Medicaid: Completed and Preliminary Work Indicate that Transparency around State Financing Methods and Payments to Providers Is Still Needed for Oversight
Published: 2014-07-29T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Medicaid is a joint federal and state program for which the federal government matches state Medicaid expenditures. Total program costs were about $432 billion in federal fiscal year 2012. States use various sources of funds to finance the nonfederal share, such as state funds and funds from health care providers and local governments. Medicaid has been on GAO's list of high-risk programs since 2003, in part, because of concerns about federal oversight of complex state Medicaid financing arrangements where states seek funds from the providers for the nonfederal share of the payments, and oversight of large supplemental payments that states often make to government providers. States may have incentives to overpay providers that help finance the nonfederal share to maximize federal matching funds.
This statement highlights (1) findings from GAO's report being issued today on how states' reliance on health care providers and local governments to finance Medicaid changed from state fiscal years 2008 through 2012, and implications of these changes; and (2) preliminary results from GAO's ongoing work on what is known about data to oversee state Medicaid payments to government and private providers. For this work, GAO surveyed states, interviewed CMS and state officials, and reviewed information in three states selected, in part, on the basis of size, Medicaid payments, and geographic diversity. GAO shared information on its preliminary observations with CMS and incorporated comments as appropriate.
section_title: What GAO Found
paragraphs: In its report being issued today ( GAO-14-627 ), GAO found that states' reliance on funds from health care providers and local governments to finance Medicaid has increased in recent years, with implications for federal costs. In state fiscal year 2012, while most of the nonfederal share was from state general funds, states used funds from health care providers and local governments to finance 26 percent, or over $46 billion, of the total nonfederal share of Medicaid payments. States' reliance on funds from health care providers and local governments to finance the nonfederal share increased by over 21 percent from state fiscal years 2008 through 2012. States' increasing use of funds generated from health care provider taxes was one main contributing factor to this increase. States' increasing reliance on providers and local governments to finance Medicaid can effectively shift costs from the state to the federal government, as illustrated by GAO's work in three selected states. For example, in one state, a $220 million payment increase for private nursing facilities funded by a tax on private nursing facilities resulted in an estimated $110 million increase in federal matching funds and no increase in state general funds, and a net payment increase to the facilities, after paying the taxes, of $105 million.
GAO's preliminary results from ongoing work related to state Medicaid payments to government providers shows that data needed for overseeing Medicaid payments are lacking. Federal payment data do not capture on a provider-specific basis certain large supplemental payments states often make and generally lack information on provider ownership. At the state level, preliminary results in three selected states suggest that payment data primarily maintained by states are not always reliable and can be challenging to obtain and assess. GAO's preliminary analysis of Medicaid payments to government hospitals in one state suggests the need for and value of better data for oversight. GAO estimates that on an average per day basis, the state's 2011 inpatient hospital payments were higher for local government hospitals than for private hospitals. For local government hospitals, the higher average payment was largely due to supplemental Medicaid payments the state made to two local government hospitals. State officials said these hospitals served patients with greater needs. However, the state's own estimate of what Medicare would have paid these hospitals for similar services was $100 million, much less than the $416 million in supplemental Medicaid payments and $70 million in regular payments that the hospitals received. Documentation from the Centers for Medicare & Medicaid Services' (CMS) payment review process did not identify the actual supplemental payments these hospitals received. GAO plans to issue its final report later this year.
In GAO's past reports and the report being released today ( GAO-14-627 ), GAO has made recommendations to CMS to improve Medicaid payment oversight and develop a data collection strategy to improve the transparency of state financing methods. CMS has taken steps to improve the transparency and oversight of Medicaid financing and payments but has not implemented all of GAO's prior recommendations, and has generally disagreed with GAO's new recommendation. CMS believes that additional action is not needed. As discussed in the statement, GAO continues to believe that provider-specific information on state Medicaid financing and payments is needed.

section_title: Letter
paragraphs: I am pleased to be here today as you explore federal oversight of state  financing of Medicaid and state Medicaid payments to government  providers. The size, growth, and diversity of the Medicaid program create  significant challenges for administration and oversight. Medicaid is  administered by states, overseen by the Centers for Medicare & Medicaid  Services (CMS), and financed jointly by the federal government and  states based on a statutory formula. Medicaid is the nation’s largest  health program as measured by enrollment and the second largest health  program, after Medicare, by expenditures. A significant pressure on  federal and state budgets, Medicaid outlays in federal fiscal year 2012  were $432 billion, up from $352 billion in 2008.
See GAO, High Risk Series: An Update, GAO-13-283 (Washington, D.C.: February  2013). large Medicaid supplemental payments—to government providers in  order to leverage federal funds for the payments. In the case of state  government providers, excessive Medicaid payments can reduce the  state’s obligation to supply funds to the provider for non-Medicaid  services. In the case of local government providers, when they or local  governments supply the nonfederal share of Medicaid payments, states  may have an incentive to make excessive Medicaid payments to local  government providers because the state has a reduced obligation to  supply funds to finance the nonfederal share. Private providers that serve  Medicaid beneficiaries can be taxed in order to provide funds for the state  share of Medicaid payments. Generally, these taxes are levied on large  providers, particularly hospitals or nursing facilities, and they are  acceptable to providers because the tax revenues they supply allow the  state to increase the payments they receive. As the agency overseeing  Medicaid at the federal level, CMS is responsible for ensuring that state  Medicaid payments made under such financing arrangements are  consistent with Medicaid payment principles, including requirements that  Medicaid payments be economical and efficient and ensure access to  care for Medicaid beneficiaries, and that the federal government and  states share in the financing of the Medicaid program as established by  law. We have raised concerns about the need for improved transparency  regarding the size of the payments and who receives them, as well as the  need for improved accountability regarding how the funds are related to  Medicaid services.
You asked us to testify today on our work related to states’ financing of  the nonfederal share of the Medicaid program, Medicaid payments states  make to government providers, and CMS oversight. My remarks will focus  on our recent findings related to the following two areas of the Medicaid  program,  1.  the extent to which states’ reliance on health care providers and local  governments to finance Medicaid has changed in recent years and  the implications of these changes; and  2.  what is known about data to oversee state Medicaid payments to  government providers compared to private providers.
My testimony draws from a report we are issuing today that examines  how states are financing the nonfederal share of the Medicaid program,  and preliminary observations from ongoing work for this Subcommittee  and the Committee on Oversight and Government Reform, House of  Representatives, examining payments that selected states make to  government providers.
To determine the extent to which states’ reliance on health care providers  and local governments to finance Medicaid has changed in recent years  and the implications of these changes for the report we are releasing  today, we sent a questionnaire to all states and the District of Columbia.  The questionnaire collected information on each state’s use of funds from  health care providers and local governments, state general funds, and  other sources to finance the nonfederal share of Medicaid from 2008  through 2012. In addition, we obtained more in-depth information on any  implications of changes in reliance on funds from health care providers  and local governments from a nongeneralizable sample of three states,  selected on the basis of having large Medicaid programs, as determined  by spending for Medicaid services; making large amounts of certain  supplemental payments to providers; having made changes in sources of  funds to finance the nonfederal share, and in Medicaid payment rates  from 2008 through 2011; and geographic diversity. We also conducted  interviews with Medicaid department officials in these states and CMS  officials, including representatives from regional offices, regarding states’  use of various sources of funds to finance the nonfederal share of  Medicaid and CMS oversight. The findings from our in-depth analysis of  the three states cannot be generalized to other states. To assess the  reliability of data provided by the states, we reviewed each state’s  questionnaire data and in-depth information on funds from health care  providers and local governments to address discrepancies and  omissions, and interviewed state officials. On the basis of our review, we  determined these data were sufficiently reliable for our purposes.  Assessing states compliance with federal requirements related to sources  of funds for the nonfederal share was not within the scope of our review.
For our ongoing work related to what is known about data to oversee  state Medicaid payments to government providers compared to private  providers, we have interviewed CMS officials, including representatives  from the CMS regional offices, about the oversight of Medicaid payments  to government providers and the data they use. In addition, to determine  how state Medicaid payment amounts to government providers compare  to state Medicaid payment amounts to private providers, we are reviewing  payments in the three states selected for our report on state Medicaid  financing sources. To date, we have reviewed one state’s data for  hospital inpatient services and determined that it was sufficiently reliable  for our purposes. To assess these data’s reliability, we discussed them  with state Medicaid officials; we also clarified conflicting, unclear, or  incomplete information. Our preliminary observations regarding this  state’s payments for inpatient hospital services are not generalizable to  other types of payments made by this state or Medicaid payments made  by other states. We expect to complete our work examining what is  known at the federal level about payments to government providers and  in selected states later this year.documentation of CMS’s review and approval of this state’s Medicaid  payments to government providers in 2011. Assessing whether state  Medicaid payments comply with federal requirements is not within the  scope of our ongoing work. We shared our preliminary observations from  this ongoing work with CMS officials to obtain their views. CMS officials  provided us with technical comments, which we incorporated as  appropriate.
We also obtained and reviewed  We conducted the work upon which this statement is based in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: Medicaid is an open-ended entitlement: states are generally obligated to  pay for covered services provided to eligible individuals, and the federal  government is obligated to pay its share of a state’s expenditures under a  federally approved state Medicaid plan. The federal share of each state’s  Medicaid expenditures is based on a statutory formula known as the  Federal Medical Assistance Percentage (FMAP). On average, the  federal share of Medicaid service expenditures is about 57 percent. Some  states design their Medicaid programs to require local governments to  contribute to the programs’ costs, for example, through intergovernmental  transfers of funds from government-owned or -operated providers to the  state Medicaid program. States may, subject to certain requirements, also  receive funds to finance Medicaid payments from health care providers,  for example, through provider taxes—taxes levied on providers such as  hospitals or nursing facilities. For example, federal law allows up to   60 percent of the nonfederal share to be financed by local governments.  This requirement is applied on the basis of total annual Medicaid program  spending and not on individual payments or types of payments.
In addition to flexibility in determining sources of funds to use to finance  their nonfederal share, states have flexibility, within broad federal  requirements, in designing and operating their Medicaid programs,  including determining services to cover and setting payment rates for  providers. In general, federal law provides for federal matching funds for  state Medicaid payments for covered services provided to eligible  beneficiaries up to a ceiling or limit, often called the upper payment limit  (UPL). The UPL is based on what Medicare would pay for the same services. Typically, state Medicaid payment rates are lower than what the  Medicare program would pay, and so many states make supplemental  payments under the UPL. Unlike regular Medicaid payments, which are  generally based on claims submitted by providers for services rendered,  supplemental payments often consist of large, lump sum payments made  on a monthly, quarterly, or yearly basis and can be targeted to small  groups of providers, such as local government hospitals. Supplemental  payments totaled at least $43 billion in federal fiscal year 2011, including  $26 billion made under the UPL, but reporting was incomplete.  Supplemental payments have been growing in size, as they totaled at  least $23 billion in federal fiscal year 2006.
Our prior work has raised concerns about gaps in the oversight of  supplemental payments made under the UPL. As part of its oversight  responsibilities, CMS is responsible for ensuring that state Medicaid  payments are consistent with federal requirements, including that  Medicaid payments are economical and efficient. In recent years, we  have found several instances of payments that raise concerns about  compliance with these requirements. For example, in November 2012, we  reported that 39 states had made supplemental payments to 505  hospitals that, along with their regular Medicaid payments, exceeded  those hospitals’ total costs of providing Medicaid care by $2.7 billion.  Although Medicaid payments are not required to be limited to a provider’s  costs of delivering Medicaid services, payments that greatly exceed these  costs raise questions; for example, as to whether payments are being  used for allowable Medicaid expenditures. We have previously made  recommendations to CMS—including recommendations to require states  to report the amounts of UPL supplemental payments that they make to  individual providers—to review all state supplemental payment programs, and enhance the oversight of payments made to government providers.CMS has not implemented all of these recommendations. We have also  suggested that the Congress consider requiring CMS to require states to  submit annual independent audits of supplemental payments made under  the UPL, which are not currently subject to audit.
CMS uses a range of tools to oversee state Medicaid payments, including  review and approval of states’ Medicaid plans and amendments. State  plans describe, among other things, who and how much states will pay for  particular services. For any new payment or payment change, a state  must submit a state plan amendment, for which CMS asks the state to  provide  information and data showing that state Medicaid provider payments  (regular and supplemental payments combined) do not exceed the  UPL for the category of service and type of provider ownership; and a written response to a set of standard questions intended to gauge  the appropriateness of state payments and financing. For example,  CMS asks states during this process if the payment change will result  in any government provider receiving payments that exceed the  provider’s reasonable costs of providing Medicaid services.
CMS also tracks and reviews states’ total Medicaid expenditures on a  quarterly basis. States seek federal matching funds by submitting  aggregated spending amounts for broad categories of services on a  standard form known as the CMS-64.
section_title: States’ Reliance on Funds from Providers and Local Governments to Finance Medicaid Has Increased in Recent Years, with Implications for Federal Costs
subsections: section_title: States Used Funds from Providers and Local Governments to Finance over $46 Billion, or 26 Percent, of the Nonfederal Share of Payments in 2012, an Increase from 2008
paragraphs: In the report that is being released today, we found that states used funds  from health care providers and local governments to finance 26 percent,  or over $46 billion, of the $180 billion in the total nonfederal share of  Medicaid payments—both regular and supplemental—in state fiscal year  2012. Of the total amount of funds from health care providers and local  governments, taxes on providers were the largest single source of funds,  followed by transfers of funds from local governments. Of the over   $46 billion, states received $18.8 billion from health care provider taxes  and $18.1 billion from transfers of funds from local governments.
States’ reliance on funds from health care providers and local  governments to finance the nonfederal share of Medicaid payments  increased by over 21 percent from state fiscal years 2008 through 2012,  in large part due to increases in revenues from health care provider taxes.  Specifically, the percentage of funds from health care providers and local  governments that states used to finance the nonfederal share increased  from 21 percent to 26 percent during this 5-year period, for an increase of   5 percentage points, or 21 percent. While the total amount of funds from  all sources, including state funds, increased during this period, funds  from providers and local governments increased as a percentage of the  nonfederal share, while the percentage of state funds decreased. Health  care provider taxes represented the source of funds from health care  providers and local governments with the largest increase, $9 billion,  during the 5-year time period. We found that a total of 85 new provider  taxes were implemented in 32 states during this time period.
Our analysis shows that for supplemental payments alone, the  percentage of the nonfederal share that states financed with funds from  health care providers and local governments was relatively high, and  increasing. In particular, the percentage of the nonfederal share of  supplemental payments that was financed with funds from providers and  local governments increased from 57 percent in 2008 to 70 percent in  2012. In other words, almost three-quarters of the nonfederal share of  supplemental payments was financed by providers, and not state funds.  These large payments that states can target to small groups of providers  without linking them to services provided were, to a much greater extent  than regular Medicaid payments, financed by the providers.
In the report we are releasing today, we also found that CMS does not  collect complete and accurate data on state Medicaid financing methods.  States are required, under federal law, to report the amounts of funds  from provider taxes and donations used to finance the nonfederal share,  but CMS has not ensured that this data is complete and accurate.  Reporting of funds from local government providers and local  governments that are used by states to finance the nonfederal share of  Medicaid is not required under federal law. CMS may seek on a case- specific basis information on financing arrangements when reviewing  individual state plan amendments; however, the information provided  varies by state, and CMS officials reported that states are not required to  identify the amount of funds provided by or on behalf of any specific  providers or the amount of payments made to providers. Without accurate  and complete information on state sources of funds, we concluded that  CMS is unable to adequately understand and oversee Medicaid financing  and payments, including net payments, to individual providers. In the  report we are releasing today, we recommend that CMS take steps to  ensure states report accurate and complete information on all sources of  funds used to finance the nonfederal share. CMS did not agree with our  recommendation and stated that the agency’s current data collection  processes are sufficient, and at this time more detailed reporting is not  needed.
section_title: Changes in Financing Arrangements in Selected States Illustrate How the Arrangements Can Shift Medicaid Costs to the Federal Government
paragraphs: In the report being released today, we present information on recent  changes in financing arrangements involving funds from providers and  local governments in three selected states that illustrates how such  changes can shift Medicaid costs from the state to the federal  government. In effect, states seeking to raise payment rates to providers  can finance those increased rates by asking providers to provide the  funds to finance the state share of the payment, and then seek federal  matching on the larger amount. By increasing providers’ Medicaid  payments, and at the same time imposing requirements on providers  receiving the payments to supply all or most of the nonfederal share for  the payments, states could obtain additional federal matching funds for  those facilities’ payments without a commensurate increase in state  general funds. The use of funds from providers and local governments is,  as previously described, allowable under federal rules, but it can also  have implications for federal costs. And from the providers’ perspective,  the use of funds from providers to finance an increase in Medicaid  payments results in a net payment to the provider that is less than the  amount used for purposes of claiming federal funds.
In three selected states, we reviewed a financing arrangement that  involved financing the nonfederal share of new Medicaid payments with  funds from provider taxes or transfers of funds from local governments  put in place in recent years. For these arrangements, we estimated the  effect on the federal and state shares of new payments the state was  making. In each case, we determined that the result was a net increase in  payments to the providers—after accounting for both the payment  increase they received, as well as the increased funds they or a local  government provided to the state to finance the nonfederal share of the  payments—and increases in costs to the federal government. The state  contribution to the new Medicaid payments, in each case, did not  increase compared to what it would have been had the new financing  arrangement not taken place. For example, one state increased regular  Medicaid payments for nursing facilities in May 2011, and financed these  payments with a provider tax on nursing facilities. According to our  estimates, the increased regular Medicaid payment and new provider tax  had the effect of increasing federal matching payments by $110 million.  The overall net increase in provider payments—that is, the increase in  total Medicaid payments ($220 million) minus the total cost of the new  provider tax ($115 million)—was $105 million. The state supplied   $5 million less in state general funds than it would have paid had the  increased payment and new provider tax not gone into effect.
section_title: Preliminary Results Suggest That Data Needed to Oversee Medicaid Payments to Government and Private Providers Are Lacking
paragraphs: Our ongoing work has identified two major gaps in federal data necessary  for overseeing Medicaid payments. First, neither of the two major sets of  data that CMS has available for oversight captures the ownership  status—government or private—of individual providers. Second, federal  data on state Medicaid payments generally capture regular payments for  services rendered by individual providers, but generally do not capture  states’ lump sum supplemental payments to individual providers. We  have previously reported that data on the providers receiving  supplemental payments, and the amounts paid to particular providers, are   States generally do not  maintained by the state making the payments.submit these payments to CMS for inclusion in its automated claim data  system, which captures regular payments made to individual providers.  Without provider-specific payment data that includes supplemental  payments, CMS does not have a complete picture of how the $43 billion  in supplemental payments mentioned above in this statement was  allocated among the individual government or private providers. As a  result of these two gaps in the federal data on state Medicaid payments,  CMS is not able to assess payments to government providers compared  to private providers, and cannot detect any outlier provider payments,  such as providers receiving significantly larger amounts in Medicaid  payments than other providers providing similar services. This lack of  data also limits CMS’s ability to ensure that payments to individual  providers are economical and efficient.
At the state level, our ongoing work has found that the state payment data  needed to understand provider-specific payments can be challenging to  obtain and assess, and are not always reliable. We have sought to obtain  payment data on supplemental payments, by ownership, from three  selected states to combine with federal data on regular Medicaid  payments so that we could assess how total Medicaid payments to  government providers compare to payments to private providers. Doing  this work, however, has proved to be difficult, illustrating the challenge in  overseeing Medicaid payments and ensuring that payments to individual  providers are economical and efficient. In each of the three states, we  encountered obstacles in capturing complete information on payments  and provider ownership. For example, states may use multiple provider identification numbers for the same provider; use a different provider identification number for supplemental  payments versus regular payments, complicating the process of  combining data sets to understand full payments to individual  providers; and be unable to report provider ownership by state government, local  government, and private.
Our ongoing effort to compile reliable and accurate provider-specific  ownership and supplemental payment data has been, and continues to  be, a time consuming and labor intensive effort as a result of data  obstacles. We have encountered issues with data in all three states. For  one of the three states, we have determined that data issues are of such  difficulty that they preclude completing an assessment. The state was not  able to provide us with data that were sufficiently reliable to allow us to  identify Medicaid payments by provider ownership.
In one state for which we have determined that data were sufficiently  reliable to report today, our preliminary analysis of the state’s payments  for inpatient hospitals in state fiscal year 2011 suggests the need for and  value of having complete data to analyze Medicaid payments by provider  ownership. For this state, we were able to combine the state-provided  supplemental payments made under the UPL and provider ownership  data with the federal claims data on regular payments and Medicaid  patient days. Although our work analyzing this state’s data to examine  payments for different types of services to different types of providers is  ongoing, we have completed the preliminary analysis for one type of  service: inpatient hospital payments. With these data, we have  determined each hospital’s daily payment amount by dividing total  Medicaid payments for each hospital by the hospital’s total Medicaid  patient days. We then calculated the average daily payment amounts for  three categories of provider ownership: state government, local  government, and private. Where possible, our preliminary analysis  adjusted regular payments for differences in the conditions of the patients  treated by the hospitals, commonly referred to as “case mix”  adjustments. Our preliminary analysis shows that
For the regular payments, state government hospitals had the highest  average daily payment amount, at about $1,140, which was   19 percent higher than the average for local government hospitals  ($940) and 29 percent higher than the average for private hospitals  ($860).
When the state’s supplemental payments were factored in, local  government hospitals replaced state government hospitals as  receiving the highest average, and the gap between the local  government hospitals’ and private hospitals’ averages increased  further. Local government hospitals’ average daily payment amount  was about $1,470, which was 25 percent higher than the average for  state government hospitals ($1,140) and 44 percent higher than for  private hospitals ($930).
Our preliminary analysis also shows that, because the state was targeting  its UPL supplemental payments to only two local government hospitals,  the higher payments to these hospitals accounted for much of the  differences in average daily payment amounts when UPL supplemental  payments were included in the average. Together these hospitals  received nearly $416 million in UPL supplemental payments, compared to  $70 million in regular Medicaid payments. Our preliminary analysis of the  average daily payment amounts for regular and UPL supplemental  payments for these two hospitals suggests that the average amount at  one hospital was as high as about $8,800 per day, significantly higher  than the approximately $1,470 average amount for all local government  hospitals. The other hospital had a lower average, although it was still  higher than the average for private hospitals. According to the state’s  Medicaid officials, these hospitals served higher needs patients.
Our preliminary examination of key documentation around CMS’s review  of the provisions authorizing the state’s supplemental payments to these  two local government hospitals shows that CMS’s documentation did not  identify the large supplemental payments the two hospitals received. We  reviewed the state plan amendment authorizing the supplemental  payment, the funding questions that CMS asked when the state submitted  a proposed change to the payment, and the annual report the state  submitted to CMS in 2011 regarding the state’s estimated UPL for local  government hospitals. Our preliminary observations when reviewing this  documentation were that
The state plan amendment approved by CMS in June 2011  authorized the state to make over $400 million in supplemental  payments proportionally to all local government hospitals eligible for a  payment under the state plan amendment. The state plan  amendment, however, did not specify the number or names of  hospitals that were eligible based on somewhat ambiguous eligibility  criteria including that they be located in a city of a certain size and  having received a certain amount of medical assistance payments.
When the state proposed to increase the supplemental payment  amount through a state plan amendment, CMS followed its process  for requesting new information on the payments—in particular,  whether any payments to governmental providers would exceed the  providers’ reasonable costs of providing services. However, the  state’s written response did not indicate whether any providers would  be paid above their costs and instead stated that it was “unaware of  any requirement under current federal law or regulation that limits  individual provider payments to their actual costs.”
Information provided by the state under CMS’s requirement that  states submit information showing that state payments would not  exceed the UPL did not contain information on the actual payments  individual hospitals received. As requested by CMS, the state  submitted information on the methodology for estimating each  hospital’s UPL, but did not submit actual UPL payment information  that would have shown that the state was making all of the  supplemental payments to only two hospitals. The state’s estimate of  what Medicare would have paid the hospitals for the Medicaid  services provided was about $100 million, compared to the   $416 million those two facilities received. Since the UPL is applied  across a class of facilities, in this case local government hospitals,  and not for individual facilities or hospitals, the state was able to direct  all supplemental payments available for all 21 local government  hospitals under the UPL to the two local government hospitals.
In reviewing information on the state’s payments to the two hospitals, our  preliminary analysis found that the state did not contribute any state  general funds to finance the nonfederal share of the two hospitals’  supplemental payments, as the nonfederal share of the payments was  financed by a local government that operated the two hospitals. This  illustrates prior concerns we have raised about the incentives to overpay  certain government providers, including those for which the state is not  providing funds to finance the nonfederal share.
In discussing the circumstances around these two hospitals payments  and payment amounts, CMS officials reported that they review the total  amount of UPL supplemental payments for local government hospitals as  a group, and not payments to individual hospitals. We will continue to  complete our ongoing work and will issue a final report later this year  including any suggested actions needed by CMS, as appropriate.
In conclusion, our report that is being released today on how states are  financing the nonfederal share of Medicaid, and our ongoing work on  Medicaid payments to government providers, demonstrate the importance  and need for effective federal oversight. CMS has taken important steps  over the years to enhance its oversight, including requiring annual  demonstrations of state UPL estimates. We believe even more can be  done to improve the transparency of Medicaid financing and payments,  including previous recommendations that have not been implemented,  such as facility specific reporting of supplemental payments and review of  all state supplemental payment programs, and the recommendation from  the report we are issuing today that CMS take steps to ensure states  report accurate and complete data on all sources of funds to finance the  nonfederal share.
Chairman Lankford, Ranking Member Speier, and Members of the  Subcommittee, this concludes my prepared statement. I would be  pleased to respond to any questions you may have.
section_title: GAO Contacts and Staff Acknowledgments
paragraphs: If you or your staff have any questions about this testimony, please  contact me at (202) 512-7114 or iritanik@gao.gov. Contact points for   our Offices of Congressional Relations and Public Affairs may be found  on the last page of this statement. Tim Bushfield, Assistant Director;  Elizabeth Conklin; Julianne Flowers; Sandra George; Peter Mangano;  and Roseanne Price were key contributors to this statement.
section_title: Appendix I: Abbreviations
section_title: Related GAO Products
paragraphs: Medicaid Financing: States’ Increased Reliance on Funds from Health  Care Providers and Local Governments Warrants Improved CMS Data  Collection. GAO-14-627. Washington, D.C.: July 29, 2014.
High-Risk Series: An Update. GAO-13-283. Washington, D.C.: February  2013.
Medicaid: More Transparency of and Accountability for Supplemental  Payments Are Needed. GAO-13-48. Washington, D.C.: November 26,  2012.
Medicaid: States Made Multiple Program Changes, and Beneficiaries  Generally Reported Access Comparable to Private Insurance.   GAO-13-55. Washington, D.C.: November 15, 2012.
Medicaid: Data Sets Provide Inconsistent Picture of Expenditures.  GAO-13-47. Washington, D.C.: October 29, 2012.
Medicaid: States Reported Billions More in Supplemental Payments in  Recent Years. GAO-12-694. Washington, D.C.: July 20, 2012.
Opportunities to Reduce Potential Duplication in Government Programs,  Save Tax Dollars, and Enhance Revenue. GAO-11-318SP. Washington,  D.C.: March 1, 2011.
High-Risk Series: An Update. GAO-11-278. Washington, D.C.: February  2011.
Medicaid: Ongoing Federal Oversight of Payments to Offset  Uncompensated Hospital Care Costs Is Warranted. GAO-10-69.  Washington, D.C.: November 20, 2009.
Medicaid: CMS Needs More Information on the Billions of Dollars Spent  on Supplemental Payments. GAO-08-614. Washington, D.C.: May 30,  2008.
Medicaid Financing: Long-standing Concerns about Inappropriate State  Arrangements Support Need for Improved Federal Oversight.   GAO-08-650T. Washington, D.C.: April 3, 2008.
Medicaid Financing: States’ Use of Contingency-Fee Consultants to  Maximize Federal Reimbursements Highlights Need for Improved Federal  Oversight. GAO-05-748. Washington, D.C.: June 28, 2005.
Medicaid: Intergovernmental Transfers Have Facilitated State Financing  Schemes. GAO-04-574T. Washington, D.C.: March 18, 2004.
Medicaid: Improved Federal Oversight of State Financing Schemes Is  Needed. GAO-04-228. Washington, D.C.: February 13, 2004.
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