I 

113TH CONGRESS 

1ST SESSION H. R. 162 

To amend section 1932 of the Social Security Act to require independent 

audits and actuarial services under Medicaid managed care programs, 

and for other purposes. 

IN THE HOUSE OF REPRESENTATIVES 

JANUARY 4, 2013 

Mrs. BACHMANN introduced the following bill; which was referred to the 

Committee on Energy and Commerce 

A BILL 

To amend section 1932 of the Social Security Act to require 

independent audits and actuarial services under Medicaid 

managed care programs, and for other purposes. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Medicaid Integrity Act 

5 of 2013’’. 


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1 SEC. 2. INDEPENDENT AUDIT AND ACTUARY REQUIRE2 MENTS FOR STATE MEDICAID MANAGED 

3 CARE PROGRAMS. 

4 (a) IN GENERAL.—Section 1932 of the Social Secu5 rity Act (42 U.S.C. 1396u–2) is amended by adding at 

6 the end the following: 

7 ‘‘(i) INDEPENDENT AUDIT REQUIREMENTS.— 

8 ‘‘(1) IN GENERAL.—As a condition of receiving 

9 a payment under section 1903(a) with respect to ex10 penditures under a contract with a managed care 

11 entity under section 1903(m), a State, acting 

12 through the State agency under the State plan or 

13 another State entity, shall, in accordance with this 

14 subsection, enter into a contract with an inde15 pendent auditor to— 

16 ‘‘(A) conduct audits of such managed care 

17 entity under such contract; and 

18 ‘‘(B) report the results of such audits 

19 under paragraph (7). 

20 ‘‘(2) INDEPENDENT AUDITOR DEFINED.—In 

21 this subsection, subject to subparagraph (B), the 

22 term ‘independent auditor’ means, with respect to 

23 the audit of a managed care entity in a State for a 

24 period of time, an auditing entity that— 

25 ‘‘(A) had no financial relationship with the 

26 managed care entity or an affiliate of such 


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1 managed care entity for activities occurring 

2 during the period for which the audit is con3 ducted; 

4 ‘‘(B) has no such financial relationship 

5 with the managed care entity or affiliate for the 

6 period during which the audit is being con7 ducted; and 

8 ‘‘(C) with respect to the initial audits 

9 under paragraph (4) of a managed care entity, 

10 has not had such a financial relationship with 

11 the managed care entity or affiliate during the 

12 2-year period ending on the date the auditing 

13 entity and State enter into a contract under 

14 paragraph (1). 

15 ‘‘(3) STANDARDS FOR AUDITS.— 

16 ‘‘(A) IN GENERAL.—The Secretary shall 

17 set uniform standards for the audits required 

18 under paragraph (4). 

19 ‘‘(B) REQUIREMENTS FOR STANDARDS.— 

20 The standards under subparagraph (A) shall— 

21 ‘‘(i) be consistent with Federal Gov22 ernment auditing standards issued by the 

23 Comptroller General of the United States; 


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1 ‘‘(ii) specify a uniform reporting for2 mat for the reporting of such audits under 

3 paragraph (7); and 

4 ‘‘(iii) require that any report for an 

5 audit required under paragraph (7) include 

6 a certification by a certified public ac7 countant. 

8 ‘‘(4) TYPES OF AUDITS AND INFORMATION RE9 QUIRED.— 

10 ‘‘(A) IN GENERAL.—The independent audi11 tor contracting with a State under paragraph 

12 (1) shall conduct and complete, for each man13 aged care entity with a contract under section 

14 1903(m) in such State the following: 

15 ‘‘(i) A biannual financial audit de16 scribed in paragraph (5). 

17 ‘‘(ii) A biannual performance-compli18 ance audit described in paragraph (6). 

19 ‘‘(B) TIMING OF AUDITS.— 

20 ‘‘(i) INITIAL, STAGGERED AUDITS.— 

21 For the purpose of establishing baseline 

22 data, with respect to each managed care 

23 entity with a contract under section 

24 1903(m) with a State, the State shall com25 plete— 


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1 ‘‘(I) an initial audit under sub2 paragraph (A)(i) not later than 6 

3 months after the date of enactment of 

4 the Medicaid Integrity Act of 2013; 

5 and 

6 ‘‘(II) an initial audit under sub7 paragraph (A)(ii) not later than 18 

8 months after such date. 

9 The initial audit of an entity under sub10 paragraph (A)(ii) shall be completed ap11 proximately 1 year after the initial audit of 

12 the entity under subparagraph (A)(i). 

13 ‘‘(ii) SUBSEQUENT, STAGGERED AU14 DITS.—Subsequent audits under each such 

15 subparagraph shall be completed every two 

16 years. 

17 ‘‘(C) PERIOD COVERED BY AUDIT.— 

18 ‘‘(i) IN GENERAL.—Each audit under 

19 this paragraph shall cover a 2-calendar20 year period. 

21 ‘‘(ii) INITIAL FINANCIAL AUDIT.—The 

22 first biennial financial audit under sub23 paragraph (A)(i) shall cover the 2-cal24 endar-year period that ends on the last day 

25 of the calendar year that ends 6 months 


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1 before the deadline for completion of such 

2 initial audit under (B)(i)(I). 

3 ‘‘(iii) INITIAL PERFORMANCE-COMPLI4 ANCE AUDIT.—The first biennial perform5 ance-compliance audit under subparagraph 

6 (A)(ii) shall cover the 2-calendar-year pe7 riod that ends on the last day of the cal8 endar year that ends 6 months before the 

9 deadline for completion of such initial 

10 audit under (B)(i)(II). 

11 ‘‘(5) BIANNUAL FINANCIAL AUDIT.—A biannual 

12 financial audit under paragraph (4)(A)(i), with re13 spect to a managed care entity with a contract 

14 under section 1903(m) in a State, is an audit of the 

15 finances of the managed care entity relating to such 

16 contract. Each such audit shall include an audit of 

17 at least the following information: 

18 ‘‘(A) EXPENSES AND REVENUES.—With 

19 respect to services provided under such con20 tract, the managed care entity’s— 

21 ‘‘(i) administrative expenses; 

22 ‘‘(ii) revenues, including investment 

23 income; and 

24 ‘‘(iii) payments made by the managed 

25 care entity for nonadministrative services. 


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1 ‘‘(B) CLAIMS AND ENCOUNTER DATA.— 

2 Subject to paragraph (7)(C)— 

3 ‘‘(i) claims data related to services 

4 provided by such managed care entity 

5 under such contract; and 

6 ‘‘(ii) encounter data that relate to 

7 such services and support such claims. 

8 ‘‘(C) EXPENDITURES ON PATIENT SERV9 ICES.—With respect to services provided under 

10 such contract, the managed care entity’s pay11 ments to health care providers, that have been 

12 issued a national provider identifier under title 

13 XI, for items and services furnished on behalf 

14 of beneficiaries based on the claims and encoun15 ter data described in subparagraph (B). 

16 ‘‘(D) PROVIDER PAYMENT RATIO.— 

17 ‘‘(i) IN GENERAL.—The ratio of the 

18 payments to health care providers de19 scribed in subparagraph (C) to the aggre20 gate payments to the managed care entity 

21 under the contract. 

22 ‘‘(ii) CONSTRUCTION.—The ratio 

23 under clause (i) is not a medical loss ratio 

24 and is not comparable to a medical loss 

25 ratio. 


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1 ‘‘(E) PROVIDER PAYMENT RATES AND

2 METHODOLOGIES.—Subject to paragraph 

3 (7)(C)(ii), the managed care entity’s payment 

4 rates and payment methodology for health care 

5 services under such contract, by provider type 

6 or service category, including a description of— 

7 ‘‘(i) alternative payment arrangements 

8 between the managed care entity and pro9 viders; and 

10 ‘‘(ii) payments made by the managed 

11 care entity to providers that are separate 

12 from claims for services provided. 

13 ‘‘(F) IDENTIFICATION OF ADMINISTRATIVE

14 VENDORS.—With respect to services provided 

15 under such contract, identification of providers 

16 and vendors for administrative services under 

17 contract with the managed care entity. 

18 ‘‘(G) RESERVE FUND CONTRIBUTIONS.— 

19 Contributions that the managed care entity has 

20 made to its reserve fund under such contract. 

21 ‘‘(H) REINSURANCE.—Data on the amount 

22 of reinsurance or transfer of risk that the man23 aged care entity has obtained with respect to 

24 the risk assumed by such entity under such 

25 contract. 


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1 ‘‘(I) CHARITABLE CONTRIBUTIONS AND

2 DONATIONS.—Contributions and donations that 

3 the managed care entity has made to govern4 ment or non-profit entities, the identity of such 

5 government or non-profit entities, and the 

6 amount of the contributions and donations 

7 made to each such entity. 

8 ‘‘(6) BIANNUAL PERFORMANCE-COMPLIANCE

9 AUDIT.—A biannual audit under this paragraph 

10 (4)(A)(ii), with respect to a managed care entity 

11 with a contract under section 1903(m) in a State, is 

12 an audit of the performance of such managed care 

13 entity under such contract (including with respect to 

14 the performance of risk assessment under the con15 tract) and the compliance of such managed care en16 tity, during the period covered by the audit, with— 

17 ‘‘(A) the terms of the contract; and 

18 ‘‘(B) applicable State and Federal laws, 

19 regulations, and guidance, including provisions 

20 of such laws, regulations, and guidance related 

21 to allowable costs under such contracts. 

22 ‘‘(7) REPORTING AND PUBLIC AVAILABILITY OF

23 AUDIT RESULTS.— 

24 ‘‘(A) NOTICE AND OPPORTUNITY FOR COM25 MENT.— 


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1 ‘‘(i) IN GENERAL.—With respect to an 

2 audit of a managed care entity conducted 

3 by an independent auditor under this sub4 section, such auditor shall— 

5 ‘‘(I) submit a report on the re6 sults of the audit to the managed care 

7 entity; and 

8 ‘‘(II) provide the managed care 

9 entity with the opportunity to submit 

10 comments on such audit to the audi11 tor during a 30-day period. 

12 ‘‘(ii) REVIEW OF COMMENTS AND RE13 VISION OF REPORT.—The independent 

14 auditor shall review the comments sub15 mitted under clause (i)(II) and may revise 

16 such report based on such comments. 

17 ‘‘(B) PUBLIC REPORT.— 

18 ‘‘(i) IN GENERAL.—Not later than 45 

19 days after the end of the 30-day comment 

20 period provided under subparagraph 

21 (A)(i)(II), the independent auditor shall 

22 submit to the Secretary, the State, and the 

23 managed care entity a report containing 

24 the results of such audit (including, in the 

25 case of an annual financial audit under 


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1 paragraph (4)(A)(i), the information de2 scribed in paragraph (5)(D)), any com3 ments received under subparagraph 

4 (A)(i)(II), and an executive summary of 

5 the audit report. The Secretary for good 

6 cause may extend by not more than 30 

7 days the deadline for submitting a report 

8 under the previous sentence. 

9 ‘‘(ii) POSTING ON PUBLIC WEB

10 SITE.—Subject to subparagraph (C), not 

11 later than 30 days after the date that the 

12 State receives a report under clause (i), the 

13 State shall post such report (including the 

14 executive summary of the report) on a Web 

15 site maintained by the State in connection 

16 with administration of this title and avail17 able to the public. 

18 ‘‘(C) PRIVACY AND CONFIDENTIALITY PRO19 TECTION.— 

20 ‘‘(i) PATIENT PROTECTIONS.—Noth21 ing in this subsection shall be construed as 

22 modifying the application of the HIPAA 

23 privacy regulations (as defined in section 

24 1180(b)(3)). 


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1 ‘‘(ii) PROTECTION OF CERTAIN PRO2 PRIETARY INFORMATION.—Nothing in this 

3 subsection shall be construed as author4 izing the public disclosure of the payment 

5 rates that a managed care entity uses to 

6 pay any health care provider or the meth7 odology that the managed care entity uses 

8 to develop such rates. 

9 ‘‘(iii) PROTECTION OF ENCOUNTER

10 DATA.—Subject to clause (i), an inde11 pendent auditor, when submitting a report 

12 under subparagraph (A), may submit en13 counter data to a State. An independent 

14 auditor, or a State, shall not submit to the 

15 Federal Government any encounter data 

16 that are collected for purposes of the au17 dits under this subsection. 

18 ‘‘(D) WITHHOLDING OF PAYMENT FOR

19 FAILURE TO REPORT.— 

20 ‘‘(i) IN GENERAL.—If a report re21 quired under this paragraph is not sub22 mitted to the Secretary as required under 

23 subparagraph (B)(i) by an independent 

24 auditor with respect to a managed care en25 tity in a State, the Secretary shall withVerDate Mar 15 2010 03:55 Jan 11, 2013 Jkt 029200 PO 00000 Frm 00012 Fmt 6652 Sfmt 6201 E:\BILLS\H162.IH H162

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1 hold, by the withholding percentage under 

2 clause (ii), the payment to the State under 

3 section 1903(a) for expenditures under a 

4 contract under section 1903(m) for the 

5 managed care entity for the period during 

6 which the report is due but not submitted. 

7 ‘‘(ii) WITHHOLDING PERCENTAGE.— 

8 The withholding percentage specified in 

9 this clause is— 

10 ‘‘(I) 5 percentage points; plus 

11 ‘‘(II) if the failure to report con12 tinued beyond 30 days after the date 

13 on which such report was due under 

14 subparagraph (B)(i), 5 additional per15 centage points for each subsequent 

16 30-day period until such report is sub17 mitted. 

18 ‘‘(iii) RESTORATION OF PAYMENT.— 

19 Any amounts withheld under this subpara20 graph due to the failure to submit a report 

21 shall be paid to a State not later than 10 

22 days after the date such report is sub23 mitted. 

24 ‘‘(8) RESPONSE TO DEFICIENCIES.— 


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1 ‘‘(A) REPORT.—If a report submitted 

2 under paragraph (7) indicates a deficiency with 

3 respect to the financial reporting, performance, 

4 or compliance (as applicable) with respect to a 

5 managed care entity with a contract under sec6 tion 1903(m) with a State, not later than 30 

7 days after the date of submission of such report 

8 the State shall submit to the Secretary (and 

9 post on the Web site referred to in paragraph 

10 (7)(B)(ii)) documentation of any action that the 

11 State has taken or intends to take in response 

12 to a reported deficiency. Such documentation 

13 shall include documentation of any of the fol14 lowing: 

15 ‘‘(i) Adjustments to the terms of new 

16 or renewed contracts with such managed 

17 care entity. 

18 ‘‘(ii) A corrective action plan entered 

19 into by the managed care entity with such 

20 State. 

21 ‘‘(iii) Any intermediate sanction under 

22 subsection (e) against the managed care 

23 entity. 

24 ‘‘(iv) Termination of the contract with 

25 the managed care entity. 


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1 ‘‘(B) OIG REPORT TO CONGRESS.—The 

2 Secretary, acting through the Inspector General 

3 in the Department of Health and Human Serv4 ices, shall annually submit to Congress and 

5 make available to the public a report on the au6 dits conducted under this subsection and the re7 sponses of States to reports of deficiencies in 

8 such audits. Such report shall contain such rec9 ommendations for changes in law or regulation 

10 as may be appropriate to ensure the prudent 

11 expenditure of funds for items and services fur12 nished through managed care entities. 

13 ‘‘(9) ACCESS TO INFORMATION REQUIRED

14 UNDER CONTRACT; SANCTIONS FOR MISREPRESEN15 TATION OR FALSIFICATION OF RECORDS.— 

16 ‘‘(A) ACCESS.—If a State enters into or 

17 renews a contract under section 1903(m) after 

18 the date of the enactment of the Medicaid In19 tegrity Act of 2013, such contract shall provide 

20 that the managed care entity, as a condition of 

21 receiving payment under such contract, shall 

22 provide the independent auditor with access to 

23 all information necessary for purposes of the 

24 audits under paragraph (4). 


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1 ‘‘(B) SANCTIONS FOR MISREPRESENTA2 TION OR FALSIFICATION.—The misrepresenta3 tion or falsification of information that is fur4 nished for purposes of such an audit shall be 

5 subject to a civil monetary penalty under sub6 paragraph (B)(i) of section 1903(m)(5) in the 

7 same manner as a misrepresentation or fal8 sification described in subparagraph (A)(iv)(I) 

9 of such section. 

10 ‘‘(10) APPLICATION TO WAIVER STATES.—In 

11 the case of any State which is providing medical as12 sistance to its residents under a waiver granted 

13 under section 1115, the Secretary shall require the 

14 State to meet the requirements of this subsection 

15 and subsection (j) in the same manner as the State 

16 would be required to meet such requirement if the 

17 State had in effect a plan approved under this title. 

18 ‘‘(11) REDUCING DUPLICATE AUDITS.—Not19 withstanding any other provision of this title, insofar 

20 as the Secretary determines that the performance of 

21 an audit under this subsection duplicates the per22 formance of an audit required under another provi23 sion of this title, the completion of the audit under 

24 this subsection shall satisfy such requirement. 


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1 ‘‘(12) RESERVATION OF STATE POWERS.— 

2 Nothing in this subsection shall be construed to limit 

3 the power of a State, including the power of a State 

4 to pursue civil and criminal penalties under State 

5 law against any individual or entity that misuses, or 

6 engages in fraud or abuse related to, the funds pro7 vided to a State under this title. 

8 ‘‘(13) CONSTRUCTION.—Nothing in this sub9 section shall be construed to prevent the Secretary 

10 from taking any action, including disallowances of 

11 payment, with respect to violations of this title re12 lated to a contract with a managed care entity. 

13 ‘‘(14) DEFINITIONS.— 

14 ‘‘(A) AFFILIATE OF THE MANAGED CARE

15 ENTITY.—For purposes of this subsection and 

16 subsection (j), the term ‘affiliate of the man17 aged care entity’ means an entity that, to a sig18 nificant extent, is associated or affiliated with, 

19 or has control of or is controlled by, the man20 aged care entity or that is related to such man21 aged care entity by common ownership. For 

22 purposes of this definition— 

23 ‘‘(i) common ownership exists if an in24 dividual or individuals possess significant 

25 ownership or equity in the managed care 


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1 entity and the affiliate of the managed 

2 care entity; and 

3 ‘‘(ii) control exists if an entity has the 

4 power, directly or indirectly, to signifi5 cantly influence or direct the actions or 

6 policies of another entity. 

7 ‘‘(B) CONTRACT YEAR.—For purposes of 

8 this subsection, the term ‘contract year’ means, 

9 with respect to a managed care entity and a 

10 State, the 12-month period that begins on the 

11 effective date of a contract under section 

12 1903(m) between the managed care entity and 

13 the State, and each subsequent 12-month pe14 riod while such contract is effective.’’. 

15 (b) INDEPENDENT ACTUARY.—Section 1932 of the 

16 Social Security Act (42 U.S.C. 1396u–2), as amended by 

17 section 2, is further amended by adding at the end the 

18 following: 

19 ‘‘(j) INDEPENDENT ACTUARY.—As a condition of re20 ceiving a payment under section 1903(a) with respect to 

21 expenditures under a contract between a State and a man22 aged care entity under section 1903(m), a State may not 

23 enter into an agreement with an entity (referred to in this 

24 subsection as an ‘actuary’) to provide actuarial services 


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1 related to the State’s administration of such contract un2 less the following requirements are met: 

3 ‘‘(1) NO ACTUARIAL SERVICES OR FINANCIAL

4 RELATIONSHIP FOR CONTRACT PERIOD.—The actu5 ary has not provided actuarial services to the man6 aged care entity for, or otherwise had any financial 

7 relationship with the managed care entity during, 

8 any period of the contract (between such managed 

9 care entity and the State) with respect to which the 

10 actuarial services under the agreement (between the 

11 actuary and the State) are to be provided. 

12 ‘‘(2) NO FINANCIAL RELATIONSHIP DURING

13 TERM OF AGREEMENT WITH STATE.—The actuary 

14 agrees not to have such a financial relationship with 

15 the managed care entity or affiliate during any part 

16 of the period of the agreement (between the State 

17 and the actuary). 

18 ‘‘(3) SPECIAL RULE FOR FIRST CONTRACT

19 YEAR.—For the first contract year in which this 

20 subsection applies, the actuary has not had such a 

21 financial relationship with the managed care entity 

22 or affiliate during the 2-year period ending on the 

23 date the actuary and State enter into an agreement 

24 subject to this subsection.’’. 


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1 (c) TRANSITIONAL FINANCIAL INCENTIVES TO

2 STATES.—Section 1903(a)(3) of the Social Security Act 

3 (42 U.S.C. 1396b(a)(3)) is amended by inserting after 

4 subparagraph (F) the following: 

5 ‘‘(G) 75 percent of so much of the sums 

6 expended as are attributable to expenditures for 

7 the first 3 biannual financial audits conducted 

8 under section 1932(i)(4)(A)(i) after the date of 

9 enactment of the Medicaid Integrity Act of 

10 2013, and for the first 2 biannual performance11 compliance audits conducted under section 

12 1932(i)(4)(A)(ii) after such date; plus’’. 

Æ 


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