Medicaid and CHIP: Increased Funding in U.S. Territories Merits Improved Program Integrity Efforts
Published: 2016-04-08T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: 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.
section_title: What GAO Found
paragraphs: 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.
section_title: What GAO Recommends
paragraphs: 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.

section_title: Letter
paragraphs: 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. 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  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. 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. 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.
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. PPACA has also increased the territories’  federal matching rates for Medicaid and CHIP. 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  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. 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. 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.
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  funding sources for fiscal years 2010 through 2014, the most recently  available complete year of data at the time of our analysis. 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. 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  which territories reported service-level spending for covered benefits.  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.  We also contacted HHS’s Office of Inspector General (HHS-OIG)  regarding any relevant program integrity efforts in the territories.
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.
subsections: section_title: Background
paragraphs: 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,  the populations in the territories are small relative to the states, and are  generally poorer.
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. 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). 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  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. 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. 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. 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.
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. 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.
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. Like the states, territories have primary  responsibility for such program integrity because they enroll providers,  establish payment policies, process claims, and pay for services  furnished to beneficiaries. 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. 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. 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. Additionally, OMB’s annual A-133  single audits examine internal controls and compliance deficiencies in  certain federal programs, including Medicaid and CHIP, and can be a  resource to inform program oversight.
section_title: Medicaid and CHIP Eligibility and Benefits Reflect the Territories’ Unique Circumstances
paragraphs: 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.  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. 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.)
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. 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. 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. (See fig. 1.)
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. 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;
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 off- island. 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.)
section_title: Temporary Funding Has Enabled the Territories to Increase Medicaid and CHIP Spending, although Future Shortfalls Remain a Concern
paragraphs: 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. 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. (See table 2.)
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. 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  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.
section_title: Limited Territory and Federal Oversight Efforts Provide Little Assurance of Medicaid and CHIP Program Integrity
paragraphs: 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.
subsections: section_title: Federal and Territory Officials Cite Resource Constraints as Contributing to Territories’ Limited Program Integrity Efforts
paragraphs: 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  duties and responsibilities for reducing the risk of error and fraud.  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. 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. Both  we and the HHS-OIG have previously reported concerns that MCOs  might not have an incentive to identify and recover improper payments.
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. 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. 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. 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  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.  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.
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.
section_title: Federal Officials Reported Making Limited Program Integrity Efforts, Citing the Small Amount of Medicaid Spending in the Territories
paragraphs: 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. 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.  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  detail on the territories’ CMS-64 reporting. In December 2015, CMS  amended its regulations to eliminate the MMIS exemptions for the  territories, effective January 1, 2016. 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. 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. 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.
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. 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. 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.
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  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. 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. 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.
section_title: Conclusions
paragraphs: 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  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.
section_title: Recommendation for Executive Action
paragraphs: 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.
section_title: Agency Comments and Our Evaluation
paragraphs: 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  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.
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section_title: Appendix I: Comments from the Department of Health and Human Services
section_title: Appendix II: Comments from the Department of the Interior
section_title: Appendix III: GAO Contact and Staff Acknowledgements
subsections: section_title: GAO Contact
section_title: Staff Acknowledgements
paragraphs: 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.