s 1 state government hospital,  and $4 million was paid to 38 private hospitals. New York, in state fiscal  year 2011, paid over $2 billion in these payments, of which over $1 billion  was paid to 20 local government hospitals, $250 million was paid to 5  state government hospitals, and $670 million was paid to 158 private  hospitals. Because it was unclear what portion of these payments was  related to the cost of providing uncompensated care related to Medicaid  patients versus uninsured patients, we did not include them when  determining Medicaid payments by hospital ownership.
In addition, claims data for both Illinois and New York could not be used  for analyzing payments to individual providers for outpatient hospital,  nursing facility, and ICF/DD services. For outpatient hospital services,  available claims data did not provide sufficient information to determine  the number of outpatient visits. Some of the outpatient claims were for  bundled services—that is, services that were provided over a series of  visits—and, therefore, we could not calculate outpatient payments on a  per visit basis. For both nursing facility and ICF/DD services, available  claims data were not reliable for determining the number of days of  service provided. Adjustment claims for these services only reported  adjustments to the payments and did not indicate the days of service that  were similarly affected. As a result, we could not determine an accurate  number of days of service for each provider and, therefore, could not  calculate daily payments.

		Illinois Government and Private Hospitals’ Average Daily Inpatient Medicaid Payments Were Comparable in 2011, but Individual Hospitals’ Daily Payments Varied Widely, and One Government Hospital Received Payments That Exceeded Its Total Operating Costs

For inpatient services provided by 193 hospitals in Illinois in state fiscal  year 2011, government hospitals’ and private hospitals’ average daily  payments were comparable. In comparing these regular and UPL  supplemental payments by hospital ownership, we adjusted the regular  payments for differences in the conditions of the patients treated by the  hospitals, commonly referred to as “case-mix” adjustment.daily payment was highest for the state government hospital at $2,666,  compared to $2,639 for the local government hospitals, and $2,620 for  private hospitals.
While government and private hospitals had comparable average daily  payments for inpatient services, the daily payments for the individual  hospitals within the ownership groups were wide ranging and varied. For  example, the daily payments for local government hospitals ranged from  $552 to $9,822, compared to $754 to $11,239 for private hospitals. (See fig. 4.) These varying daily payments make it difficult to draw conclusions  about payment differences by hospital ownership, but helped in the  identification of individual hospitals with significantly higher daily  payments compared to other hospitals. (See app. I for information on the  methodology used for comparing average daily payments for inpatient  hospital services in Illinois by hospital ownership, and app. IV for more  detailed information on Illinois’s Medicaid payments for inpatient hospital  services by hospital ownership, including the average, median, and range  of the daily payments.)
When comparing the Medicaid inpatient payments—regular and UPL  supplemental payments—to the costs of providing those services,  estimated using cost reports prepared by hospitals, for hospitals with the  highest daily payments, we found that six of the seven selected hospitals  had total Medicaid inpatient payments that exceeded those hospitals’ total   The three local government hospitals  costs of providing these services.and three private hospitals had Medicaid inpatient hospital payments that  exceeded costs, ranging from about $273,000 to about $18 million over  costs. The one state hospital had payments that were $4 million less than  costs, with $124 million in payments compared to $128 million in costs.  (See fig. 5.)
Illinois Medicaid officials attributed the variation in the extent to which the  inpatient payments exceeded costs to various factors. For example,  except for the local government hospital with payments about $655,000  more than costs, the hospitals that had payments in excess of costs  received regular Medicaid inpatient payments that were predetermined  rates based on a patient’s diagnosis—a Diagnosis Related Group  system—and were not paid on costs. The Diagnosis Related Group  payment method is intended to provide incentives for hospitals to lower  costs. In addition, the officials told us that these hospitals, including the  local government hospital, received UPL supplemental payments that  were calculated based on 2005 data—a year in which the hospitals  provided a higher volume of Medicaid inpatient services, which resulted in  larger UPL supplemental payments.
In addition, for the selected hospitals in Illinois, we also compared  Medicaid payments and other supplemental payments to the hospitals’  total operating costs for all services and all patients and found that one of  the local government hospitals received Medicaid payments that  exceeded the hospital’s total operating costs. For this comparison, in  addition to regular inpatient and inpatient UPL supplemental patients, we  included DSH supplemental payments and BIPA Medicaid supplemental  payments. We found that these Medicaid payments to this hospital  totaled $907 million, while total operating costs were $540 million. The  hospital’s BIPA Medicaid supplemental payments were the cause of  payments exceeding total operating costs. According to the Illinois  officials, the BIPA Medicaid supplemental payments are payments that  the state is authorized to make under federal law. (See app. I for  information on the methodology used for comparing the selected Illinois  hospitals’ Medicaid payments for inpatient services to the costs of  providing those services and to total operating costs, and app. V for more  detailed information on the hospitals’ Medicaid payments for inpatient  services, the costs of providing those services, and total operating costs.)

		New York Government Hospitals Received Higher Average Daily Medicaid Inpatient Payments than Private Hospitals, but Individual Hospital’s Daily Payments Varied Widely, and Two Government Hospitals Received Payments That Greatly Exceeded Their Total Operating Costs

For inpatient services provided by 201 hospitals in New York in state  fiscal year 2011, government hospitals had higher average daily  payments than private hospitals. Local government hospitals had the  highest average daily payment for the case-mix-adjusted regular and UPL  supplemental payments at $1,514, compared to $933 for private  hospitals. However, the local government hospitals’ high average daily  payment was due primarily to two hospitals receiving a total of $416  million in UPL supplemental payments, inflating the average payment for  all local government hospitals.
The individual hospitals’ daily payments varied widely within each of the  hospital ownership groups. For example, the local government hospitals’  daily payments ranged from $198 to $9,176, compared to $144 to $3,413  for private hospitals.difficult to draw conclusions about payment differences by hospital  ownership, but helped in identifying individual hospitals with significantly  higher daily payments compared to other hospitals. According to New  York officials, these daily payments may have varied because of a variety  of factors, including the geographic location of a hospital. (See app. I for  information on the methodology used for comparing average daily  payments for inpatient hospital services in New York by hospital  ownership, and app. VI for more detailed information on the state’s  Medicaid payments for inpatient hospital services by hospital ownership,  including the average, median, and range of the daily payments.)   (See fig. 6.) The varying daily payments make it   Any redistributed UPL supplemental payments these 10  It was not within the scope of our review to examine how the payments  returned to the corporation were used, the extent to which they were  redistributed among the corporation’s hospitals or other facilities, or  whether the redistribution of excessive UPL payments is consistent with  federal DSH limits or CMS policy regarding provider retention of Medicaid  payments. However, at the conclusion of this review we brought these  practices to the attention of CMS officials for their consideration. Officials  agreed the payment arrangement may warrant further review.

	CMS Lacks Information and a Policy and Process to Oversee Medicaid Payments to Individual Providers

CMS’s oversight of Medicaid payments to individual hospitals and other  institutional providers is limited. The agency does not collect provider- specific payment and ownership information and lacks a policy and  standard process for determining whether Medicaid payments to  individual providers are economical and efficient. As a result, excessive  state payments to individual providers may not be identified or examined  by CMS.

		Information Needed to Oversee Medicaid Payments to Government and Private Providers Is Lacking

CMS does not collect sufficient information on payments to enable it to  assess payments for individual providers, which would allow the agency  to ensure that payments are appropriately spent for Medicaid purposes.  CMS collects information on states’ Medicaid payments from its review of  state plan amendment proposals and two payment data systems.  However, CMS does not collect comprehensive information on provider- specific payments through these sources. As a result, it cannot identify or  assess total Medicaid payments received by individual providers and the  extent to which they differ among providers for similar services, and  cannot review significant differences in payments among providers. In  addition, CMS cannot determine whether payments to individual providers  are consistent with the Medicaid criteria of efficiency and economy.  Federal agencies should collect accurate and complete data to monitor  programs they oversee.
Information describing proposed Medicaid payments and related  methodologies that states submit to CMS is not adequate to provide data  for assessing and overseeing Medicaid payments, including those to  government providers. CMS must review and approve state plan  amendments before a state can make payments and claim the federal  share of the payments. However, according to CMS officials, while  states lay out criteria for who qualifies for payment and how payments are  calculated in their state plan amendments, they are not required to offer  more details, such as information on which providers will receive  payments. In addition, because CMS asks states to submit  comprehensive descriptions of their payment methodologies, state plan  amendment language describing a state’s methodology for determining  Medicaid payments can be complex and technical, without offering  specific details on the payments that will result from the payment  methods. As an example, language in a New York state plan amendment  for state fiscal year 2011 UPL supplemental payments for inpatient  services to local government hospitals identified the total amount  authorized to be paid in UPL supplemental payments, but did not identify  the amounts paid to individual hospitals.cannot rely solely on reviews of state plan amendments to assess  whether payments to specific providers are meeting Medicaid criteria of  economy and efficiency.
Lacking these details, CMS  CMS’s two ways of collecting Medicaid payment information—the  Medicaid Statistical Information System (MSIS), a data collection system,  and the CMS-64, a quarterly expense report used to provide federal  matching funds for state Medicaid expenditures—do not collect complete  information on payments to government and private providers. MSIS is  CMS’s national eligibility and claims data system and is the agency’s only  source of provider-specific payment data reported by states. However,  states are not required to report in MSIS provider ownership information  or UPL supplemental payments that are not paid on claims. As a result,  analyzing payments by provider ownership groups is not possible, and  assessing total payments by provider is complicated by the fact that the  UPL supplemental payments, which can be significant, are not reported in  MSIS. For example, according to state data, in state fiscal year 2011,  Illinois and New York made about $2 billion and $3 billion, respectively, in  UPL supplemental payments that were not reported in MSIS. CMS-64  was not designed to capture provider-specific information; it provides  aggregate payment amounts and does not have provider-specific  payment or ownership information. As mentioned previously, it captures  total payments by provider ownership for a few payment types,  representing 10 percent of total Medicaid payments made in federal fiscal  year 2011.
More recently, another source of provider-specific payment information,  including UPL supplemental payments, became available for certain  providers, but it too provides limited information. Beginning in 2010,  states have been required to submit audited reports annually on any  hospital receiving DSH supplemental payments. Information that states  are required to report separately for each DSH hospital includes the  hospital’s Medicaid costs, and all Medicaid payments—regular, DSH  supplemental, and UPL supplemental. However, this reporting is not  required for hospitals that are not eligible to receive DSH supplemental  payments.
Recognizing the need for better data from the states, CMS began  implementing two initiatives in 2013. The first initiative, to improve its  oversight of the Medicaid UPL and state UPL supplemental payments,  requires additional state reporting, but gaps remain.  Beginning in June 2013, states were required to annually submit to CMS documentation of  their Medicaid UPL calculations and provider-specific payment  information. Previously, CMS had performed reviews of UPL  calculations only when a state submitted a proposal to revise existing  payments or add new payments in its state plan. Despite the new  guidance and new reporting requirements, data gaps and challenges  remain that limit CMS’s ability to oversee payments. CMS has not  specified a standardized data reporting format, including the key data  states should report on providers and payments, such as NPIs for each  provider and actual supplemental payments. As a result, some states  may not report actual supplemental payments they make and, without  NPIs, CMS is currently unable to merge UPL supplemental payments with  regular claims-based payment data in MSIS.
CMS’s second initiative, to improve MSIS, is intended to collect provider- specific ownership and supplemental payment information. CMS is  developing the Transformed Medicaid Statistical Information System (T- MSIS)—an enhanced Medicaid data system—to replace MSIS. T-MSIS  will require states to report additional information to CMS that is not  currently collected in MSIS, including provider-specific information on   The agency  supplemental payments received and provider ownership. has cited T-MSIS as a key tool for providing the federal government and  states with better information with which to manage and monitor Medicaid  program integrity, including identifying waste, fraud, and abuse.However, there is uncertainty about when T-MSIS will be operational. In  December 2014, CMS officials reported that the agency was still working  on stabilizing its data systems to begin accepting state claims data  through T-MSIS as states pass testing and are found by CMS to be   ready to transition to T-MSIS. In December 2014, 18 states were in the  final testing phases, and, depending on the nature of remaining issues  with their data, these states could be ready for full implementation in   2 months. However, officials were uncertain when all states would be  capable of reporting claims and payment information via T-MSIS. In  addition, it is uncertain when states will be able to report all of the new  data required under T-MSIS. According to CMS officials, some states  have had problems reporting some of this information, particularly  provider ownership information. Officials were also uncertain about  whether all of the issues we encountered with the existing claims data  submitted by states through MSIS would be addressed when T-MSIS was  fully operational. For example, when we reported that some states were  reporting state-assigned provider numbers rather than NPIs, reporting  multiple NPIs for one provider, or reporting incorrect and inaccurate NPIs,  officials said that under T-MSIS there will be a cross-walk between  provider NPIs and state-issued provider identification numbers that states  use in processing claims. However, beyond looking for obvious errors in  formatting of the NPI numbers, such as incorrect values or provider  numbers that are too short or too long, CMS will not identify erroneous  NPI numbers. Officials said errors involving providers with multiple NPIs  or NPIs assigned to the wrong provider are identified when the data are  analyzed for oversight and monitoring purposes.
In addition to these two initiatives, CMS officials told us they are also  considering ways to improve data for overseeing payments at the  provider level. As part of this effort, in May 2014, CMS contracted a study  to, among other things, (1) analyze documentation on regular and UPL  supplemental payments that states began submitting in 2013 to  determine opportunities for improvement in CMS oversight; (2) store that  information in a standardized format to enable analysis to be performed at  both the aggregate and the provider-specific levels; and (3) assess the  utility of T-MSIS data for the purpose of assisting CMS oversight of  Medicaid UPL payments. The officials expect to receive the first report  from the study in early 2015, and based on this report, will determine any  additional actions the agency will take to enhance the information it  collects for oversight purposes.

		CMS’s Oversight of Medicaid Payments to Individual Providers Is Limited Because CMS Lacks a Policy and Process for Assessing Whether Payments to Individual Providers Are Economical and Efficient

CMS cannot ensure that Medicaid payments to individual providers are  economical and efficient because the agency does not have a standard  policy delineating criteria for when payments made to individual providers  are economical or efficient, nor does it have a process to identify  payments to individual providers that appear questionable. Instead, the  agency reviews payment methodologies, relies on states to provide  justification for unclear methodologies, and follows up on payments that  are identified as questionable by oversight reviews conducted by  oversight agencies, such as HHS’s Office of Inspector General. However,  even when CMS identifies cases of payments to individual providers for  further review, it does not have established criteria for determining  whether these payments are economical and efficient. According to  officials, to determine state compliance with the statutory requirement that  Medicaid payments are economical and efficient,on ensuring that states comply with Medicaid’s UPL regulations. The UPL  regulations establish a ceiling on the amount of federal matching funds a  state can claim. The UPL, which is based on how much Medicare would  pay for the same service, is an aggregate limit that applies to groups of   CMS primarily relies  providers based on a category of service and provider ownership.the UPL limits payments to a group of providers, it does not limit the  amount of payment a particular provider can receive, provided the  aggregate payment amount to the group does not exceed the UPL.
CMS’s focus on the aggregate UPL hinders its ability to determine  whether payments to individual providers are economical and efficient, as  states can comply with an aggregate UPL but target UPL supplemental  payments to a small number of providers. To illustrate, CMS reviewed  and approved a state plan amendment authorizing the state of New York  to make more than $400 million in inpatient hospital UPL supplemental  payments to qualifying local government hospitals. The UPL  supplemental payment amount represented the difference between  regular Medicaid payments to the 21 local government hospitals subject  to the UPL and what Medicare would have paid for inpatient services to  these hospitals in the aggregate. However, we found in July 2014 that the  aggregate UPL supplemental payments the state estimated it could make  based on the workload of all 21 local government hospitals in New York,   In approving the state  were actually made to only 2 of the 21 hospitals. plan amendment authorizing the UPL supplemental payment, CMS  determined that the payment would not exceed the applicable aggregate  UPL. The state plan amendment did not specify the number or names of  hospitals that were eligible for payments under the amendment, and CMS  did not obtain information on which of the 21 local government hospitals  would receive UPL supplemental payments. The state submitted hospital- specific information showing the difference between each hospital’s  estimated regular Medicaid payments and the UPL, which is what  Medicare would pay for comparable services.information to calculate the aggregate UPL for the local government  hospitals. Figure 8 compares the difference between regular payments   The state used this  and the UPL that New York estimated for each hospital to the actual  amounts of UPL supplemental payments made.
In addition, we found a similar concentration of UPL supplemental  payments for outpatient hospital services made to local government  hospitals in state fiscal year 2011. Specifically, CMS approved New York  to make about $154 million in UPL supplemental payments for outpatient  hospital services for the 21 local government hospitals. Similar to the  case for UPL supplemental payments for inpatient services, the state  made a UPL supplemental payment for outpatient hospital services to  only one local government hospital.
CMS has recently taken actions to reduce the supplemental payment  amounts paid to the three hospitals, indicating that the payments were  excessive, but had not, as of January 2015, made a formal determination  as to what payment amount would have been appropriate for the local  government hospitals. According to CMS officials, because their reviews  focus on the aggregate UPL, they were not aware of the distribution of  these payments to specific hospitals. However, after we informed them of  these payments, they initiated a review of the payments and, according to  CMS officials, were in the process of working with the state to lower future  payments the state would make to the three local government hospitals  identified as receiving large supplemental payments in this review. As of  January 2015, CMS had not provided details on the amount of payment  reductions for the three hospitals. CMS officials told us they recognized  the need for a strategy to oversee Medicaid payments to individual  providers and the agency was considering ways to improve the agency’s  oversight of Medicaid payments and payment limits, including how to  better assess payments to individual providers.

	Conclusions

Medicaid represents significant expenditures for the federal government  and states and is the source of health care for tens of millions of  vulnerable individuals. Its long-term sustainability is critical, and will  require effective federal oversight to ensure that Medicaid payments are  economical and efficient, and are made for covered Medicaid items and  services. The longstanding concerns we have raised about some states’  excessively large Medicaid payments to certain institutional providers  continue. Further, our analysis showing the wide ranges in hospitals’  average daily payments, and high payments over costs to certain  government and private hospitals, raises further questions about federal  oversight of states’ payments to individual institutional providers, both  government and private. Provider payments that are tens of millions of  dollars, and in some cases hundreds of millions of dollars, greater than  providers’ costs raise questions about whether such payments are  consistent with economy and efficiency as required by law and the extent  to which the payments are ultimately used for Medicaid purposes.  Medicaid payments that exceed the total costs of operating the hospital  raise, even further, questions as to their appropriateness. Moreover, the  fact that CMS is largely unaware of the extent to which state Medicaid  payments exceed Medicaid costs to certain providers highlights the  shortcoming of its current approach to overseeing state Medicaid  payments. To oversee state Medicaid payments to individual providers,  CMS needs accurate and complete provider payment data, as well as a  policy and process for reviewing payments made to individual providers.  While CMS has taken some steps to improve payment data it receives  from the states, it does not have the comprehensive data for oversight,  and future data improvements are uncertain. In addition, CMS does not  have a policy and process for assessing the economy and efficiency of  payments at the provider level. Without good data on payments to  individual providers, a policy and criteria for assessing whether the  payments are economical and efficient, and a process for reviewing such  payments, the federal government could be paying states hundreds of  millions, or billions, more than what is appropriate.

	Recommendations for Executive Action

To improve CMS’s oversight of Medicaid payments, we recommend that  the Administrator of CMS take the following three actions:
Take steps to ensure that states report accurate provider-specific  payment data that include accurate unique national provider identifiers  (NPI).
Develop a policy establishing criteria for when such payments at the  provider level are economical and efficient.
Once criteria are developed, develop a process for identifying and  reviewing payments to individual providers in order to determine  whether they are economical and efficient.
To ensure the appropriateness of Medicaid payments to providers in New  York, we recommend that the Administrator of CMS take the following  fourth action: expedite the formal determination of the appropriateness of New  York’s payment arrangements and ensure future payments to local  government hospitals are consistent with all Medicaid requirements.

	Agency Comments and Our Evaluation

We provided a draft of this report to HHS for comment. In its written  response, HHS concurred with our recommendations and noted efforts to  address them. HHS stated that it is evaluating ways to improve its  oversight, including gathering information from states to better inform  future policies. HHS noted that information being collected will better  inform the agency regarding efforts to establish criteria, policies, and  procedures to evaluate whether payments at the provider level are  economical and efficient.
HHS comments are reprinted in appendix VIII. HHS also provided  technical comments, which we incorporated as appropriate.
As agreed with your offices, 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 the  Centers for Medicare & Medicaid Services, and other interested parties.  In addition, the report is 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 iritanik@gao.gov. Contact points for our   Offices of Congressional Relations and Public Affairs may be found on  the last page of this report. Major contributors to this report are listed in   appendix IX.

Appendix I: Scope and Methodology for Analyzing Medicaid Payments and Hospital Costs

To determine what the Centers for Medicare & Medicaid Services (CMS)  Medicaid expenditure reports include about payments by provider  ownership nationwide, we analyzed CMS’s quarterly Medicaid  expenditure reports for federal fiscal year 2011—the most recent year for  which complete data were available at the time of our analysis. To  determine, for selected states, how state Medicaid payments to  government hospitals compare to state Medicaid payments to private  hospitals, we used federal Medicaid claims data and data provided by the  states. To determine, in the selected states, how the state Medicaid  payments to selected hospitals compare to the hospitals’ Medicaid costs  and to hospitals’ total operating costs, we used the federal Medicaid  claims data and data and Medicaid cost reports provided by the states.

	Methodology for Analyzing Medicaid Expenditure Reports

To examine what information CMS Medicaid expenditure reports include  about payments by provider ownership nationwide, we used the quarterly  Medicaid expenditure reports—referred to as the CMS-64—that states  use to report their Medicaid expenditures for purposes of receiving federal  matching funds. We determined based on the expenditure reports that  states reported payments by provider ownership for six categories of  service for upper payment limit (UPL) supplemental payments and two  categories of service for regular payments. The six categories of   service for UPL supplemental payments reported by provider ownership  include (1) inpatient hospital, (2) outpatient hospital, (3) nursing facility,  (4) physician and surgical, (5) other practitioner, and (6) intermediate care  facilities for the developmentally disabled (ICF/DD). The two categories of  service for regular payments that are reported by provider ownership  include (1) ICF/DD and (2) school-based services.
For each state, we compiled payments for the categories of service  reported by provider ownership that were provided in federal fiscal year  2011—the most recent year for which complete data were available at the  time of our analysis—by excluding those payments for services that were  reported in federal fiscal year 2011 but were provided in prior years, and  including payments for services provided in federal fiscal year 2011 but  were reported in federal fiscal years 2012 or 2013. We used two main  CMS-64 expenditure reports to compile this information. One report—the  CMS-64 Base Report—includes payments for services provided in federal  fiscal year 2011, as well as payments and adjustments for prior years. It  does not include payments or payment adjustments for services provided  in federal fiscal year 2011 that were reported in federal fiscal years 2012  or 2013. The other key report—the Financial Management Report Net  Expenditure Reports—includes payments for services provided in federal  fiscal year 2011 and includes payments made in 2011 that were for prior  years. It also includes payments or payment adjustments for services  provided in federal fiscal year 2011 that were reported in federal fiscal  years 2012 or 2013. By using these two reports in combination, we  determined total payments for services provided in federal fiscal year  2011 for the categories of service reported by provider ownership. For  these six categories of service for UPL supplemental payments, we used  more-detailed feeder forms for the two reports, which the states use to  report the UPL supplemental payments by provider ownership.
To assess the reliability of the CMS expenditure reports, we conducted  interviews with CMS officials on how the agency uses the data and any  known data reliability issues, reviewed related documentation, and  conducted logic tests on the expenditure data. We determined that these  data were sufficiently reliable for the purposes of our report. The results of  this analysis were limited, however, in that states report their CMS-64  expenditure data at an aggregate state level and not by provider or by  claim. Therefore, we could not determine the extent to which the  difference in payments to government providers versus private providers  was due to a higher volume of services provided or a larger number of  providers in the ownership group.

	Methodology for Comparing Medicaid Payments by Provider Ownership in Selected States

To determine how, in selected states, state Medicaid payments to  government hospitals compare to state Medicaid payments to private  hospitals, we selected a nongeneralizable sample of three states— California, Illinois, and New York. We selected these states based on the  following criteria: having large Medicaid programs as determined by spending for  Medicaid services, making large amounts of certain supplemental Medicaid payments, geographic diversity.
We determined that for California the data needed for our analysis were  not reliable and, therefore, we could not compare the state’s payments by  provider ownership. For Illinois and New York we analyzed Medicaid  payments for inpatient services provided in state fiscal year 2011 by three  hospital ownership groups—local government, state government, and  private. We analyzed payments for state fiscal year 2011 because it was  the most recent year for which data on regular, claims-based payments  were available.
To compare Medicaid payments by hospital ownership in Illinois and New  York, we combined federal inpatient hospital Medicaid claims data from  the Medicaid Statistical Information System (MSIS)—the federal system  through which states report Medicaid claims—with data provided by the  states, which included additional payment data and hospital ownership  information not included in MSIS. Specifically,
From MSIS we compiled regular, claims-based payments for inpatient  hospital services by identifying the states’ fee-for-service claims for  services provided by hospitals, including general acute care,  children’s, and cancer hospitals. We excluded psychiatric hospitals, all  managed care claims, claims for patients covered by a separate  State Children’s Health Insurance Program, and any Medicare  “crossover” claims—where Medicare was the primary payer. We used  all four quarters of MSIS claims from state fiscal years 2011 and 2012  to identify those claims where the beginning date of service indicated  the service was provided in state fiscal year 2011. We adjusted the  regular fee-for-service claims to account for differences in the  conditions of the patients treated by the hospitals, commonly referred  to as “case-mix” adjustment, using case-mix data provided by the  states.
From the states we obtained provider-specific UPL supplemental  payments and hospital ownership information. In addition, we  obtained provider-specific Disproportionate Share Hospital (DSH)  supplemental payment amounts from both states, and payment  amounts for an additional Medicaid supplemental payment made to  certain Illinois hospitals under the Medicare, Medicaid, and SCHIP  Benefits Improvement and Protection Act of 2000 (BIPA). However,  because it was unclear what portion of DSH supplemental payments  was related to the cost of providing Medicaid services and because  BIPA payments are not for specified Medicaid services or related to  the cost of providing Medicaid services, we did not include these  payments when calculating Medicaid payment amounts for  government and private hospitals.
We combined the inpatient MSIS payment and day data with the state- provided supplemental payment and hospital ownership data using  unique hospital identification numbers, such as the National Provider  Identifier (NPI)—a national, unique 10-digit identification number assigned  to health care providers. After combining the MSIS and state-provided  data, we performed two calculations. First, we calculated a Medicaid daily  payment amount for each hospital by dividing the hospital’s total inpatient  service payments (regular claims-based payments and UPL supplemental  payments) by the total Medicaid days of inpatient services the hospital  provided. Second, we calculated an average daily payment amount for  each hospital ownership group by summing the daily payment amounts of  every hospital in each ownership group and dividing it by the number of  hospitals in the ownership group. To ensure that hospitals with very low  inpatient days were not skewing the average daily payment amounts, we  excluded from this analysis the hospitals that had the lowest 5 percent of  inpatient days in state fiscal year 2011.
To assess the reliability of the MSIS claims data and data provided by the  states, we reviewed relevant data documents and interviewed agency  officials. For the MSIS data, we reviewed the CMS data dictionary and a  report on identified issues with the state fiscal year 2011 MSIS claims,  conducted logic tests, and interviewed CMS officials on how the data are  used by the agency and any known data reliability issues. We also  interviewed state Medicaid officials to determine how the states report  their MSIS data to CMS. We determined that the MSIS data were reliable  for our purposes. For the state-provided data on payments not reported in  MSIS and on hospital ownership, we conducted logic tests and  interviewed state Medicaid officials. While we determined through our  assessments that the data provided by both Illinois and New York were  reliable for our purposes, we determined that California’s state-provided  data on payments not reported in MSIS and hospital identification  numbers were not reliable and, therefore, we could not compare this  state’s payments by provider ownership.

	Methodology for Comparing Selected Hospitals’ Medicaid Payments to Medicaid Costs for Inpatient Services and to Total Operating Costs

To compare Medicaid payments for inpatient hospital services to  Medicaid costs for these services in Illinois and New York, we selected  hospitals that had the highest daily payment amounts in each of the three  ownership groups in state fiscal year 2011. We selected seven hospitals  in Illinois, because the state had only one state government hospital, and  nine hospitals in New York.
For each of the selected hospitals in both states, we compared Medicaid  payments for inpatient services to Medicaid costs for inpatient services.  We calculated the total Medicaid payments for inpatient services—regular  and UPL supplemental payments—based on payment data from CMS’s  Medicaid claims data and the state-provided data on supplemental  payments. For purposes of comparing payments to costs, we did not  case-mix-adjust the regular payments for differences in the conditions of  the patients treated by the hospitals.
To estimate Medicaid inpatient costs, we used inpatient Medicaid costs  that each hospital reported to the state on standard cost reports for state  fiscal year 2011. For the selected Illinois hospitals, the inpatient Medicaid  costs were reported on the Medicaid cost report. For the selected New  York hospitals, we determined inpatient Medicaid costs by first calculating  the percentage of each hospital’s total inpatient days that were Medicaid  inpatient days and then applying that percentage to the total inpatient  service costs to get an initial Medicaid inpatient cost estimate. For the  selected hospitals in both states, to account for differences between the  days for inpatient services that were reported on the cost reports  compared to the days reported in the CMS claims data, we calculated a  daily Medicaid cost amount and then multiplied the daily cost amount by  the number of days for inpatient services from CMS’s Medicaid claims  data. To calculate the daily cost amount, we used the costs and days  reported on the Medicaid cost reports; we divided each hospital’s total  Medicaid inpatient costs by Medicaid total inpatient days.
For each of the selected hospitals in both Illinois and New York, we also  compared Medicaid payments for inpatient services and related  supplemental payments to the hospital’s total operating costs for all  services and all patients. For the selected hospitals in Illinois, we included  in this comparison regular inpatient and inpatient UPL supplemental  payments, as well as Disproportionate Share Hospital (DSH)  supplemental payments and an additional Medicaid supplemental  payment that was authorized under BIPA. For the selected hospitals in  New York, we included in this comparison the regular inpatient and  inpatient UPL supplemental payments, as well as DSH supplemental  payments. For both states, we did not include regular and supplemental  payments for outpatient services because we were unable to analyze  Medicaid payments for outpatient services. We identified each of the  hospitals’ total operating costs for all services and all patients on the  hospital’s cost report.and days for Medicaid, and also include total costs for all patients.
The hospitals’ Medicaid cost reports include costs  To determine the reliability of the selected Illinois and New York hospitals’  cost reports, we interviewed state Medicaid officials on how the cost data  are compiled and used by the agency and whether there were any known  data reliability issues. We also compared Medicaid costs and patient days  from the selected hospitals’ cost reports from state fiscal year 2009 to the  hospital’s DSH report—an independently audited report that states are  required to submit to CMS annually for every hospital that receives a DSH  supplemental payment—from state fiscal year 2009, the most recent year  for which DSH reports were available. Based on these assessments, we  determined that the cost report data were sufficiently reliable for our  purposes.

Appendix II: Past GAO Concerns about Medicaid Payments

Over the past 20 years, we have reported a number of concerns about  Medicaid payments—particularly supplemental payments—that states  have made to a small number of providers. Specifically, we have found  that by making large supplemental payments to providers that are  concurrently supplying funds to the state for the nonfederal share  (through such financing arrangements as providers’ taxes and  intergovernmental transfers), states have been able to obtain billions of  dollars in additional federal matching funds without a commensurate  increase in state funds used to finance the nonfederal share. For  example, in 2004 and 2005 we found that some states’ excessive  payments to a few government providers facilitated the inappropriate   In addition, we found  shifting of state costs to the federal government.that a lack of uniform guidance on setting Medicaid payment limits and  the flexibility given to states under existing federal rules concerning the  distribution of supplemental payments allowed states to make large  Medicaid payments to a few government providers. We also found that a  lack of transparency in how such payments were made allowed for  potentially inappropriate Medicaid payments to certain providers and  hindered the ability of the Centers for Medicare & Medicaid Services  (CMS) to oversee such payments. Table 1 summarizes past issues we  have found regarding state Medicaid payments made to providers and  actions taken by Congress and CMS to address these concerns.
Partially in response to concerns about excessive supplemental  payments to government providers, CMS issued a proposed rule in early  2007 to limit state upper payment limit (UPL) supplemental payments to  government providers to their cost of providing Medicaid services.  However, concerns were raised that it would harm certain providers, and  on May 24, 2007, Congress passed a one-year moratorium on the  finalization or implementation of the proposed rule. CMS issued the rule  in final form on May 25, 2007, the date on which the President signed the  law containing the moratorium. In 2008, a federal district court found the  agency’s finalization of the rule violated the moratorium and vacated the  rule, and CMS formally rescinded the rule in 2010.

Appendix III: Analysis Results for Medicaid Expenditure Reports

This appendix provides results of our analysis of Centers for Medicare &  Medicaid Services (CMS) CMS-64 Medicaid expenditure reports for   for  payments by provider ownership, both state-by-state and nationwide,federal fiscal year 2011. Specifically, the appendix includes expenditures  for Medicaid payments for the categories of service reported by provider  ownership, including six categories of service for upper payment limit  (UPL) supplemental payments and two categories of service for regular  payments.
Table 2 shows total Medicaid expenditures, expenditures reported by  provider ownership, the percentage of total expenditures that were  reported by provider ownership, expenditures for payments to  government providers and private providers, and government provider  expenditures and private provider expenditures as a percentage of  total expenditures reported by provider ownership.
Tables 3 through 8 show total UPL supplemental payments and the  payments and related percentages by three provider ownership  groups—local government, state government, and private—for the six  categories of service for UPL supplemental payments that are  reported by provider ownership.
Tables 9 and 10 show total regular payments and the payments by  the three provider ownership groups for the two categories of service  for regular payments that are reported by provider ownership.

Appendix IV: Results of Analysis of Medicaid Inpatient Payments for Government Hospitals and Private Hospitals in Illinois

This appendix provides the results of our analysis of Medicaid payments  for inpatient services provided in state fiscal year 2011 in Illinois by  hospital ownership.
Table 11 shows, by hospital ownership, the Illinois hospitals’ average  daily payment, minimum and maximum daily payment, and median  daily payment for regular and upper payment limit (UPL) supplemental  payments combined.
Table 12 shows, by hospital ownership, Illinois hospitals’ state fiscal  year 2011 inpatient service Medicaid regular payments, UPL  supplemental payments, Disproportionate Share Hospital  supplemental payments, and a third type of Medicaid supplemental  payment that three local government hospitals received.

Appendix V: Results of Analysis of Medicaid Payments and Costs for Selected Illinois Hospitals

This appendix provides the results of our analysis comparing seven  selected Illinois hospitals’ Medicaid payments for inpatient services to  their Medicaid costs for inpatient services and total operating costs in  state fiscal year 2011.
Table 13 compares, for each of the seven selected Illinois hospitals,  Medicaid payments for inpatient services—including regular  payments, upper payment limit (UPL) supplemental payments, and  the total regular and UPL supplemental payments—to total estimated  Medicaid costs for providing inpatient services in state fiscal year  2011.
Table 14 compares, for the seven selected Illinois hospitals, Medicaid  inpatient service payments to total estimated operating costs for all  services and all patients for state fiscal year 2011. Medicaid payments  include regular and UPL supplemental payments for hospital inpatient  services, total Disproportionate Share Hospital supplemental  payments, and Medicaid supplemental payments authorized under  the Medicare, Medicaid, and SCHIP Benefits Improvement and  Protection Act of 2000 (BIPA).

Appendix VI: Results of Analysis of Medicaid Inpatient Payments for Government Hospitals and Private Hospitals in New York

This appendix provides the results of our analysis of Medicaid payments  for inpatient services provided in state fiscal year 2011 in New York by  hospital ownership.
Table 15 shows, by hospital ownership, the New York hospitals’  average daily payment, minimum and maximum daily payment, and  median daily payment for regular and upper payment limit (UPL)  supplemental payments combined.
Table 16 shows, by hospital ownership, New York hospitals’ state  fiscal year 2011 inpatient service Medicaid regular payments, UPL  supplemental payments, and Disproportionate Share Hospital  supplemental payments.

Appendix VII: Results of Analysis of Medicaid Payments and Costs for Selected New York Hospitals

This appendix provides the results of our analysis comparing nine  selected New York hospitals’ Medicaid payments for inpatient services to  their Medicaid costs for inpatient services and total operating costs in  state fiscal year 2011.
Table 17 compares, for each of the nine selected New York hospitals,  Medicaid inpatient service payments—including regular payments,  upper payment limit (UPL) supplemental payments, and total regular  and UPL supplemental payments—to total estimated Medicaid costs  for providing inpatient services in state fiscal year 2011.
Table 18 compares, for the nine selected New York hospitals,  Medicaid inpatient service payments to total estimated operating costs  for all services and all patients for state fiscal year 2011. Medicaid  payments include regular and UPL supplemental payments for  hospital inpatient services and total Disproportionate Share Hospital  supplemental payments.

Appendix VIII: Comments from the Department of Health and Human Services

Appendix IX: GAO Contact and Staff Acknowledgments

	GAO Contact

	Staff Acknowledgments

In addition to the contact named above, Tim Bushfield   (Assistant Director), Pauline Adams, Elizabeth Conklin,   Iola D’Souza, Julianne Flowers, Vikki Porter, Roseanne Price,   and Sandra George made key contributions to this report.

Related GAO Products

High-Risk Series: An Update. GAO-15-290. Washington, D.C.:   February 11, 2015.
Medicaid Financing: States’ Increased Reliance on Funds from Health  Care Providers and Local Governments Warrants Improved CMS Data  Collection. GAO-14-627. Washington, D.C.: July 29, 2014.
Medicaid: Completed and Preliminary Work Indicates That Transparency  around State Financing Methods and Payments to Providers Is Still  Needed for Oversight. GAO-14-817T. Washington, D.C.: July 29, 2014.
High-Risk Series: An Update. GAO-13-283. Washington, D.C.: February  2013.
Medicaid: More Transparency of and Accountability for Supplemental  Payments Are Needed. GAO-13-48. Washington, D.C.: November 26,  2012.
Medicaid: States Made Multiple Program Changes, and Beneficiaries  Generally Reported Access Comparable to Private Insurance.   GAO-13-55. Washington, D.C.: November 15, 2012.
Medicaid: States Reported Billions More in Supplemental Payments in  Recent Years. GAO-12-694. Washington, D.C.: July 20, 2012.
Opportunities to Reduce Potential Duplication in Government Programs,  Save Tax Dollars, and Enhance Revenue. GAO-11-318SP. Washington,  D.C.: March 1, 2011.
Medicaid: Ongoing Federal Oversight of Payments to Offset  Uncompensated Hospital Care Costs Is Warranted. GAO-10-69.  Washington, D.C.: November 20, 2009.
Medicaid: CMS Needs More Information on the Billions of Dollars   Spent on Supplemental Payments. GAO-08-614. Washington, D.C.:   May 30, 2008.
Medicaid Financing: Long-standing Concerns about Inappropriate   State Arrangements Support Need for Improved Federal Oversight.   GAO-08-650T. Washington, D.C.: April 3, 2008.
Medicaid Financing: States’ Use of Contingency-Fee Consultants to  Maximize Federal Reimbursements Highlights Need for Improved Federal  Oversight. GAO-05-748. Washington, D.C.: June 28, 2005.
Medicaid: Intergovernmental Transfers Have Facilitated State Financing  Schemes. GAO-04-574T. Washington, D.C.: March 18, 2004.
Medicaid: Improved Federal Oversight of State Financing Schemes Is  Needed. GAO-04-228. Washington, D.C.: February 13, 2004.

Summary:
Why GAO Did This Study

Under Medicaid, a joint federal-state program, states pay health care providers and receive federal matching funds for their payments. States may have incentives to make excessive Medicaid payments to certain institutional providers such as hospitals operated by local governments. Medicaid payments are not limited to providers' costs, but federal law requires they be economical and efficient. Large payments that exceed costs raise questions as to whether the payments are for Medicaid purposes.
GAO was asked to review state Medicaid payments to government providers compared to private, that is, for-profit and non-profit providers. GAO examined (1) in selected states, how state Medicaid payments to government hospitals compare to those made to private hospitals, and, for selected hospitals, to their Medicaid costs and total hospital operating costs; and (2) CMS oversight. GAO assessed hospital payments by ownership for three states selected in part based on size and geographic diversity, reviewed laws, regulations, guidance, and other documents, and interviewed CMS and state officials.

What GAO Found

GAO's assessment of Medicaid payments to government and private hospitals in three selected states was hampered by inaccurate and incomplete data on payments. States must capture but are not required to report all payments they make to individual institutional providers, nor are states required to report ownership information. For example, large supplemental payments states often make to hospitals are not reported by hospital. GAO assessed data for hospitals in two of three selected states, Illinois and New York; the third state, California, did not have accurate or complete payment data that would allow an assessment of total payments made to individual hospitals. In the two states, GAO's estimates of average daily payments—total payments adjusted for differences in patient health, divided by patient days—made to government and private hospitals showed inconclusive trends, but also identified that a small number of government hospitals were receiving high payments that warrant oversight.
In Illinois, average daily payments for inpatient services were comparable for government and private hospitals, but these averages masked wide variations in daily payments for both types of hospitals. Daily payments ranged from less than $600 to almost $10,000 for local government hospitals and from $750 to over $11,000 for private hospitals. For seven hospitals with high daily payments, GAO examined how payments compared to each hospital's costs of providing Medicaid services as reported by the hospital in cost reports and found that six of the seven hospitals' Medicaid payments exceeded their Medicaid costs.
In New York, average daily payments were higher for government hospitals than private hospitals, but as with Illinois these averages masked wide variations, with daily payments ranging from about $200 to over $9,000 for local government hospitals and from less than $200 to $3,400 for private hospitals. Four of nine selected government and private hospitals with high daily payments had Medicaid payments that exceeded Medicaid costs: two were local government hospitals that, all together, received payments exceeding their costs by nearly $400 million.
One selected hospital in Illinois and two in New York had Medicaid payments that exceeded the local government hospitals' total operating costs, including costs associated with all services provided to all patients they served.
Oversight of Medicaid payments to individual hospitals and other institutional providers, which is the responsibility of the Department of Health and Human Services' (HHS) Centers for Medicare & Medicaid Services (CMS), is limited in part by insufficient information on payments and also by the lack of a policy and process for assessing payments to individual providers. CMS does not collect provider-specific payment and ownership information. CMS also lacks a policy and standard process for determining whether Medicaid payments to individual providers are economical and efficient. Excessive state payments to individual providers may not be identified or examined by CMS. For example, CMS's oversight mechanisms did not identify large overpayments to two New York hospitals until they were identified by GAO. CMS began reviewing the appropriateness of these payments during the course of GAO's review.

What GAO Recommends

GAO recommends that CMS take steps to ensure states report provider-specific payment data, establish criteria for assessing payments to individual providers, develop a process to identify and review payments to individual providers, and expedite its review of the appropriateness of New York's hospital payments. HHS concurred with the recommendations.