MEDICAID AND CHIP

Increased Funding in 

U.S. Territories Merits 

Improved Program 

Integrity Efforts

Report to Congressional Requesters

April 2016

GAO-16-324

United States Government Accountability Office
United States Government Accountability Office

Highlights of GAO-16-324, a report to 

congressional requesters

April 2016

MEDICAID AND CHIP 

Increased Funding in U.S. Territories Merits Improved 

Program Integrity Efforts

Why GAO Did This Study

Notable differences exist in the funding

and operation of Medicaid and CHIP—

joint federal-state health financing 

programs for low-income and medically 

needy individuals—in the territories

versus the states. For example, the 

territories are subject to certain funding 

restrictions, such as capped annual 

federal funding, that are not applicable 

to the states. Further, certain federal 

requirements regarding eligibility, 

benefits, and program integrity do not 

apply to the territories’ programs, and 

certain otherwise applicable 

requirements have not been enforced.

In recent years, various laws—such as 

PPACA—have increased funding for 

Medicaid and CHIP in the territories.

This report examines (1) eligibility and 

benefit characteristics of the territories’

Medicaid and CHIP programs, (2) 

Medicaid and CHIP spending in the 

territories, and (3) Medicaid and CHIP 

program integrity efforts in the 

territories. GAO reviewed laws and 

regulations, data on five territories’ 

Medicaid and CHIP spending, and 

federal internal control standards. GAO 

also interviewed CMS and territory 

Medicaid officials. 

What GAO Recommends

GAO recommends that the Acting 

Administrator of CMS examine and 

select from a broad array of activities—

such as establishing program oversight 

mechanisms, assisting in improving

program information, and conducting 

program assessments—to develop a 

cost-effective approach to protecting 

territories’ Medicaid programs from 

fraud, waste, and abuse. HHS 

concurred with GAO’s 

recommendation.

What GAO Found

Eligibility and benefits for Medicaid and the state Children’s Health Insurance 

Program (CHIP) in five U.S. territories—American Samoa, Commonwealth of the 

Northern Mariana Islands (CNMI), Guam, Puerto Rico and the U. S. Virgin 

Islands—differ from one another and from the states, generally reflecting the

territories’ unique circumstances. For example, Guam is the only territory that 

covers all 17 mandatory Medicaid benefits, while American Samoa and Puerto 

Rico cover 10 of the 17 benefits. Officials from the territories that do not cover all 

mandatory benefits cited multiple reasons for not doing so, including limited 

funding and a lack of infrastructure, and, in some cases, exercised available 

flexibility to exclude certain benefits.

Temporary increases in federal funding have enabled the territories to increase 

Medicaid and CHIP spending. Unlike the states, whose Medicaid funding is not 

subject to a capped allotment—provided they contribute their share—territories 

are subject to a capped allotment, and historically have exhausted available 

federal Medicaid and CHIP funds each year. Most notably, the Patient Protection 

and Affordable Care Act (PPACA) provided the territories an additional $7.3 

billion through at least fiscal year 2019. Officials in four territories cited positive 

effects of the additional funding, such as the ability to enroll more providers and 

cover more services; however, some officials also expressed concerns about the

temporary nature of the funding, noting that they may have to make program cuts 

once the funding is exhausted—and that future shortfalls remain a concern. 

Despite temporary increases in Medicaid funding, GAO found little assurance 

that territory Medicaid funds are protected from fraud, waste, and abuse. 

• Program oversight mechanisms: Only Puerto Rico has developed a program

integrity unit, which, although not required, is tasked with identifying and

recovering improper payments and is a management best practice.

Additionally, no territory has established a Medicaid Fraud Control Unit—

which identify and prosecute Medicaid fraud—or received an exemption from

doing so, as required by federal law.

• Program information: Territories lack detail on the types and volume of

services they provide, contrary to federal reporting requirements, resulting in

limited information on how territories spend their federal Medicaid funding.

Until recently, the Centers for Medicare & Medicaid Services (CMS), within

the Department of Health and Human Services (HHS), exempted the

territories from the requirement to implement a claims processing and

information retrieval system with program integrity capabilities, although the

U.S. Virgin Islands has established a partnership to use such a system.

• Program assessments: CMS has performed assessments on Medicaid

program integrity effectiveness and compliance only for Puerto Rico.

Although not required, such assessments have been conducted on all states.

CMS does provide technical assistance, with the activities of CMS officials 

varying across the territories. Officials from CMS noted that funding for program 

integrity would count against the territories’ capped allotments. Nonetheless, 

such limited efforts by the territories and federal government are inconsistent with 

federal internal control standards regarding identifying and responding to risks, 

particularly in light of increased federal Medicaid spending in the territories as a 

result of PPACA.

View GAO-16-324. For more information, 

contact Carolyn L. Yocom at (202) 512-7114

or yocomc@gao.gov. 
Page i GAO-16-324 Medicaid and U.S. Territories

Letter 1

Background 5

Medicaid and CHIP Eligibility and Benefits Reflect the Territories’ 

Unique Circumstances 10

Temporary Funding Has Enabled the Territories to Increase 

Medicaid and CHIP Spending, although Future Shortfalls 

Remain a Concern 16

Limited Territory and Federal Oversight Efforts Provide Little 

Assurance of Medicaid and CHIP Program Integrity 19

Conclusions 27

Recommendation for Executive Action 28

Agency Comments 28

Appendix I Comments from the Department of Health and Human Services 30

Appendix II Comments from the Department of the Interior 33

Appendix III GAO Contact and Staff Acknowledgements 35

Tables

Table 1: Comparison of Eligibility Standards, and Enrollment for 

U.S. Territory Medicaid and State Children’s Health 

Insurance Program (CHIP), Fiscal Year 2015 11

Table 2: Federal and U.S. Territory Medicaid and CHIP Spending, 

and Average Annual Percentage Change Between Fiscal 

Years 2010 and 2014 17

Table 3: Patient Protection and Affordable Care Act (PPACA) 

Allotments and Expenditures in Five U.S. Territories 

through Fiscal Year 2015 19

Table 4: Number of Covered Mandatory and Selected Optional 

Medicaid Benefits with Reported Service-Level 

Expenditures for Four U.S. Territories, Fiscal Year 2014 23

Figures

Figure 1: Mandatory Medicaid Benefits Covered by U.S. 

Territories, Fiscal Year 2015 13

Contents
Page ii GAO-16-324 Medicaid and U.S. Territories

Figure 2: Selected Optional Medicaid Benefits Covered by U.S. 

Territories, Fiscal Year 2015 15

Abbreviations

ASES Administración de Seguros de Salud de Puerto 

Rico

CHIP State Children’s Health Insurance Program

CMS Centers for Medicare & Medicaid Services

CNMI Commonwealth of the Northern Mariana Islands

EPSDT Early and Periodic Screening, Diagnostic, and 

Treatment

FFS fee-for-service

FMAP Federal Medical Assistance Percentage

FPL federal poverty level

HHS Department of Health and Human Services

HHS-OIG Department of Health and Human Services’ Office 

of Inspector General 

HIT health information technology

LPL local poverty level

MBES/CBES Medicaid Budget and Expenditure System/ State 

Children’s Health Insurance Budget and 

Expenditure System

MCO managed care organization

MFCU Medicaid Fraud Control Unit

MMIS Medicaid Management Information System

OMB Office of Management and Budget

PERM Payment Error Rate Measurement

PPACA Patient Protection and Affordable Care Act 

RAC recovery audit contractor

Recovery Act American Recovery and Reinvestment Act of 2009

This is a work of the U.S. government and is not subject to copyright protection in the 

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Page 1 GAO-16-324 Medicaid and U.S. Territories

441 G St. N.W.

Washington, DC 20548

April 8, 2016

The Honorable Orrin G. Hatch

Chairman

Committee on Finance

United States Senate

The Honorable Lamar Alexander

Chairman

Committee on Health, Education, Labor, and Pensions

United States Senate

The Honorable Fred Upton

Chairman

Committee on Energy and Commerce

House of Representatives

The Honorable Joseph R. Pitts

Chairman

Subcommittee on Health

Committee on Energy and Commerce

House of Representatives

Five territories of the United States receive federal funding through 

Medicaid and the state Children’s Health Insurance Program (CHIP)—

joint federal-state health financing programs for low-income and medically 

needy individuals.1 The five U.S. territories are American Samoa, the 

Commonwealth of the Northern Mariana Islands (CNMI), Guam, Puerto 

Rico, and the U.S. Virgin Islands. Notable differences exist in the funding 

and operation of the territories’ Medicaid and CHIP programs as 

compared with the states. For example, federal law has historically 

established the federal matching rate for Medicaid expenditures by the 

territories at the lowest rate available to states, while matching rates for 

 1

The Centers for Medicare & Medicaid Services (CMS) within the Department of Health 

and Human Services (HHS) and states or territories jointly administer the Medicaid 

program, established in 1965, which finances health care for low-income and medically 

needy individuals, and the CHIP program, established in 1997, which finances health 

insurance for children whose household income exceeds limits for Medicaid eligibility.

Letter
Page 2 GAO-16-324 Medicaid and U.S. Territories

the states are determined each year based on a formula that takes into 

account variations in their per capita incomes. Furthermore, federal 

Medicaid spending in the territories is subject to an annual cap that does 

not apply to the states.2 However, many federal Medicaid requirements 

that apply to states, including certain requirements related to eligibility 

and program integrity, do not apply to Medicaid in the territories.3 In some 

cases, CMS has not enforced applicable requirements in the territories—

such as coverage of certain mandatory benefits and establishment of 

certain program integrity efforts.4

In recent years, various laws have increased funding for Medicaid and 

CHIP in the territories. For example, the Patient Protection and Affordable 

Care Act (PPACA) increased the territories’ capped allotments by $6.3 

billion and provided an additional $1 billion in Medicaid funding outside of 

these annual allotments.5 PPACA has also increased the territories’ 

federal matching rates for Medicaid and CHIP.6 Given these recent 

increases in program funding, members of Congress have expressed 

interest in understanding the role of Medicaid and CHIP in the territories 

and how these programs operate.

You asked us to provide information on the characteristics of the 

territories’ Medicaid and CHIP programs, and oversight of these 

programs. In this report, we

 2

GAO previously reported that all territories typically reached their annual Medicaid cap 

prior to the end of the fiscal year and that federal Medicaid per capita spending levels in 

the territories were significantly lower than in the states. See GAO, U.S. Insular Areas: 

Multiple Factors Affect Federal Health Care Funding, GAO-06-75 (Washington, D.C.: Oct. 

17, 2005).

3

Program integrity efforts refer to oversight activities that seek to protect Medicaid and 

CHIP from fraud, waste, and abuse.

4

American Samoa and CNMI operate their Medicaid programs under broad waiver 

authority under section 1902(j) of the Social Security Act, and are not subject to certain 

requirements that apply to Guam, Puerto Rico, and the U.S. Virgin Islands. See 42 

U.S.C. § 1396a(j). 

5

Pub. L. No. 111-148, §§ 1323, 2005(a), 124 Stat. 119, 283 (2010), as amended by the 

Health Care and Education Reconciliation Act of 2010, Pub. L. No. 111-152, § 1204(a)-

(b), 124 Stat. 1029, 1055 (2010) (hereafter, “HCERA”). Hereafter, references to PPACA 

include any amendments made by HCERA.

6

PPACA, § 2005(c), 124 Stat. at 284. 
Page 3 GAO-16-324 Medicaid and U.S. Territories

1. describe the eligibility and benefit characteristics of the territories’ 

Medicaid and CHIP programs;

2. describe Medicaid and CHIP spending in the territories; and

3. determine the extent to which Medicaid and CHIP program integrity 

efforts occur in the territories.

To describe the eligibility and benefit characteristics of territories’ 

Medicaid and CHIP programs, we reviewed relevant laws, regulations, 

and policies. We also interviewed Centers for Medicare & Medicaid 

Services (CMS) officials and officials from all five territories regarding the 

rationale for any variation from federal requirements applicable to the 

states, including any recent changes in eligibility or benefits. From these 

officials, we also obtained information about the extent to which territories 

provided all mandatory Medicaid benefits and selected optional Medicaid 

benefits.7 While all of the territories participate in CHIP, Puerto Rico is the 

only territory that has used CHIP funding to expand Medicaid to cover 

children in families with incomes above Medicaid eligibility. The remaining 

territories use their CHIP funds to pay for services provided to children up 

to the age of 19 in their Medicaid programs.8 Therefore, because each of 

the territories operates a CHIP-funded Medicaid expansion or otherwise 

uses their CHIP funds to pay for Medicaid services, CHIP benefits are 

synonymous with Medicaid benefits in all five territories, as are eligibility 

levels with the exception of Puerto Rico, where eligibility levels are 

higher.

9

To describe Medicaid and CHIP spending in the territories, we reviewed 

data we requested from CMS, including CMS-64 data, which provided 

information on Medicaid and CHIP spending in the territories from federal 

 7

We focused our review on optional benefits identified during our prior work examining 

federal health care funding in the territories. See GAO-06-75. 

8

American Samoa, CNMI, Guam, and the U.S. Virgin Islands use their CHIP funds in this 

manner. 

9

We also analyzed the 2010 Decennial Census data for American Samoa, CNMI, Guam, 

and the U.S. Virgin Islands, and 2010 American Community Survey (ACS) Census data 

for Puerto Rico, to identify the sources of insurance coverage for territory residents. While 

more recent ACS data are available, 2010 is the most recent year for which Census data 

on health insurance status were available from all territories. The results of these analyses 

were often inconsistent with reliable information we had obtained on insurance coverage 

from other data sources, including interviews with CMS and territory officials, and were 

therefore excluded from this report. 
Page 4 GAO-16-324 Medicaid and U.S. Territories

funding sources for fiscal years 2010 through 2014, the most recently 

available complete year of data at the time of our analysis.10 Spending 

data from this time period allowed us to examine spending both before 

and after the additional PPACA funding became available. In addition, we 

interviewed CMS officials regarding territories’ expenditure reporting and 

conducted extensive follow-up with CMS officials to clarify data gaps and 

inconsistencies we identified. We also interviewed CMS and territory 

officials to determine how the various federal funding sources have 

affected the territories’ programs. To assess the reliability of CMS-64 

data, we reviewed the data to identify missing information and 

discrepancies, and interviewed CMS and territory officials regarding the 

processes for collecting and verifying the data. Based on these efforts, we 

determined that these data sources were sufficiently reliable for the 

purposes of this report.

To determine the extent to which Medicaid and CHIP program integrity 

efforts occur in the territories, we reviewed federal laws, regulations, and 

policies regarding Medicaid program integrity requirements, and 

compared the efforts with federal internal control standards.11 Because 

there are no separate CHIP programs in the territories, our review of 

program integrity efforts is limited to territories’ Medicaid programs. In 

addition, we interviewed territory officials about their program integrity 

efforts, including those undertaken in coordination with federal agencies. 

We also interviewed CMS and territory officials, including officials from 

the regional offices with primary responsibility for overseeing the 

territories, about reasons for any incomplete reporting; applicable federal 

program integrity requirements; their activities regarding improper 

payments; and the rationale for any variation from these requirements. 

We also examined CMS-64 expenditure data to determine the extent to 

 10States and territories submit enrollment and expenditure data to CMS by means of the 

Quarterly Medicaid Statement of Expenditures for the Medical Assistance Program—also 

known as the CMS-64—within the Medicaid Budget and Expenditure System/State 

Children’s Health Insurance Budget and Expenditure System (MBES/CBES). These 

expenditure data may be subject to adjustment by the territories or by CMS, and may not 

have been reviewed by CMS. Territories’ CMS-64 expenditure data was provided by CMS 

on October 8, 2015.

11See GAO, Standards for Internal Control in the Federal Government, GAO-14-704G

(Washington, D.C.; Sept. 10, 2014); and Standards for Internal Control in the Federal 

Government, GAO/AIMD-00-21.3.1 (Washington, D.C.; Nov. 1, 1999). Internal control is a 

process effected by an entity’s oversight body, management, and other personnel that 

provides reasonable assurance that the objectives of an entity will be achieved.
Page 5 GAO-16-324 Medicaid and U.S. Territories

which territories reported service-level spending for covered benefits.12

We also asked CMS officials about federal resources available to assist 

territories in their program integrity efforts and about other federal efforts 

that could provide insight on program integrity. To this end, we also 

reviewed the Office of Management and Budget’s (OMB) A-133 single 

audits for each territory for fiscal year 2013 to identify findings, if any, 

related to Medicaid oversight including internal controls and compliance.13

We also contacted HHS’s Office of Inspector General (HHS-OIG) 

regarding any relevant program integrity efforts in the territories.14

We conducted this performance audit from May 2015 to April 2016 in 

accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives.

American Samoa, CNMI, Guam, Puerto Rico, and the U.S. Virgin Islands 

are five territories of the United States. With the exception of Puerto Rico, 

 12We extracted service-level expenditure data from the CMS-64 net expenditures financial 

management report from MBES/CBES on October 13, 2015. CHIP expenditures for 

covered Medicaid benefits were not included in this analysis because they were often 

grouped into larger categories with other services and could not be isolated.

13The Single Audit Act requires states, territories, local governments, and nonprofit 

organizations expending more than $500,000 in federal awards in a year to obtain an 

audit in accordance with requirements set forth in the act. 31 U.S.C. §§ 7501-7507. Under 

the OMB Uniform Guidance, this threshold increased to $750,000 for audits of fiscal years 

beginning on or after December 26, 2014. See 2 C.F.R. § 200.501(a). A Single Audit 

consists of (1) an audit and opinions on the fair presentation of the financial statements 

and the Schedule of Expenditures of Federal Awards; (2) gaining an understanding of and 

testing internal control over financial reporting, and the entity’s compliance with laws, 

regulations, and contract or grant provisions that have a direct and material effect on 

certain federal programs (i.e., the program requirements); and (3) an audit and an opinion 

on compliance with applicable program requirements for certain federal programs. 

14According to HHS-OIG’s 2015 work plan, it intended to determine whether each of the 

territories had sought an exemption regarding a specific program integrity requirement. As 

of September 2015, HHS-OIG officials told us they did not have an estimated date for 

beginning this work. Department of Health and Human Services, Office of Inspector 

General. HHS OIG Work Plan, Fiscal Year 2015 (Washington, D.C.: Fiscal Year 2015).

Background
Page 6 GAO-16-324 Medicaid and U.S. Territories

the populations in the territories are small relative to the states, and are 

generally poorer.15

Within broad federal guidelines and under federally approved plans, 

territories have some discretion in setting Medicaid and CHIP eligibility 

standards and provider payment rates; determining the amount, scope, 

and duration of covered benefits; and developing their own administrative 

structures. For example, similar to the states, unless they have obtained a 

waiver, the territories’ Medicaid programs are required to cover certain 

benefits—known as mandatory Medicaid benefits—and can choose to 

cover additional benefits, known as optional benefits.16 While the states 

also have similar discretion, the territories have been afforded greater 

flexibility, including the ability to set their own income eligibility levels for 

certain populations and determine income eligibility using a locally 

established poverty level instead of the federal poverty level (FPL).17 Also 

like the states, territories can operate their CHIP programs as a separate 

program, include CHIP-eligible children in their Medicaid program, or use 

a combination of the two approaches.

Significant differences exist in how Medicaid and, to a lesser extent, CHIP 

are funded in the territories as compared with the states. For example, 

the federal matching rate for states’ Medicaid programs, the Federal 

Medical Assistance Percentage (FMAP), is based on a state’s per capita 

income in relation to the national per capita income, with poorer states 

receiving higher federal matching rates than wealthier states. In contrast, 

the Medicaid FMAP for the territories does not recognize their capacity to 

 15For example, in 2014, the median household income in Puerto Rico ($18,928) was lower 

than the median income in any U.S. state ($39,680). See U.S. Census Bureau, “Median 

Household Income (in 2014 inflation-adjusted dollars),” 2014 American Community 

Survey, accessed January 8, 2016, 

16American Samoa and CNMI operate their Medicaid programs under broad waiver 

authority under section 1902(j) of the Social Security Act. See 42 U.S.C. § 1396a(j). Under 

this provision, the Secretary may waive or modify any Medicaid requirement except the 

following: the statutory cap on federal Medicaid funding for the territories under section 

1108 of the act; the statutory Federal Medical Assistance Percentage (FMAP), which is 

the portion the federal government pays for Medicaid; and the requirement that federal 

Medicaid funds are only available for Medicaid-covered services under the act.

17For example, while state Medicaid programs are required to cover women, infants, and 

children under 6 with incomes up to 133 percent of the federal poverty level, the territories 

may adopt a lower income eligibility threshold for these populations. See 42 U.S.C. § 

1396a(l)(4)(B).
Page 7 GAO-16-324 Medicaid and U.S. Territories

pay for program expenses. Although PPACA increased the territories’ 

FMAP from 50 to 55 percent, this percentage is fixed at the lower end of 

the range available to states.

18 For the CHIP program, the federal 

government matches states’ and territories’ program spending at a rate 

higher than Medicaid, known as the enhanced FMAP. However, 

territories’ matching rate for CHIP spending is similarly fixed at the lower 

end of the range available to the states.19 Additionally, federal Medicaid 

funding in states is not subject to a limit, provided the states contribute 

their share of program expenditures for services provided. In contrast, 

federal Medicaid funding in each territory is subject to a statutory cap. In 

general, once their Medicaid and CHIP funding is exhausted, territories 

must assume the full costs of their programs.20 These funding differences, 

along with differences in the costs of health care in the territories 

compared with the states, have contributed to lower federal and territory 

Medicaid program expenditures in the territories. For example, in the 

aggregate, total Medicaid expenditures in all five territories comprised 

less than one half of one percent of the total national Medicaid 

expenditures in fiscal year 2014. However, when examined separately, 

Puerto Rico had Medicaid enrollment and expenditures similar to some 

states. Specifically, in fiscal year 2014, Puerto Rico ranked 11th in 

Medicaid enrollment nationally and ranked 42nd in total Medicaid 

expenditures. Like the states, territories must report their quarterly 

program expenditures for Medicaid and CHIP on the CMS-64 no later 

than 30 days after the end of each quarter, which is used to reimburse 

them for their federal share of these expenditures.21

 18State regular Medicaid FMAPs range from 50 percent to 83 percent, and are determined 

annually based on a formula. In contrast, the Medicaid FMAP for the territories is 

statutorily set at 55 percent. Prior to July 1, 2011, the Medicaid FMAP for the territories 

was set at 50 percent.

19CHIP-enhanced FMAPs for the states have historically ranged from 65 percent to 85 

percent, with the CHIP-enhanced FMAP for the territories set at 65 percent prior to July 1, 

2011, and 68.5 percent effective July 1, 2011.

20Certain Medicaid expenditures in the territories are not subject to the capped Medicaid 

allotment. For example, expenditures for incentive payments to eligible Medicaid providers 

to adopt interoperable health information technology and qualified electronic health 

records and administrative costs relating to the provision of these payments are not 

subject to this cap. With respect to CHIP funding, the difference between states and 

territories is less pronounced, primarily because federal CHIP funding in both the states 

and territories is subject to an annual cap. 

21See 42 C.F.R. § 430.30(c)(2015).
Page 8 GAO-16-324 Medicaid and U.S. Territories

In recent years, legislation to provide temporary increases in Medicaid 

and CHIP funding has been enacted. For example, the American 

Recovery and Reinvestment Act of 2009 (Recovery Act) provided the 

territories with a 30 percent increase in their Medicaid caps from fiscal 

year 2009 through the first quarter of fiscal year 2011, as well as federal 

matching funds to encourage Medicaid providers to undertake health 

information technology (HIT) initiatives.22 Most recently, PPACA 

appropriated $7.3 billion in additional Medicaid funding to the territories, 

the majority of which is available through fiscal year 2019. According to 

CMS officials, this funding can be used once territories expend their 

Medicaid and CHIP funding each year. PPACA also permanently 

increased territories’ Medicaid FMAPs and CHIP enhanced FMAPs to 55 

percent and 68.5 percent, respectively.23

Federal law generally requires state, territory, and federal entities to 

ensure program integrity by protecting the Medicaid and CHIP programs 

from fraud, waste, and abuse.24 Like the states, territories have primary 

responsibility for such program integrity because they enroll providers, 

 22Like the states, the territories are eligible for a 100 percent FMAP for incentive payments 

to providers to encourage adoption and use of certified electronic health record 

technology. Additionally, territories may qualify for a 90 percent FMAP for reasonable 

administrative expenses related to HIT planning and implementation activities, such as 

provider outreach and oversight. These federal matching funds are not subject to the 

annual caps on federal Medicaid spending in the territories.

23The additional PPACA funding was comprised of two separate allotments and is to be 

distributed among the territories based on each territory’s population as a proportion of 

overall territory population. PPACA provided $6.3 billion to the territories, which is 

available for expenditure from July 1, 2011, through September 30, 2019. PPACA 

provided another $1 billion to territories not establishing a health benefit exchange under 

the law. Because none of the territories opted to establish such an exchange, all of the 

territories are eligible for these funds, which are available for expenditure from January 1, 

2014, through December 31, 2019. The PPACA funding, which is in addition to the 

territories’ capped Medicaid allotment, is subject to the territories’ Medicaid FMAP.

PPACA made additional changes to the Medicaid FMAP and the CHIP enhanced FMAP. 

For example, under the law, all five territories were eligible for a 2.2 percent FMAP 

increase —from 55 percent to 57.2 percent—for calendar years 2014 and 2015, because 

they had expanded coverage to certain childless adults prior to the enactment of PPACA. 

With respect to CHIP, PPACA provides a temporary 23 percentage point increase in 

states’ and territories’ enhanced FMAPs from October 1, 2015, through September 30, 

2019. During this period, the CHIP enhanced FMAPs for the states will range from 88 

percent to 100 percent, and the CHIP enhanced FMAP for the territories will generally be 

set at 91.5 percent.

24See, e.g., 42 U.S.C. §§ 1396a(a)(69), 1396u-6. 
Page 9 GAO-16-324 Medicaid and U.S. Territories

establish payment policies, process claims, and pay for services 

furnished to beneficiaries.25 To execute this responsibility, territories may 

undertake a variety of efforts. For example, although not required, they 

can establish program integrity units, which are tasked with identifying 

and recovering improper payments. Territories, like the states, are also 

required to implement certain program integrity mechanisms or receive an 

exemption from CMS for doing so. For example, territories must establish 

Medicaid Fraud Control Units (MFCU), which are tasked with 

investigating Medicaid fraud and other health care law violations, or 

receive an exemption from CMS from establishing one.26 The territories 

are also required to implement a Medicaid Management Information 

System (MMIS), which is a claims processing and information retrieval 

system that includes capabilities for reporting claims data, enrollee 

encounter data, and conducting pre- and post-payment review.27 Such 

information can assist in identifying improper payments. Federal 

mechanisms are also available to assist in program oversight. For 

example, CMS can conduct comprehensive or focused program integrity 

reviews, which assess the effectiveness of state and territory program 

integrity efforts, including compliance with federal statutory and regulatory 

requirements. Further, through the Payment Error Rate Measurement 

(PERM) program, CMS requires states to estimate improper payments in 

the Medicaid and CHIP program to identify program vulnerabilities and 

actions to reduce improper payments; however, the agency has excluded 

the territories from this program.28 Additionally, OMB’s annual A-133 

single audits examine internal controls and compliance deficiencies in 

 25In Puerto Rico, managed care plans are responsible for enrolling providers.

26An exemption from the requirement to establish a MFCU is available if the state or 

territory can demonstrate to the satisfaction of the Secretary that the operation of a MFCU 

would not be cost effective because minimal fraud exists in the state’s or territory’s 

Medicaid program, and that beneficiaries in the state or territory will be protected from 

abuse and neglect without a MFCU. See 42 U.S.C § 1396a(a)(61).

27See 42 U.S.C § 1396b(r). CNMI and American Samoa have not implemented an MMIS, 

which is allowed under their section 1902(j) waivers.

28The PERM program was established in response to the Improper Payments Information 

Act of 2002. According to CMS, it has excluded the territories from the PERM program 

because funding for Medicaid and CHIP in the territories is “minimal,” is subject to a cap, 

and inclusion of improper payment estimates for the territories would not have an impact 

on the national error rate estimates for these programs. See 69 Fed. Reg. 52620, 52623 

(Aug. 27, 2014).
Page 10 GAO-16-324 Medicaid and U.S. Territories

certain federal programs, including Medicaid and CHIP, and can be a 

resource to inform program oversight.

Due to the flexibility territories have in administering their Medicaid and 

CHIP programs, the territories’ program eligibility and benefits not only 

reflect their unique circumstances, but also differ from one another and 

from the states. For example, a notable distinction among territories’ 

program eligibility is that Puerto Rico is the only territory that uses its 

CHIP funds to cover additional children in its Medicaid programs whose 

income levels exceed Medicaid eligibility levels. The other four territories 

use their CHIP funds to pay for services provided to children up to the 

age of 19 in their Medicaid programs. Additionally, Guam, Puerto Rico 

and the U.S. Virgin Islands base program eligibility on local poverty levels 

(LPL) that are more restrictive than federal standards, which has resulted 

in lower program enrollment than would otherwise be the case.29

Additionally, unlike the states and other territories, American Samoa does 

not determine eligibility for its Medicaid program on an individual basis. 

Instead, it presumes that all individuals with incomes at or below 200 

percent of the FPL are eligible.30 The different methods territories use to 

determine eligibility affect Medicaid enrollment in each territory, with the 

estimated percentage of territories’ populations enrolled in Medicaid in 

fiscal year 2015 ranging from about 17 percent in the U.S. Virgin Islands 

to 88 percent in American Samoa. (See table 1.)

 29The 2015 LPL for an individual in Puerto Rico and the U.S. Virgin Islands was $4,962

and $6,581, respectively, comparatively lower than the 2015 FPL, which was $11,770 for 

an individual. 

30American Samoa annually estimates the number of individuals with incomes below 200 

percent FPL, removing from this calculation ineligible qualified and non-qualified noncitizens who are not eligible for Medicaid, and adjusting to account for Medicare 

beneficiaries, to develop Medicaid and CHIP claiming percentages. These percentages 

are applied to all Medicaid- and CHIP-eligible services provided by the Lyndon B. Johnson 

Tropic Medical Center, American Samoa’s only Medicaid provider.

Medicaid and CHIP 

Eligibility and Benefits 

Reflect the Territories’ 

Unique 

Circumstances
Page 11 GAO-16-324 Medicaid and U.S. Territories

Table 1: Comparison of Eligibility Standards, and Enrollment for U.S. Territory Medicaid and State Children’s Health Insurance 

Program (CHIP), Fiscal Year 2015

American 

Samoa

Commonwealth of 

the Northern

Mariana Islands Guam Puerto Rico

U. S. Virgin 

Islands

Program Medicaid Medicaid Medicaid Medicaid CHIP Medicaid

Basis of income 

eligibility 

determination

At or below 200 

percent of the 

federal poverty 

level (FPL)

At or below 150 

percent of the 

Supplemental Security 

Income benefit 

amount

At or below 133 

percent of the 

local poverty level 

(LPL)

At or below 

133 percent of 

the LPLa

Greater than 133 

percent and 

below 266 

percent of the 

LPL

At or below 133 

percent of the 

LPLb

Maximum annual 

income amount 

for an individual $23,540 $13,194 $12,369 $6,600 $13,200

$8,753 and 

$11,770c

Number of 

enrolleesd 40,515 19,076 38,482 1,322,136 88,107 23,506

Estimated 

percentage of 

total population 

enrolled in 

program 88e 40 20 46f 17g

Source: GAO analysis of information from the U.S. territories and the Centers for Medicare & Medicaid Services (CMS) officials, CMS website, and Central Intelligence Agency World Factbook. | 

GAO-16-324

Notes: Puerto Rico is the only territory that elected to use CHIP funding to expand Medicaid to cover 

children in families with incomes above Medicaid eligibility. The remaining four territories use their 

CHIP funds to pay for services provided to children up to the age of 19 in their Medicaid programs. 

Therefore, we provide separate eligibility standards for Puerto Rico only.

Puerto Rico and the U. S. Virgin Islands extended Medicaid eligibility to non-elderly adults without 

children with incomes at or below 133 percent of the local poverty level (LPL) in January 2014 and 

June 2015, respectively. Given the timing of their expansions, Puerto Rico’s estimated percentage of 

total population enrolled in Medicaid likely reflects the expansion, while the estimated percentage in 

the U.S. Virgin Islands likely does not.

a

Children, parents, pregnant women, and other non-elderly adults with incomes at or below 133 

percent of the LPL are eligible for Medicaid. Puerto Rico also has a separate income eligibility 

determination process for aged and disabled individuals.

b

Children, parents, and pregnant women in the U.S. Virgin Islands with incomes at or below 133 

percent of the LPL are eligible for Medicaid; in contrast, residents who are aged and disabled must 

have incomes at or below 179 percent of the LPL to be eligible for the program.

c

These are the maximum annual income amounts for children, parents, and pregnant women (at or 

below 133 percent of the LPL), and aged and disabled individuals (at or below 179 percent of the 

LPL) in the U. S. Virgin Islands, respectively.

d

Dates for territory enrollment numbers vary. Specifically, enrollment data for American Samoa, 

CNMI, and Guam are from January 2015; data for Puerto Rico and the U.S. Virgin Islands are from 

December 2015. See http://www.medicaid.gov/medicaid-chip-program-information/by-state/bystate.html, accessed January 14, 2016, for the source of American Samoa, CNMI, and Guam data.

e

American Samoa annually estimates the number of individuals with income below 200 percent FPL, 

removing from this calculation ineligible qualified and non-qualified non-citizens who are not eligible 

for Medicaid, to develop Medicaid and CHIP claiming percentages.

f

This estimated percentage includes both Medicaid and CHIP enrollment.

g

Data from the World Factbook was used to estimate the percentage of the U.S. Virgin Islands’ 

population enrolled in Medicaid.
Page 12 GAO-16-324 Medicaid and U.S. Territories

Territories also vary in terms of the range of benefits covered by their 

respective Medicaid programs. Specifically, Guam covers all of the 17 

mandatory Medicaid benefits; CNMI and the U.S. Virgin Islands cover 

nearly all of the benefits; and American Samoa and Puerto Rico cover 10 

of the 17 benefits.31 American Samoa and CNMI operate their Medicaid 

programs under broad waiver authority under section 1902(j) of the Social 

Security Act and, therefore, are not required to cover all mandatory 

benefits. While the other territories do not operate under this broad waiver 

authority, CMS acknowledged that the agency has not required them to 

cover all mandatory Medicaid benefits, citing limited federal Medicaid 

funding and the unavailability of certain services.32 Examples of the 

mandatory benefits most commonly covered by all five territories include 

Early and Periodic Screening, Diagnostic, and Treatment (EPSDT) 

services for individuals under 21; inpatient hospital services; outpatient 

hospital services; and physician services. In contrast, the territories’ 

coverage of other benefits, such as nursing facility and rural health clinic 

services, was less widespread, and only Guam covered freestanding birth 

center services.33 (See fig. 1.)

 31Similar to the states, territories have some discretion regarding the amount, duration, 

and scope of benefits covered in their Medicaid programs. For example, in some cases, 

territories may limit the number of services covered within a specified period of time, such 

as limiting eyeglasses to one pair of eyeglasses every two years and repair or 

replacement of broken eyeglasses to once every two years.

32See 42 U.S.C. § 1396a(j). In at least one case—coverage of freestanding birth centers 

in Puerto Rico—CMS approved a state plan amendment documenting that there are no 

licensed or approved freestanding birth centers in the territory to provide services to 

Medicaid beneficiaries. In addition, according to a CMS official, taking a compliance action 

against the territories for not covering all mandatory benefits could put the territories’ 

federal Medicaid funding at risk.

33CNMI, Guam, Puerto Rico, and the U.S. Virgin Islands covered more mandatory 

Medicaid benefits in 2015 than in 2005. See GAO-06-75. 
Page 13 GAO-16-324 Medicaid and U.S. Territories

Figure 1: Mandatory Medicaid Benefits Covered by U.S. Territories, Fiscal Year 2015

Note: American Samoa and CNMI operate their Medicaid programs under broad waiver authority 

under section 1902(j) of the Social Security Act and, therefore, are not required to cover all 

mandatory benefits. 42 U.S.C. § 1396a(j). However, the Centers for Medicare & Medicaid Services 

(CMS) has not waived these requirements for Puerto Rico and the U.S. Virgin Islands. Similar to the 

states, territories have some discretion regarding the amount, duration, and scope of benefits covered 

in their Medicaid programs. For example, the U.S. Virgin Islands limits its coverage of nursing facility 
Page 14 GAO-16-324 Medicaid and U.S. Territories

services to 25 beds. Similarly, territories may limit the number of services covered within a specified 

period of time.

Officials from the four territories that do not cover all mandatory Medicaid 

benefits cited multiple reasons for not doing so, including limited funding 

and a lack of infrastructure.34 In particular,

• officials from Puerto Rico and American Samoa said that their 

programs do not cover nursing facility services due to insufficient 

funding and because they do not have nursing homes;35

• CNMI officials noted that its program does not cover freestanding birth 

center services because there are no such facilities in the territory; 

and

• due to the lack of available providers, certain specialty services 

covered by American Samoa, CNMI, and Guam are only available offisland. For example, in CNMI, most cardiac, orthopedic, 

chemotherapy, and radiation services are only available off-island; in 

Guam, pediatric oncology, hematology, dermatology, and procedures 

such as cardiac bypass surgery, are only available off-island.

In addition to mandatory Medicaid benefits, each territory has chosen to 

cover optional benefits, with all five territories providing coverage for 

outpatient prescription drugs, clinic services, dental and eyeglasses, 

prosthetics, physical therapy, and rehabilitative services. Optional 

services commonly covered by states—such as targeted case 

management, personal care services, and intermediate care facilities for 

individuals with intellectual disabilities—are not covered by any of the five 

territories. (See fig. 2.)

 34We previously reported that reliance on nursing facilities may be less prevalent in certain 

territories, as families assume primary care responsibility for individuals who might 

commonly receive care in these facilities in the states. See GAO-06-75. 

35In addition, according to CMS, Puerto Rico law does not regulate freestanding birth 

centers or nurse midwife services and, therefore, these services are not available to 

Medicaid beneficiaries in Puerto Rico.
Page 15 GAO-16-324 Medicaid and U.S. Territories

Figure 2: Selected Optional Medicaid Benefits Covered by U.S. Territories, Fiscal Year 2015

Note: Similar to the states, territories have discretion regarding the amount, duration, and scope of 

benefits covered in their Medicaid programs. For example, territories may limit the number of services 

covered within a specified period of time.

a

Eyeglass benefits are currently available only to children up to age 21 through the Early and Periodic 

Screening, Diagnostic, and Treatment benefit in Puerto Rico.

b

This benefit is limited to inpatient hospital services.
Page 16 GAO-16-324 Medicaid and U.S. Territories

The recent temporary increases in federal funding have enabled the 

territories to increase Medicaid and CHIP spending, and avoid federal 

funding shortfalls. Most notably, PPACA’s appropriation of an additional 

$7.3 billion in Medicaid funding for the territories—available for 

expenditure through at least fiscal year 2019—provided them flexibility in 

terms of when they choose to draw down the additional funds.36 For 

example, between fiscal year 2010 when PPACA funds were not 

available and fiscal year 2014 when they were, the average annual 

percentage change in total Medicaid and CHIP spending in CNMI and 

Guam was 23 percent and 19 percent, respectively, with total spending in 

these territories more than double in fiscal year 2014 compared to fiscal 

year 2010.37 (See table 2.)

 36The additional PPACA funding was comprised of two separate allotments and is to be 

distributed among the territories based on each territory’s population as a proportion of 

overall territory population. PPACA provided $6.3 billion to the territories, which is 

available for expenditure from July 1, 2011, through September 30, 2019. PPACA 

provided another $1 billion to territories not establishing a health benefit exchange under 

the law. Because none of the territories opted to establish such an exchange, all of the 

territories are eligible for these funds, which are available for expenditure from January 1, 

2014, through December 31, 2019. The PPACA funding, which is in addition to the 

territories’ capped Medicaid allotments, is subject to the territories’ Medicaid FMAP.

Prior to PPACA, the Recovery Act also increased Medicaid funding to the territories. 

From fiscal year 2010 to fiscal year 2014, Recovery Act spending on the territories’ 

Medicaid programs totaled $431 million, an amount significantly lower than the $4 billion in 

PPACA spending the territories received during the same time period.

37Total spending amounts include federal and territory spending. Average annual percent 

changes are based on these amounts adjusted for inflation using the gross domestic 

product price index to fiscal year 2014 dollars. The increase in program spending in 

American Samoa and the U.S. Virgin Islands lags significantly behind that in the other 

territories. According to officials from both territories, the territories have accessed fewer 

PPACA funds, in part, because they have not been able to generate the local match to 

access more of these funds. Additionally, the U.S. Virgin Islands officials said because the 

territory did not have an electronic claims system until fiscal year 2013, they couldn’t 

process claims fast enough to access PPACA funds until fiscal year 2014.

Temporary Funding 

Has Enabled the 

Territories to Increase 

Medicaid and CHIP 

Spending, although 

Future Shortfalls 

Remain a Concern
Page 17 GAO-16-324 Medicaid and U.S. Territories

Table 2: Federal and U.S. Territory Medicaid and CHIP Spending, and Average Annual Percentage Change Between Fiscal 

Years 2010 and 2014 

Dollars in millions

2010 2011 2012 2013 2014

Average annual 

percentage change (%)

American Samoa $28 33 33 28 28 -1%

Commonwealth of the Northern Mariana Islands 15 29 27 32 36 23

Guam 40 42 50 71 86 19

Puerto Rico 1,155 1,509 1,784 2,105 2,155 15

U.S. Virgin Islands 36 41 40 28 46 4

Source: GAO analysis of Centers for Medicare & Medicaid Services data. | GAO-16-324

Notes: Dollar amounts presented in the table are nominal values; average annual percent changes 

are based on these amounts adjusted for inflation using the gross domestic product price index to 

fiscal year 2014 dollars.

Figures for fiscal years 2010 through 2014 include Recovery Act spending. Figures for fiscal years 

2011 through 2014 include both Recovery Act and Patient Protection and Affordable Care Act 

spending

Prior to the availability of these temporary funds, the territories often 

exhausted their Medicaid funds anywhere from the first through the third 

quarter of each fiscal year, and generally utilized all of their CHIP funding 

each year. The territories used various strategies to address these federal 

funding shortfalls. For example, Puerto Rico officials said that prior to the 

PPACA funding, the federal Medicaid funds covered only 16 percent of 

their planned annual expenditures and were expended during the first 

quarter of the federal fiscal year, after which time the territory had to rely 

entirely on local funding to cover program spending. Further, a CNMI 

official said it was normal for their providers to provide services in one 

year and be paid the following year.38 In addition to all five territories 

avoiding federal funding shortfalls, officials in three of the territories noted 

that these temporary funds have allowed them to improve their programs 

by covering more benefits, enrolling more providers, or both. For 

example, American Samoa officials said they plan to use some of their 

PPACA funds to pay for services provided by new providers, thereby 

expanding access to services beyond the island’s only hospital. Puerto 

 38The territories have flexibility regarding when to make payments to providers as long as 

the territories comply with provider prompt pay requirements. According to CMS officials, 

in the instances when territories have been out of compliance in payment, the CMS 

regional offices closely monitor the situation and work with the territory to assure the delay 

in payments is temporary.
Page 18 GAO-16-324 Medicaid and U.S. Territories

Rico officials said they used some of their PPACA funds to add coverage 

for certain organ transplants, which, according to CMS officials, the 

territory must cover due to other changes in law enacted under PPACA.

Despite the influx of temporary PPACA funding, territories may 

nonetheless experience funding shortfalls in the near future, according to 

CMS and territory officials. Specifically, certain territories may exhaust 

their PPACA funding before the end of fiscal year 2019, as there are no 

restrictions on the rate at which territories may access their allotted funds.

For example, CNMI and Puerto Rico, which used 49 percent and 56 

percent of their allotments between fiscal years 2011 and 2015, 

respectively, are spending these temporary funds at a rate that could 

deplete their allotments early, as the amount they have spent has 

increased each year. (See table 3.) While the rate of expenditures to date 

may not reflect future spending rates, some territory officials expressed 

concerns about the temporary availability of the PPACA funds and the 

fact that their capped allotments will be reduced to pre-PPACA levels 

beginning in fiscal year 2019, or earlier if they expend the PPACA funds 

before 2019. As a result, the territory officials noted that the territories 

may run out of the temporary funding early, have to make program cuts 

once the funding is exhausted, or both. For example, Puerto Rico 

Medicaid officials said they determined they could exhaust their entire 

PPACA allotment as early as fiscal year 2017. Additionally, officials from 

Puerto Rico and Guam expressed concern that they may need to restrict 

eligibility or reduce benefits once the PPACA funding is exhausted.39

 39Under PPACA’s maintenance of effort provision, to receive federal Medicaid funds, 

states and territories cannot impose eligibility and enrollment policies that are more 

restrictive than those in place at the time PPACA was enacted until 2014 for adults and 

until 2019 for children in Medicaid.
Page 19 GAO-16-324 Medicaid and U.S. Territories

Table 3: Patient Protection and Affordable Care Act (PPACA) Allotments and 

Expenditures in Five U.S. Territories through Fiscal Year 2015

Dollars in millions

Territory Total allotment Expenditures

Percent 

expended (%)

American Samoa $198 23 12%

Commonwealth of the Northern 

Mariana Islands (CNMI) 109 53 49

Guam 293 87 30

Puerto Rico 6,401 3,580 56

U.S. Virgin Islands 299 32 11

Source: GAO analysis of data from Centers for Medicare & Medicaid Service officials. | GAO-16-324

Note: There are no restrictions on the rate at which territories may access their PPACA allotments, 

and these funds are available until at least September 30, 2019.

Territory and federal oversight efforts provide little assurance that the 

territories’ Medicaid and CHIP funds are protected from fraud, waste, and 

abuse. Citing limited resources, territory officials acknowledge a general 

lack of program integrity efforts. Further, federal officials cite the 

territories’ smaller Medicaid expenditures in limiting their program integrity 

efforts to technical assistance.

Although the territories have primary responsibility for Medicaid program 

oversight, limited assurance exists that they are identifying and 

recovering improper payments or investigating fraud in their Medicaid 

programs. With the exception of Puerto Rico, the territories have not 

established program integrity units, which are dedicated to identifying and 

reducing improper payments. Although Medicaid agencies are not 

required to establish program integrity units, the lack of a separate entity 

is counter to internal controls standards regarding segregation of key 

Limited Territory and 

Federal Oversight 

Efforts Provide Little 

Assurance of 

Medicaid and CHIP 

Program Integrity

Federal and Territory 

Officials Cite Resource 

Constraints as 

Contributing to Territories’ 

Limited Program Integrity 

Efforts
Page 20 GAO-16-324 Medicaid and U.S. Territories

duties and responsibilities for reducing the risk of error and fraud.40

Specifically, in four of the territories, the Medicaid Director is responsible 

for program oversight, including program integrity efforts, according to 

CMS officials. This lack of segregation of key duties and responsibilities 

could be remedied through the establishment of a program integrity unit 

or other division of labor. According to CMS officials, the territories have 

not established separate program integrity units because they lack 

adequate funding and personnel to do so, and funds spent on such an 

oversight effort would reduce the amount of funds available for the 

provision of health care services. Further, an American Samoa official 

said the territory is very interested in undertaking program integrity efforts, 

but is unable to hire additional staff to do so because of budgetary 

constraints.

Although Puerto Rico has a program integrity unit, according to Puerto 

Rico officials, this unit’s responsibilities are limited to eligibility fraud and 

acting as a liaison regarding concerns of provider fraud with the 

Administración de Seguros de Salud de Puerto Rico (ASES), the Puerto 

Rico government entity that manages managed care organization (MCO) 

contracts.

41 ASES delegates primary responsibility for program integrity 

efforts to the MCOs and requires them to have policies and procedures 

for the identification, investigation, and referral of suspected fraud.42 Both 

we and the HHS-OIG have previously reported concerns that MCOs 

might not have an incentive to identify and recover improper payments. 43

 40See, e.g., GAO/AIMD-00-21.3.1 and GAO-14-704G. Further, a designated entity within 

an organization is a leading practice for managing fraud risks. See GAO, A Framework for 

Managing Fraud Risks in Federal Programs, GAO-15-593SP (Washington, D.C.; July 28, 

2015).

41Puerto Rico is the only territory of the five that uses a managed care delivery system for 

its Medicaid program, where payments are made to a managed care organization, 

typically on a pre-determined, per person, per month basis. The other four territories use 

a fee-for-service delivery system, where health care providers are paid for each service.

42ASES has developed Guidelines for the Development of Program Integrity Plan, which 

lists the minimum criteria for compliance with program integrity policies and procedures for 

MCOs. See Puerto Rico Health Insurance Administration, Guidelines for the Development 

of Program Integrity Plan, 2014-2015.

43See GAO, Medicaid Program Integrity: Increased Oversight Needed to Ensure Integrity 

of Growing Managed Care Expenditures, GAO-14-341 (Washington, D.C.; May 19, 2014). 

The HHS-OIG also noted concerns from MFCUs that MCOs lacked the incentive to refer 

potential fraud. See also HHS-OIG, General Medicaid Fraud Control Units Fiscal Year 

2013 Annual Report, OEI-06-13-00340 (March 2014). 
Page 21 GAO-16-324 Medicaid and U.S. Territories

For example, as we previously reported, officials from state program 

integrity units noted that they believed MCOs were not consistently 

reporting improper payments in order to avoid appearing vulnerable to 

fraud and abuse.44 In this same report, state program integrity unit 

officials also noted a potential conflict of interest for MCOs because 

reporting improper payments could reduce their future federal funding.

In addition to the general absence of program integrity units, none of the 

territories has established a MFCU—units that investigate and prosecute 

Medicaid fraud and other health care law violations—or obtained an 

exemption from the requirement to establish one from CMS.45 According 

to CMS officials, territories have not established MFCUs because the 

costs associated with establishing them count against the territories’ 

capped Medicaid allotment and would reduce the funds available for 

providing services. Further, Puerto Rico officials told us they had 

considered developing a MFCU, but decided against it after learning that 

the funds used to develop it would reduce funds for services. These 

officials said they made this decision despite knowing that a MFCU could 

eventually be cost effective because they believed they could not afford 

the initial investment.46 While the establishment of a MFCU may not make 

sense, given the size and spending of the territories, the territories are 

required to demonstrate that minimal fraud exists in their programs if they 

do not have a MFCU.

The territories’ incomplete service-level expenditure reporting also 

contributes to limited assurance of Medicaid program integrity in the 

 44See GAO-14-341.

45An exemption from the requirement to establish a MFCU is available if the state or 

territory can demonstrate to the satisfaction of the Secretary that the operation of a MFCU 

would not be cost effective because minimal fraud exists in the state’s or territory’s 

Medicaid program, and beneficiaries in the state or territory will be protected from abuse 

and neglect without a MFCU. See 42 U.S.C § 1396a(a)(5), (a)(61). Forty-nine states and 

the District of Columbia currently have MFCUs. North Dakota has received an exemption 

from this requirement. Officials from the U.S. Virgin Islands told us they have developed a 

preliminary plan to establish a MFCU. 

46Although the FMAP for costs associated with establishing a MFCU is 90 percent for 3 

years, any expenditures relating to the establishment and operation of a MFCU would 

count against the territories’ capped Medicaid allotment. In the absence of a MFCU, both 

HHS-OIG and the Department of Justice have assisted Puerto Rico in prosecuting fraud 

cases, according to Puerto Rico officials; however, they noted challenges to these 

departments’ availability in processing cases.
Page 22 GAO-16-324 Medicaid and U.S. Territories

territories. Specifically, the limited detail on the types and volume of 

services provided in the territories can hinder program integrity efforts, 

including making it difficult to identify potential fraud, waste, and abuse. 

As with states, different reporting requirements exist for fee-for-service 

and managed care spending in the territories. According to CMS officials, 

the health care delivery systems in American Samoa, CNMI, Guam, and 

the U.S. Virgin Islands are entirely fee-for-service, and therefore these 

territories are required to report service-level spending on the CMS-64. 

CMS officials cited the CMS-64 as the only data source for Medicaid and 

CHIP spending in these territories, underscoring the importance of 

accurate service-level expenditure reporting for territories’ program 

integrity efforts. However, we reviewed the territories’ Medicaid spending 

for fiscal year 2014 and found that none of the territories had reported 

service-level spending for all the Medicaid benefits they covered.47

Specifically, for the benefits we reviewed, American Samoa, CNMI, and 

Guam reported service-level spending for 24 percent, 55 percent, and 63 

percent, respectively, of the Medicaid benefits they covered. (See table 

4.) This limited reporting is the result of various circumstances. For 

example, Medicaid enrollees in American Samoa are serviced by a single 

hospital that reports costs by only three mandatory benefits—inpatient 

hospital services, outpatient hospital services, and emergency services 

for certain legalized aliens and undocumented aliens.48

 47We also reviewed territories’ reported spending for mandatory Medicaid benefits for 

fiscal years 2010 through 2013 and found that none of the territories reported 

expenditures for all covered services during this time. We extracted CMS-64 net 

expenditures financial management reports for fiscal years 2010 through 2014 from 

CMS’s MBES/CBES on October 13, 2015. CHIP expenditures for covered Medicaid 

benefits were not included in this analysis, because they were often grouped into larger 

categories with other services and could not be isolated.

48American Samoa has also reported expenditures for prescription drugs for individuals 

enrolled in both Medicaid and Medicare—an optional benefit—on its CMS-64. According 

to CMS officials, although territories reported accurate aggregate expenditures in fiscal 

year 2014, they often included expenditures for certain covered benefits with reported 

expenditures for other benefits. In addition, CMS officials and a territory official cited other 

reasons why expenditures might not be reported for certain benefits, such as if they were 

not utilized in a territory in a given year.
Page 23 GAO-16-324 Medicaid and U.S. Territories

Table 4: Number of Covered Mandatory and Selected Optional Medicaid Benefits 

with Reported Service-Level Expenditures for Four U.S. Territories, Fiscal Year 2014

Territory Mandatory benefits (17) 

Selected optional benefits 

(13)

Number of 

mandatory 

benefits covered 

Number of 

mandatory 

benefits with 

reported 

service-level 

expenditures

Number of 

selected 

optional 

benefits 

covered

Number of 

selected 

optional benefits 

with reported 

service-level 

expenditures

American Samoa 10 3 7 1

Commonwealth of 

the Northern 

Mariana Islands 16 7 6 5

Guam 17 12 7 3

U. S. Virgin Islands 15 13 8 8

Source: GAO analysis of information and data from the Centers for Medicare & Medicaid Services (CMS) and the territories. | 

GAO-16-324

Notes: These four territories are required to report service level expenditures for non-managed care 

organization providers on the CMS-64. Because Puerto Rico’s Medicaid program is entirely managed 

care, the territory is not required to report service-level expenditures.

Medicaid enrollees in American Samoa are serviced by a single hospital that, consistent with the 

territory’s approved state plan, reports costs by only three mandatory benefits—inpatient hospital 

services, outpatient hospital services, and emergency services for certain legalized aliens and 

undocumented aliens.

CHIP expenditures for covered Medicaid benefits were not included in this analysis, because they 

were often grouped into larger categories with other services and could not be isolated.

With regard to managed care, Puerto Rico’s Medicaid managed care 

program, which provides coverage to all Medicaid and CHIP enrollees, is 

not subject to service-level reporting requirements. However, under their 

contracts with Puerto Rico Medicaid, the MCOs in Puerto Rico are 

required to submit encounter data to ASES. Although these data could 

provide insight on service-level utilization, CMS officials told us they do 

not collect or review these data on a regular basis.
Page 24 GAO-16-324 Medicaid and U.S. Territories

With regard to program oversight, CMS’s general practice has been to 

conduct comprehensive program integrity reviews in all of the states; 

however, of the five territories, it has conducted such reviews only in 

Puerto Rico, the most recent of which was released in January 2012 and 

produced multiple findings.49 CMS officials told us they are switching from 

comprehensive and more focused program integrity reviews in the states 

and plan to conduct such a review for Puerto Rico in 2016. Citing the 

other territories’ smaller Medicaid expenditures, however, CMS has 

neither conducted similar reviews of their Medicaid programs, nor does it 

plan to conduct more focused program reviews. While Medicaid spending 

in the territories is small as a proportion of total Medicaid spending, such 

limited federal oversight efforts provide little assurance that Medicaid is 

protected from fraud, waste, and abuse, and are inconsistent with federal 

internal control standards regarding the identification, analysis, and 

response to relevant risks as part of achieving program objectives.50

Given that governmental, economic, industry, regulatory, and operating 

conditions continually change—such as when PPACA significantly 

increased territory Medicaid funding—mechanisms should be provided to 

identify and manage any special risks prompted by such changes in 

program conditions.

Additionally, other factors—such as the lack of enforcement of program 

integrity mechanisms and information systems—have contributed to the 

limited federal program integrity efforts in the territories. For example, 

CMS has neither required the territories to establish MFCUs, nor has the 

agency granted them an exemption, because agency officials were 

unclear whether they had the authority to grant such exemptions. 

Additionally, until recently, CMS regulations exempted territories from the 

requirement to develop an MMIS, which could provide more detail on the 

territories’ Medicaid and CHIP spending, including increasing the level of 

 49In contrast, from fiscal year 2007 through fiscal year 2013, CMS has completed at least 

two comprehensive program integrity reviews in all states, Washington, D.C., and Puerto 

Rico, according to CMS officials.

Puerto Rico’s 2012 review included significant findings, such as a lack of methods for 

identifying, investigating, and referring suspected fraud cases. Puerto Rico developed a 

corrective action plan in response to CMS’s recommendations from this comprehensive 

program integrity review, and, according to CMS officials, has taken sufficient action 

regarding these recommendations. CMS performed a previous comprehensive program 

integrity review on Puerto Rico’s Medicaid program in 2009. 

50See GAO/AIMD-00-21.3.1 and GAO-14-704G.

Federal Officials Reported 

Making Limited Program 

Integrity Efforts, Citing the 

Small Amount of Medicaid 

Spending in the Territories
Page 25 GAO-16-324 Medicaid and U.S. Territories

detail on the territories’ CMS-64 reporting.51 In December 2015, CMS 

amended its regulations to eliminate the MMIS exemptions for the 

territories, effective January 1, 2016.52 Despite the fact that an exemption 

had been in place, the U.S. Virgin Islands established a partnership with 

West Virginia, which allowed territory officials to make use of the state’s 

MMIS beginning in 2013.53 This has improved the level of detail on the 

U.S. Virgin Islands’ CMS-64 reporting. Specifically, in fiscal year 2012, 

prior to the implementation of its MMIS, the U.S. Virgin Islands reported 

service-level expenditures for 30 percent of the Medicaid benefits they 

covered; after the implementation, this percentage increased to 91 

percent in fiscal year 2014.54 According to Puerto Rico Medicaid officials, 

the territory’s Medicaid agency is in the process of establishing a similar 

partnership with Florida and anticipates implementation by the end of 

2016. Having additional details on program spending could strengthen 

CMS’s and territories’ program oversight.55

 51See 42 C.F.R. § 433.110 (2015). 

CMS officials said that developing an MMIS is costly and the size of the Pacific territories’ 

Medicaid programs may be too small to justify such an expense. Therefore, they would 

like to see the territories implement smaller systems instead, such as data warehouses, 

that would allow them to handle claims processing and provider enrollment, and identify 

examples of improper payments.

52See 80 Fed. Reg. 75817, 75841 (Dec. 4, 2015) (amending 42 C.F.R. § 433.110). 

53According to CMS, MMIS implementation in the U.S. Virgin Islands was made possible 

by the Children’s Health Insurance Program Reauthorization Act of 2009, which allowed 

for MMIS funding outside the territories’ capped Medicaid allotment. 

54CHIP expenditures for covered Medicaid benefits were not included in this analysis, 

because they were often grouped into larger categories with other services and could not 

be isolated.

55In addition, four of the five territories do not have access to a key federal resource that 

could help their program integrity efforts. Specifically, CMS’s Medicaid Integrity Institute 

offers training and technical assistance regarding multiple aspects of program integrity—

including fraud investigation, data mining, and analysis—to assist states and territories in 

such efforts at no cost to them. Instructors at the Medicaid Integrity Institute include state 

Medicaid program administrators and subject matter experts, federal and state law 

enforcement officers, and private consultants. According to CMS officials, the institute is 

intended for use by states and territories with a program integrity unit. As a result, the four 

territories that do not have a program integrity unit have not accessed this resource. 

Puerto Rico officials told us they send an individual from either Puerto Rico’s Medicaid 

program or ASES to the institute each year.
Page 26 GAO-16-324 Medicaid and U.S. Territories

According to agency officials, CMS has assigned officials to the five 

territories to assist in program integrity efforts, and their role is generally 

focused on providing technical assistance.56 The activities of these 

officials vary across the territories, ranging from resolving complaints to 

more proactive efforts to identify trends indicating fraud, waste, and 

abuse.57 In addition, CMS officials reported that Puerto Rico and the U.S. 

Virgin Islands requested and received on-site training on the proper 

reporting of federal expenditures.

Other federal oversight efforts provide insight on Medicaid program 

integrity needs in the territories, and CMS has reported making use of 

these efforts. Specifically, OMB’s annual A-133 single audits—conducted 

by contracted independent auditors—examine internal controls and 

compliance in the territories’ programs, and have identified deficiencies in 

each of the territories. Examples of the findings from the 2013 single 

audits are listed below.58

• CNMI – the single audit found a significant deficiency in internal 

control over compliance. Specifically, the payments for certain 

Medicaid services and medications exceeded permissible amounts. 

This finding was resolved and closed in September 2015.

• Guam – the single audit found a material weakness in internal control 

over compliance. Specifically, the single audit found that no 

documentation was provided to show that eligibility specialists used 

 56There is one official assigned to American Samoa, Guam, and CNMI, and one official 

assigned to Puerto Rico and the U.S. Virgin Islands.

57In addition, similar to the PERM program, according to CMS officials, CMS exempts the 

territories from the Recovery Audit Contractor (RAC) program, in which program underand over-payments are identified and over-payments are recovered. See 42 U.S.C. § 

1396a(a)(42)(B). According to CMS, as of September 2015, 47 states and Washington, 

D.C. had implemented RAC programs, but one of these states ended its RAC program 

when CMS approved an exception due to high managed care penetration. At the end of 

fiscal year 2015, four states have such exceptions due to small beneficiary populations or 

high managed care penetration.

58These findings included material weaknesses and significant deficiencies in internal 

control over compliance. A material weakness in internal control over compliance 

indicates there is a reasonable possibility that material noncompliance with a federal 

requirement will not be prevented, or detected and corrected, on a timely basis. A 

significant deficiency in internal control over compliance is less severe, yet important 

enough to merit attention by those charged with governance. 
Page 27 GAO-16-324 Medicaid and U.S. Territories

the available income and eligibility verification system to determine 

eligibility. This finding was resolved and closed in February 2015.

• U.S. Virgin Islands – the single audit found a material weakness in 

internal control over compliance. Specifically, the audit revealed that 

sufficient controls did not exist for the required investigation of 

Medicaid utilization related to fraud. As a result, there may be 

prolonged, ongoing cases of fraud, which may be unreported. As of 

March 2015, according to CMS officials, the status of this finding was 

cleared, meaning that the next step is for the U.S. Virgin Islands to 

develop a corrective action plan for approval by CMS.

CMS has a single audit coordinator that receives the single audit reports 

and notifies CMS’s regional offices, which are then responsible for 

working with the territories to correct any deficiencies that were 

identified.59 For example, CMS regional office officials help the territories 

develop corrective action plans, if required. However, CMS officials noted 

that it is not uncommon for territories to take multiple years to resolve 

certain deficiencies.60 CMS officials told us that the limited funding and 

staff created particular challenges for the territories when responding to 

single audit findings. For example, CNMI officials reported to CMS that 

the territory lacked sufficient staff to perform post-payment reviews in 

response to a finding from a single audit that found the territory incorrectly 

paid certain Medicaid claims.

The Medicaid and CHIP programs provide critical financial support to the 

U.S. territories’ health care systems. However, citing the territories’ limited 

resources and the relatively small size of their programs, CMS has not 

required the territories to follow certain program requirements. In 

particular, this includes requirements for complete service-level 

expenditure reporting and the establishment of a MFCU or the receipt of 

an exemption—obtained by demonstrating that the operation of such a 

unit would not be cost effective, because minimal fraud exits in a 

territory’s Medicaid program. Although American Samoa and CNMI’s 

 59The CMS Regional Office in New York oversees Puerto Rico and the U.S. Virgin 

Islands, while the CMS Regional Office in San Francisco oversees American Samoa, 

CNMI, and Guam. 

60CMS officials told us that states may also take multiple years to resolve certain 

deficiencies identified in single audits.

Conclusions
Page 28 GAO-16-324 Medicaid and U.S. Territories

Medicaid programs operate under broad waivers that exempt them from 

many of these requirements, this is not the case for Guam, Puerto Rico, 

and the U.S. Virgin Islands, which have not received exemptions or 

waivers from these requirements. Despite acknowledging the territories’ 

limited resources, CMS provides limited assurance and oversight to 

support program integrity efforts in the territories, and undertakes limited 

efforts of its own in this regard. Such limited federal efforts in the 

territories are inconsistent with federal internal control standards 

regarding identifying and responding to relevant risks when conditions 

change, such as when PPACA significantly increased territories’ federal 

Medicaid funding. Without additional efforts by CMS, there is limited 

assurance that territories have the capacity to identify fraud, recover 

improper payments, or provide complete information on program 

spending. While Medicaid funding to the territories represents a small 

share of national program expenditures and may not warrant the same 

level of program integrity oversight as the states, additional actions are 

needed by CMS to ensure an appropriate level of program integrity in 

these areas.

To ensure the appropriate level of Medicaid program integrity oversight in 

the territories, we recommend that the Acting Administrator of CMS 

reexamine CMS’s program integrity strategy and develop a cost-effective 

approach to enhancing Medicaid program integrity in the territories. Such 

an approach could select from a broad array of activities, including—but 

not limited to—establishing program oversight mechanisms, such as 

requiring territories to establish a MFCU or working with them to obtain 

necessary exemptions or waivers from applicable program oversight 

requirements; assisting territories in improving their information on 

Medicaid and CHIP program spending; and conducting additional 

program assessments of program integrity as warranted.

We provided a draft of this report to the HHS and the Department of the 

Interior (DOI) for comment. In its written comments, HHS concurred with 

our recommendation and acknowledged that many territories face 

challenges in addressing program integrity and finding a balance between 

applying funds towards providing services and program integrity efforts. 

Further, HHS noted that it will work with territory Medicaid officials to 

determine the feasibility of enhancing program integrity activities, 

including, but not limited to, establishing MFCUs or obtaining the 

necessary exemptions when MFCUs are not warranted. HHS also 

provided technical comments, which we incorporated as appropriate. In 

Recommendation for 

Executive Action

Agency Comments

and Our Evaluation
Page 29 GAO-16-324 Medicaid and U.S. Territories

its written comments, DOI noted the financial and infrastructure 

challenges related to health care faced by all territories, despite the 

additional funding under PPACA, which is temporary, and raised 

concerns about future reductions in Medicaid once PPACA funds are 

depleted. HHS’s and DOI’s comments are reproduced in appendices I 

and II.

As arranged with your offices, unless you publicly announce the contents 

of this report earlier, we plan no further distribution until 30 days after its 

issuance date. At that time, we will send copies of this report to the 

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addition, the report will be available at no charge on the GAO website at 

http://www.gao.gov.

If you or your staff members have any questions, 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. Major contributors to this report are listed in appendix II.

Carolyn L. Yocom

Director, Health Care
Appendix I: Comments from the Department of 

Health and Human Services

Page 30 GAO-16-324 Medicaid and U.S. Territories

Appendix I: Comments from the Department 

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

Health and Human Services

Page 31 GAO-16-324 Medicaid and U.S. Territories
Appendix I: Comments from the Department of 

Health and Human Services

Page 32 GAO-16-324 Medicaid and U.S. Territories
Appendix II: Comments from the Department 

of the Interior

Page 33 GAO-16-324 Medicaid and U.S. Territories

Appendix II: Comments from the Department 

of the Interior
Appendix II: Comments from the Department 

of the Interior

Page 34 GAO-16-324 Medicaid and U.S. Territories
Appendix III: GAO Contact and Staff 

Acknowledgements

Page 35 GAO-16-324 Medicaid and U.S. Territories

Carolyn L. Yocom, (202) 512-7114 or yocomc@gao.gov

In addition to the contact named above, Susan Anthony, Assistant 

Director; Manuel Buentello; Sandra George; Giselle Hicks; Drew Long; 

Amber Sinclair; and Teresa Tam made key contributions to this report.

Appendix III: GAO Contact and Staff 

Acknowledgements

GAO Contact

Staff 

Acknowledgements

(291278)
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