Medicaid Financing: States' Use of Contingency-Fee Consultants to Maximize Federal Reimbursements Highlights Need for Improved Federal Oversight
Published: 2005-06-28T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Medicaid--the federal-state health care financing program covering nearly 54 million low-income people at a cost of $276 billion in fiscal year 2003--is by its size and structure at risk of waste and exploitation. Because of challenges inherent in overseeing the program, administered federally by the Centers for Medicare & Medicaid Services (CMS), GAO in 2003 added Medicaid to its list of high-risk federal programs. To help administer the program, states may employ consultants in a number of roles, sometimes under contracts whereby payment is contingent upon the consultant's performance. GAO was asked to report on states' use of contingency-fee consultants. GAO examined the extent to which (1) states are using contingency-fee consultants for projects to maximize federal Medicaid reimbursements, (2) claims from contingency-fee projects in selected states are consistent with federal law and policy, and (3) states and CMS are overseeing claims from such projects.
section_title: What GAO Found
paragraphs: As of 2004, 34 states--up from 10 states in 2002--used contingency-fee consultants to implement projects to maximize federal Medicaid reimbursements. Projects varied widely, and because of certain risk factors--including a nationwide growth in dollars--GAO focused on claims in five categories. Contingency-fee consultants in the 2 states GAO reviewed, Georgia and Massachusetts, have developed projects in all five categories. From these and other projects, for state fiscal years 2000 through 2004, Georgia obtained an estimated $1.5 billion in additional federal reimbursements and Massachusetts obtained an estimated $570 million. These states paid contingency fees of more than $90 million. In Georgia, Massachusetts, or both states, GAO identified claims from contingency-fee projects in the five categories reviewed that were problematic because they appeared to be inconsistent with current policy or were inconsistent with federal law; others undermined Medicaid's fiscal integrity. For example, for services provided to children in state custody residing in private facilities, a Georgia project claimed increased federal Medicaid reimbursements on the basis of the facilities' estimated costs, which were often higher than the state's actual payments to the facilities. Problematic projects often involved categories of claims where federal law and policy were inconsistently applied, evolving, or not specific. Problematic projects also involved Medicaid payments to government entities, which can facilitate the inappropriate shifting of state costs to the federal government. The states and CMS have provided limited oversight of claims associated with contingency-fee projects. CMS has not routinely collected information enabling it to identify claims or projects developed by contingency-fee consultants to maximize federal reimbursements, despite long-standing recognition that such claims are at risk of being inconsistent with federal requirements. Problems GAO identified illustrate the urgent need to address broader issues in oversight and financial management. CMS has taken steps to strengthen its financial oversight of Medicaid, but the agency can do more to reduce the risk of current and emerging financing schemes, including responding to prior GAO recommendations.

section_title: Letter
paragraphs: Medicaid—the federal-state program financing health care for certain low- income children, families, and individuals who are aged or disabled— covered almost 54 million people at an estimated cost of $276 billion in  federal fiscal year 2003. By a formula established in law, the federal  government paid from 50 to 77 percent of each state’s reported Medicaid  expenditures that fiscal year. We have previously reported that the  challenges inherent in overseeing a program of Medicaid’s size, growth,  and diversity put the program at high risk for waste, abuse, and  exploitation and led us in 2003 to add Medicaid to our list of high-risk  federal programs. Medicaid has long been subject to states’ seeking to  maximize federal reimbursement. Within broad federal guidelines, states  administer their Medicaid programs by paying qualified health providers  for a range of covered services provided to eligible beneficiaries and then  seeking reimbursement for the federal share of those payments. States  may employ consultants to serve a number of valid Medicaid-related roles,  such as adding needed staff or a particular expertise, and these  consultants may save both the federal government and states money by,  for example, identifying when claims were paid inappropriately and are  subject to recovery. Some consultants may serve under contingency-fee  contracts, whereby a consultant’s fee is based, or contingent, upon  performance, and these contingency fees are not eligible for federal  Medicaid reimbursement except in certain cases. In the current  environment of steadily rising Medicaid costs straining federal and state  budgets, states’ use of contingency-fee consultants can be problematic,  particularly if controls are inadequate to ensure that any additional federal  reimbursements are allowable Medicaid expenditures.
The federal government and states each have responsibilities for  administering Medicaid programs and for ensuring that Medicaid funds are  spent appropriately on covered services provided to eligible beneficiaries.  The Centers for Medicare & Medicaid Services (CMS), within the  Department of Health and Human Services (HHS), administers Medicaid at  the federal level, establishing policies and reviewing and approving state  Medicaid plans, which describe how each state’s program will operate.  These written plans are considered to be comprehensive commitments by  the states to supervise and administer their Medicaid programs. Further,  when submitting claims for federal reimbursement, each state must certify  that the claimed expenditures—including claims for payments the state  made to providers for medical services and claims for the state’s  administrative expenses—are consistent with federal regulations and the  state’s approved Medicaid plan. We have earlier reported on the high-risk  nature of the Medicaid program and on various states’ use of financing  schemes, some involving consultants, to inappropriately increase federal  reimbursements. Some of these reports have raised questions about the  appropriateness of claims for federal reimbursement developed by  contingency-fee consultants and whether state and CMS oversight of  claims developed by contingency-fee consultants is sufficient.
You asked us to provide information about states’ use of contingency-fee  consultants and whether resulting projects and claims are consistent with  federal law and policy. In this report, we address the following questions:  1.  To what extent are states using consultants on a contingency-fee basis  to develop projects to help them maximize federal Medicaid  reimbursements?  2.  To what extent are the claims from projects developed by contingency- fee consultants to maximize federal Medicaid reimbursements in  selected states consistent with federal law and policy?  3.  To what extent do selected states and CMS oversee the claims from  projects developed by contingency-fee consultants to maximize federal  Medicaid reimbursements?
To examine the extent to which states are using consultants on a  contingency-fee basis to develop projects to maximize Medicaid  reimbursements, we obtained information from the HHS Office of  Inspector General (OIG), CMS, and state officials. We also inventoried  projects developed by the major contingency-fee consultants employed by  two states, Georgia and Massachusetts. We selected these states in part on  the basis of information provided by CMS, which indicated that the states  had employed contingency-fee consultants for multiple reimbursement- maximizing projects. To assess the extent to which claims from such  projects were consistent with Medicaid law and policy, we analyzed  selected projects in Georgia and Massachusetts in five categories of  Medicaid claims (see table 1). We concentrated on projects in these five  categories because—on the basis of factors such as nationwide growth in  dollars claimed, the results of our past reviews, and work by HHS OIG to  assess the appropriateness of claims in these categories—we judged them  to be of particularly high risk. Because of the number and complexity of  contingency-fee projects in Georgia and Massachusetts, we did not review  all such projects in the two states. Instead, we supplemented our present  review with related work in other states, including our prior reviews and  assessments by HHS OIG, CMS, and state auditors. Where HHS OIG had  assessed states’ claims—in particular, Massachusetts’s school-based  claims—we did not perform a separate assessment. To evaluate state and  CMS oversight of states’ claims from projects developed by contingency- fee consultants, we reviewed the policies and procedures that selected  states and CMS use to monitor consultant performance. We conducted our  work in accordance with generally accepted government auditing  standards from March 2004 through June 2005.
subsections: section_title: Background
paragraphs: Title XIX of the Social Security Act authorizes federal funding to states for  Medicaid. States have considerable flexibility in designing and operating  their Medicaid programs, but they must comply with federal requirements  specified in Medicaid statute and regulations. Each state operates its  program under a plan that CMS must approve for compliance with current  law and regulations. CMS must also approve any amendments to a state’s  plan.
Consultants can provide a wide range of services to states, including  serving state Medicaid programs. States that lack sufficient in-house  resources can turn to consultants to add staff or needed expertise.  Contingency-fee consultants are particularly attractive to budget- constrained states because the states do not need to pay them up front,  agreeing to pay instead a percentage of any additional amounts saved or  collected (the contingency fee). Consultants may also cost states less than  developing in-house expertise, as states can hire them for short-term or  specific projects rather than commit full-time state personnel. Consultants  can also be attractive because they do not generally count against agency  staffing ceilings. Regarding Medicaid, consultants can help states by  performing services such as:    analyzing federal and state statutory and regulatory provisions,    developing or revising state Medicaid policies and procedures for  consistency with federal requirements,    assisting states in developing state plan amendments for federal approval,    assisting states in determining payment rates for providers,    developing cost allocation plans to support claims for administrative  expenditures,  training state and local staff in procedures and documentation for  submitting claims for federal Medicaid reimbursement,    preparing state claims for federal Medicaid reimbursement, and  identifying new methods or projects to maximize federal Medicaid  reimbursements.
The typical Medicaid payment process is illustrated in figure 1. When a  Medicaid beneficiary receives care from a health care provider such as a  hospital, physician, or nursing home, the provider bills the state Medicaid  program for its services. The state in turn pays the provider from a  combination of state funds and federal funds, which have been advanced  by CMS each quarter. The state then files an expenditure report, in which  it claims the federal share of the Medicaid expenditure as reimbursement  for its payment to providers and reconciles its total expenditures with the  federal advance. In addition to reimbursement for medical services, the  state may claim federal reimbursement for functions it performs to  administer its Medicaid program, such as enrolling new beneficiaries;  reviewing the appropriateness of providers’ claims; and collecting  payments from third parties, that is, payers other than Medicaid, such as  Medicare, that may be liable for some or all of a particular health claim.
Transaction 1: A Medicaid beneficiary receives care from  a health care provider, such as a physician; the provider  bills the state Medicaid program; and the state pays the  provider by drawing on a pool of state funds combined  with a quarterly advance on federal matching funds.
Transaction 2: The state files an expenditure report, in  which it claims the federal Medicaid matching share as  reimbursement for its payments to providers and  reconciles total quarterly expenditures with the federal  advance. States may file claims for medical services and  for administrative functions.
States’ claims for federal Medicaid reimbursement—including claims  prepared by or under arrangements developed by consultants—must  comply with a number of federal statutes and regulations. For example,  the Social Security Act requires that states provide methods to ensure that  Medicaid payments are consistent with efficiency, economy, and quality of  care. CMS policy further clarifies and delineates requirements with which  each state must comply in administering its Medicaid program. CMS  policy, for example, generally prohibits states from claiming federal  matching funds on contingency-fee payments, including contingency-fee  payments among state agencies. Each state must also comply with cost  principles and procedures, such as preparing a cost allocation plan to  justify its administrative claims, as established in Office of Management  and Budget (OMB) Circular A-87.
CMS has an important role in ensuring that state claims comply with  Medicaid requirements. Within CMS, the Center for Medicaid and State  Operations is responsible for approving state Medicaid plans and plan  amendments, working with the states on program integrity and other  program administration functions and overseeing state financial  management and internal control processes. The Center for Medicaid and  State Operations shares Medicaid program administration and financial  management responsibilities with the 10 CMS regional offices. Traditional  financial management analysts in each regional office, numbering about  65 nationwide in fiscal year 2005 according to CMS officials, are  responsible for reviewing states’ Medicaid claims to determine if  expenditures are complete, properly supported by the state’s accounting  records, claimed at the appropriate federal matching rates, and allowable  in accordance with Medicaid law and policy. In addition to CMS, external  organizations such as HHS OIG and state auditors routinely conduct  program and financial audits of state Medicaid programs.
In examining the appropriateness of state Medicaid agency claims for  health services provided by local school districts, we have reported  concerns about the role of consultants who were paid on a contingency- fee basis to maximize federal Medicaid reimbursements. In particular, in  June 1999, we testified on the need for federal and state oversight of  growing Medicaid reimbursements to states for Medicaid outreach and  other administrative activities provided in schools. We found that school  districts had often contracted with consulting firms to perform claims  development and reporting activities and that they paid these firms fees  ranging from 3 to 25 percent of the total amount of the federal Medicaid  reimbursement for the schools’ administrative costs. We found that poor  guidance and insufficient CMS oversight permitted questionable billing  practices by states and created an environment of opportunism in which  inappropriate claims could generate excessive federal Medicaid outlays.  Our subsequent report in April 2000 on school-based health services  discussed similar concerns with growing outlays and insufficient CMS  guidance and oversight to prevent improper reimbursements. Since our  2000 report, CMS has clarified guidance on submitting claims for school- based administrative activities, applying stricter standards and heightening  review of the methods states use to identify administrative claims for  school-based services. CMS also disallowed more than $278 million in  inappropriate claims from one state.
section_title: Most States Have Employed Contingency-Fee Consultants in a Wide Range of Reimbursement- Maximizing Projects
paragraphs: An increasing number of states are using consultants on a contingency-fee  basis to maximize their federal Medicaid reimbursements through a  variety of projects, according to CMS. Contingency-fee consultants in the  two states we reviewed—Georgia and Massachusetts—have developed  reimbursement-maximizing projects in each of the five categories of  claims that we reviewed, generating more than $2 billion during state fiscal  years 2000 through 2004 in additional federal Medicaid reimbursements,  mainly in Georgia.
subsections: section_title: CMS Surveys Found Increasing Use of Contingency-Fee Consultants for Reimbursement- Maximizing Projects
paragraphs: CMS surveyed its regional offices in fiscal years 2002 and 2004 and found  that an increasing number of states were using consultants on a  contingency-fee basis for projects to maximize federal reimbursements. In  late 2001, CMS discovered that, contrary to CMS policy prohibiting federal  reimbursement for contingency fees in most instances, at least two states  (New Jersey and Virginia) had inappropriately claimed federal  reimbursements for such fees. Subsequently, CMS surveyed its regional  offices to identify which states were using contingency-fee consultants  and for which services. This first survey (spring 2002) showed that 10  states were known by regional staff to be using contingency-fee  consultants for reimbursement-maximizing projects. In response, CMS  issued two letters, in May 2002 and in November 2002, reminding regional  offices and states that although states were allowed to employ  contingency-fee consultants, the contingency fees themselves were not  eligible for federal reimbursement except in certain cases.
In June 2004, CMS again surveyed its regional offices to determine how  many states had entered into contingency-fee contracts with private  consulting firms to maximize federal reimbursements over the period from  January 1999 through June 2004. This survey identified 34 states involved  in contingency-fee contracts to help them maximize federal Medicaid  reimbursements in a variety of categories. Most frequent were claims for  services provided to Medicaid-eligible children in schools, a category in  which contingency-fee consultants have assisted states for years. CMS  regional offices also reported that 11 states had contracts using  contingency-fee consultants in multiple areas, some having projects in as  many as four different categories (see table 2).
Our review focused on five categories of claims that we considered at high  risk of improper payments: TCM services, services for mental or physical  rehabilitation, supplemental payment arrangements, school-based  services, and administrative costs (see table 3). For most of these  categories, CMS expenditure data show that federal reimbursement of  states’ claims in recent years has grown nationwide, sometimes  substantially. Although CMS’s 2004 survey gathered information on states’  use of contingency-fee consultants, it would not have captured states’  arrangements established outside the survey period. We identified one  consultant, for example, who helped two states develop upper payment  limit (UPL) arrangements, although CMS’s 2004 survey did not capture  these particular states’ contracts. CMS does not identify the extent to  which states’ Medicaid claims stem from projects using contingency-fee  consultants to maximize federal reimbursements.
section_title: Georgia and Massachusetts Have Extensively Used Contingency-Fee Consultants
paragraphs: From state fiscal years 2000 through  2004, Georgia used a private  consulting firm on a contingency-fee basis for multiple reimbursement- maximizing projects, including projects in the five Medicaid claims  categories that we reviewed. The consultant provided numerous services  on more than 20 projects, such as creating new methodologies for  developing claims for federal reimbursement, obtaining legal advice to  support reimbursement-maximizing claims, and pursuing retroactive  reimbursement for claims that were not previously reimbursed. The  consultant also helped the state to write state plan amendments and cost  allocation plans. For example, for five UPL projects, the consultant  developed the formulas for calculating the state’s UPL, drafted the state  plan amendment to submit to CMS, and drafted provider agreements to  implement the project. For a project in rehabilitation services, the  consultant developed a new methodology for developing claims for federal  reimbursement of payments the state made to providers. For TCM projects  involving two state agencies, the consultant developed revisions to the  state’s payment rate; drafted the state plan amendment to implement the  revised rates; drafted revisions to state policy manuals; and conducted  training sessions with case managers, including identifying services that  could be considered as TCM and explaining how to format their case notes  to support Medicaid claims.
Georgia paid the consultant mainly from additional federal Medicaid  reimbursements generated from the contingency-fee projects, although  CMS determined that the state did not claim federal reimbursement for the  contingency fees themselves. Initially, in 1999, Georgia and the consultant  agreed on a contingency fee based on additional federal reimbursement  generated by the consultant’s projects. For state fiscal years 2000 through  2004, the state paid its consultant more than $82 million in contingency  fees. After UPL projects generated for Georgia more than $1.2 billion in  additional federal Medicaid reimbursements for state fiscal years 2001  through 2003, and a dispute developed between the state and the  consultant about the extent to which the additional reimbursements were  attributable to the consultant’s project, the state and the consultant agreed  upon an additional $28 million in fees to be paid over 2 years. In total, the  UPL arrangement and other consultant projects generated an estimated  $1.5 billion in additional federal Medicaid reimbursements for Georgia  over approximately 5 years.
Massachusetts has pursued Medicaid reimbursement-maximizing and cost- avoidance projects using contingency-fee consultants since the early  1990s. The state has used various private consulting firms, but since state  fiscal year 2000, it has relied primarily on a component of the University of  Massachusetts Medical School (UMMS) to conduct reimbursement- maximizing and cost-avoidance projects, including projects in  rehabilitation services, supplemental payments, and school-based services.  UMMS has performed a number of services to implement these  reimbursement-maximizing projects, including assisting in drafting state  plan amendments and preparing Medicaid claims for reimbursement.
In addition to reimbursement-maximizing projects, Massachusetts’s state  Medicaid agency also obtains other services from UMMS through  interagency agreements to help operate its Medicaid program. UMMS  performs many of the state’s Medicaid administrative functions, such as  analyzing claims to identify and recover improper payments paid to health  providers and training state and local staff on procedures for submitting  claims.
UMMS was compensated in two ways for its services: (1) for selected  projects, UMMS was paid a contingency fee that came from the additional  federal funds received by the state for the particular reimbursement- maximizing or cost-avoidance project; and (2) the state paid UMMS from  the federal reimbursement for its administrative costs. Contingency fees  paid to UMMS varied by project, generally from 1 to 15 percent of  additional federal reimbursement generated or costs avoided.  Administrative costs that were attributable to UMMS were paid by the  state on the basis of UMMS’s reported Medicaid-related costs, according to  UMMS officials. Each quarter, UMMS reported its Medicaid-related costs  to the state Medicaid agency, which in turn included these costs on the  state’s quarterly expenditure report to CMS. The state then reimbursed  UMMS for its reported Medicaid-related administrative costs. We could not  isolate the amount that UMMS received for administrative costs associated  with federal Medicaid reimbursement-maximizing projects because these  costs were combined with those for other Medicaid projects, such as  pharmacy management and utilization review, which UMMS also conducts  for the Medicaid agency. For all its Medicaid administrative activities,  UMMS in state fiscal year 2004 claimed approximately $60 million  (excluding contingency fees) in state and federal Medicaid  reimbursements.
Massachusetts has used other contingency-fee consultants for  reimbursement-maximizing and cost-avoidance projects, including a  private consultant that developed a TCM project and rate-setting proposal  for the state’s Department of Youth Services, among others. That private  consultant still served in state fiscal year 2004 as a consultant paid on a  contingency-fee basis, helping state agencies with various reimbursement- maximizing projects. For state fiscal year 2004, Massachusetts paid the  private consultant about $4 million in fees from contingency-fee  agreements for generating nearly $106 million in savings and additional  federal reimbursements.
According to the Massachusetts Medicaid agency, the state paid more than  $57.5 million to contingency-fee consultants during state fiscal years 2000  through 2004 for projects that generated almost $1.3 billion in funds for the  state through all types of reimbursement-maximizing and cost-avoidance  projects. Some of these projects would have accrued savings to Medicaid  in which the federal government would have shared, such as program  integrity efforts to ensure appropriate payments to individual providers.  Most of the contingency fees (about $37 million) were paid to UMMS; other  (private) consultants were paid about $20.5 million. From state fiscal years  2000 through 2004, reimbursement-maximizing projects generated about  $570 million in additional federal reimbursements for the state, for which  Massachusetts paid consultants nearly $11 million in contingency fees.  UMMS projects accounted for $540 million of the total, for which it was  paid $9 million in contingency fees.
section_title: Claims from Contingency-Fee Projects Are Not Always Consistent with Law or Current Policy and Can Undermine Medicaid’s Fiscal Integrity
paragraphs: We and others have identified claims from contingency-fee consultant  projects that appeared to be inconsistent with current CMS policy and  claims that were inconsistent with federal law. We also identified claims  from projects that undermined Medicaid’s fiscal integrity. Such projects  and resulting problematic claims arose in each of the five categories of  claims that we reviewed, either in Georgia or Massachusetts or both.  During our work we observed two factors that appeared to increase the  risk of problematic claims. One factor involved federal requirements that  were inconsistently applied, evolving, or not specific; the second involved  Medicaid payments to government units, which can facilitate the  inappropriate shifting of state costs to the federal government.
subsections: section_title: Contingency-Fee Projects in Selected States Resulted in Problematic Federal Reimbursements in Five Categories of Claims
paragraphs: In the five categories of Medicaid services we reviewed, we identified  claims that were problematic in Georgia, Massachusetts, or both. We  identified claims for TCM services that appear to be inconsistent with  current CMS policy and claims for rehabilitation services that were  inconsistent with federal law. In other areas, such as supplemental  payments, we found claims associated with projects that undermined the  fiscal integrity of the Medicaid program and the federal-state partnership.  In addition to our work in Massachusetts and Georgia, we identified  several reports by HHS OIG about other states, which raise issues about  the appropriateness of claims stemming from contingency-fee contracts  for school-based services and for administrative costs.
subsections: section_title: Targeted Case Management Services
paragraphs: Most of the claims for federal reimbursement of Medicaid TCM services in  Georgia and Massachusetts that we reviewed appeared to be inconsistent  with current CMS policy, which does not allow federal reimbursement for  TCM services that are integral to other state programs. Under previously  CMS-approved state plans, consultants helped Georgia and Massachusetts  increase federal TCM reimbursements. In Georgia, the consultant  assisted the state in increasing federal reimbursement for TCM services  provided by two state agencies: the Department of Juvenile Justice and the  Division of Family and Children’s Services. The consultant assisted  Georgia by streamlining the billing process, drafting a state plan  amendment proposal, and increasing the number of Medicaid  beneficiaries for whom these two non-Medicaid state agencies billed case  management services, thus reducing costs to the state for operating these  agencies. In Massachusetts, contingency-fee consultants helped the state  increase federal reimbursement for TCM services provided by three state  agencies: the Departments of Social Services, Youth Services, and Mental  Health. The consultants helped develop state plan amendments that  established Medicaid coverage for the agencies’ case management services  and assisted with developing and updating the rates Medicaid would pay  providers for TCM services.
In analyzing the TCM projects and the basis for TCM claims, we found that  Georgia and Massachusetts were claiming federal reimbursement, under  their CMS-approved state plan amendments, for TCM services that  appeared to be unallowable under CMS’s current TCM policy. Specifically,  the claims were for services that appeared to be integral components of  non-Medicaid programs in these states. The states’ laws, regulations, or  policies called for case management services in these programs, and the  case management services were provided to all Medicaid- and non- Medicaid-eligible individuals served by the programs. For example, all  children served by Massachusetts’s and Georgia’s child welfare agencies  receive a broad range of services to promote their welfare and protect  them from abuse and neglect. To fulfill this responsibility, state employees  provide case management services, refer the children to others for  services, and monitor their well-being and progress. CMS has denied TCM  claims for similar programs in other states. In fiscal year 2002, for  example, CMS denied a state plan amendment proposal to cover TCM  services in Illinois, and in fiscal year 2004 it found TCM claims in Texas  unallowable, in part because the TCM services claimed for reimbursement  were considered integral to other state programs. As in Georgia and  Massachusetts, the TCM services in Illinois were for children served by the  state’s juvenile justice system. In Texas, such children were served by the  state’s child welfare and foster care system.
In Georgia in fiscal year 2003, the state received an estimated $17 million  in federal reimbursements for TCM claims from the Department of  Juvenile Justice and the Division of Family and Children’s Services, of  which about $12 million was for services that appeared to be integral to  non-Medicaid programs. In Massachusetts in fiscal year 2004, the state  received an estimated $68 million in federal reimbursements generated by  claims from the Departments of Social Services, Youth Services, and  Mental Health—the agencies whose TCM projects were developed by  consultants—for services that appeared to be integral to non-Medicaid  programs. CMS officials agreed with our assessment that the claims for  TCM services in these two states were problematic, and CMS officials  noted that they had been aware of the potential problems in  Massachusetts for some time before our review. CMS officials stated that,  under an interagency agreement with HHS OIG, HHS OIG had initiated an  audit of Massachusetts’s TCM claims in December 2003. At the time of our  review, HHS OIG’s findings had not been released.
section_title: Rehabilitation Services
paragraphs: Our review of projects involving rehabilitation services found claims that  were inconsistent with federal law from a project in Georgia and  potentially duplicated claims for rehabilitation services in Massachusetts.  Georgia’s contingency-fee consultant helped the state develop a project to  increase the rates paid by Georgia’s Medicaid program to two state  agencies for rehabilitation services, which in effect allowed the state to  overpay these agencies for one set of services while reducing the agencies’  costs for other, non-Medicaid services. In Massachusetts, a consultant  helped two state agencies increase claims for rehabilitation services,  potentially duplicating other federal Medicaid reimbursements obtained by  the state.
In Georgia, the Department of Juvenile Justice and the Division of Family  and Children’s Services place certain children in state custody in private  residential care facilities throughout the state. Under contract with these  state agencies, the residential facilities provide various services, including  many not covered by Medicaid, such as room and board, general  supervision, and educational services. The facilities also provide  rehabilitative counseling and therapy services. The facilities receive a per  diem payment from the state agencies for providing all of these services.  The Department of Juvenile Justice and Division of Family and Children’s  Services then bill the state Medicaid agency for mental health  rehabilitation services, one component of the services the agencies pay the  private facilities to provide.
As recommended by its contingency-fee consultant, Georgia increased the  rates at which the state’s Medicaid agency paid the Department of Juvenile  Justice and the Division of Family and Children’s Services for these  rehabilitation services. The per diem amount these agencies paid the  private facilities, however, stayed the same. Specifically, the consultant  recommended that the two state agencies claim Medicaid reimbursement  on the basis of the facilities’ estimated costs for rehabilitation services,  rather than on the state agencies’ actual per diem payment. Before the  project, the state agencies sought Medicaid reimbursement for that portion  of the per diem payment attributable to the facilities’ estimated cost for  providing rehabilitation services. As a result of the change, the state was  able to shift costs it had previously covered to Medicaid. For example, for  one category of children, the percentage of the state’s per diem paid by  Medicaid increased from 50 percent under the state’s prior method to 87  percent under the new method, while the share of the per diem paid by  state funds decreased from 29 percent to less than 1 percent. In some  cases, the added reimbursement from the Medicaid agency covered the  other state agencies’ own shares of the per diem payments to the  facilities—shares that covered the costs of services other than  rehabilitation. For example, the portion billed to Medicaid of one agency’s  per diem payment to one facility increased from $115 to $162 while that  agency’s own share decreased from $37 to $0. In all, this project increased  the federal Medicaid reimbursement to the state agencies by $58 million  during state fiscal years 2001 through 2003.
The change in the basis for the expenditures that were claimed for  Medicaid reimbursement resulted in payments from Georgia’s Medicaid  agency to the Department of Juvenile Justice and the Division of Family  and Children’s Services for services provided by private facilities that in  some cases were higher than what the agencies paid the facilities for all  contracted services combined (Medicaid- and non-Medicaid-covered).  Specifically, for 82 facilities (about 43 percent of the residential facilities),  the amount the state Medicaid agency reimbursed the Department of  Juvenile Justice and the Division of Family and Children’s Services in state  fiscal year 2004 exceeded the total amount these agencies actually paid the  facilities for all services, not just rehabilitation services. One facility, for  example, was paid by the Division of Family and Children’s Services   $37 per day per eligible child for all services covered by the per diem  payment, but the state agency billed the Medicaid program $62 per day for  rehabilitation services alone.
CMS officials agreed with our conclusion that the claims from this  contingency-fee project were inconsistent with federal law. Specifically,  the arrangement was not in accord with the statutory requirement that  payments be consistent with efficiency, economy, and quality of care.  Further, federal Medicaid funds are intended for Medicaid-covered  services for eligible individuals on whose behalf payments are made, not  to subsidize non-Medicaid-covered services. In discussing Georgia’s  reimbursement-maximizing project, CMS officials also identified a number  of additional concerns, including whether the billing agencies, as well as  the facilities they paid, were qualified Medicaid providers; whether the  facilities’ estimates of Medicaid costs were appropriate; and whether all  services included in the facilities’ estimates were Medicaid-covered  services. After we brought it to the agency’s attention, CMS initiated a  review of this contingency-fee project and the allowability of associated  claims for federal Medicaid reimbursement.
In Massachusetts, a contingency-fee consultant helped two state agencies  increase claims for rehabilitation services that potentially duplicated  federal payments the state had already received because, according to  CMS officials, the services were to be paid for under the state’s managed  care agreement. The consultant developed and implemented a project in  which the state’s Department of Youth Services (the state’s juvenile justice  agency), for example, started billing Medicaid for rehabilitation services  that the state agency was responsible for providing directly to youth it  served. As with Georgia’s arrangement, the Department of Youth Services  billed Medicaid for payments the agency made to private facilities that  cared for youths in the state’s juvenile justice system. To the extent that  the youth served by the department were enrolled in the state’s Medicaid  managed care program, these payments may have duplicated payments the  state had already received for rehabilitation services provided under that  program. States typically accept a fixed federal payment per person per  month for providing a range of services to Medicaid beneficiaries enrolled  in managed care programs. Rehabilitation services are covered by the  managed care payment Massachusetts receives. CMS officials agreed that  it was likely that duplicate payments occurred, because a significant  portion of the state’s Medicaid beneficiaries are enrolled in its managed  care program. CMS officials could not, however, estimate the amount of  duplicate payments.
section_title: Supplemental Payments
paragraphs: Consultants in both Georgia and Massachusetts helped the states  implement supplemental payment arrangements that claimed federal  reimbursements on behalf of state and local-government facilities, which  did not retain the bulk of the Medicaid payments. Although, under current  law and CMS policy, states are allowed to claim federal reimbursements  for supplemental payments they make to providers up to UPL ceilings, we  have earlier reported that payments in excess of a provider’s costs that are  not retained by the provider as payment for services actually provided are  inconsistent with Medicaid’s federal-state partnership and fiscal integrity.  These payments can be illusory: that is, the state can benefit from the  arrangements by appearing to pay the providers more than they ultimately  retain while the state seeks federal reimbursement on the excess payment.  Most of the additional federal Medicaid funding generated by Georgia’s  reimbursement-maximizing projects—$1.2 billion during state fiscal years  2001 through 2003—came through UPL financing arrangements developed  by the state’s consultant. The consultant developed five arrangements— one each for local-government-operated inpatient hospitals, outpatient  hospitals, and nursing homes and state-owned hospitals and nursing  homes. During state fiscal years 2001 through 2003, the state made  supplemental payments totaling $2.0 billion to nursing homes and  hospitals operated by local governments (see fig. 2). A sizable share of the  $2.0 billion, however, was illusory. In reality, the health facilities netted  $357 million because they had transferred $1.7 billion to the state Medicaid  agency through a process known as an intergovernmental transfer. The  state combined this $1.7 billion with $1.2 billion in federal funds that had  been advanced to the state through the quarterly advance process. The  advanced amount represented the estimated federal share of the planned  supplemental payments to local-government facilities of $2.0 billion. The  state thus had a funding pool of $2.9 billion at its disposal. From this pool,  the state made the $2.0 billion in supplemental payments to local- government providers and retained $844 million to offset its Medicaid  expenditures.
Despite actions taken by Congress and CMS to narrow loopholes  associated with UPL financing schemes, federal reimbursements for  provider payments made up to the UPL are still allowed under federal law  and CMS policy. Georgia’s arrangement illustrates how current law and  UPL policy continue to allow states to inappropriately generate excessive  federal matching payments beyond standard Medicaid payments for  services.
Georgia’s consultant also developed a UPL arrangement with state-owned  hospitals. During state fiscal years 2001 through 2003, the state made   $108 million in UPL payments to state hospitals, which included   $64 million in federal funds. The bulk of the payment, however, was  illusory, in that the hospitals’ net increase in payments was $22 million.  Through this arrangement, the state Medicaid agency was able to retain  $42 million in additional funds, which it used to offset its Medicaid  expenditures. In commenting on a draft of this report, the state said that it  had agreed with CMS to end the aspects of its UPL arrangement that  resulted in federal reimbursements exceeding the state’s actual payment  to the providers, effective June 30, 2005.
Massachusetts’s consultant similarly assisted the state with increasing  federal reimbursements through a UPL arrangement. Under a May 2003  agreement between UMMS and the Massachusetts Medicaid agency,  UMMS developed a UPL project involving government-owned or  government-operated nursing facilities, which entailed illusory payments  to providers. As in Georgia, Massachusetts’s payments, which involved  intergovernmental transfers, were illusory because the state claimed  federal matching for a UPL payment of $8.6 million when the net payment  increase to the nursing homes was $1.2 million. According to the state  comptroller’s office, the Medicaid agency had in August 2003 paid UMMS  about $155,000 for the project, a contingency fee of 5 percent of the   $3.1 million in additional federal Medicaid reimbursements that the project  had generated for the state. As with Georgia, the state Medicaid agency  agreed in August 2004 to end certain aspects of its UPL arrangement  effective June 30, 2005.
Massachusetts contracted with UMMS to implement two other types of  supplemental payment arrangements (involving disproportionate share  hospital payments), which we were unable to fully evaluate for their  consistency with federal law and policy. The arrangements are complex,  requiring substantial documentation to assess. The information we  received from the state raised legal and policy questions, but the state  Medicaid agency did not produce the extensive documentation we needed  within the time frame of our work. We believe that a separate study of  these arrangements would be required to assess their appropriateness.  Where appropriate, we have referred information to CMS and HHS OIG  about projects within the scope of our work that we were unable to  evaluate (see app. I).
section_title: School-Based Health Services and Associated Administrative Costs
paragraphs: HHS OIG has identified concerns with states’ school-based claims for  Medicaid services in Massachusetts and in several other states that have  relied on the work of contingency-fee consultants. (See app. II for a  summary of selected HHS OIG reports of states that have used  contingency-fee consultants.) In Massachusetts, HHS OIG reported on  concerns with the adequacy of state and UMMS monitoring of claims for  school-based services to ensure school districts’ compliance with federal  and state requirements, estimating that $2.9 million in unallowable  Medicaid claims were paid in state fiscal year 2000. HHS OIG found that  the state had inappropriately submitted claims for services that were not  documented as delivered, provided by unqualified providers, or provided  to students who were absent on the dates of the claimed services.  According to state officials, after further review, CMS, which reviews HHS  OIG recommendations and issues final disallowances, imposed a   $1.2 million disallowance. In a separate report on Massachusetts’ claims  for administrative costs related to school-based services, HHS OIG found  that in state fiscal years 2000 and 2001, the state did not monitor the  appropriateness of school districts’ claims that were compiled by UMMS,  resulting in at least $5 million in unallowable claims.
In commenting on a draft of this report, Massachusetts officials cited a  number of actions taken in response to HHS OIG’s reports. To strengthen  oversight of school-based claims, state efforts include enhanced training  and technical assistance to school districts, expanded management  reporting, new monitoring and auditing systems, and a newly established  Director of School-Based Medicaid within the Office of Medicaid.
In the context of documenting Georgia’s contingency-fee project related to  school-based claims, we identified a concern with how Georgia was using  additional federal reimbursements gained from school-based claims.  Georgia’s contingency-fee consultant assisted the state with Medicaid  claims for school-based services in a project that generated about   $54 million in federal Medicaid reimbursements over the 3 years the  consultant was paid and that, on the basis of state data, we estimate  continues to generate about $25 million annually. We found that the  school districts were not receiving all of the federal Medicaid matching  funds that were generated on their behalf—a concern we noted in prior  reports on state school-based claims. According to a state official and  documents provided by the state, the state retained $3.9 million, or   16 percent, of federal reimbursements that were claimed on behalf of the  school districts for state fiscal year 2003, most of which was used to pay  its contingency-fee consultant and about $1 million of which was used to  cover the salaries and administrative costs of the five state employees who  administered school-based claims in Georgia.
section_title: Administrative Costs
paragraphs: Our work in Massachusetts and Georgia found that neither state had  claimed federal reimbursement for contingency fees they had paid their  consultants. In examining Massachusetts’s administrative claims, however,  we found that, despite a major reorganization of state agencies beginning  in mid-2003, the state did not submit a complete cost allocation plan— which would have provided the basis for its administrative claims— reflecting its new organization until December 2004. As of April 2005, the  revised cost allocation plan had not been approved by HHS. We also  found that the state may have claimed more in administrative costs related  to its contingency-fee projects than may have been warranted. For  example, according to the state’s claims for administrative reimbursement  for UMMS’s costs, 100 percent of one senior official’s salary was claimed  as a Massachusetts Medicaid administrative expense, even though the  official had worked on UMMS projects conducted for other states. We also  identified an issue related to Georgia’s claims for administrative costs that  we were unable to fully evaluate during our work. As discussed in  appendix I, we have referred information regarding Georgia’s  administrative claims to CMS for further review.
HHS OIG has recently reported on unallowable administrative expenses in  states other than Massachusetts related to their use of contingency-fee  consultants. In October 2004, for example, HHS OIG reported that  Colorado had received about $180,000 in improper federal Medicaid  reimbursement because the state had claimed about $359,000 in consultant  fees that were contingent upon reimbursements from the federal  government for Medicaid family-planning claims. The claims were made  from April 2002 through December 2003. Similarly, in November 2004,  HHS OIG reported that Virginia had improperly claimed as Medicaid  administrative expenditures the contingency fees paid to a consultant for  federal reimbursement-maximizing services also related to family-planning  services. From October 2001 through April 2003, the state had claimed  about $678,000 in unallowable contingency-fee payments made to a  consultant, the federal share of which was about $339,000. Both states  agreed that they had improperly claimed these fees and submitted  corrective adjustments. According to a CMS official, the agency recouped  the states’ excessive reimbursements.
In early 2005, CMS acted upon its concerns about states’ Medicaid  administrative claims. For example, CMS reported that, in some instances,  evidence showed that states had attempted to shift administrative costs  associated with other social service programs to Medicaid. The President’s  budget proposal for fiscal year 2006 contains an initiative to limit states’  allotments for Medicaid administrative claims.
section_title: Two Factors Increase Risk of Problematic Claims
paragraphs: We observed two factors in many reviewed projects that appeared to  increase the risk that claims are problematic, that is, inconsistent with  federal law or policy, or with Medicaid’s federal-state partnership and  fiscal integrity. One factor was that they came under areas of Medicaid  claims where federal requirements were inconsistently applied, evolving,  or not specific, at times resulting in inconsistent treatment of states by  CMS. Despite CMS’s long-standing concern about state financing  arrangements for both TCM and supplemental payments, the agency has  not issued adequate guidance to clarify expenditures allowable for federal  reimbursement. Federal policy for claims in these categories has evolved  over time, and the criteria that CMS applies to determine whether claims  are allowable have been communicated to states mainly through state- specific state plan amendment reviews or claims disallowances, rather  than through guidance or regulation. State officials, HHS OIG auditors, and  CMS financial management staff have raised concerns about the lack of,  and need for, improved guidance in a number of categories that we  reviewed. Some officials said that the lack of clear CMS guidance has  allowed states to develop new financial arrangements, or to continue  existing ones, that take advantage of gray areas. In line with these  concerns, we also found that existing guidance on allowable claims had  been inconsistently applied, had evolved over time, or, in the case of  rehabilitation services, had not been specified.
Inconsistently applied policy for allowable TCM services: Although  CMS began to deny proposed state plan amendments that sought approval  for Medicaid coverage of TCM services that were the responsibility of  other state agencies in 2002, states with such arrangements then in place,  such as Georgia and Massachusetts, were allowed to continue them. For  other states, CMS had determined that such arrangements were not  eligible for federal Medicaid reimbursement for several reasons: (1) the  services were typically integral to existing state programs, (2) the services  were provided to beneficiaries at no charge, and (3) beneficiaries’ choice  of providers was improperly limited. CMS, however, had approved  Georgia’s and Massachusetts’s state plan amendments for TCM services  before 2002. Although CMS has since applied these criteria to deny TCM  arrangements or claims—for example, in Maryland, Illinois, and Texas—it  has not yet sought to address similar, previously approved TCM  arrangements that are inconsistent with these criteria. CMS regional  officials told us they could not reconsider the TCM claims from two  agencies in Georgia and four in Massachusetts because they were waiting  for new guidance that the agency was preparing. CMS has been working  on new TCM guidance for more than 2 years, according to agency officials,  and as of May 2005 this guidance had not been issued. CMS’s fiscal year  2006 budget submission identifies savings that could be achieved by  clarifying allowable TCM services, but CMS had not published a specific  proposal at the time we completed our work.
Evolving policy for allowable supplemental payment arrangements:  For several years, we and others have reported on state financing  arrangements that allow states to inappropriately generate federal  Medicaid reimbursement without a corresponding state expenditure.  While Congress and CMS have taken steps to curb these abuses, states can  still develop arrangements enabling them to make illusory payments to  gain federal reimbursements for their own purposes. CMS has recognized  that states can gain from supplemental, such as UPL, payment  arrangements through intergovernmental transfers. Since fiscal year 2003,  for example, CMS has worked with individual states to address such  arrangements and, under this effort, CMS had identified and made  agreements with Georgia and Massachusetts to change how their UPL  arrangements operated. At the same time, the agency has not issued  guidance stating its policy on acceptable approaches for supplemental  payment arrangements, including the allowed methods for funding the  state’s share of the Medicaid program. CMS’s budget for fiscal year 2006  proposes to achieve federal Medicaid savings by curbing financing  arrangements that have been used by a number of states to inappropriately  obtain federal reimbursements. The specific proposal, however, had not  been published at the time we completed our review.
Unspecified policy on allowable Medicaid rehabilitation payments  to other state agencies: CMS has not issued policy guidance that  addresses situations where Medicaid payments are made by a state’s  Medicaid agency to other state agencies for rehabilitation services. CMS  financial management officials told us that states’ claims for rehabilitation  services posed an increasing concern, in part because officials believed  that states were inappropriately filing claims for services that were the  responsibility of other state programs. CMS does not specify whether  claims for the cost of rehabilitation services that are the responsibility of  non-Medicaid state agencies are allowable. CMS’s fiscal year 2006 budget  submission identifies savings that could be achieved by clarifying  appropriate methods for claiming rehabilitation services. CMS had not  published a specific proposal at the time we completed our review.
Another factor shared by the reimbursement-maximizing projects we  examined was that they increased Medicaid payments from state Medicaid  agencies to other state or local-government agencies—that is, to non- Medicaid agencies that may serve Medicaid beneficiaries—a mechanism  that can facilitate an inappropriate shift of state costs to the federal  government. Medicaid reimbursement to government agencies serving  Medicaid beneficiaries is allowable in cases where the claims apply to  covered services and the amounts paid are consistent with economy and  efficiency. In contrast, the projects and associated claims we reviewed  showed that reimbursement-maximizing projects often involved services  and circumstances that Medicaid should not pay for—such as illusory  payments to government providers.
section_title: Limited State and CMS Oversight of Claims from Contingency-Fee Projects Raises Concerns about Medicaid Financial Management
paragraphs: Georgia, Massachusetts, and CMS provided limited oversight of claims  associated with projects developed with the aid of contingency-fee  consultants to ensure that they were consistent with Medicaid  requirements. The two states’ measures to oversee contingency-fee  projects were insufficient to prevent inappropriate claims, and CMS  officials were not always aware of states’ specific projects to maximize  federal reimbursement. Problems we found with CMS’s oversight of states’  reimbursement-maximizing projects and associated claims illustrate the  need to address broader financial management issues, especially as more  states adopt reimbursement-maximizing strategies without hiring  consultants.
subsections: section_title: States Have Taken Some Steps to Ensure Appropriate Claims, but Problems Remain
paragraphs: Georgia and Massachusetts have taken some steps to oversee the  contingency-fee consultants they have engaged for reimbursement- maximizing projects. Georgia’s oversight was conducted primarily through  a steering committee, formed by the state in 1999, with project review and  approval responsibility. Specifics of implementing the projects were  delegated to the state agencies that generated the enhanced  reimbursements. In some cases, the state Medicaid agency and the  steering committee disapproved proposed projects because they did not  comply with Medicaid law or policy. For example, the consultant  proposed that two state agencies be allowed to bill for TCM for a  particular client in a given month. The state agency determined that this  proposal would result in an inappropriate duplicate billing and chose to  allow only one state agency to bill for TCM services per client per month.  In addition, although Georgia was not required to notify CMS when a new  project was developed by the state’s consultant—and generally did not do  so because it believed the authority to implement various projects was  already included in the state’s existing approved Medicaid plan—on  occasion, it sought the advice of CMS’s regional office about a project.
Despite Georgia’s review of the consultant’s proposed projects, however,  the state’s oversight did not identify problems with some of the projects  we reviewed. For example, Georgia made several changes in its  rehabilitation program, including a change in how payment rates to private  facilities were calculated. As discussed in the rehabilitation services  section of this report, we believe the revised rates were not in accord with  requirements that payments be consistent with efficiency and economy.  CMS officials—who had not been asked to approve the states’ revised  rates—agreed, and during our review began an investigation to determine  the extent of the problem.
In Massachusetts, oversight for Medicaid reimbursement-maximizing  projects has been shared by the state Medicaid agency, which is now in  the Executive Office of Health and Human Services, and the Office of the  State Comptroller. The Medicaid agency is responsible for ensuring that  the state’s claims for federal reimbursement are consistent with federal  requirements. The Comptroller’s office reviews and approves specific  reimbursement-maximizing projects proposed by the Medicaid agency,  manages the accounts that receive reimbursements generated by the  projects, verifies and pays the contingency fees, and reports program  results annually to the state legislature. The Comptroller’s review has  focused on the financial implications of proposals, more than on program  implications. Recent state legislation authorized the Medicaid agency to  enter into contingency-fee contracts with UMMS without the Comptroller’s  prior approval and to pay contingency fees up to a ceiling of $30 million  for state fiscal year 2005.
The Massachusetts Medicaid agency engaged UMMS to perform many  ongoing operational functions of its Medicaid program. In February 2004,  when the Executive Office of Health and Human Services was designated  as the single state Medicaid agency, and staff of the Medicaid and other  state agencies were relocated under UMMS, UMMS has assisted the state  Medicaid agency in carrying out many of its functions. UMMS in 2004 had  major responsibilities for administering significant operational aspects of  the Medicaid program, such as conducting program integrity and  utilization reviews and compiling the state’s Medicaid claims for school- based services, including ensuring the appropriateness of such claims. At  the same time, UMMS has also been paid contingency fees by the state  Medicaid agency for numerous reimbursement-maximizing activities, such  as those related to school-based claims.
In addition to its agreements with the Massachusetts Medicaid agency to  operate portions of the Medicaid program, UMMS also served as a  contingency-fee consultant to other Massachusetts entities to enhance  federal Medicaid reimbursements. UMMS officials told us that they have  contracted on a contingency-fee basis with about 86 of the state’s 356 local  school districts to develop their school-based Medicaid administrative  claims and with about 75 local districts to develop school-based health  services claims. UMMS therefore administers significant operational  aspects of the state’s system for school-based Medicaid services, including  overseeing the appropriateness of claims, and acts as a contingency-fee  consultant to prepare some of those claims for some school districts. In  audits of Massachusetts’s claims for school-based health services, HHS  OIG cited inadequate oversight by both the state Medicaid agency and  UMMS. HHS OIG audited health claims and administrative expenditures  from eight school districts and found improper claims in both categories.  In our view, this dual role—assisting with Medicaid program  administration, including quality control, and consulting with local school  districts on a contingency-fee basis—creates an appearance of conflict of  interest for UMMS, raising questions about UMMS’s incentives for  ensuring that claims for federal Medicaid reimbursement are appropriate.
The oversight measures that Massachusetts Medicaid officials told us they  had in place to ensure that reimbursement-maximizing claims compiled by  UMMS were consistent with federal requirements were insufficient to  prevent inappropriate claims. The officials told us, for example, that they  relied on edits in the state’s Medicaid Management Information System— the computer system that processes provider claims for payment—to  ensure that the processed Medicaid claims were allowable. According to  the CMS financial management officials who reviewed Massachusetts’s  claims, however, claims from some reimbursement-maximizing projects  were not subject to computer-based edits. The officials estimated that  about 30 percent of the state’s Medicaid claims, including some of those  for managed care and supplemental payments, are processed off system— that is, not through the state’s computerized Medicaid Management  Information System—and these off-system claims pose a greater concern,  they told us, because inaccuracies are more common in them.
section_title: CMS Has Limited Oversight of Contingency- Fee Projects and Associated Claims
paragraphs: CMS did not routinely review projects in Georgia and Massachusetts that  used contingency-fee consultants and in fact was unaware of some of the  specific projects to increase federal reimbursements that we reviewed.  CMS oversight of such projects and the associated claims was limited  because the agency did not routinely request that states indicate on state  plan amendments or expenditure reports whether consultants were  involved in their development. CMS officials told us they relied primarily  on the states to ensure that projects and claims were appropriate.  Although CMS surveyed its regional offices in fiscal year 2004 to identify  contingency-fee consultant projects by state, our work in Georgia and  Massachusetts identified more projects developed with assistance from  contingency-fee consultants than CMS’s survey reported. CMS officials  told us that they became aware of Georgia’s contract with its consultant  when a local newspaper reported a dispute between the state and the  consultant. CMS officials overseeing the Massachusetts Medicaid program  told us they had not examined the relationships between the Medicaid  agency and UMMS, but they told us that during the time of our review they  had asked HHS OIG to investigate the appropriateness of the state’s  Medicaid administrative claims, which included those attributable to  UMMS. HHS OIG’s investigation was under way when we completed our  work.
CMS has stated that it lacks authority to require states to disclose  contingency-fee arrangements when states are not seeking federal  reimbursement for the fees. CMS officials clarified, however, that they can  request information about the assistance of a contingency-fee consultant  when agency officials are reviewing state submissions such as state plan  amendments, cost allocation plans, or expenditure reports. Officials said  that they did not routinely request such information in conjunction with  these reviews. In Georgia and Massachusetts, we found CMS reviews  limited in the extent to which they identified concerns with contingency- fee projects and associated claims in three areas:    CMS review of state plan amendments: Because states’ proposals for  changes to their state plans through amendments might be general in  nature, CMS may not have details to identify the specific changes that  would increase claims. Georgia, for example, did not submit a state plan  amendment about its project to increase payment rates for rehabilitation  services to children in the state’s juvenile justice and child protection  systems because it had concluded that it could change how it claimed  Medicaid reimbursement without changing the state plan section that  authorized the payments. When we discussed this example with CMS  officials, they told us that when a state’s plan is broadly written, the state  may not always submit amendments to change the plan provisions. The  CMS officials told us that even in cases where a contingency-fee  consultant was involved in drafting a state plan amendment—for example,  to establish new coverage or payment rates—they might not be aware of a  consultant’s involvement because states do not routinely disclose this  information to CMS.
CMS review of cost allocation plans: As previously discussed,  Massachusetts did not submit a complete draft cost allocation plan to  CMS, reflecting its major reorganization, until December 2004. As of April  2005, the revised cost allocation plan had not been approved. CMS officials  did not explain why Massachusetts was allowed to continue claiming  federal Medicaid reimbursement for administrative costs on the basis of an  outdated cost allocation plan, other than to say that several other states  did not have current plans. Massachusetts’s officials told us they did not  expect major changes as a result of the revised cost allocation plan, but  the extent of any changes cannot be verified until a revised plan is  approved.
CMS review of Medicaid quarterly expenditure reports: Nothing in  the quarterly expenditure report indicates when a contingency-fee  consultant has assisted in developing specific categories of claims, making  it difficult to identify such claims. CMS regional financial analysts  responsible for reviewing Massachusetts’s expenditure reports told us that  it was standard practice to defer payment to allow further investigation of  any claims for new services when they knew that a consultant had been  involved. In such cases, they requested and analyzed further information  from the state. The ability of CMS regional officials to identify potential  problems with states’ claims by analyzing quarterly expenditure reports  was limited. Regional CMS officials responsible for Massachusetts told us  they used standard trend and variance analyses to review the reports and  also conducted some analyses of their own, but they were not confident  that these reviews were adequate to identify problems. CMS regional  analysts are able to conduct only a few focused reviews each year of  potential problems with states’ claims identified through their analyses of  the quarterly expenditure reports, and, they told us, random reviews are  not feasible.
In the CMS regional offices managing Medicaid claims from Georgia and  Massachusetts, available agency resources—especially in terms of  experienced analysts relative to the scale and variety of claims—have  constrained the conduct of financial reviews. Although Georgia claims  federal Medicaid reimbursements totaling approximately $1.7 billion per  quarter, CMS has had only one financial analyst assigned to review those  claims; for Massachusetts, three CMS analysts are responsible for  reviewing quarterly claims of more than $2 billion.
Our work in Georgia and Massachusetts also identified an area where  consultants were advising states and where CMS does not have any  oversight mechanism. CMS does not review the payment rates that state  agencies other than the Medicaid agency bill to the Medicaid program for  services such as TCM. In Massachusetts, each of the four non-Medicaid  agencies providing TCM services developed its own rate for billing the  services to Medicaid, in some cases with the assistance of the agency’s  consultant. In state fiscal year 2004, these four agencies billed Medicaid a  monthly fee for TCM services that ranged from $178 per person in the  Department of Mental Retardation to $454 in the Department of Youth  Services, according to state officials. Although CMS approved a general  rate-setting provision as part of the original state plan amendments for  these agencies’ case management services, the actual payment amounts  are generally reviewed and approved only by a division of the  Massachusetts Medicaid agency. CMS does not review these state- approved payment amounts, and the HHS Division of Cost Allocation  reviews cost allocation plans related only to administrative, not service,  claims.
section_title: Problems Illustrate Need to Improve the Financial Management of Medicaid
paragraphs: The concerns we identified with the appropriateness of states’ Medicaid  claims stemming from contingency-fee projects illustrate the urgent need  to address the issues we have identified with CMS’s overall financial  management of the Medicaid program. We identified problems with  claims in states other than Georgia and Massachusetts that have  undertaken reimbursement-maximizing activities, without employing  consultants, in categories of long-standing concern, such as supplemental  payment arrangements. In March 2004, for example, when one state  sought consultants for reimbursement-maximizing services for Medicaid  and other programs, the proposed scope of work specifically excluded  activities that the state already had under way, including Medicaid UPL  claims, school-based administrative and service claims, eligibility for  foster children, and TCM services. CMS and HHS OIG officials in the  Atlanta regional office told us about reimbursement-maximizing projects  in two states in the region that were developed without the use of  consultants.
CMS relies on its standard financial management controls to identify or  correct any unallowable Medicaid claims that states may submit, including  those that might be associated with reimbursement-maximizing  contingency-fee projects. In assessing the appropriateness of claims  generated from contingency-fee projects in Georgia and Massachusetts,  we found other examples of potentially unallowable claims that CMS’s  financial management controls had failed to uncover. For example, when  we discussed Georgia’s contingency-fee project for rehabilitation services,  CMS officials not only agreed with our assessment that the additional  reimbursements from the project were inconsistent with federal law, but  also identified concerns about whether the state agencies and facilities  were qualified providers, cost estimates were appropriate, and all services  were covered by Medicaid. Similarly, we identified Medicaid billing  concerns in Massachusetts that did not stem from the contingency-fee  projects:    One state agency—the Department of Mental Retardation, which was not  assisted by a contingency-fee consultant—was billing Medicaid for TCM  services without appropriate documentation. According to department  officials, the agency automatically bills Medicaid a monthly fee of $178 for  each Medicaid-eligible beneficiary in its TCM caseload. The department  does not verify its billing records with its case managers’ records to ensure  that each beneficiary received a covered service each month. Automatic  billing for case management services is not allowed under Medicaid: to  claim federal reimbursement, states must document a specific service  delivered on a specific date. The Department of Mental Retardation  received about $19 million in federal reimbursement for its TCM claims in  2004, according to state officials. In commenting on a draft of this report,  state officials acknowledged that contacts with clients do not necessarily  occur each month and that the Department of Mental Retardation’s billing  for TCM was an area for improvement. Officials said that a new  management information system planned for state fiscal year 2006 would  allow electronic documentation of contacts with clients and automated  verification during the billing process.
Three other Massachusetts agencies—the Departments of Social Services,  Youth Services, and Mental Health—billed Medicaid for TCM services even  though the agencies could have been serving some of the same  beneficiaries. A foster child served by the Department of Social Services,  for example, could also be a juvenile offender served by the Department of  Youth Services. State Medicaid officials permitted each state agency to bill  Medicaid for TCM services and told us they did not consider this practice  duplicate billing, because they believed the agencies provided different  services. The officials told us that the CMS-approved state plan  amendments authorizing TCM services for these agencies would show that  the services differed. Our review of the documents provided by state  officials, however, showed that for two agencies, the TCM service  descriptions were identical and for all four agencies, including the  Department of Mental Retardation, the service descriptions were similar.  State officials acknowledged that overlap in eligibility occurred among the  agencies but said they were unaware of the number of Medicaid  beneficiaries for whom two or more TCM services were claimed per  month or the amount of reimbursements claimed for those beneficiaries.  In Georgia, in contrast, only one agency is allowed to bill for TCM services  in a given month for a given beneficiary.
CMS lacks clear, consistent policies to guide the states’ and its own  financial oversight activities. Furthermore, CMS officials have expressed  concerns about the agency’s ability to review states’ activities in all high- risk areas that the agency has identified. We found that CMS has known  for some time that two high-risk categories we identified—claims  generated from consultants paid on a contingency-fee basis to maximize  reimbursements and claims generated from arrangements where state  Medicaid programs are paying other state agencies or government  providers—were problematic. For example, CMS had listed these two  categories on a financial tracking sheet of high-risk areas as of 2000. At  an October 2003 congressional hearing, the CMS Administrator expressed  concern that the Medicaid program was understaffed and that consultants  in the states were “way ahead of” CMS in helping states take advantage of  the Medicaid system.
CMS has undertaken several important steps to improve its financial  management of the Medicaid program. A major component of the agency’s  initiative is hiring, training, and deploying approximately 100 new financial  analysts, mainly to regional offices. These analysts will be responsible for  identifying state sources of Medicaid funding and contributing to the  review of state budget estimates and expenditure reports. As of April 2005,  CMS reported that 85 new financial analysts had been hired for the  regions, and 10 new analysts were on duty in the central office. According  to CMS, the new analysts have received initial training in the central office;  two meetings per year are planned to bring all new analysts together for  continuing education; and monthly conference calls take place with all  new analysts and regional and central office officials. In addition, each  region has its own conference call every 2 weeks with officials of CMS’s  new Division of Reimbursement and State Financing. This new division,  which was created in January 2005 to centralize and coordinate federal  oversight of Medicaid reimbursement and financial issues, comprises the  two nationwide review teams for state plan amendments and the 10 new  central office funding specialists. Expectations for the new division and its  analysts are high and their responsibilities broad; it is too soon, however,  to assess their overall accomplishments.
section_title: Conclusions
paragraphs: Because of its size, complexity, and federal-state structure, the Medicaid  program has been subject to waste, abuse, and exploitation. Our work has  found that projects developed by consultants who are paid a fee  contingent upon additional federal reimbursements that they generate  pose a financial risk to the program. It is not possible, however, to quantify  the magnitude of this financial risk, because CMS does not routinely  request information regarding states’ use of contingency-fee consultants to  assist with reimbursement-maximizing projects and associated claims.
Reimbursement-maximizing projects have generated huge reimbursements  for states—more than $2 billion in total over a 5-year period for the two  states we reviewed. Large reimbursements such as these place heavy  responsibility on CMS to monitor the many complex financing  arrangements and claims arising from contingency-fee consultants’  reimbursement-maximizing activities. The concerns we have identified  with claims from consultants’ projects and concerns with states’  submitting claims that have not been reflected in state plan amendments  and cost allocation plans illustrate the urgent need for CMS to address  certain issues in its oversight of states’ contingency-fee consultant projects  and in its overall financial management. In addition, many of the  problematic financing arrangements we examined involved payments to  units of state and local government—which states have long used to  maximize federal Medicaid funding—suggesting that greater CMS  attention is needed to payments among these units, regardless of whether  consultants are involved.
For more than a decade, we have reported on the various methods some  states have used to inappropriately maximize federal Medicaid  reimbursement and have made recommendations to end such schemes.  CMS has taken several steps to respond to our recommendations and to  address other issues it has identified, including taking steps to hire 100  new financial analysts and developing budget proposals for fiscal year  2006 to clarify policies for allowable claims in several high-risk areas.  Nevertheless, specific proposals have not yet been set forth, approved, or  implemented. We continue to encourage CMS to take steps to identify and  curb opportunistic financing schemes before they become a staple of state  financing, and further erode the integrity of the federal-state Medicaid  partnership, and to do so in a manner that ensures that policies are clear  and consistently applied. With regard to specific projects we examined for  this report, we commend CMS and HHS OIG for steps they have taken to  examine claims from these projects, including the potential for identifying  unallowable claims that may involve recovery of federal funds. In addition,  addressing our prior recommendations to Congress and CMS that remain  open could also help resolve some of the issues identified in this report.
Because states continue to take advantage of financing schemes relying on  payments to units of state and local government, we believe that our  earlier recommendation to Congress—to prohibit Medicaid payments to  government providers that exceed their costs—is still valid and would  help safeguard federal Medicaid funds.
Because states, often with the assistance of consultants, continue to make  illusory payments by establishing excessive UPL payment arrangements,  we reiterate three earlier recommendations that remain open: that the  Administrator of CMS (1) establish uniform guidance for states, setting  forth acceptable methods to calculate UPLs; (2) expedite financial  management reviews of states with UPL arrangements; and (3) improve  state reporting on these arrangements.
States should not be held solely responsible for inappropriately seeking  reimbursements where policies have not always been clear or clearly  communicated. Although CMS has taken steps in recent years to minimize  the federal financial risk involved in inappropriate financing schemes, the  agency must also ensure that its policies are clear and consistently applied  across states. Otherwise, CMS is at risk of treating states inconsistently  and of placing undue burdens on states to comply. Because of the  potential for a significant financial impact on states that may have relied  on excessive federal funding for certain services, those states found out of  compliance with CMS policy may need to be granted a transition period  for coming into compliance with clarified CMS requirements.
section_title: Recommendations for Executive Action
paragraphs: To improve CMS’s oversight of projects involving contingency-fee  consultants and any associated claims for federal Medicaid  reimbursements, we recommend that the Administrator of CMS take the  following two actions:    Routinely request that states disclose their use of contingency-fee  consultants when submitting state Medicaid documents, such as state plan  amendment proposals, cost allocation proposals, and expenditure reports,  and, in the event that states do not voluntarily provide this information,  seek legislative authority to require disclosure.
Enhance CMS review of state Medicaid documents for which states have  used a contingency-fee consultant and take appropriate action to prevent  or recover federal reimbursements associated with unallowable claims.
To strengthen CMS’s overall financial management of state Medicaid  activities, we recommend that the Administrator of CMS take the  following five actions:    Require that states identify—in Medicaid-related documents such as state  plan amendments and expenditure reports—arrangements or claims for  payments that involve payments to units of state or local government, such  as state- and local-government-owned or -operated facilities.
Enhance CMS review of states’ Medicaid documents, such as state plan  amendments, cost allocation plans, and expenditure reports, specifically  reviewing payments states make to units of government, including the  methodology behind payment rates to government units and the basis for  any related claims, and take appropriate action to prevent or recover  unallowable claims.
Establish or clarify and then communicate CMS policies on TCM,  supplemental payment arrangements, rehabilitation services, and Medicaid  administrative costs and ensure that the policies are applied consistently  across all states.
Ensure that states submit cost allocation plans as required and establish a  procedure for their prompt review.
On the basis of the findings of this report regarding specific projects and  billing practices, follow up with states’ associated claims and recover  federal reimbursements of unallowable claims as appropriate in Georgia  and Massachusetts.
section_title: Agency and State Comments and Our Evaluation
paragraphs: We provided a draft of this report for comment to CMS, Georgia, and  Massachusetts. Each provided written comments, which we summarize  and evaluate below.
subsections: section_title: CMS’s Comments and Our Evaluation
paragraphs: CMS commented that the draft report did not accurately reflect the many  activities the agency has taken to address the issues raised in the report  and that recommendations in the report have already substantially been  met. CMS believes that many of the problems that the draft report  highlighted, including those with the projects in the five high-risk  categories of claims that we selected to review in Georgia and  Massachusetts, were already known to CMS as problematic. For example,  CMS said that the five high-risk categories we cited were highlighted in the  President’s budget for fiscal year 2006 as areas in need of reform. CMS  discussed many steps it had taken in recent years to improve the financial  management of Medicaid, which it said were omitted from the report.
Although CMS stated that federal dollars have been supplanting state  dollars and that the Medicaid program is unquestionably paying for things  it should not pay for, the agency also  said it was addressing this problem  through work with individual states to reach agreements to ensure use of  appropriate financing mechanisms and to end inappropriate ones.
We acknowledge that CMS has taken important actions in recent years to  improve the financial management of Medicaid. We believe our draft  report recognized these efforts, including CMS’s creation of the central  financial review body called the Division of Reimbursement and State  Financing, and on the basis of CMS’s comments, we have added further  information to the report. We also acknowledge that we selected the two  states in our review, Georgia and Massachusetts, because of the wide  variety of contingency-fee projects in these states that CMS’s survey had  identified, including projects in areas where claims were thought to be at  high risk or growing in dollar amounts in recent years. Although CMS  suggested that the scope of our work was limited to these two states, we  did draw upon our prior work and that of HHS OIG to extend our findings.  Moreover, we believe that conducting detailed work in two states helped  us identify systemic issues extending well beyond these two states. We  further note that we established the scope of our work, including areas we  considered to be high risk, before publication in 2005 of the President’s  fiscal year 2006 budget that reflected CMS’s initiatives for improving its  policy in these same high-risk categories of claims. We believe this nexus  of our work and CMS’s stems from our shared objective of protecting  Medicaid’s fiscal integrity. At the same time, we also note that we have  raised concerns about certain inappropriate financing methods in these  high-risk areas for many years, that some prior recommendations remain  open, and that problems remain. In addition to the important steps CMS  has taken in recent years to improve its policies and oversight, we believe  that more can and should be done to better ensure the program is  operating as Congress intended—that is, as a shared federal-state  partnership providing health care resources for covered services for  eligible beneficiaries.
CMS also commented on our specific recommendations, and these  comments are summarized, along with our response, below.
Regarding our recommendations for improved agency oversight of states’  use of contingency-fee consultants, CMS stated that it does not have  authority to require states to disclose their use of contingency-fee  consultants, although it believes it can request such information.  Consequently, we have adjusted our recommendation to suggest that CMS  routinely request, rather than require, that states disclose such  information, and seek legislative authority to require such disclosure if  states do not do so. CMS also stated that it recognizes that contingency-fee  consultants are a potential risk factor and that it is committed to fully  assessing the basis for claims in accordance with all relevant  requirements.
Regarding our recommendations that CMS take certain steps to improve  its overall financial management of state Medicaid activities, including  taking certain steps to improve oversight of states’ claims for payments  made to units of government, CMS discussed its initiative started in August  2003. Under this initiative, CMS requests information from states on their  financing methods and terminates those that the agency deems are not  consistent with the statutory federal-state financial partnership. CMS said  that, as of June 10, 2005, 23 states had agreed to terminate one or more  financing practices. Although our draft report acknowledged that CMS had  undertaken this effort, we have added further information to the report  about CMS’s initiative. We maintain, however, that CMS’s current state-by- state approach to reviewing states’ financing methods—by examining  them when states submit proposed state plan amendments and obtaining  agreement from states to end them—does not ensure that its policies are  clear to states or are consistently applied. For example, a state’s financing  methods may not be reviewed if the state does not submit a proposed state  plan amendment. We maintain our position and associated  recommendations that CMS do more to clarify, communicate, and  consistently apply its policies regarding areas that both CMS and we have  identified as high risk.
Regarding our recommendation that CMS establish or clarify and  communicate its policies on TCM, supplemental payment arrangements,  rehabilitation services, and Medicaid administrative costs and ensure that  the policies are applied consistently across states, CMS responded that the  fiscal year 2006 President’s budget proposals would do so. Our draft report  acknowledged these proposals but also noted that the specific proposals  had not been released as of June 2005. In the absence of concrete  proposals and actions to implement them, we believe our recommendation  remains valid.
Regarding our recommendation that CMS ensure that states submit cost  allocation plans as required, CMS cited existing requirements for states to  submit cost allocation plans. CMS’s comments were not fully responsive  because our recommendation did not address the need to develop new  requirements but to ensure compliance with existing requirements. We  therefore maintain this recommendation.
Regarding our recommendation from prior work that Congress prohibit  Medicaid payments to government providers that exceed their costs, CMS  noted that it included this proposal in the President’s fiscal year 2006  budget. Regarding our prior recommendation that CMS take steps to  improve its oversight of states’ UPL arrangements, CMS noted its current  state plan amendment review process and its financial management  review plan for fiscal year 2005 to review high-risk UPL arrangements as  examples of how it has already responded to our prior recommendations.  Our draft report described CMS’s proposal, which parallels the  recommendation we made to Congress in 1994, and CMS’s initiative. We  revised the report to acknowledge CMS’s plans to implement our earlier  recommendation to review high-risk UPL arrangements and note that not  all specific recommendations have been implemented.
Regarding our discussion in the draft report about our recommendation  from prior work that CMS should more effectively and efficiently target  oversight resources toward areas most vulnerable to improper payments,  CMS strongly disagreed that its current approach is not effective, and it  listed numerous actions it has taken since our 2002 report making these  recommendations. We agree that CMS has taken numerous actions since  2002. Because we have an ongoing review of CMS’s financial management  of Medicaid related to our 2002 report findings, we revised the report to  remove references to our earlier recommendations.
See appendix III for CMS’s written comments.
section_title: State Comments and Our Evaluation
paragraphs: Georgia and Massachusetts commented on the importance of contingency- fee contracts and states’ use of consultants in helping states secure  resources they otherwise would not have. Massachusetts commented that  seeking federal resources for people in need when those resources are  lawfully available is the fiscally responsible thing for states to do. The  state noted that nothing in law prohibits contingency-fee contracts and  that in themselves, “contingency-fee contracts do not let states off the  hook for determining what is and what is not appropriate under Medicaid.”  Georgia commented that the complexity of the Medicaid program can and  does compel states to turn to expert consultants for assistance and said  that the report inaccurately suggests that states’ use of contingency-fee  consulting is somehow illegitimate. We acknowledge that use of  contingency-fee contracts is allowed under law and that states can employ  consultants for a number of valid Medicaid purposes, and our report has  made these points. Our key findings, however, focus on the need to ensure  that financing methods and associated claims that stem from contingency- fee projects are consistent with federal law, policy, and the fiscal integrity  and federal-state partnership of the Medicaid program. Our work  identified concerns with claims from contingency-fee projects that were  problematic in these respects.
The two states also commented that the language of the law related to  coverage of the categories of claims we reviewed—rehabilitation, targeted  case management, Medicaid administration, school-based services, and  supplemental payments—is broad or complex, and they suggested that  they have made good-faith efforts to comply with ever evolving federal  regulations and policy. Both states believe that their claims comply with  the law. Regarding claims for payments made above what the state was  paying individual facilities for rehabilitation services, Georgia indicated  that one specific example we provided was an exceptional case.  Nevertheless, when we sought clarification from the state on its  comments, the state’s explanation did not address our overall concern  about the underlying method for setting Medicaid payment rates. We  revised the report to reflect the state’s comments and our continuing  concern. Massachusetts noted that little in the way of regulation narrows  the broad definitions in federal law of covered services; that the state’s  definitions of what Medicaid covers within the categories of claims we  reviewed fall within long-standing federal interpretations; and that GAO’s  finding the state’s definitions questionable does not make them illegal or  improper.
Massachusetts agreed with our conclusion that CMS policy in many of the  areas that we reviewed has been unclear, either because it has been  inconsistently applied, evolving, or is not specific. At the same time,  although most methods and resulting claims we question may not be  illegal, we believe they are inconsistent with the program’s federal-state  cost-sharing design, fiscal integrity, or with current CMS policy. For  example, some methods used by states, in our view, in effect increase the  federal share of the Medicaid program beyond what has been established  by a formula in law and are therefore inappropriate. In the report, we  clarified the basis for our concerns about problematic projects and  associated claims we identified.
Georgia’s and Massachusetts’s written comments, and our more detailed  responses, appear in appendix IV and appendix V, respectively. State  officials also provided us with technical comments, which we have  incorporated as appropriate.
As arranged with your office, unless you publicly announce the contents of  this report earlier, we plan no further distribution of it until 30 days after  its issue date. At that time, we will send copies of this report to the  Secretary of Health and Human Services, the Administrator of the Centers  for Medicare & Medicaid Services, and other interested parties. We will  also make copies available to others upon request. In addition, the report  will be available at no charge on the GAO Web site at http://www.gao.gov.
If you or your staff members have any questions, please contact me at  (202) 512-7118. Another contact and major contributors are included in  appendix VI.
section_title: Appendix I: Description of Contingency-Fee Projects Referred for Additional Review
paragraphs: This appendix addresses three contingency-fee projects that we included  in but could not fully assess during the time frames of our review. On the  basis of the information we obtained during our review, we believe that  separate studies of these three projects are warranted. We have referred  information about these projects to the Centers for Medicare & Medicaid  Services (CMS) and Department of Health and Human Services’ (HHS)  Office of Inspector General (OIG) for additional review.
In addition to the projects discussed in this report, the University of  Massachusetts Medical School (UMMS) helped Massachusetts develop  two supplemental payment arrangements to increase federal  reimbursements. One project involved supplemental financing known as  disproportionate share hospital (DSH) arrangements, and one involved  federal Medicaid reimbursement for medical services to inmates of state  correctional facilities.
States are required to make DSH payments to hospitals that care for a  disproportionate number of low-income patients. By statute, hospitals  qualifying for DSH payments are subject to a limit on the amount of  supplemental DSH payments they may receive. As with upper payment  limit (UPL) arrangements, supplemental payments made to government  providers through DSH arrangements can be illusory: that is, the state can  benefit from the arrangements by appearing to pay the providers more  than they ultimately retain and seeking federal reimbursement on the  excessive payments. In part because of concerns that large DSH payments  were not being used to support certain hospitals but were instead being  used for general state financing, Congress passed legislation in 1993 and  1997 to restrict states’ ability to make excessive DSH payments. After  these restrictions were put in place, combined state and federal DSH  payments declined, totaling approximately $14 billion in fiscal year 2003,  down from $16 billion in fiscal year 1999.
One Massachusetts contingency-fee project helped the state increase DSH  supplemental payments made to four state-owned hospitals.  Massachusetts’s consultant developed projects to take advantage of a  temporary DSH increase—which increased federal reimbursements by an  estimated $17 million annually. The consultant calculated new DSH limits  under the federal rules, which allowed temporary payments up to   175 percent of unreimbursed costs. To increase the amount of DSH  payments the state could make to each hospital, the consultant also helped  the state reduce its standard Medicaid payment rates for services provided  in these hospitals. This action increased the amount of supplemental  payments that the state could make and potentially require the hospitals to  return.
A second project involved helping Massachusetts to increase federal  Medicaid reimbursements for medical services to inmates of state  correctional facilities. Payment records indicated that in state fiscal year  2002, the state Medicaid agency paid UMMS nearly $300,000 (a  contingency fee of 6 percent of about $5 million in additional federal  Medicaid reimbursement) for its work on the project. Generally, medical  care for prison inmates is not covered by Medicaid. HHS OIG reported  that a contingency-fee consultant in another state, New Jersey, had  prepared inappropriate claims that New Jersey used to obtain federal  reimbursement for DSH claims for state prisoners. Over a 4-year period,  New Jersey inappropriately claimed more than $11 million in federal  Medicaid reimbursements for DSH payments made on behalf of prisoners.  HHS OIG determined that these payments were unallowable because the  state’s Medicaid plan specifically prohibited DSH payments for inmate  hospital care. Because medical care for prison inmates can be covered by  Medicaid under certain circumstances, we sought additional information  from Massachusetts officials to determine if Massachusetts’s arrangement  was allowable, but we did not receive information within the time frames  of our review.
In addition to the contingency-fee projects in Georgia discussed in this  report, Georgia’s consultant also helped the state seek additional federal  reimbursements for administrative costs. In particular, the state Medicaid  agency began claiming federal reimbursement for the costs of certain  activities carried out by county public health departments. Using a rate  developed by the consultant, the Medicaid agency claimed reimbursement  for the costs of a variety of health department activities serving the public,  including school-based presentations, presentations to community groups,  mass health screening events, public information campaigns, and events  mobilizing community partnerships. Costs associated with general health  education programs promoting healthy lifestyles are not allowable under  Medicaid, even if a portion of the participants served by the program are  on Medicaid. The state’s description of the activities for which claims were  made raised questions, but we did not receive information we needed  within the time frame of our review to make a full assessment.
Because we believe that separate studies of these three projects would be  required to assess their appropriateness, we have referred information  about these projects to CMS and HHS OIG for additional review.
section_title: Appendix II: Summary of Selected HHS OIG Reports on School-Based Claims in States Employing Consultants
paragraphs: The Department of Health and Human Services’ (HHS) Office of Inspector  General (OIG) has completed reviews of school-based claims in 18 states  from November 2001 through June 2005. Although these reviews were not  specifically targeted at the role of consultants paid on a contingency-fee  basis, several of the reports found concerns with the appropriateness of  claims from consultants’ projects (see table 4). In fiscal year 2005, HHS  OIG initiated a review specifically of consultants’ contingency-fee projects  in all categories of claims.
section_title: Appendix III: Comments from the Centers for Medicare & Medicaid Services
section_title: Appendix IV: Comments from the State of Georgia and GAO’s Response
paragraphs: The following is our response to the State of Georgia’s comments.
subsections: section_title: GAO’s Response to the State of Georgia’s Comments
paragraphs: Our responses to Georgia’s comments are numbered below to correspond  with the state’s various points (reproduced on pp. 67–69). Georgia  generally stated that (1) the state’s claims for targeted case management  (TCM), rehabilitation services, and supplemental payments were made  under state plan provisions approved by the Centers for Medicare &  Medicaid Services (CMS) and (2) we incorrectly concluded that the state  used federal funds generated from reimbursement-maximizing projects to  pay consultants. We have revised the draft to indicate that claims were  made under approved state plans. Also, we noted in the draft report that  Georgia complied with federal requirements in that it did not claim federal  reimbursement for the contingency-fee payments. As discussed below,  however, state documents indicated that additional federal funds  generated by reimbursement-maximizing projects were the source of the  state’s contingency-fee payments to its consultant.
The state provided us with specific comments in five areas, which we  summarize and respond to as follows:  1.  Georgia commented that we were incorrect in contending that CMS  can or should disallow Medicaid claims for TCM because they are an  integral part of other state programs. Georgia stated that a statute  provides that CMS may not deny payment to a state on the basis that  the state was paying for the services from nonfederal funds, and it also  said that CMS had approved Georgia’s state plan amendment to cover  these services. We based our evaluation of Georgia’s TCM claims on  CMS’s current policy, including the agency’s actions in disallowing  TCM claims or state plan amendments in other states, and we have  focused our concerns on the inconsistent application of CMS’s TCM  policy. In applying this policy, CMS had considered arguments similar  to those raised by Georgia, and the CMS Administrator’s decision  (September 2004) upheld the application of CMS’s current TCM policy.  Although we did not evaluate the legal basis for CMS’s TCM policy, we  maintain our position that CMS’s policy should be clarified and  consistently applied among states.  2.  Regarding rehabilitation services, Georgia stated that it has not and is  not asking for federal matching funds in excess of costs. We disagree.  We found that in some cases the state agencies’ claims to Medicaid  were based on facilities’ costs exceeding the agencies’ actual payments  to individual facilities. This situation resulted from the agencies’  decision to base claims for payment on the facilities’ estimated costs,  rather than on the per diem rate they paid to these facilities. According  to the state, one example described in the report of a Medicaid claim  that exceeded payments to the facility for all services, was an  exceptional circumstance. The state also indicated that this  inadvertent practice was ended for all facilities as of April 1, 2004.  Although we sought clarification from the state on its comments, the  state did not address our finding that the underlying methods for  setting Medicaid payment rates was flawed.  3.  Regarding supplemental payments, Georgia asserted that it has  historically administered its upper payment limit (UPL) program in  compliance with existing federal regulations and also stated that it has  agreed with CMS to change the financing of its UPL programs  beginning in state fiscal year 2006. The state said that, as of July 2005,  it will no longer continue the practice we described in our draft report.  We revised the report to reflect the state’s agreement with CMS  regarding the state’s supplemental payments to government providers.  4.  Regarding school-based claims, Georgia commented that we erred in  reporting that the state withheld 16 percent of the federal  reimbursements from the reimbursement-maximizing project involving  claims for services and administrative costs of schools. The state also  said the schools receive 100 percent of the federal reimbursements  generated and that state fees, which support the administrative costs  necessary to ensure that all participating school systems are complying  with program requirements, are paid exclusively from local funds.  During our review, however, the state provided us a written  explanation and a spreadsheet showing what was paid to schools,  indicating that it had withheld 16 percent of the federal  reimbursements from the school-based project and that participating  schools received 84 percent of the federal reimbursements.  5.  Regarding administrative claims, Georgia commented that we  incorrectly suggested that the state paid its consultants from additional  federal Medicaid reimbursements generated from contingency-fee  projects. We disagree. Our conclusion was based on the contract that  the state signed with its reimbursement-maximizing consultant. The  contract states that the contractor (consultant) acknowledges and  agrees that no payment is due from the state agencies or the state of  Georgia under the contract from state-appropriated funds. Further, the  contract explicitly states that the “Contractor’s only source of  compensation shall be funds (in the percentage specified in  Contractor’s Proposal) generated from Contractor’s performance  under this Contract.”
The state also provided us with technical comments, which we have  incorporated as appropriate.
section_title: Appendix V: Comments from the Commonwealth of Massachusetts and GAO’s Response
subsections: section_title: GAO’s Response to the Commonwealth of Massachusetts’s Comments
paragraphs: Our responses to Massachusetts’s comments are numbered below to  correspond with the state’s various points (reproduced on pp. 73–85).  Massachusetts generally stated that (1) nothing in the law prohibits  contingency-fee contracts, as long as rates fall within broad requirements  for the efficient administration of Medicaid; (2) contingency-fee contracts  provide states with resources they otherwise would not have for vital  administrative tasks; (3) states remain responsible for ensuring  compliance with Medicaid requirements; (4) Medicaid statute and  regulations are broadly stated; and (5) states have the responsibility to  seek federal resources to help people in need when those resources are  lawfully available. The state also provided us with updated information,  which we have incorporated in our report.
Massachusetts’s detailed comments and our responses follow.
subsections: section_title: General Comments
paragraphs: 1.  Massachusetts noted that the state’s funding methods differed from the  typical payment process we describe in the report’s “Background”  section. We revised the report to reflect that the state advances from  state funds both the federal and nonfederal share of Medicaid  payments and then seeks federal reimbursement for those  expenditures.  2.  Massachusetts commented that we did not sufficiently distinguish  between “inappropriate, but lawful” activities and activities that violate  specific statutes or regulations. We revised the report to clarify our  concerns related to the projects we examined and to more clearly  distinguish the basis for our concerns related to the projects that we  reviewed.  3.  Massachusetts commented that it was acting in accord with its state  plan approved by the Centers for Medicare & Medicaid Services  (CMS). We revised the report to clarify that CMS had approved  Massachusetts’s state plan amendments for targeted case management  (TCM) services for each of the four state agencies providing these  services. We did not, however, assess whether each of the four  agencies’ activities were consistent with the approved state plan. In  addition, we described projects in other states to illustrate the  inconsistent application of CMS policy.  4.  See response 2.
section_title: Comments on States’ Use of Contingency-Fee Consultants
paragraphs: 5.  Massachusetts commented that we focused too much on increased  claiming and did not adequately consider the reasons for spending  increases and the role of contingency-fee consultants. We disagree.  Our presentation of increased federal expenditures was descriptive  and was one factor we considered in selecting categories of claims to  review. In this section of the report, we drew no conclusions regarding  the appropriateness of state claims. As we stated in the draft report,  we agree that consultants can have a legitimate role in helping states  administer their Medicaid programs.  6.  Massachusetts commented that we discussed projects only in five  selected areas. On the basis of additional information provided by the  state, we revised our report to include summary financial information  on other University of Massachusetts Medical School (UMMS)  projects, including third-party liability and coordination of benefits  activities. Nevertheless, in response to the congressional request for  this review, our scope was to include contingency-fee projects in  revenue-maximizing areas; more detailed review of other projects was  therefore beyond our scope.  7.  Massachusetts commented that contingency-fee payments from one  state agency to another do not benefit any other party. Our concern is  not that one state agency may profit from another. Rather, we are  concerned that the two state agencies operating in concert could  inappropriately generate additional federal funds.
section_title: Comments on Consistency of Contingency-Fee Projects with Law or Policy
paragraphs: 8.  Massachusetts commented that we are applying CMS policies that  have not been well articulated and that CMS has approved its state  plan amendments for TCM programs. We use Massachusetts’s TCM  programs to illustrate the difficulties states encounter when dealing  with unclear CMS guidance and potential disparate treatment by CMS.  We acknowledge that CMS approved Massachusetts’s state plan  amendments for its TCM programs and clarified the report  accordingly. Our concern remains, however, that these TCM programs  do not appear to be consistent with CMS’s current TCM policy and are  similar to proposals from other states that CMS is currently denying.  9.  Massachusetts commented that we relied on a January 2001 letter as  CMS policy and that we used criteria—whether the service was  authorized by state law, regulation, or policy—that appear inconsistent  with provisions of the Technical and Miscellaneous Revenue Act of  1988. We did not rely on CMS’s January 2001 letter as CMS policy. We  used the Sate Medicaid Manual (§4302) and the September 2004  Administrator’s decision (Docket No. 2003-02) as CMS policy in this  area. In addition, because CMS has not defined services that are  integral to another state program, we used the existence of state law,  regulation, or policy as an indicator, not a determinant, that TCM  services were integral to non-Medicaid programs.  10. Massachusetts commented that managed care payments for children  served by the Department of Youth Services do not include  rehabilitation provided by state agencies; thus, payments to state  agencies for rehabilitation services for these children would not be  duplicative. As described in the draft report, we continue to be  concerned about the potential duplication of coverage because   (1) rehabilitation services are included in the statewide managed care  program, which includes children served by other state agencies, and  (2) it is unclear whether the Department of Youth Services’ managed  care rates include rehabilitation services provided by private providers  (as opposed to state agencies), so Medicaid could be paying both  private and public providers for the same service. CMS officials agreed  with our concerns.  11. Massachusetts did not agree that certain aspects of its upper payment  limit (UPL) arrangement—those the state agreed with CMS to end in  June 2005—were inappropriate. While the state’s documentation did  not provide sufficient detail for us to assess the aspects of the UPL  arrangement that it had agreed to end, we revised our characterization  of the state’s agreement. Nevertheless, we maintain our view that  illusory supplemental payments in which providers net only a small  portion of the supplemental payments—such as those made in  Massachusetts—are inconsistent with Medicaid’s federal-state  partnership.  12. Massachusetts commented that it had undertaken a number of efforts  to strengthen oversight of school-based Medicaid claims and provided  additional information on two reports from the Department of Health  and Human Services’ (HHS) Office of Inspector General (OIG). We  revised the report to reflect Massachusetts’s efforts to improve  oversight of its school-based claims. We also revised the report to  clarify that, upon further review, CMS did not impose the full HHS  OIG–recommended disallowance of $2.9 million but, rather, imposed a  $1.2 million disallowance.  13. Massachusetts disagreed with our view that UMMS’s role as a  contingency-fee consultant working for school districts to prepare  their claims and as a contingency-fee consultant working for the state  to monitor school district claims creates the appearance of a conflict  of interest. On the basis of our discussions with UMMS and state  Medicaid agency officials and our review of state documents, we  maintain our view but revised the report to more specifically show  UMMS’s role in ensuring the integrity of those claims submitted by  schools, including reviewing and performing quality-control measures  on local school cost information.  14. Massachusetts disagreed with our finding in the draft report that  UMMS had inappropriately charged salaries for two senior UMMS  officials as Medicaid administrative expenditures, providing an  agreement between the Medicaid agency and UMMS as support.  Regarding one official, we maintain our view that UMMS charged  excessive time as a Massachusetts Medicaid administrative  expenditure. Although UMMS charged 100 percent of the official’s  salary as a Massachusetts expenditure, time sheets provided by the  state Medicaid agency showed that in some months, the UMMS official  charged from 2 to 5 percent of his time to “out-of-state” projects.  Whether the official worked for the Medicaid agency or UMMS, time  spent on out-of-state projects should not be claimed as a  Massachusetts Medicaid administrative expenditure. Regarding  discussion of a second official’s time charges, we removed references  to this official in the report on the basis of additional information  provided by the state.
section_title: Comments on State and CMS Oversight of Contingency-Fee Projects
paragraphs: 15. Massachusetts commented that the draft report focused on state  Medicaid agency policy, not operations, and that it disagreed that state  policies are inappropriate. In our review of individual projects and  state Medicaid agency oversight, we examined and reported on both  the procedures and the policies the state Medicaid agency had in place  to oversee the activities of its contingency-fee consultants. We  maintain our view that some state Medicaid agency policies, such as  those allowing multiple agencies to bill Medicaid for the same service  for the same beneficiary each month and supplemental payments that  do not fully accrue to providers, are inappropriate.  16. Massachusetts commented that the Department of Mental  Retardation’s contact with clients does not necessarily occur each  month, although we found the department had automatically billed  Medicaid for its TCM caseload each month. The state agreed that the  agency’s billing was an area that can be improved and that a new  management information system planned for state fiscal year 2006  would allow automated verification of client contacts during the billing  process. We revised the report to reflect the updated figure for the  department’s claims in state fiscal year 2004.  17. Massachusetts commented that its policy of allowing multiple agencies  to bill Medicaid for TCM services for the same beneficiary each month  did not constitute inappropriate double-billing. We reviewed  information provided by the state during our review and concluded  that the state did not provide convincing evidence that the TCM  services provided by the four state agencies were unique. We  discussed the matter with CMS and HHS OIG officials, and they  concurred with our conclusion. We continue to believe that further  review is needed.  18. Massachusetts commented that its project for supplemental  disproportionate share hospital (DSH) payments was authorized by  Congress and approved by CMS and that the state disagreed with our  view that such payments can be illusory. We did not question the  state’s authority to make supplemental DSH payments up to 175  percent of unreimbursed costs, consistent with statutory authority to  do so for a 2-year period. Rather, our concern was that hospitals  should benefit from increased federal reimbursements and  Massachusetts’s arrangement appeared to result in lower payments to  hospitals, despite increased claims for federal reimbursement. Because  we did not fully assess the state’s DSH payment process and net  payments to hospitals, our concerns remain, and we believe that  further review is warranted.
section_title: Appendix VI: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Acknowledgments
paragraphs: Major contributors included Terry Saiki, Tim Bushfield, Jill M. Peterson,  Ellen M. Smith, Ellen W. Chu, Helen Desaulniers, and Kevin Milne.
section_title: Related GAO Products
paragraphs: High-Rsk Seres: An Updae.
GAO-05-207. Washington, D.C.: January 2005.
Medicaid Program Integrity: Sate and Federal E orts to Prevent and Detect Improper Payments. GAO-04-707. Washington, D.C.: July 16, 2004.
Medicaid: ntergovernmena Transers Have Fac tated State Fnancing  Schemes. GAO-04-574T. Washington, D.C.: March 18, 2004.
Medicaid: mproved Federal Oversight of State Fnancing Schemes Is  Needed. GAO-04-228. Washington, D.C.: February 13, 2004.
Medicaid Fnancial Management: Beter Oversght of State Claims for  Federal Rembursement Needed. GAO-02-300. Washington, D.C.: February  28, 2002.
Medicaid: HCFA Reversed Is Posi on and Approved Addi onal Stae  Financing Schemes. GAO-02-147. Washington, D.C.: October 30, 2001.
Medicaid: Sae Financng Schemes Agan Drive Up Federal Payments.  GAO/T-HEHS-00-193. Washington, D.C.: September 6, 2000.
Medicaid n Schools: mproper Paymens Demand mprovements in HCFA  Oversight. GAO/HEHS/OSI-00-69. Washington, D.C.: April 5, 2000.
Medicaid n Schools: Poor Oversght and Improper Payments Compromse Potenta Bene t. GAO/T-HEHS/OSI-00-87. Washington, D.C.: April 5, 2000. i lfi Medicaid: Quesionable Practices Boost Federal Payments for School- Based Services. GAO/T-HEHS-99-148. Washington, D.C.: June 17, 1999.