Medicaid: Key Issues Facing the Program
Published: 2015-07-30T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Medicaid program marks its 50th anniversary on July 30, 2015. The joint federal-state program has grown to be one of the largest sources of health care coverage and financing for a diverse low-income and medically needy population. Medicaid is undergoing transformative changes, in part due to PPACA, which expanded the program by allowing states to opt to cover low-income adults in addition to individuals in historic categories, such as children, pregnant women, older adults, and individuals with disabilities.
GAO has a large body of work on challenges facing Medicaid and gaps in federal oversight. This report describes (1) key issues that face the Medicaid program based on this work, and (2) program and other changes with implications for federal oversight. GAO reviewed its reports on Medicaid issued from January 2005 through July 2015; reviewed documentation from the Centers for Medicare & Medicaid Services (CMS), the HHS agency that oversees Medicaid; and interviewed CMS officials.
section_title: What GAO Found
paragraphs: GAO identified four key issues facing the Medicaid program, based on prior work.
Access to care : Medicaid enrollees report access to care that is generally comparable to that of privately insured individuals and better than that of uninsured individuals, but may have greater health care needs and greater difficulty accessing specialty and dental care.
Transparency and oversight : The lack of complete and reliable data on states' spending—including provider payments and state financing of the non-federal share of Medicaid—hinders federal oversight, and GAO has recommended steps to improve the data on and scrutiny of states' spending. Also, improvements in the Department of Health and Human Services' (HHS) criteria, policy, and process for approving states' spending on demonstrations—state projects that may test new ways to deliver or pay for care—are needed to potentially prevent billions of dollars in unnecessary federal spending, as GAO previously recommended.
Program integrity : The program's size and diversity make it vulnerable to improper payments. Improper payments, such as payments for non-covered services, totaled an estimated $17.5 billion in fiscal year 2014, according to HHS. An effective federal-state partnership is key to ensuring the most appropriate use of funds by, among other things, (1) setting appropriate payment rates for managed care organizations, and (2) ensuring only eligible individuals and providers participate in Medicaid.
Federal financing approach : Automatic federal assistance during economic downturns and more equitable federal allocations of Medicaid funds to states (by better accounting for states' ability to fund Medicaid) could better align federal funding with states' needs, offering states greater fiscal stability. GAO has suggested that Congress could consider enacting a funding formula that provides automatic, timely, and temporary increased assistance in response to national economic downturns.
Medicaid's ongoing transformation—due to the Patient Protection and Affordable Care Act (PPACA), the aging of the U.S. population, and other changes to state programs—highlights the importance of federal oversight, given the implications for enrollees and program costs. Attention to Medicaid's transformation and the key issues facing the program will be important to ensuring that Medicaid is both effective for the enrollees who rely on it and accountable to the taxpayers. GAO has multiple ongoing studies in these areas and will continue to monitor the Medicaid program for the Congress.
section_title: What GAO Recommends
paragraphs: GAO has made over 80 recommendations regarding Medicaid, some of which HHS has implemented. GAO has highlighted 24 key recommendations that have not been implemented. HHS agreed with and is acting on some and did not agree with others. GAO continues to believe that all of its recommendations have merit and should be implemented. HHS provided technical comments on a draft of this report, which GAO incorporated as appropriate.

section_title: Letter
paragraphs: The Medicaid program marks its 50th anniversary on July 30, 2015. Over  the past half-century, Medicaid has grown to be one of the largest  sources of health care coverage and financing for a diverse low-income  and medically needy population. It is the nation’s second largest health  care program as measured by expenditures, behind only Medicare.  Medicaid is also a significant component of federal and state budgets,  with estimated outlays of $529 billion in fiscal year 2015, of which   $320 billion is expected to be financed by the federal government and  $209 billion by the states. Medicaid was estimated to account for the  second largest share of state spending that year, exceeded only by state  spending on elementary and secondary education. An important health  care safety net, Medicaid covered about 72 million individuals—roughly  one-fifth of the U.S. population—during fiscal year 2013. Medicaid’s  diverse enrollee population includes children, low-income adults,  individuals who are elderly, and those who are disabled. The program  covers a comprehensive set of services, including physician, and  inpatient and outpatient hospital care, and is also a particularly significant  source of health care coverage and financing for certain services. For  example, Medicaid is the nation’s primary payer of long-term services and  supports (LTSS), including nursing home care and home- and  community-based services to allow individuals to age in their homes.
An already large and complex program, Medicaid is undergoing a period  of transformative change, as enrollment is growing under the Patient  Protection and Affordable Care Act (PPACA), and Medicaid spending is  projected to increase by nearly 60 percent by fiscal year 2023.example, PPACA permitted states to expand their Medicaid programs by  covering certain low-income adults not historically eligible for Medicaid  coverage, and more than half of the states have done so. Further, among  other factors, the aging of the population and new developments with  technology are both transforming and challenging Medicaid and the rest  of the U.S. health care system. In addition, changing economic conditions  have influenced the number and mix of individuals who are eligible for  Medicaid coverage, and will continue to do so in the future.
Medicaid is designed as a federal-state partnership, and both the federal  government and the states play important roles in ensuring that Medicaid  is fiscally sustainable over time and effective in meeting the needs of the  vulnerable populations it serves. Medicaid is financed jointly by the  federal government and states, administered at the state level, and  overseen at the federal level by the Centers for Medicare & Medicaid  Services (CMS), within the Department of Health and Human Services  (HHS). Medicaid, by design, allows significant flexibility for states to  design and implement their programs. This has influenced the  development of the program and has resulted in over 50 distinct state- based programs that vary in how health care is delivered, financed,  reimbursed, and overseen. While state flexibility is a key element of the  program, federal oversight is important to help ensure that funds are used  appropriately and that enrollees can access quality care. However, the  size, growth, and diversity of the Medicaid program create significant  challenges for oversight. There is an inherent tension between states’  efforts to design programs that best meet their local needs and federal  efforts to oversee the states’ programs. Attention to the issues facing  Medicaid and the effectiveness of its federal-state partnership will be  important for ensuring that Medicaid is both effective for the enrollees  who rely on it and accountable to the taxpayers.
We have reported over the years on a number of challenges facing  Medicaid, as well as on gaps in federal oversight of the program.report, we describe (1) key issues that face the Medicaid program, based  on our work; and (2) how the high risk nature of Medicaid—and this   In this  period of transformative change in the program—have implications for  federal oversight. We prepared this report under the authority of the  Comptroller General to conduct work at GAO’s initiative to assist  Congress with its oversight responsibilities.
To conduct this work, we reviewed reports on Medicaid that we issued  from January 2005—10 years from when we began this review—through  July 2015, including our most recent high risk update, and identified key  issues facing the program and factors that have implications for federal  oversight. We also reviewed documentation from CMS and interviewed  CMS officials about the status of our prior recommendations, as well as  current CMS efforts related to Medicaid. The issues we discuss are  neither inclusive of all the issues facing Medicaid nor all the issues CMS  faces in its oversight efforts. For a list of related reports, see “Related  GAO Products” at the end of this report. Please see the scope and  methodology for each of these reports for details on how we conducted  that work. In addition, appendix I lists open matters for congressional  consideration and selected open GAO recommendations regarding  Medicaid, as of July 2015. (GAO has made more than 80  recommendations regarding Medicaid since January 2005.)
We conducted this performance audit from January 2015 to July 2015 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.
subsections: section_title: Background
paragraphs: Medicaid finances the delivery of health care services for a diverse low- income and medically needy population. The Social Security Act, which  Congress amended in 1965 to establish the Medicaid program, provides  the statutory framework for the program, setting broad parameters for  states that choose to participate and implement their own Medicaid  programs. CMS is responsible for overseeing state Medicaid programs to  ensure compliance with federal requirements.
subsections: section_title: Medicaid Eligibility, Enrollment, Services, and Expenditures
paragraphs: Historically, Medicaid eligibility has been limited to certain categories of  low-income individuals—such as children, parents, pregnant women,  persons with disabilities, and individuals age 65 and older. In addition to  these historical eligibility standards, PPACA permitted states to expand  their Medicaid programs by covering non-elderly, non-pregnant adults  with incomes at or below 133 percent of the federal poverty level (FPL).  As of May 2015, 29 states, including the District of Columbia, had  expanded their Medicaid programs to cover this new adult group, and one  other state’s proposed expansion was pending federal approval.
Federal law requires state Medicaid programs to cover a wide array of  mandatory services, and permits states to cover additional services at  their option. Consequently, Medicaid generally covers a wide range of  health care services that can be categorized into broad types of  coverage, including hospital care; non-hospital acute care, such as  physician, dental, laboratory, and preventive services; prescription drugs;  and LTSS in institutions and in the community. (See figure 2 for an  overview of Medicaid expenditures by category.)
In recent years, we and others have examined patterns of service  utilization and expenditures within the Medicaid population and found that  enrollment and expenditures vary among the different categories of  enrollees. For example, for fiscal year 2011, children constituted the  largest category of enrollees (47.4 percent), but accounted for a small  share of Medicaid expenditures (19 percent). In that same year, enrollees  with disabilities (14.7 percent of Medicaid enrollees) accounted for the  largest share of Medicaid expenditures (42.7 percent). (See fig. 3.) In  addition, we found that, generally, a small subset of Medicaid enrollees— such as those with institutional care needs or chronic conditions—account  for a large portion of Medicaid expenditures.
section_title: Health Care Delivery Models
paragraphs: States have traditionally provided Medicaid benefits using a fee-for- service system, where health care providers are paid for each service  delivered. However, according to CMS, in the past 15 years, states have  increasingly implemented managed care systems for delivering Medicaid  services. In a managed care delivery system, enrollees obtain some  portion of their Medicaid services from a managed care organization  (MCO) under contract with the state, and capitation payments to MCOs  are typically made on a predetermined, per person per month basis.  Nationally, about 37 percent of Medicaid spending in fiscal year 2014 was  attributable to Medicaid managed care. Many states are expanding their  use of managed care to additional geographic areas and Medicaid  populations. States oversee Medicaid MCOs through contracts and  reporting requirements.
section_title: The Federal-State Partnership
paragraphs: CMS provides oversight and technical assistance for the Medicaid  program, but states are primarily responsible for administering their  respective Medicaid programs’ day-to-day operations—including  determining eligibility, enrolling individuals and providers, and  adjudicating claims—within broad federal requirements. Each state has a  Medicaid state plan that describes how the state will administer its  Medicaid program consistent with federal requirements. States submit  these state plans for approval to CMS, but have significant flexibility to  structure their programs to best suit their needs. In addition, within certain  parameters, states may innovate outside of many of Medicaid’s otherwise  applicable requirements through Medicaid demonstrations, with HHS  approval. For example, states may test ways to obtain savings or  efficiencies in how services are delivered in order to cover otherwise  ineligible services or populations.
section_title: Financing the Medicaid Program
paragraphs: State FMAP = 1.00 – 0.45 (State PCI / U.S. PCI)
Federal law specifies that the regular FMAP will be no lower than   50 percent and no higher than 83 percent. For fiscal year 2015, regular  FMAP rates ranged from 50.00 percent to 73.58 percent.
Under PPACA, state Medicaid expenditures for certain Medicaid  enrollees, newly eligible under the statute, are subject to a higher federal  match. States that choose to expand their Medicaid programs receive an  FMAP of 100 percent beginning in 2014 for expenditures for the PPACA- expansion enrollees—those who were not previously eligible for Medicaid  and are eligible now under PPACA’s expansion of eligibility criteria. The  FMAP is to gradually diminish to 90 percent by 2020. States also receive  an FMAP above the state’s regular match (but below the PPACA- expansion FMAP) for their Medicaid expenditures for the state-expansion  enrollees—those who would not have been eligible for Medicaid prior to  PPACA except that they were covered under a state’s pre-PPACA  “expansion” of eligibility through, for example, a Medicaid  demonstration. This FMAP is to gradually increase and eventually equal  the FMAP for the PPACA-expansion enrollees beginning in 2019. The  formula used to calculate the state-expansion FMAP rates is based on a  state’s regular FMAP rate so the enhanced FMAP rate will vary from state  to state until 2019.
See figure 5 for the variation across states in the regular FMAP; Medicaid  spending, enrollment, and managed care enrollment; and whether the  state had expanded Medicaid coverage to newly eligible adults under  PPACA as of May 2015. See appendix II for the information in tabular  form.
section_title: Key Issues Facing the Medicaid Program
subsections: section_title: Maintaining and Improving Access to Quality Care
paragraphs: Medicaid enrollees report access to medical care that is generally  comparable to that of privately insured individuals. However, some  enrollees may face access challenges, such as in obtaining specialty care   or dental care. CMS has taken steps to help ensure enrollees’ access to  care and additional steps could bolster those efforts. CMS also has  ongoing efforts to collect data from states to help assess Medicaid  enrollees’ access to care, but better data are needed.
Medicaid enrollees report access to care  that is generally comparable to the  privately insured, but some face particular  access challenges.
We have found that Medicaid enrollees report experiencing access to  medical care that is generally comparable to that of privately insured  individuals. For example, according to national survey data, few enrollees  covered by Medicaid for a full year—less than 4 percent—reported  difficulty obtaining necessary medical care or prescription medicine in  2008 and 2009, similar to privately insured individuals. (See fig. 6.)  Regarding children, respondents with children covered by Medicaid  reported positive responses to most questions about their ability to obtain  care, and at levels generally comparable to those with private insurance,  from 2007 through 2010.
Although few Medicaid enrollees report difficulty obtaining necessary care  in general, our work indicates that particular populations can face  particular challenges obtaining care. For example, about 7.8 percent of  working-age adults with full-year Medicaid reported difficulty obtaining  care compared with 3.3 percent of similar adults with private insurance— a statistically significant difference. Some enrollees face particular  challenges, such as accessing services. For example, Medicaid enrollees  were more likely than individuals with private insurance to report factors  such as lack of transportation and long wait times as reasons for delaying  medical care. (See fig. 7.) We have also found that Medicaid-covered  adults may be more likely to have certain health conditions that can be  identified and managed through preventive services, such as obesity and  diabetes, than individuals with private insurance. However, states’  Medicaid coverage of certain preventive services for adults has varied,  which has resulted in different levels of coverage across states.
Specialty care, such as mental health care and dental care, may be  particularly difficult for some Medicaid enrollees to obtain.
Access to Specialty Care, Including Mental Health Care  National surveys of enrollees and our own surveys of state Medicaid  officials and physicians have consistently indicated that Medicaid  enrollees may have difficulty obtaining specialty care, such as mental  health care. In our survey of state Medicaid officials in 2012, for  example, officials in about half of the states reported challenges ensuring  enough participating specialty providers for Medicaid enrollees, such as in  obstetrics and gynecology, surgical specialties, and pediatric services. In  addition, we found that about 21 percent of respondents with Medicaid- covered children reported that it was only sometimes or never easy to see  a specialist, compared to about 13 percent of respondents with privately  insured children, from 2008 through 2010. Our 2010 national survey of  physicians found that specialty physicians were generally more willing to  accept privately insured children as new patients than Medicaid-covered  children; similarly, more physicians reported having difficulty referring  Medicaid-covered children to specialty providers than reported having  difficulty referring privately insured children. (See fig. 8.)
We have also found that both Medicaid-covered adults and children may  face challenges obtaining mental health care. Research has shown that  Medicaid enrollees experience a higher rate of mental health conditions  than those with private insurance. Officials we interviewed from six  states that expanded Medicaid under PPACA generally reported that  Medicaid expansion had increased the availability of mental health  treatment for newly eligible adults, but cited access concerns for new  Medicaid enrollees due to shortages of Medicaid-participating  psychiatrists and psychiatric drug prescribers.survey, state officials reported problems ensuring sufficient psychiatry   In our 2012 national  providers for Medicaid enrollees. Among Medicaid-covered children,  national survey data from 2007 through 2009 indicated that 14 percent of  noninstitutionalized Medicaid-covered children had a potential need for  mental health services, but most of these children did not receive mental  health services. In addition, many Medicaid-covered children who took  psychotropic medications (medications that affect mood, thought, or  behavior) did not receive other mental health services during the same  year.
In December 2011, we reported that Medicaid-covered children in foster care in selected  states were prescribed psychotropic medications at higher rates than nonfoster children in  Medicaid during 2008. In 2012, HHS’s Administration for Children and Families issued  guidance to state agencies seeking to improve their monitoring and oversight practices for  psychotropic medications. See GAO, Foster Children: Additional Federal Guidance Could  Help States Better Plan for Oversight of Psychotropic Medications Administered by  Managed-Care Organizations, GAO-14-362 (Washington, D.C.: April 28, 2014); and  Foster Children: HHS Guidance Could Help States Improve Oversight of Psychotropic  Prescriptions, GAO-12-201 (Washington, D.C.: Dec. 14, 2011). our recommendation in comments on our draft report.CMS indicated that it no longer agreed that additional guidance was  necessary, stating that its existing guidance applied to managed care  settings. We continue to believe that our recommendation is valid. We  found that many states were, or were transitioning to, managed care  organizations to administer prescription-drug benefits, and that selected  states had taken only limited steps to plan for the oversight of drug  prescribing for foster children receiving care through these  organizations—creating a risk that controls instituted under fee-for-service  may not remain once states move to managed care. As we reported,  additional HHS guidance that helps states prepare and implement  monitoring efforts within the context of a managed-care environment  could help ensure appropriate oversight of psychotropic medications to  children in foster care.
In recent years, Medicaid enrollees’ use of dental services increased, but  some access problems persist. We found that while the percentage of  individuals with Medicaid dental coverage who had a dental visit  increased from 28 percent in 1996 to 34 percent in 2010, individuals with  Medicaid dental coverage were still much less likely than privately insured  individuals to have visited the dentist. About two-thirds of Medicaid- covered children, for example, did not visit the dentist at all in 2010, while  most privately insured children did. (See fig. 9.) This difference in use of  dental services persisted despite the fact that Medicaid-covered children  may have a greater need for dental care than privately insured children.  We have found that Medicaid-covered children are almost twice as likely  to have untreated tooth decay as privately insured children. In addition,  states have found it particularly challenging to ensure a sufficient number  of dental providers for Medicaid enrollees.
CMS has taken some steps to address access to dental care, and other  steps could build on those efforts. In 2010, for example, the agency  launched a Children’s Oral Health Initiative that aimed to, among other  things, increase the proportion of Medicaid and State Children’s Health  Insurance Program (CHIP) children who receive a preventive dental  service. In response to our prior recommendations, CMS also took steps  to ensure that states gather information on the provision of Medicaid  dental services by managed care programs, and to improve the accuracy  of the data on HHS’s Insure Kids Now website, which provides state- reported information on dentists who serve children enrolled in Medicaid  and CHIP. We recommended that CMS require states to verify that  dentists listed on the Insure Kids Now website have not been excluded  from Medicaid by HHS, and periodically verify that excluded providers are  not included on the lists of dentists posted by the states. However, CMS  has said that it relies on states to provide accurate lists of eligible dentists  and that data issues prevent the agency from independently verifying that  excluded providers are not included on the website. We continue to  believe that CMS should require states to ensure that excluded providers  are not listed on the website, so that it does not present inaccurate  information about providers available to serve Medicaid-covered children.  We also recommended that for states that provide Medicaid dental  services through managed care organizations, CMS ensure that states  with inadequate managed care dental provider networks take action to   CMS has reported taking steps to improve  strengthen these networks.these networks, including meeting with national dental associations, but  we believe more can be done to identify inadequate networks and, once  inadequate networks are identified, to work with states to strengthen them  to help ensure that they meet the needs of Medicaid enrollees.
subsections: section_title: Better Data Needed to Help Assess and Improve Medicaid Enrollees’ Access to Care
paragraphs: CMS has ongoing efforts to collect data from states to help assess  Medicaid enrollees’ access to care and identify areas for improvement.  States are required to submit certain types of data to CMS, and they can  opt to submit other types of data. For example, states are required to  submit reports on the provision of certain services for eligible children, as  part of the Early and Periodic Screening, Diagnostic, and Treatment  (EPSDT) benefit. These reports, known as CMS 416 reports, include  such information as the number of children receiving well-child checkups  and the number of children referred for treatment services for conditions  identified during well-child checkups. CMS has used these reports to  identify states with low reported rates of service provision, to help identify  state Medicaid programs needing improvements. In addition, states  voluntarily report Child Core Set measures, which assess the quality of  care provided through Medicaid and CHIP, and include, for example,  measures of access to primary care and the receipt of follow-up care for  children prescribed attention deficit hyperactivity disorder medication.  Also, states that use managed care plans to deliver services for Medicaid  and CHIP enrollees are required to annually review these plans to  evaluate the quality, timeliness, and access to services that the plans  provide—and submit their “external quality review” reports to CMS.
In 2011, we reported on problems and gaps in the required CMS 416  reports. We found that states sometimes made reporting errors, and in  some cases those errors overstated the extent to which children received  well-child checkups. In addition, states did not always report required data on how many Medicaid-covered children were referred for additional  services to address conditions identified through check-ups. Finally, we  found that CMS did not require states to report information on whether  Medicaid-covered children actually received services for which they were  referred—or to report information separately for children in managed care  versus those in fee-for-service systems.
CMS has since taken steps to improve the CMS 416 data, and we believe  more can be done, as discussed below.
In response to our recommendation that CMS establish a plan to  review the accuracy and completeness of the CMS 416 data and  ensure that problems are corrected, CMS has established an  automated quality assurance process to identify obvious reporting  errors and as of March 2015 was developing training for state staff  responsible for the data.
We also recommended that CMS work with states to explore options  for capturing information on children’s receipt of services for which  they were referred. The agency has issued guidance to states about  how to report referrals for health care services, but has not required  states to report whether children receive services for which they are  referred. CMS officials noted that data collection tools other than the  CMS 416 reports, such as the Child Core Set measures, provide CMS  with information on whether children are receiving needed care—and  that HHS was developing additional measures to help fill gaps in  assessing children’s care. While these are positive steps, we have  noted that CMS’s ability to monitor children’s access to services is  dependent on consistent, reliable, complete, and sufficiently detailed  data from each state. The Child Core Set measures, for example,  are voluntarily reported by states, and we have reported that although  the number of states reporting measures has increased in recent  years, that states have varied considerably in the number of  measures they reported. We continue to believe that information on  whether children receive services for which they are referred is  important for monitoring and ensuring their access to care.
We also recommended that CMS work with states to explore options  for reporting on the receipt of services separately for children in  managed care and fee-for-service delivery models. However, CMS  officials indicated that they do not plan to require states to report such  information, in part, to limit the reporting burden for states. CMS  officials added that the states report information on children’s access  to care through their managed care external quality review reports.  While this is a positive step, these reports do not represent a  consistent set of measures used by all states that CMS can use for  oversight purposes. We continue to believe that having accurate and  complete information on children’s access to health services, by  delivery model, is an important element of monitoring and ensuring  access to care and that CMS should fully implement this  recommendation.
Our 2015 report on managed care services used by Medicaid enrollees in  19 states highlighted the importance of having reliable data to help  understand patterns of managed care utilization and the impact that  managed care delivery models may have on enrollees’ access to care.  We found that the number of managed care services used by adult and  child enrollees varied by state, population, type of service, and whether  enrollees were enrolled in comprehensive managed care plans for all or  part of the year. For example, the number of services per enrollee per  year for adults ranged from about 13 to 55 services per enrollee per year,  across the 19 states. (See fig. 10.) With regard to children, in almost  every selected state, the total service utilization was higher for children  who were enrolled in comprehensive managed care for less than the full  year, when compared with those enrolled for a full year. This type of  information can be useful for understanding access to care among  enrollees in Medicaid managed care plans. A detailed, interactive display  of the data used to support our findings is available at  http://www.gao.gov/products/GAO-15-481.
section_title: Ensuring Fiscal Accountability through Increased Transparency and Improved Oversight
paragraphs: Given Medicaid’s size, complexity, and diversity, transparency in how  funds are used is critical to ensuring fiscal accountability. However, a lack  of reliable CMS data about program payments and state financing of the  non-federal share of Medicaid hinders oversight, and our work has  pointed to the need for better data, as well as improved policy and   oversight, to ensure that funds are being used appropriately and  efficiently. In addition, gaps in HHS’s criteria, process, and policy for  approving states’ demonstration spending raise questions about billions  of dollars in federal spending. While HHS and CMS have taken important  steps in recent years to improve transparency, oversight, and fiscal  accountability, more can be done to build on those efforts.
Improving HHS’s review and approval  process for demonstration spending may  prevent unnecessary federal spending.
Data limitations hinder the transparency of program payments and state  financing sources, and hinder federal oversight.
Federal Data on Program Payments  CMS does not have the complete and reliable data needed to understand  the payments states make to individual providers, nor does it have a  transparent policy and standard process for assessing whether those  payments are appropriate. States have considerable flexibility in setting  payment rates that providers, such as hospitals, receive for services  rendered to individual Medicaid enrollees. In addition to these regular  claims-based payments, states may make (and obtain federal matching  funds for) payments to certain providers that are not specifically linked to  services Medicaid enrollees receive. These payments can help offset any  remaining costs of care for Medicaid patients, and in some cases can  be used to offset costs incurred treating uninsured patients. These types  of payments are known as supplemental payments, which include  disproportionate share hospital (DSH) payments and other payments,  such as those known as Medicaid upper payment limit (UPL)  supplemental payments. States have some flexibility in how they  distribute supplemental payments to individual providers. However,  Medicaid payments to providers should not be excessive, as the law  states that they must be “economical and efficient.”
We have had longstanding concerns about federal oversight of  supplemental payments, which our work has found to be a significant and  growing component of Medicaid spending, totaling at least $43 billion in  fiscal year 2011.  CMS oversight of provider supplemental payments is  limited because the agency does not require states to report provider- specific data on these payments, nor does it have a policy and standard  process for determining whether Medicaid payments to individual  providers are economical and efficient. States may have incentives to  make excessive Medicaid payments to certain institutional providers,  such as local government hospitals needing or receiving financial support  from the state. Absent a process to review these payments—and absent  data on total payments individual providers receive—the agency may not  identify potentially excessive payments to providers, and the federal  government could be paying states hundreds of millions—or billions—of  dollars more than what is appropriate, as shown in the examples below.
section_title: Improving Program Integrity
paragraphs: Additional actions needed to identify and
Efforts to ensure only eligible individuals  and providers participate in Medicaid can  be improved.
The federal government and the states both play important roles in  ensuring that Medicaid payments made to health care providers and  managed care organizations are correct and appropriate. The size and   diversity of the Medicaid program make it particularly vulnerable to  improper payments—including payments made for treatments or services  that were not covered by program rules, that were not medically  necessary, or that were billed for but never provided. Medicaid improper  payments are a significant cost to Medicaid—totaling an estimated   $17.5 billion in fiscal year 2014, according to HHS. Due to our concerns  about Medicaid’s improper payment rate and the sufficiency of federal  and state oversight, we added Medicaid to our list of high-risk programs in  2003.appropriate use of funds by (1) identifying and preventing improper  payments in both fee-for-service and managed care, (2) setting  appropriate payment rates for managed care organizations, and   (3) ensuring only eligible individuals and providers participate in Medicaid.
subsections: section_title: Additional Actions Needed to Identify and Prevent Improper Payments
paragraphs: Responsibility for program integrity activities is spread across multiple  state and federal entities, resulting in fragmented efforts, creating the  potential for unnecessary duplication, which we have previously identified  in some areas, as well as program areas not being covered. The  combined federal and state efforts have recovered only a small portion of  the estimated improper payments in Medicaid, and the Medicaid improper   These factors, coupled with recent  payment rate has recently increased.and projected increases in Medicaid spending, heighten the importance of  coordinated and cost-effective program integrity efforts. CMS has taken  many important steps in recent years to help improve program integrity— including some in response to our recommendations—and we believe  even more can be done in this area.
Coordinating to Minimize Duplication and Ensure Coverage  Our work has highlighted how careful coordination of federal and state  efforts is necessary to both avoid duplication and ensure maximum  program coverage. Given the number of entities involved in program  integrity efforts, coordination among entities is critical. (See fig. 14.)  Without careful coordination, the involvement of multiple state and federal  entities in Medicaid program integrity results in fragmented efforts,  possibly leaving some program areas insufficiently covered.
In 2014, we reported a gap in oversight of the growing expenditures on  Medicaid managed care, which constituted over a quarter of federal  Medicaid expenditures in 2011. In particular, we found that the federal  government and the states were not well positioned to identify improper  payments made to—or by—managed care organizations. We found that  CMS had largely delegated managed care program integrity oversight  activities to the states, but states generally focused their efforts on fee- for-service claims. We concluded that further federal and state oversight,  coupled with additional federal guidance and support to states, could help  ensure that managed care organizations are taking appropriate actions to  identify and prevent improper payments. Specifically, we recommended  that CMS   1.  require states to conduct audits of payments to and by managed care  2.  update CMS’s Medicaid managed care guidance on program integrity  practices and effective handling of recoveries by managed care plans;  and  3.  provide states with additional support in overseeing Medicaid  managed care program integrity, such as the option to obtain audit  assistance from existing Medicaid integrity contractors.
CMS generally agreed with our recommendations, and has taken steps to  provide states with additional guidance. In October 2014, CMS made  available on its website the managed care plan compliance toolkit to  provide further guidance to states and managed care plans on identifying  improper payments to providers. In addition, agency officials told us that,  as of December 2014, at least six states were using their audit  contractors to audit managed care claims. While CMS has taken steps to  improve oversight of Medicaid managed care, the lack of a  comprehensive program integrity strategy for managed care leaves a  growing portion of Medicaid funds at risk. In our view, CMS actions to  require states to conduct audits of payments to and by managed care  organizations, and to update guidance on Medicaid managed care  program integrity practices and recoveries, are crucial to improving  program integrity, and we will continue to follow CMS’s actions in this  area. (Appendix I includes our open recommendations regarding  Medicaid improper payments, which we believe could help reduce  improper payments if implemented.)
On June 1, 2015, the agency issued a proposed rule to revise program  integrity policies, including policy measures that we have  recommended. Among other measures, if finalized, the rule would  require states to conduct audits of managed care organizations’  encounter and financial data every three years. Additionally, the proposed  rule would standardize the treatment of recovered overpayments by  plans.
Our work has highlighted the importance of focusing state and federal  resources on cost-effective efforts to identify improper payments. States’  information systems are a key component of program integrity activities,  and states’ program integrity efforts include  receiving, reviewing, and paying Medicaid claims; and auditing claims payments after the fact.
Consistent with the requirements defined by CMS, states use Medicaid  Management Information Systems (MMIS) provider and claims  processing subsystems to perform program integrity activities related to  provider enrollment and prepayment review. (See fig. 15.)
Our work has shown that the effectiveness of states’ information systems  used for program integrity purposes is uncertain. In 2015, we reviewed  10 states’ use of information technology systems to support efforts aimed  at preventing and detecting improper payments. These states’ information  systems ranged in age and capability, with 3 of the 10 states’ operating  systems being more than 20 years old. However, the effectiveness of the  states’ use of the systems for program integrity purposes is not known,  and we recommended that CMS require states to measure and report  quantifiable benefits of program integrity systems when requesting federal  funds, and to reflect their approach for doing so. CMS concurred with  these recommendations.
In our past work, we also recommended—and CMS acted on—other  measures to streamline program integrity efforts, as shown in the  following examples.
CMS’s hiring of separate review and audit contractors for its program  integrity efforts was inefficient and led to duplication because key  functions—such as assessing whether payments were improper and  learning states’ Medicaid policies—were performed by both  contractors. We recommended that CMS eliminate duplication  between the separate contractors, which CMS did in conjunction with  the agency’s redesign of its Medicaid Integrity Program. This redesign  eliminated the review contractor function and included a more  collaborative and coordinated audit approach that leverages state  expertise to identify potential audit targets, and relies on more  complete and up-to-date state Medicaid claims data.
Two CMS oversight tools—the state comprehensive reviews and the  state program integrity assessments—were duplicative because both  tools were used to collect similar information from the states.  Furthermore, we found that the state program integrity assessments  contained unverified and inaccurate data. We recommended that  CMS eliminate this duplication, and CMS subsequently discontinued  the state program integrity assessments.
CMS’s comprehensive reviews of states’ program integrity efforts  contained important information about all aspects of states’ program  integrity capabilities. However, we found no apparent connection  between the reviews’ findings and CMS’s selection of states for  audits. We recommended that CMS use the knowledge gained from  the comprehensive reviews as a criterion for focusing audit resources  toward states with structural or data-analysis vulnerabilities. CMS  agreed and, among other steps, in 2013 redesigned the reviews to  streamline the process, reduce the burden on states, and refocus the  reviews on risk-assessment.
Ensuring Medicaid Remains a Payer of Last Resort  CMS and the states must ensure that if Medicaid enrollees have another  source of health care coverage, that source should pay, to the extent of  its liability, before Medicaid does. Medicaid enrollees may have health  care coverage through third parties—such as private health insurers—for  a number of reasons. For example, some adults may be covered by  employer-sponsored insurance even though they qualify for Medicaid.  Similarly, children may be eligible for Medicaid while being covered under  a parent’s health plan. Figure 16 shows the estimated prevalence of  private health insurance among Medicaid enrollees.
In 2015, we found that states had adopted various approaches to identify  enrollees with other insurance than Medicaid, and states were working to  ensure that these third parties paid for health care services to the extent  of their liability before Medicaid. However, these states needed additional  CMS guidance and support in these efforts.CMS play a more active leadership role in monitoring, supporting, and  promoting state third-party liability efforts. Specifically, we recommended  that CMS  1.  routinely monitor and share across all states information regarding  key third-party liability efforts and challenges, and  2.  provide guidance to states on their oversight of third-party liability  efforts conducted by Medicaid managed care plans.
CMS concurred with our recommendations, and stated that it would  continue to look at ways to provide guidance to states to allow for sharing  of effective practices and to increase awareness of initiatives under  development in states. CMS also stated that it would explore the need for  additional guidance regarding state oversight of third-party liability efforts  conducted by Medicaid managed care plans. In the preamble to the   June 1, 2015, proposed rule, the agency indicated it plans to issue  guidance, which would require managed care plans to include information  on third-party liability amounts in the encounter data submitted to states.  We will continue to follow CMS’s actions in this area.
section_title: Ongoing Efforts to Improve Oversight of Managed Care Payment Rates Are Important for Ensuring Rates Are Appropriate
paragraphs: Managed care is designed to ensure the provision of appropriate health  care services in a cost-efficient manner. However, the design of capitation  payments, which are made prospectively to health plans to provide or  arrange for services for Medicaid enrollees, can create incentives that  adversely affect program integrity and patient care. For example, these  payments may create an incentive to underserve or deny access to  needed care. Thus, appropriate safeguards are needed to ensure access  to care and appropriate payment in Medicaid managed care.
In 2010, we found that CMS’s oversight of states’ Medicaid managed care  rate setting methodologies was not consistent across its regional offices,  and that in assessing the quality of the data used to set rates, the agency  primarily relied on state and health plan assurances, thereby placing  billions of federal and state dollars at risk. We found significant gaps in  CMS’s oversight. For example, in one instance, the agency had not  reviewed one state’s rate setting for multiple years, resulting in the state  receiving approximately $5 billion a year in federal funds for three years  without having had its rates reviewed by CMS. We also found that  regional offices varied in their interpretations of how extensive a review of  states’ rate setting was needed and the sufficiency of evidence for  meeting actuarial soundness requirements, among other things. We  recommended that CMS  1.  implement a mechanism to track state compliance with requirements,  2.  clarify guidance on rate-setting reviews, and  3.  make use of information on data quality in determining the  appropriateness of managed care capitation rates.
As a result of our work, CMS implemented a detailed checklist to  standardize the regional offices’ reviews. CMS has also taken a number  of other steps to improve its oversight of states’ rate setting.
In 2014, CMS completed its development of a database to track  contracts, including rate-setting reviews. According to agency officials,  as of March 2015, 57 rate submissions had been submitted to the  database and were undergoing review by CMS’s Office of the Actuary  and the Division of Managed Care Plans.
CMS officials reported that the agency had developed a managed  care program review manual, which included modules on financial  oversight, and had updated rate setting and contract review tools.
In 2014, the agency released its 2015 Managed Care Rate Setting  Consultation Guide, which clarified the agency’s requirements relating  to the information states must submit in developing their rate  certifications, including a description of the type, sources, and quality  of the data used by the state in setting its rates.
On June 1, 2015, the agency issued a proposed rule that, if finalized,  would make changes to Medicaid managed care rate setting, such as  requiring more consistent and transparent documentation of the rate  setting process to allow for more effective reviews of states’ rate  certification submissions. We will continue to follow CMS’s actions in  this area.
section_title: Efforts to Ensure Only Eligible Individuals and Providers Participate in Medicaid Can Be Improved
paragraphs: Both CMS and the states play an important role in ensuring that only  eligible individuals receive Medicaid coverage and that only eligible  providers receive payment. Our work has highlighted several issues  facing CMS and the states in their efforts to minimize fraud in Medicaid  eligibility among both enrollees and providers.
To be eligible for Medicaid coverage, applicants must meet financial and  nonfinancial requirements, such as federal and state requirements  regarding residency, immigration status, and documentation of U.S.  citizenship. Similarly, to participate in Medicaid, providers must enroll and  submit information about their ownership interests and criminal  background. States must screen potential Medicaid providers, search  exclusion and debarment lists, and take action to exclude those providers  who appear on those lists. Using 2011 data, we recently identified  indications of potentially fraudulent or improper payments related to  certain Medicaid enrollees and paid to some providers, as shown in our  review of approximately 9 million enrollees in four states and summarized  below. While these cases indicate only potentially improper payments,  they raise questions about the effectiveness of beneficiary and provider  enrollment screening controls.
We identified about 8,600 enrollees who had payments made on their  behalf concurrently by two or more of our selected states.approved benefits of at least $18.3 million for these enrollees in these  states.
We identified about 200 deceased enrollees in the four states who  appear to have received Medicaid benefits totaling at least   $9.6 million. Specifically, our analysis matching Medicaid data to the  Social Security Administration’s data on date of death found these  individuals were deceased before the Medicaid service was provided.
We found that about 50 medical providers in the four states we  examined had been excluded from federal health care programs,  including Medicaid; these providers were excluded from these  programs when they provided and billed for Medicaid services during  fiscal year 2011. The selected states approved the claims at a cost of  about $60,000.
We found that the identities of over 50 deceased providers in the four  states we examined were used to receive Medicaid payments. Our  analysis matching Medicaid eligibility and claims data to the Social  Security Administration’s full death file found these individuals were  deceased before the Medicaid service was provided. The Medicaid  benefits involved with these deceased providers totaled at least  $240,000 for fiscal year 2011.
We found nearly 26,600 providers with addresses that did not match  any U.S. Postal Service records. These unknown addresses may  have errors due to inaccurate data entry or differences in the ages of  MMIS and U.S. Postal Service address-management tool data,  making it difficult to determine whether these cases involve fraud  through data matching alone.
CMS has taken steps since 2011 to strengthen the Medicaid beneficiary  and provider enrollment-screening controls in ways that may address the  issues we identified, and we believe that additional CMS guidance could  bolster those efforts. In 2013, CMS issued federal regulations, in  response to PPACA, to establish a more rigorous approach to verify the  information needed to determine Medicaid eligibility. Under these  regulations, states are required to use electronic data maintained by the  federal government to the extent that such information may be useful in  verifying eligibility. CMS created a tool called the Data Services Hub,  implemented in fiscal year 2014, to help verify some of the information  used to determine eligibility for Medicaid and other health programs.  States are to use the hub to both verify an individual’s eligibility when they  receive an application, and to reverify eligibility on at least an annual  basis thereafter, unless the state has an alternative mechanism approved  by HHS. In addition, in February 2011, CMS and HHS’s Office of  Inspector General issued regulations establishing a new risk-based  screening process for providers with enhanced verification measures,  such as unscheduled or unannounced site visits and fingerprint-based  criminal background checks. If properly implemented by CMS, the hub  and the additional provider screening measures could help mitigate some  of the potential improper payment issues that we identified. However, we  identified gaps in state practices for identifying deceased enrollees, as  well as state challenges in screening providers effectively and  efficiently, and recommended that CMS provide guidance to states to  better  1.  identify enrollees who are deceased, and  2.  screen providers by using automated information available through  Medicare’s enrollment database.
HHS concurred with our recommendations and stated it would work with  states to determine additional approaches to better identify deceased  enrollees, and that it would continue to educate states about the  availability of provider information and how to use that information to help  screen Medicaid providers more effectively and efficiently. We will  continue to monitor HHS’s efforts in this area.
section_title: Addressing Variations in States’ Financing Needs through Revised Federal Financing Approach
paragraphs: Medicaid’s federal-state partnership could be improved through a revised  federal financing approach that better addresses variations in states’  financing needs. First, automatically providing increased federal financial  assistance to states affected by national economic downturns—through  an increased FMAP—could help provide timely and targeted assistance   that is more responsive to states’ economic conditions. Second, revisions  to the current FMAP formula could more equitably allocate Medicaid  funds to states by better accounting for their ability to fund Medicaid.  These improvements could better align federal funding with each state’s  resources, demand for services, and costs; better facilitate state budget  planning; and provide states with greater fiscal stability during times of  economic stress. assistance would better aid states during  economic downturns.  better reflect states’ varying ability to fund  Medicaid.
Economic downturns can hamper states’ ability to fund their Medicaid  programs. During economic downturns, states’ employment and tax  revenues typically fall, while enrollment in the Medicaid program tends to  increase as the number of individuals with incomes low enough to qualify  for Medicaid coverage rises. We have reported that each state, however,  can experience different economic circumstances—and thus different  levels of change in Medicaid enrollment and state revenues during a  downturn. Figures 17 and 18 show the percentage change in Medicaid  enrollment and state tax revenue, by state, respectively.
In response to the two most recent recessions, Congress acted to  temporarily increase support to states by increasing the federal share of  Medicaid funding provided by the FMAP formula.
Following the 2001 recession, the Jobs and Growth Tax Relief  Reconciliation Act of 2003 provided states $10 billion in temporary  assistance through an increased FMAP.
In response to the 2007 recession, the American Recovery and  Reinvestment Act of 2009 (Recovery Act) provided states with   $89 billion through a temporarily increased FMAP. Under the  Recovery Act, the level of funding was intended to help both maintain  state Medicaid programs so enrollees would be assured continuity of  services—and to assist states with fiscal needs beyond Medicaid.
Our prior work, however, found that these efforts to provide states with  temporary increases in the FMAP were not as responsive to states’  economic conditions as they could have been. Improving the  responsiveness of federal assistance to states during economic  downturns would facilitate state budget planning, provide states with  greater fiscal stability, and better align federal assistance with the  magnitude of the economic downturn’s effects on individual states. We  have identified opportunities to improve the timing, amount, and duration  of assistance provided, as detailed below.
Automatic and timely trigger for starting assistance. To be  effective at stabilizing state funding of Medicaid programs, assistance  should be provided close to the beginning of a downturn. An  automatically activated, prearranged mechanism for triggering federal  assistance could use readily available economic data to begin  assistance rather than rely on legislative action at the time of a future  national economic downturn.
Targeted assistance based on state needs. States’ efforts to fund  Medicaid during economic downturns face two main challenges:   (1) financing increased enrollment, and (2) replacing lost revenue. We  found that better targeting of assistance based on each state’s level of  need could help ensure that federal assistance is aligned with the  magnitude of an economic downturn’s effect on individual states.
Timely and tapered end of assistance. Determining when and how  to end increased FMAP assistance to states is complicated.found that more gradually reducing the percentage of increased  FMAP provided to states could help mitigate the effects of a slower  recovery. Such tapered assistance would avoid abrupt changes and  allow states to plan their transitions back to greater reliance on their  own revenues.
See GAO-12-38. that policymakers could adjust depending on circumstances, such as  competing budget demands and other state fiscal needs beyond  Medicaid.
We compared this prototype formula with assistance provided during the  Recovery Act. Under our prototype formula, assistance would have begun  in January 2008 rather than in October 2008, as was the case under the  Recovery Act; the end of assistance would have been triggered in April  2011, and assistance would have been phased out by September 2011,  rather than in June 2011 under the Recovery Act and its extension.
Based on our work, we noted that Congress could consider enacting an  FMAP formula that is targeted for variable state Medicaid needs and  provides automatic, timely, and temporary increased FMAP assistance in  response to national economic downturns. As of July 2015, Congress has  not enacted such a formula. In commenting on drafts of our 2011 reports,  HHS agreed with the analysis and goals of the reports, emphasized the  importance of aligning changes to the FMAP formula with individual state  circumstances, and offered several considerations to guide policy choices  regarding appropriate thresholds for timing and targeting of increased  FMAP funds.
subsections: section_title: More Equitable Funding Formula Would Better Reflect States’ Varying Ability to Fund Medicaid
paragraphs: In prior work spanning more than three decades, we have emphasized  that in federal-state programs such as Medicaid, funds should be  allocated to states in a manner that is equitable from the perspective of  both enrollees and taxpayers.
To be equitable from the perspective of enrollees, and thereby allow  states to provide a comparable level of services to each person in  need, a funding allocation mechanism should take into account the  demand for services in each state—which depends on both the  number of people needing services and their level of need—and  geographic cost differences among states.
To be equitable from the perspective of taxpayers, an allocation  mechanism should ensure that taxpayers in poorer states are not  more heavily burdened than those in wealthier ones. To account for  states’ relative wealth, a mechanism must take into account each  state’s ability to finance its share of program costs from its own  resources, which should account for all potentially taxable income,  including personal income of state residents and corporate income.
Our prior work has found that the current FMAP formula does not  adequately address variation in the demand for services in each state,  geographic cost differences, and state resources. The FMAP formula  uses per capita income as the basis for calculating each state’s federal  matching rate. However, per capita income is a poor proxy for the size of  a state’s population in need of Medicaid services, as two states with  similar per capita incomes can have substantially different numbers of   Per capita income also does not include any  low-income residents.measure of geographic differences in the costs of providing health care  services, which can vary widely. Finally, although per capita income  measures the income received by state residents—such as wages, rents,  and interest income—it does not include other components of a state’s  resources that affect its ability to finance Medicaid, such as corporate  income produced within the state, but not received by state residents.
In 2013, we identified multiple alternative data sources that could be used  to develop measures of the demand for Medicaid services, geographic  cost differences, and state resources. These measures could be  combined in various ways to provide a basis for allocating Medicaid funds  more equitably among states. (See table 2.)
section_title: Medicaid’s Ongoing Transformation Highlights the Importance of Federal Oversight
paragraphs: We have reported over the years on challenges facing the Medicaid  program and concerns about the adequacy of federal oversight. As  previously discussed, in 2003, we designated Medicaid as a high-risk  program due to its size, growth, diversity of programs, and concerns  about gaps in oversight. More than a decade later, those factors  remain relevant for federal oversight. In addition, state Medicaid programs  are changing rapidly. PPACA has led to unprecedented programmatic  changes, and more are anticipated as states continue to pursue new  options available under the law to expand eligibility and restructure  payment and health care delivery systems. The effects of changes  brought on by PPACA, as well as the aging of the U.S. population, will  continue to emerge in the coming years and are likely to exacerbate the  challenges that already exist in federal oversight and management of the  Medicaid program.delivery and payment approaches, as well as new technologies, will  continue to pose challenges to federal oversight and management. These  changes have implications for enrollees and for program costs, and  underscore the importance of ongoing attention to federal oversight  efforts.
In addition, other changes in states’ health care  Emerging changes brought on by PPACA will transform states’ enrollment  processes, as well as increase enrollment and program spending.  Oversight to monitor access and use of services will be critical.
Enrollment processes. PPACA required the establishment of a  coordinated eligibility and enrollment process for Medicaid, CHIP, and  the health insurance exchanges. To implement this process— referred to as the “no wrong door” policy—states were required to  develop IT systems that allow for the exchange of data to ensure that  applicants are enrolled in the program for which they are eligible,  regardless of the program for which they applied. We found that some  states struggled with meeting the requirement to transfer—send and  receive—applications with the federally facilitated exchange.
Increased enrollment. Enrollment is expected to increase  significantly, even in states that do not implement the expansion, as  streamlined processes and publicity about the expansion encourage  enrollment among previously eligible but unenrolled adults and  children. The sheer number of additional enrollees—about 10 million  by 2020, according to Congressional Budget Office (CBO)  estimates—may stretch health care resources and exacerbate  challenges to ensuring access to care.
Increased spending. Over the next 5 years, Medicaid expenditures  are expected to increase more rapidly than in the prior 10 years, rising  from an estimated $529 billion in combined federal and state spending  in 2015 to about $700 billion in 2020, due, in part, to the continuing  implementation of PPACA.  The federal share of expenditures,  which has historically averaged about 57 percent, is projected to  increase as well, to about 60 percent, largely because of the  enhanced federal match required under PPACA for newly eligible  enrollees.
While expenditures grew at an average annual rate of 5.3 percent between 2005 and  2015, the CMS Office of the Actuary has projected that the rate of increase will rise to   5.8 percent between 2015 and 2020. See CMS, 2014 Actuarial Report on the Financial  Outlook for Medicaid. spending, including supplemental payments that states often make to  institutional providers, would help to ensure the fiscal accountability and  integrity of the program, facilitate efforts to manage program costs, and  provide information needed for policy making. Lastly, improved federal  program integrity efforts will be critical to ensuring the appropriate use of  program funds.
Continued increases in states’ demonstration spending, changes in  states’ delivery systems and payment approaches, as well as the aging of  the population and the introduction of new technologies also will continue  to pose challenges to federal oversight.
Increased demonstration spending. Medicaid spending governed  by the terms and conditions of Medicaid demonstrations, rather than  traditional Medicaid state plan requirements, accounted for close to  one-third of federal Medicaid spending in 2014—up from one-fourth of  federal Medicaid spending in 2013 and one-fifth in 2011. The trend  among states to seek flexibilities under the demonstration authority  has implications for enrollees’ access and program spending. For  example, enrollees may lose protections—such as those to limit cost- sharing or to provide certain mandatory benefits—under the traditional  Medicaid program. The federal government will need to oversee  increasingly diverse Medicaid programs not subject to traditional  Medicaid requirements. As of February 2015, HHS had approved  demonstration proposals from two states—Arkansas and Iowa— allowing them to provide coverage to some or all of their expansion  populations through premium assistance to purchase private health  insurance on exchanges established under PPACA.
Changes in states’ delivery systems. Growth of managed care and  states’ exploration of new models of health care delivery systems,  particularly for long-term services and supports, will further heighten  the need for program oversight.
Enrollment of Medicaid populations in managed care  arrangements continues to grow, with attendant challenges for  program oversight. Over the next 5 years, expenditures for  capitation payments and premiums are projected to grow more  rapidly than total Medicaid expenditures. We have found  weaknesses in CMS and state oversight of managed care. The  HHS Office of Inspector General has also documented  weaknesses in state standards, as well as significant issues with  the availability of providers, and called for CMS to work with states  to improve oversight of managed care plans.
Recent state efforts to explore new health care models have  implications for federal oversight of enrollees’ care and program  costs. In July 2012, CMS announced a major initiative to support  state design and testing of innovative health care payment and  service delivery models intended to enhance quality of care and  lower costs for enrollees in Medicaid, CHIP, and Medicare, as well  as other state residents. Beginning in 2017, states may embark on  even more ambitious efforts to reshape their payment and delivery  systems.
The past two decades have seen a marked shift in where and how  long term care services are delivered to disabled and aged  enrollees, with care increasingly being provided in home- and  community-based settings rather than in institutions such as  nursing homes. In fiscal year 2011, about 45 percent of long term  care spending was for home- and community-based services, up  from 32 percent in 2002. As the population ages—and particularly  as the number of people over age 85 increases—Medicaid  expenditures on these services are predicted to grow.
New technology. New developments in technology, such as  innovations in health care treatments and telemedicine, are likely to  influence how state Medicaid programs deliver and pay for care— raising implications for federal oversight of access to care and costs.
In 2008, CBO concluded from its review of the economic literature  that roughly half of the increase in health care spending during the  past several decades was associated with the expanded  capabilities of medicine brought about by technological advances,  including new drugs, devices, or services, as well as new clinical  applications of existing technologies.
The potential for new technologies to contribute significantly to  long-term health care spending growth poses particular  challenges for the Medicaid program. State Medicaid directors  have highlighted as a critical concern the emergence of high-cost,  cutting-edge pharmaceuticals, in light of the requirement that state  Medicaid programs that cover outpatient drugs must cover nearly  all Food and Drug Administration-approved prescription drugs of  manufacturers that participate in the Medicaid drug rebate  program.
These changes underscore the importance of addressing problems we  have identified in ensuring fiscal accountability, program integrity, and  access. For example, as additional states submit demonstration  proposals—and as the demonstrations HHS has already approved come  up for renewal—the concerns and recommendations that we have raised  about HHS approving demonstrations without assurances that they will  not increase federal expenditures are likely to persist or increase. The  potential for sweeping changes in state Medicaid programs’ payment and  service delivery systems has implications for enrollees’ access to and  quality of care, and for program costs. Increasing enrollment in managed  care arrangements may heighten concerns about access to care and  program integrity within these arrangements. We have made  recommendations to HHS that could help address concerns we have  raised in these areas.
Attention to Medicaid’s transformation and the key issues facing the  program will be important to ensuring that Medicaid is both effective for  the enrollees who rely on it and accountable to the taxpayers. GAO has  multiple ongoing studies in these areas and will continue to monitor the  Medicaid program for the Congress.
section_title: Agency Comments
paragraphs: We provided a draft of this report to HHS for review. HHS provided  technical comments, which we incorporated as appropriate.
We are sending copies of this report to the Secretary of Health and  Human Services, Administrator of CMS, and other interested parties. In  addition, the report will be available at no charge on the GAO website at  http://www.gao.gov.
If you or your staff have any questions about this report, please   contact Katherine M. Iritani at (202) 512-7114 or iritanik@gao.gov or  Carolyn L. Yocom at (202) 512-7114 or yocomc@gao.gov. Contact   points for our Offices of Congressional Relations and Public Affairs   may be found on the last page of this report. GAO staff who made   key contributions to this report are listed in appendix III.
section_title: Appendix I: Medicaid-Related Matters for Congressional Consideration and Agency Recommendations
paragraphs: The following table lists Medicaid-related matters for congressional  consideration GAO has published that are classified as open because  Congress has either not taken or has not completed steps to implement  the matter. The matters are listed by key issue and report.
The following table lists selected Medicaid-related recommendations  GAO has made to the Department of Health and Human Services that are  classified as open because the agency has either not taken or has not  completed steps to implement the recommendation. The  recommendations are listed by key issue and report.
section_title: Appendix II: Selected Characteristics of States’ Medicaid Programs
subsections: section_title: Regular FMAP rate in 2015 68.99
section_title: Regular FMAP rate in 2015 65.88
paragraphs: MACPAC did not report managed care information for Maine, Tennessee, or Vermont due to data  issues.
section_title: Appendix III: GAO Contacts and Staff Acknowledgments
subsections: section_title: GAO Contacts
section_title: Staff Acknowledgements
paragraphs: In addition to the contacts named above, Robert Copeland, Assistant  Director; Robin Burke; Nancy Fasciano; Sandra George; Drew Long;  Jasleen Modi; Giao N. Nguyen; Vikki Porter; and Emily Wilson made key  contributions to this report.
section_title: Related GAO Products
paragraphs: The following are selected GAO products pertinent to the key issues  discussed in this report. Other products may be found at GAO’s web site  at www.gao.gov.
subsections: section_title: Maintaining and Improving Access to Quality Care
paragraphs: Behavioral Health: Options for Low-Income Adults to Receive Treatment  in Selected States. GAO-15-449. Washington, D.C.: June 19, 2015.
Medicaid: Service Utilization Patterns for Beneficiaries in Managed Care.   GAO-15-481. Washington, D.C.: May 29, 2015.
Children’s Health Insurance Program: Effects on Coverage and Access,  and Considerations for Extending Funding. GAO-15-348. Washington,  D.C.: February 27, 2015.
Foster Children: Additional Federal Guidance Could Help States Better  Plan for Oversight of Psychotropic Medications Administered by  Managed-Care Organizations. GAO-14-362. Washington, D.C.:   April 28, 2014.
Children’s Health Insurance: Information on Coverage of Services, Costs  to Consumers, and Access to Care in CHIP and Other Sources of  Insurance. GAO-14-40. Washington, D.C.: November 21, 2013.
Dental Services: Information on Coverage, Payments, and Fee Variation.  GAO-13-754. Washington, D.C.: September 6, 2013.
Children’s Mental Health: Concerns Remain about Appropriate Services  for Children in Medicaid and Foster Care. GAO-13-15. Washington, D.C.:  December 10, 2012.
Medicaid: States Made Multiple Program Changes, and Beneficiaries  Generally Reported Access Comparable to Private Insurance.   GAO-13-55. Washington, D.C.: November 15, 2012.
Foster Children: HHS Guidance Could Help States Improve Oversight   of Psychotropic Prescriptions. GAO-12-201. Washington, D.C.:   December 14, 2011.
Medicaid and CHIP: Most Physicians Serve Covered Children but Have  Difficulty Referring Them for Specialty Care. GAO-11-624. Washington,  D.C.: June 30, 2011.
Medicaid and CHIP: Reports for Monitoring Children’s Health Care  Services Need Improvement. GAO-11-293R. Washington, D.C.:   April 5, 2011.
Medicaid and CHIP: Given the Association between Parent and Child  Insurance Status, New Expansions May Benefit Families. GAO-11-264.  Washington, D.C.: February 4, 2011.
Oral Health: Efforts Under Way to Improve Children’s Access to Dental  Services, but Sustained Attention Needed to Address Ongoing Concerns.  GAO-11-96. Washington, D.C.: November 30, 2010.
Medicaid: State and Federal Actions Have Been Taken to Improve  Children’s Access to Dental Services, but Gaps Remain. GAO-09-723.  Washington, D.C.: September 30, 2009.
Medicaid Preventive Services: Concerted Efforts Needed to Ensure  Beneficiaries Receive Services. GAO-09-578. Washington, D.C.:   August 14, 2009.
Medicaid: Extent of Dental Disease in Children Has Not Decreased, and  Millions Are Estimated to Have Untreated Tooth Decay. GAO-08-1121.  Washington, D.C.: September 23, 2008.
Medicaid: Concerns Remain about Sufficiency of Data for Oversight   of Children’s Dental Services. GAO-07-826T. Washington, D.C.:   May 2, 2007.
section_title: Ensuring Fiscal Accountability Through Increased Transparency and Improved Oversight
paragraphs: Medicaid Demonstrations: More Transparency and Accountability for  Approved Spending Are Needed. GAO-15-715T. Washington, D.C.:   June 24, 2015.
Medicaid Demonstrations: Approval Criteria and Documentation Need to  Show How Spending Furthers Medicaid Objectives. GAO-15-239.  Washington, D.C.: April 13, 2015.
Medicaid: CMS Oversight of Provider Payments Is Hampered by Limited  Data and Unclear Policy. GAO-15-322. Washington, D.C.: April 10, 2015.
Medicaid Financing: Questionnaire Data on States’ Methods for Financing  Medicaid Payments from 2008 through 2012. GAO-15-227SP.  Washington, D.C.: March 13, 2015, an e-supplement to GAO-14-627.
Medicaid Demonstrations: HHS’s Approval Process for Arkansas’s  Medicaid Expansion Waiver Raises Cost Concerns. GAO-14-689R.  Washington, D.C.: August 8, 2014.
Medicaid: Completed and Preliminary Work Indicate that Transparency  around State Financing Methods and Payments to Providers Is Still  Needed for Oversight. GAO-14-817T. Washington, D.C.: July 29, 2014.
Medicaid Financing: States’ Increased Reliance on Funds from Health  Care Providers and Local Governments Warrants Improved CMS Data  Collection. GAO-14-627. Washington, D.C.: July 29, 2014.
Medicaid Demonstration Waivers: Approval Process Raises Cost  Concerns and Lacks Transparency. GAO-13-384. Washington, D.C.:  June 25, 2013.
Medicaid: More Transparency of and Accountability for Supplemental  Payments Are Needed. GAO-13-48. Washington, D.C.: November 26,  2012.
Medicaid: Data Sets Provide Inconsistent Picture of Expenditures.   GAO-13-47. Washington, D.C.: October 29, 2012.
Medicaid: States Reported Billions More in Supplemental Payments in  Recent Years. GAO-12-694. Washington, D.C.: July 20, 2012.
Medicaid: Ongoing Federal Oversight of Payments to Offset  Uncompensated Hospital Care Costs Is Warranted. GAO-10-69.  Washington, D.C.: November 20, 2009.
Medicaid: CMS Needs More Information on the Billions of Dollars   Spent on Supplemental Payments. GAO-08-614. Washington, D.C.:   May 30, 2008.
Medicaid Financing: Long-standing Concerns about Inappropriate   State Arrangements Support Need for Improved Federal Oversight.   GAO-08-650T. Washington, D.C.: April 3, 2008.
Medicaid Demonstration Waivers: Recent HHS Approvals Continue to  Raise Cost and Oversight Concerns. GAO-08-87. Washington, D.C.:  January 31, 2008.
Medicaid Financing: Long-Standing Concerns about Inappropriate   State Arrangements Support Need for Improved Federal Oversight.   GAO-08-255T. Washington, D.C.: November 1, 2007.
Medicaid Demonstration Waivers: Lack of Opportunity for Public Input  during Federal Approval Process Still a Concern. GAO-07-694R.  Washington, D.C.: July 24, 2007.
Medicaid Financing: Federal Oversight Initiative Is Consistent with  Medicaid Payment Principles but Needs Greater Transparency.   GAO-07-214. Washington, D.C.: March 30, 2007.
Medicaid and SCHIP: Recent HHS Approvals of Demonstration Waiver  Projects Raise Concerns. GAO-02-817. Washington, D.C.: July 12, 2002.
section_title: Improving Program Integrity
paragraphs: Medicaid: Additional Actions Needed to Help Improve Provider and  Beneficiary Fraud Controls. GAO-15-313. Washington, D.C.: May 14,  2015.
Medicaid Information Technology: CMS Supports Use of Program  Integrity Systems but Should Require States to Determine Effectiveness.  GAO-15-207. Washington, D.C.: January 30, 2015.
Medicaid: Additional Federal Action Needed to Further Improve Third- Party Liability Efforts. GAO-15-208. Washington, D.C.: January 28, 2015.
Medicaid Program Integrity: Increased Oversight Needed to Ensure  Integrity of Growing Managed Care Expenditures. GAO-14-341.  Washington, D.C.: May 19, 2014.
Medicaid: CMS Should Ensure That States Clearly Report  Overpayments. GAO-14-25. Washington, D.C.: December 6, 2013.
Medicaid: Enhancements Needed for Improper Payments Reporting and  Related Corrective Action Monitoring. GAO-13-229. Washington, D.C.:  March 29, 2013.
Medicaid Integrity Program: CMS Should Take Steps to Eliminate  Duplication and Improve Efficiency. GAO-13-50. Washington, D.C.:  November 13, 2012.
National Medicaid Audit Program: CMS Should Improve Reporting and  Focus on Audit Collaboration with States. GAO-12-814T. Washington,  D.C.: June, 14, 2012.
Program Integrity: Further Action Needed to Address Vulnerabilities in  Medicaid and Medicare Programs. GAO-12-803T. Washington, D.C.:  June 7, 2012.
Medicaid: Federal Oversight of Payments and Program Integrity Needs  Improvement. GAO-12-674T. Washington, D.C.: April 25, 2012.
Medicaid Program Integrity: Expanded Federal Role Presents Challenges  to and Opportunities for Assisting States. GAO-12-288T. Washington,  D.C.: December 7, 2011.
Fraud Detection Systems: Centers for Medicare and Medicaid Services  Needs to Expand Efforts to Support Program Integrity Initiatives.   GAO-12-292T. Washington, D.C.: December 7, 2011.
Fraud Detection Systems: Centers for Medicare and Medicaid Services  Needs to Ensure More Widespread Use. GAO-11-475. Washington, D.C.:  June 30, 2011.
Medicare and Medicaid Fraud, Waste, and Abuse: Effective  Implementation of Recent Laws and Agency Actions Could Help Reduce  Improper Payments. GAO-11-409T. Washington, D.C.: March 9, 2011.
Medicaid Managed Care: CMS’s Oversight of States’ Rate Setting Needs  Improvement. GAO-10-810. Washington, D.C.: August 4, 2010.
section_title: Addressing Variations in States’ Financing Needs Through Revised Federal Financing Approach
paragraphs: Medicaid: Alternative Measures Could Be Used to Allocate Funding More  Equitably. GAO-13-434. Washington, D.C.: May 10, 2013.
Medicaid: Prototype Formula Would Provide Automatic, Targeted  Assistance to States during Economic Downturns. GAO-12-38.  Washington, D.C.: November 10, 2011.
Medicaid: Improving Responsiveness of Federal Assistance to States  during Economic Downturns. GAO-11-395. Washington, D.C.: March 31,  2011.
State and Local Governments: Knowledge of Past Recessions Can  Inform Future Federal Fiscal Assistance. GAO-11-401. Washington, D.C.:  March 31, 2011.
Recovery Act: Increased Medicaid Funds Aided Enrollment Growth, and  Most States Reported Taking Steps to Sustain Their Programs.   GAO-11-58. Washington, D.C.: October 8, 2010.
Medicaid: Strategies to Help States Address Increased Expenditures  during Economic Downturns. GAO-07-97. Washington, D.C.: October 18,  2006.
Federal Assistance: Temporary State Fiscal Relief. GAO-04-736R.  Washington, D.C.: May 7, 2004.
Medicaid Formula: Differences in Funding Ability among States Often Are  Widened. GAO-03-620. Washington, D.C.: July 10, 2003.
section_title: Other GAO Products
paragraphs: Medicaid: Overview of Key Issues Facing the Program. GAO-15-746T.  Washington, D.C.: July 8, 2015.
Medicaid: A Small Share of Enrollees Consistently Accounted for a Large  Share of Expenditures. GAO-15-460. Washington, D.C.: May 8, 2015  2015 Annual Report: Additional Opportunities to Reduce Fragmentation,  Overlap, and Duplication and Achieve Other Financial Benefits.   GAO-15-404SP. Washington, D.C.: April 14, 2015.
High-Risk Series: An Update. GAO-15-290. Washington, D.C.:   February 11, 2015.
Medicaid: Federal Funds Aid Eligibility IT System Changes, but  Implementation Challenges Persist. GAO-15-169. Washington, D.C.:  December, 12, 2014.
Medicaid Payment: Comparisons of Selected Services under Fee-for- Service, Managed Care, and Private Insurance. GAO-14-533.  Washington, D.C.: July 15, 2014.
Prescription Drugs: Comparison of DOD, Medicaid, and Medicare Part D  Retail Reimbursement Prices. GAO-14-578. Washington, D.C.: June 30,  2014.
Medicaid: Assessment of Variation among States in Per-Enrollee  Spending. GAO-14-456. Washington, D.C.: June 16, 2014.
Medicaid: Demographics and Service Usage of Certain High-Expenditure  Beneficiaries. GAO-14-176. Washington, D.C.: February 19, 2014.
Medicaid: Use of Claims Data for Analysis of Provider Payment Rates.  GAO-14-56R. Washington, D.C.: January 6, 2014.
Medicaid Managed Care: Use of Limited Benefit Plans to Provide Mental  Health Services and Efforts to Coordinate Care. GAO-13-780.  Washington, D.C.: September 30, 2013.
Medicaid: States’ Use of Managed Care. GAO-12-872R. Washington,  D.C.: August, 17, 2012.
Medicaid: States’ Plans to Pursue New and Revised Options for Home-  and Community-Based Services. GAO-12-649. Washington, D.C.:   June 13, 2012.
Medicaid and CHIP: Enrollment, Benefits, Expenditures, and Other  Characteristics of State Premium Assistance Programs. GAO-10-258R.  Washington, D.C.: January 19, 2010.