Health Centers And Rural Clinics: State and Federal Implementation Issues for Medicaid's New Payment System
Published: 2005-06-17T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 (BIPA) established a prospective payment system (PPS) for Medicaid payments to Federally Qualified Health Centers (FQHC) and Rural Health Clinics (RHC), giving providers a financial incentive to operate efficiently. BIPA requires that BIPA PPS rates be adjusted for inflation and changes in scope of services. States also may use an alternative methodology if it pays no less than the BIPA PPS rate. In response to a BIPA mandate, GAO reviewed states' implementation of the new payment requirements, the need to rebase or refine the BIPA PPS, and the Centers for Medicare & Medicaid Services' (CMS) oversight of states' implementation. GAO surveyed the states about their payment methodologies, did a targeted review in four states, and reviewed indexes used to reflect medical care inflation.
section_title: What GAO Found
paragraphs: GAO's review of states' implementation of Medicaid's new payment system--the BIPA PPS and alternative methodologies--for FQHCs and RHCs identified certain issues regarding the appropriateness of some states' methodologies. Most states used the BIPA PPS and about half of states used an alternative methodology--generally cost-based reimbursement or a PPS with features slightly different from those required for the BIPA PPS--to pay at least some of their FQHCs, RHCs, or both. States took an average of slightly more than a year from the legislation's January 1, 2001, effective date to implement their BIPA PPS, and a few states had not completed implementation as of June 1, 2004. GAO identified three significant issues with states' new Medicaid payment systems. First, some states' BIPA PPS payment rates may be inappropriate because they did not include all Medicaid-covered FQHC and RHC services in the rates as required by law. Second, as of June 1, 2004, over half the states using the BIPA PPS had not determined how they would make the required adjustment to BIPA PPS rates for a change in scope of services. Third, some states did not ensure that their alternative methodologies resulted in payments no lower than what the FQHCs and RHCs would have received under the BIPA PPS. Evidence to date is insufficient to determine the need to rebase or refine the BIPA PPS. Concerns exist that the statutorily specified annual inflation index used to adjust the BIPA PPS is inappropriate because it not only increases more slowly than do many FQHCs' and RHCs' costs but also does not reflect the services these providers deliver. Other indexes GAO reviewed had a similar shortcoming. GAO's analysis determined that no inflation index has been developed that reflects the services typically provided by FQHCs and RHCs. Because many states no longer require FQHCs and RHCs to submit cost reports, comprehensive and current Medicaid cost data are no longer available to help inform an evaluation of the need to rebase or refine the BIPA PPS. Although GAO's comparison of cost-based and BIPA PPS rates from four states showed that cost-based rates generally exceeded BIPA PPS rates, not all factors contributing to the higher rates are known. Differences between cost-based and BIPA PPS rates varied widely within and among the states reviewed, which also limited the ability to draw conclusions about the need to rebase or refine rates. CMS guidance and oversight regarding the new BIPA payment requirements were inadequate to ensure consistent state compliance with the law. CMS guidance did not fully address certain requirements, and as states developed their new payment systems, they lacked important information clarifying the new requirements. As a result, uncertainties exist regarding how states were to implement some BIPA requirements, such as how to adjust BIPA PPS rates to account for a change in scope of services. CMS has conducted limited oversight of states' implementation and therefore was unaware of compliance issues with some states' payment systems.

section_title: Letter
paragraphs: To increase the accessibility of primary and preventive health services for  low-income people living in medically underserved areas, Congress made  Federally Qualified Health Centers (FQHC) and Rural Health Clinics  (RHC) eligible for payments from Medicaid, a joint federal-state program  that finances health insurance for certain low-income adults and children.  FQHCs are urban or rural centers that provide comprehensive community- based primary care services to individuals regardless of their ability to pay.  In 2003, there were approximately 900 FQHCs. The nation’s approximately  3,600 RHCs provide similar primary care services in underserved rural  areas, but unlike FQHCs, RHCs are not required to provide services to all  individuals, such as those who are uninsured. Medicaid is a significant  revenue source for FQHCs and RHCs; according to the most recent data  available, it accounted for about 35 percent of total revenues for FQHCs  and 24 percent for RHCs. In fiscal year 2003, Medicaid payments to  FQHCs and RHCs were almost $1.5 billion.
Historically, federal law required state Medicaid programs to reimburse  FQHCs and RHCs on the basis of reasonable costs—that is, costs that are  not excessive for a type of service provided to Medicaid beneficiaries.  While this basis for reimbursement may have ensured that service  providers were paid for necessary costs, it was also regarded as potentially  inflationary because providers may have increased their payments by  raising their costs. The Medicare, Medicaid, and SCHIP Benefits  Improvement and Protection Act of 2000 (BIPA) changed Medicaid  payment requirements by establishing a new prospective payment system  (PPS) effective for services provided by FQHCs and RHCs on or after  January 1, 2001. Unlike cost-based reimbursement, a PPS creates financial  incentives for providers to operate more efficiently. Providers that keep  their costs below their payment amount profit; conversely, providers lose  money if their service costs exceed the payment amount.
Although not typical of other PPSs, the BIPA PPS established a provider- specific rate for the first year’s payment rate (2001). Specifically, states  were to set the base rate at the average of each FQHC’s or RHC’s fiscal  year 1999 and fiscal year 2000 reasonable costs per visit. In subsequent  years, states were to use the Medicare Economic Index (MEI) to increase  payment rates annually for inflation and were to adjust rates when  necessary to reflect a change in scope of services. States may use an  alternative methodology to reimburse some or all of their FQHCs and  RHCs if they can demonstrate that the alternative payment methodology  would result in payments no lower than under the BIPA PPS payment rate  and if the FQHC or RHC agrees to its use.
BIPA required that we study the need for, and how to, rebase and refine  costs for making Medicaid payments to FQHCs and RHCs. We   (1) reviewed states’ implementation of the Medicaid payment system  under BIPA for FQHCs and RHCs, (2) evaluated the need for rebasing or  refining costs for making payment under the BIPA PPS, and (3) reviewed  the Centers for Medicare & Medicaid Services’ (CMS) oversight of states’  Medicaid payment systems for FQHCs and RHCs.
To examine these issues, we surveyed Medicaid officials in the 50 states  and the District of Columbia regarding their FQHC and RHC  reimbursement policies and practices as of June 1, 2004. States also  submitted documentation describing their methodologies, which we  reviewed to corroborate their survey responses. In addition to conducting  the survey, we reviewed the MEI, the index required by statute to annually  adjust BIPA PPS rates for inflation, as well as other indexes often used to  reflect changes in medical care inflation. To identify these other indexes,  we reviewed literature on medical care indexes and information from  organizations typically involved in developing and updating these indexes.  We also conducted a targeted review of FQHC and RHC payment rates in  four states—Iowa, Vermont, Virginia, and Wisconsin—that used cost- based reimbursement as an alternative methodology. (See app. I for details  about the methodology of our targeted review.) We interviewed officials  from CMS and its regional offices; CMS is the agency within the  Department of Health and Human Services (HHS) that oversees states’  Medicaid programs. We also interviewed officials from HHS’s Health  Resources and Services Administration (HRSA), which is responsible for  reviewing FQHC grant applications and disbursing federal public health  grant funds to FQHCs. To provide contextual information, we interviewed  various stakeholders. Specifically, we interviewed officials from the  National Association of Community Health Centers (an organization  representing FQHCs), the National Association of Rural Health Clinics,  George Washington University’s Center for Health Services and Policy (an  organization that has conducted research on FQHCs), and a judgmentally  selected sample of eight FQHCs and eight RHCs. We performed our work  from July 2004 through May 2005 in accordance with generally accepted  government auditing standards.
subsections: section_title: Background
paragraphs: The FQHC and RHC programs were established to increase access to care  for individuals in medically underserved areas. Medicaid, which finances  health care for more than 50 million low-income Americans, is a  significant revenue source for FQHCs and RHCs, providing, on average,  one-quarter to over one-third of these providers’ revenues.
subsections: section_title: Characteristics of FQHCs and RHCs
paragraphs: To be designated an FQHC, a facility generally must meet the requirements  of a grant recipient under section 330 of the Public Health Service Act; be  a public or private nonprofit entity that provides a statutorily required set  of primary care services to any individual, regardless of ability to pay; and  serve the medically underserved. In fiscal year 2002, the President  launched the Health Center Initiative with the goal of adding 1,200 new or  expanded health center sites and increasing the number of patients served  from about 10 million in fiscal year 2001 to 16 million by 2006. In 2003, the  approximately 900 FQHCs provided services to over 12 million people.
FQHCs include community health centers, migrant health centers, public  housing and homeless programs, FQHC look-alikes, and certain facilities  operated by tribes or tribal organizations. A distinguishing feature of  FQHCs is that they provide enabling services such as outreach, translation,  and transportation, which help patients gain access to health care. FQHCs  vary considerably in their geographic location; their revenue mix; and the  size of the uninsured and Medicaid populations and degree of managed  care penetration in the surrounding area. For example, an FQHC may be  located in an urban area with a large uninsured or Medicaid population  and a high Medicaid managed care penetration, or in a rural area, where it  serves as the only source of primary care for several communities.
Unlike FQHCs, RHCs are not required to provide services to all  individuals, such as those who are uninsured, but they are required to  operate in rural areas that are designated as underserved. RHCs can  operate either independently or as part of a larger organization, such as a  hospital, skilled nursing facility, or home health agency. RHCs can be  specialty clinics, focusing their services on particular populations or  medical specialties such as pediatrics or obstetrics and gynecology. In  addition to being located in a rural, underserved area, to be certified by  CMS as an RHC, a provider must primarily offer outpatient primary  medical care, employ at least one nonphysician practitioner at least half  the time the clinic is open, and have a physician on-site at least once every  2 weeks. As of August 2004, approximately 3,600 RHCs operated in 44  states.
In 2003, Medicaid reimbursement and HRSA grant funds were the two  largest single sources of revenue for FQHCs and accounted for 35 percent  and 22 percent of these providers’ total revenue, respectively. FQHCs also  received revenues from state, local, and private grants as well as other  insurance programs. In contrast, RHCs received a smaller proportion of  their total revenues from Medicaid (24 percent) but a higher proportion  from Medicare, commercial insurance, and directly from patients (self- pay). Although Medicaid is a large revenue source for FQHCs and RHCs,  payments to these providers represent a very small percentage of overall  Medicaid expenditures. In fiscal year 2003, Medicaid payments to FQHCs  and RHCs totaled almost $1.5 billion combined, which accounted for less  than 1 percent of Medicaid expenditures for medical care.
section_title: Medicaid Reimbursement for FQHCs and RHCs
paragraphs: Prior to 2001, federal law required state Medicaid programs to pay FQHCs  and RHCs using a cost-based reimbursement methodology. To determine  cost-based payments, states required FQHCs and RHCs to submit cost  reports, which states reviewed to determine which reported costs were  allowable (related to providing services to Medicaid beneficiaries) and  reasonable (not excessive for the type of service). The Medicaid statute  directed states to follow the Medicare statute to reimburse FQHCs and  RHCs. This meant that states were to reimburse FQHCs and RHCs  according to CMS Medicare regulations, which provide guidance on the  types of allowable costs, such as compensation for physicians and other  staff, supplies, administrative overhead, and other items. The regulations  allowed states to establish their own definition of what constituted  “reasonable costs,” which could include a ceiling on costs per service,  such as a medical visit, or a limit on a type of cost, such as administrative  costs.
In December 2000, BIPA established a PPS to pay for Medicaid-covered  services provided by FQHCs and RHCs. While BIPA did not specify when  states had to implement the PPS, the statute required that the BIPA PPS be  effective for services provided by FQHCs and RHCs on or after January 1,  2001. Unlike the prior cost-based reimbursement system, a PPS establishes  payment rates in advance of service delivery and creates incentives for  providers to operate more efficiently. Generally, the payment is not  contingent on an individual provider’s actual cost of delivering care.  Providers that, on average, deliver care for less than the payment amount  can retain the portion of the payment amount exceeding their costs;  conversely, providers will lose money if their service costs are higher than  the payment. (See app. II for additional general information on PPSs,  including how the BIPA PPS compares with selected other PPSs.)
Under the PPS mandated by BIPA, the 2001 payment rate, called the base  rate, was effective for services provided beginning January 1, 2001. The  2001 payment rate was to be the average of each FQHC’s and RHC’s fiscal  year 1999 and fiscal year 2000 reasonable costs per visit, which states were  allowed to determine using their prior definitions of reasonable costs.  Beginning in fiscal year 2002, BIPA PPS payment rates were to be adjusted  annually for inflation by the MEI. In addition, BIPA required that payments  to FQHCs and RHCs be adjusted for increases or decreases in the scope of  services provided. States also were required to make supplemental  payments to FQHCs and RHCs that provide services to Medicaid patients  enrolled in a capitated managed care plan. BIPA allowed states to use an  alternative methodology to pay an FQHC or RHC as long as the FQHC or  RHC agreed to the alternative methodology and the methodology resulted  in payment to the FQHC or RHC of an amount that was no lower than the  amount otherwise required under the BIPA PPS.
In June 2001, we reported that payments to FQHCs and RHCs under the  new BIPA PPS would likely be constrained. The report noted that  because states were allowed to continue to use their prior methods for  determining reasonable costs in establishing the 2001 base payment rate  under the BIPA PPS, the initial PPS rates for FQHCs and RHCs might be  below their actual costs. Additionally, the 2001 base PPS rate could be  lower than what an FQHC or RHC received in 2000 because the base rate  was an average of fiscal years’ 1999 and 2000 costs. Furthermore, BIPA did  not specify that the initial 2001 payment rates be updated for inflation  from 1999 through 2001. We also reported that the specific inflation index  BIPA required states to use, the MEI, increased at a lower rate than other  measures of inflation that some states had previously used to adjust  FQHCs’ payment rates.
section_title: State Plan Approval Process
paragraphs: To comply with BIPA’s January 1, 2001, effective date, states were  required to submit a state plan amendment (SPA) for the new FQHC and  RHC Medicaid payment requirements by the end of the first quarter of  2001 (March 31, 2001). To aid states in meeting this deadline, CMS  provided them with standard language that they could submit as a  placeholder SPA that would allow them to comply technically with the  submission deadline.19,  According to CMS, states could subsequently  update their SPAs with the specifics of their methodology before CMS  review.
Once CMS receives a SPA, it has 90 days to approve it, disapprove it, or  request additional information from the state. Upon receipt of any  additional state information requested, CMS has an additional 90 days to  approve or disapprove the SPA. According to CMS, its regional offices  have primary responsibility for review and approval of SPAs but  coordinate with headquarters, which is responsible for making any final  disapprovals.
section_title: States’ Implementation of BIPA PPS and Alternative Methodologies Raises Certain Issues
paragraphs: At the time the standard language was provided to states, the agency was known as the  Health Care Financing Administration. On June 14, 2001, the Secretary of Health and  Human Services announced that the agency’s name would change to the Centers for  Medicare & Medicaid Services. Throughout this report, we refer to the agency as CMS. issues with states’ implementation of the BIPA PPS. First, some states’  BIPA PPS payment rates may be inappropriate because the states did not  include all Medicaid-covered FQHC and RHC services in the rates. Second,  as of June 1, 2004, over half of states using the BIPA PPS had not  determined how they would meet the requirement to adjust their BIPA  PPS rates for a change in scope of services. States implementing an  alternative methodology generally used either cost-based reimbursement  or a PPS with features that differed slightly from the BIPA PPS. We found  one issue with states’ implementation of alternative payment  methodologies. In establishing their alternative payment methodologies,  some states did not ensure that payments to FQHCs and RHCs were at  least equal to what the BIPA PPS would pay, as required by law.
subsections: section_title: BIPA PPS Implemented in Most States, but Issues Exist
paragraphs: The BIPA PPS was implemented in most states, but we noted issues with  the appropriateness of some states’ methodologies. Thirty-nine states used  the BIPA PPS to pay at least a portion of their FQHCs, RHCs, or both—27  used it for both FQHCs and RHCs, 6 used it for FQHCs only, and 6 for  RHCs only. While a few states had yet to completely implement their BIPA  PPS as of June 1, 2004, it took the remaining states an average of 15 to 16  months to complete implementation of their methodologies. We found two  issues with some states’ BIPA PPSs. Of the states using the BIPA PPS,  more than a third reported that they did not include all Medicaid-covered  FQHC and RHC services in their BIPA PPS payment rates and over half  had either not defined procedures for adjusting FQHCs’ and RHCs’ BIPA  PPS rates for a change in scope of services, an adjustment required by  BIPA, or not specified what would constitute such a change.
subsections: section_title: Implementation of BIPA PPS for FQHCs
paragraphs: Thirty-three of 51 states reported using the BIPA PPS to pay some portion  of their FQHCs. The BIPA PPS was the only payment methodology used  for FQHCs in 27 of the states, while in the remaining 6 states only a  portion of FQHCs received Medicaid payments under the BIPA PPS (see  table 1).
Thirty-two states reported they had completed implementation of their  BIPA PPS for FQHCs as of June 1, 2004, while one had not fully  implemented its methodology. On average, it took states 15 months from  BIPA’s effective date—January 1, 2001—to complete implementation of  their BIPA PPS for FQHCs. Implementation time periods ranged from 3  months to about 3 years (see fig. 1). Although Minnesota intended to  implement the BIPA PPS for all of its FQHCs, as of June 1, 2004, the state  had implemented this methodology for only 30 percent of its FQHCs.  Minnesota was paying the remaining FQHCs an interim rate until the state  determined these providers’ BIPA PPS rates. Regardless of the actual  implementation date, most states implementing a BIPA PPS (30 of 33  states) made the payment rates retroactive to January 1, 2001. The three  remaining states had an alternative payment methodology initially but  subsequently implemented the BIPA PPS.
Although BIPA specified how states were to determine the base payment  rate and which inflation index to use, states designed their systems  differently within these parameters. For example, BIPA specified that  beginning in fiscal year 2002, the BIPA PPS base rate was to be increased  annually for inflation using the MEI, but the law did not define which 12- month period constituted the 2002 fiscal year. States had the option of  using the federal, state, or FQHC fiscal year and varied as to the month  they first inflated the PPS rates. Most states first inflated their FQHCs’  base payment rates in either October 2001, which corresponds to the  federal and one state’s fiscal year, or January 2002, the beginning of the  calendar year. A few states inflated FQHC payment rates earlier in 2001,  and one state—Louisiana—did not inflate rates until July 2002. (See table  2.) States also varied in the number of PPS rates they established for each  FQHC. Specifically, 10 states decided to establish more than one PPS rate  for each FQHC, depending on the type of service provided. For example,  FQHCs in Maryland had two rates—one for medical services and one for  dental services. In Ohio, FQHCs could have as many as nine PPS rates  depending on the specific services provided.
Of the 44 states with RHCs, 33 states reported using the BIPA PPS to pay  some portion of their RHCs. Twenty-five states paid all RHCs and 8 states  paid a portion of RHCs under the BIPA PPS. (See table 3.)
As of June 1, 2004, 30 of the 33 states using the BIPA PPS to pay some  portion of their RHCs had completed implementing their payment  methodologies, taking an average of 16 months. Implementation time  periods ranged from 4 months to over 3 years (see fig. 2). The remaining 3  states were still in the process of implementing their BIPA PPS as of June  1, 2004: over 80 percent of Minnesota’s RHCs, about 40 percent of  Arkansas’s RHCs, and less than 10 percent of Kansas’s RHCs did not have  finalized BIPA PPS rates. Regardless of when the methodologies were  implemented, the BIPA PPS rates were retroactive to January 1, 2001, in  all states except Washington, where the rates became effective 1 year  later, and Kentucky, where the rates became effective in July 2001.
As with FQHCs, states varied in their design of certain features of their  BIPA PPS for RHCs. Specifically, because of differences in when fiscal  years began, states varied as to when they first inflated their BIPA PPS  base rates. Most states first inflated their RHCs’ base payment rates in  either October 2001 or January 2002. A few states inflated RHC payment  rates earlier in 2001 and one state did not inflate rates until July 2002. (See  table 4.) In addition, four states paid RHCs with multiple BIPA PPS  payment rates that differed depending on the type of service provided.  For example, Illinois RHCs received payment rates that differed depending  on whether a visit was for medical, dental, or behavioral health services.
We identified two issues with states’ implementation of the BIPA PPS for  FQHCs and RHCs. First, BIPA PPS rates in more than one-third of states  may be inappropriate—these states reported that their rates did not  include all Medicaid-covered FQHC and RHC services. These states most  commonly excluded laboratory, radiology, and dental services. These  exclusions are inappropriate because, under BIPA and CMS guidance, the  BIPA PPS must include all Medicaid-covered services—specifically,  outpatient services provided in an FQHC or RHC and included in the  state’s plan. Prescription drugs are the one service that states are allowed  to exclude from the BIPA PPS rate, according to CMS. Thus, all other  Medicaid-covered outpatient services provided by an FQHC or RHC must  be paid for under the BIPA PPS.
Second, as of June 1, 2004, over 3 years after the passage of BIPA, over  half of states using the BIPA PPS had either not defined procedures for  adjusting payment rates for a change in scope of services or not specified  what would constitute such a change; states are required by BIPA to adjust  BIPA PPS rates for a change in scope of services. Specifically, according to  our survey results, 9 of the 39 states that pay FQHCs, RHCs, or both using  the BIPA PPS reported that they had not defined procedures for adjusting  payment rates for a change in scope of services. In addition, according to  our review of state documents, of the remaining 30 states that reported  defining adjustment procedures for a change in scope of services, 12 did  not specify what would constitute such a change.
section_title: Many States Implemented Alternative Payment Methodologies, but Not All Met BIPA Requirements
paragraphs: Approximately half of the states chose the BIPA option to use an  alternative methodology to pay at least some FQHCs, RHCs, or both, but  not all states’ methodologies met the BIPA requirements. Eighteen states  used an alternative methodology for both FQHCs and RHCs, 6 states used  it for FQHCs only, and 1 state used it for RHCs only. States with  alternative methodologies generally used either a cost-based  reimbursement methodology, similar to that used to pay FQHCs and RHCs  prior to BIPA, or implemented an alternative PPS methodology with  features that differed slightly from the BIPA PPS. Some states’ alternative  methodologies, however, did not meet BIPA’s requirement that alternative  methodologies result in payments no lower than what would have been  received under the BIPA PPS.
subsections: section_title: Implementation of Alternative Methodologies for FQHCs
paragraphs: Twenty-four of 51 states opted to use one or more alternative payment  methodologies to pay at least some of their FQHCs. The type of alternative  methodology varied by state. Specifically, to pay at least a portion of their  FQHCs, 15 states used a cost-based reimbursement methodology, 8 states  used an alternative PPS methodology, and 3 states used an alternative  methodology that was neither cost-based reimbursement nor a PPS; 2 of  these states used multiple methods. (See table 5.)
Fifteen states used a cost-based reimbursement methodology for at least  some FQHCs. Under cost-based reimbursement, FQHCs were required to  submit cost reports, which the states reviewed to determine whether  reported costs were allowable and reasonable. States may set limits on  the reasonableness of costs, and 11 of the 15 states reported setting limits  for FQHCs. (Table 6 lists the states using limits, by type of limit.) Some  states used more than one limit, as follows:    Overall caps. Six states reported setting limits on how much they would  reimburse for a patient’s visit, with most basing their limit on that  employed by Medicare. For example, three states set their limits at the  Medicare upper payment limit, while two states set their limits at 125  percent and 133 percent, respectively, of the Medicare payment limit.
Performance or productivity standards. Seven states limited  reasonable costs by setting performance or productivity standards. These  states stipulated the number of visits per year that a full-time-equivalent  physician should provide; they used similar guidelines for other  practitioners. Again, most of the states using performance or productivity  standards relied on the guidelines specified by Medicare.
Limits on administrative costs. Three states reported that they  disallowed administrative costs exceeding 30 percent of total costs.
Eight states had an approved alternative PPS for reimbursing at least a  portion of their FQHCs. Generally, these alternative PPSs differed from the  BIPA PPS in that they used a different base payment rate, a different  inflation factor, or both. For example, California set its alternative PPS  base rate at an FQHC’s 2000 reasonable costs, as opposed to an average of  1999 and 2000 reasonable costs, which is stipulated under the BIPA PPS;  Alaska used an inflation index developed by Data Resources Incorporated  instead of the MEI to adjust rates. Arizona plans to rebase its alternative  PPS every 3 years, calculating the base rate as the average of costs from  the 2 previous years. Arizona also inflated rates using the physician  services component of the Consumer Price Index (CPI). Table 7 provides  the characteristics of the eight states’ alternative PPS methodologies for  FQHCs.
Three states created alternative payment methodologies that were neither  purely cost-based nor an alternative PPS. Specifically, Massachusetts paid  most FQHCs the same rate, which was based on the 1998 costs from a  sample of FQHCs in the state. New York paid some FQHCs on the basis  of diagnosis, and Wisconsin paid two of its FQHCs a flat rate set at the  Medicare upper payment limit.
section_title: Implementation of Alternative Methodologies for RHCs
paragraphs: Almost half of the states with RHCs (19 of 44 states) paid at least a portion  of their RHCs using an alternative methodology. Twelve states paid at least  a portion of their RHCs using a cost-based reimbursement methodology, 6  states created an alternative PPS methodology, and 3 states paid at least  some RHCs by an alternative methodology that was neither cost-based  reimbursement nor a PPS. Two states—New Hampshire and Wisconsin— used both cost-based reimbursement and another payment methodology.  (See table 8.)
Twelve states used cost-based reimbursement to pay at least some RHCs  and most applied limits when determining reasonable costs (see table 9).
Overall caps. Ten states reported applying limits on how much they  would reimburse for a patient’s visit. All 10 states set their limit at the  Medicare upper payment limit for RHCs, which was $68.65 in 2004.
Performance or productivity standards. Seven states limited  reasonable costs by setting performance or productivity standards and all  relied on the standards employed by Medicare.
Limits on administrative costs. No state reported setting limits on  administrative costs.
Six states had an approved alternative PPS for reimbursing at least a  portion of their RHCs. One state used a base rate that was different from  the BIPA PPS, two states either used or reserved the option to use an  inflation index other than the MEI, and two states did both. For example,  in Arizona, the state plans to rebase its alternative PPS every 3 years and  inflate interim years’ rates by a component of the CPI. The sixth state  (Texas) used an alternative PPS that was virtually the same as the BIPA  PPS except that RHCs did not have to return to the state any  overpayments that might have occurred during the transition to the new  payment system. See table 10 for details on the six states’ alternative PPS  for RHCs.
Three states reported that their alternative payment methodologies were  neither purely cost-based reimbursement nor an alternative PPS.  Specifically, most RHCs in Wisconsin were paid the Medicare upper  payment limit, and all RHCs in Colorado were paid the Medicare upper  payment limit or their Medicare rate if the upper payment limit did not  apply. In New Hampshire, hospital-based RHCs were paid approximately  92 percent of allowable charges, which were determined on the basis of  the RHCs’ Medicare cost reports.
section_title: Issue with States’ Implementation of Alternative Methodologies
paragraphs: Not all states ensured that their alternative methodologies resulted in  payments that were at least equal to what FQHCs and RHCs would have  received under the BIPA PPS, as required by statute. Under BIPA, states  may use an alternative payment methodology only if the methodology  results in payment to an FQHC or RHC that is at least equal to what the  FQHC or RHC would have received under the BIPA PPS and if the FQHC  or RHC agrees to its use. Of the 25 states with alternative methodologies  for either FQHCs, RHCs, or both, 4 states (Missouri, New Hampshire,  Vermont, and Wisconsin) paid at least some providers less than what they  would have been paid under the BIPA PPS and it was unclear whether the  alternative payment methodologies in 2 states (Nebraska and North  Carolina) resulted in payments at least equal to what the FQHCs and RHCs  would have received under the BIPA PPS.
Four states’ alternative methodologies paid at least some FQHCs, RHCs, or  both less than what they would have received under the BIPA PPS, but the  states continued to pay the providers the lower rate under the alternative  methodology. Missouri determined whether its alternative methodology  paid at least as much as the BIPA PPS for only a portion of its FQHCs and  RHCs and did so only for the first year of the methodology. On the basis  of this assessment, Missouri found that over half of the FQHCs reviewed  and about 40 percent of the RHCs reviewed would fare better under the  BIPA PPS, yet the state continued to pay them under the alternative  methodology. In 2001, the FQHCs and RHCs that would have fared better  under the BIPA PPS would have received on average about $12 more and  about $25 more per visit, respectively. New Hampshire compared only the  fiscal year 2001 BIPA PPS rates for its FQHCs and RHCs with the cost- based rates; although the state found that the BIPA PPS rates were higher  for some RHCs, a state official told us in October 2004 that the state had  not reimbursed these providers for the difference. Vermont only  determined the 2001 BIPA PPS rates for its FQHCs and RHCs. On the  basis of those rates, we estimated the 2002 and 2003 BIPA PPS rates for  Vermont’s FQHCs and RHCs and found that some RHCs would likely have  fared better under the BIPA PPS. However, the state reported that all  FQHCs and RHCs were paid under the alternative methodology. Wisconsin  compared the fiscal year 2001, 2002, and 2003 BIPA PPS rates for its  FQHCs and RHCs with the cost-based rates used for those fiscal years and  found that an RHC would have fared better under the BIPA PPS each year,  yet Wisconsin continued to pay that RHC under the alternative  methodology. Specifically, across the 3 years, the BIPA PPS rate would  have paid that RHC, on average, about $20 more per visit compared with  the state’s alternative methodology. Since these states did not routinely  inform all FQHCs and RHCs of what their BIPA PPS rates would have  been, the FQHCs and RHCs may have been unaware that some providers,  including themselves, may have fared better under the BIPA PPS.
For the remaining two states, it was unclear whether their alternative  payment methodologies complied with the requirement that alternative  methodologies must result in payments at least equal to what the FQHCs  and RHCs would have received under the BIPA PPS. Nebraska did not  determine whether its alternative methodology paid at least as much as  the BIPA PPS. North Carolina compared its payment rates under its  alternative methodology with preliminary BIPA PPS rates only for the base  year (fiscal year 2001) and not for any subsequent years. As of March 2005,  the state had not finalized all FQHCs’ and RHCs’ 2001 BIPA PPS rates, and  it is therefore unclear whether the state’s alternative methodology resulted  in payment that was at least as much as the BIPA PPS would offer.
section_title: Evidence to Date Is Insufficient about the Need to Rebase or Refine the BIPA PPS
paragraphs: Sufficient evidence is not available to determine whether there is a need to  rebase or refine the BIPA PPS. Concerns exist about the appropriateness  of the MEI, which was specified in the statute as the index used to  annually adjust BIPA PPS rates for inflation. For example, the MEI does  not reflect the costs of the services typically provided by FQHCs and  RHCs. Other indexes often used to reflect medical care inflation, however,  have a similar shortcoming. Although the MEI may not be an appropriate  index to adjust BIPA PPS rates, based on our research no inflation index is  currently available that reflects FQHC and RHC services. The ability to  determine the need for rebasing or refining is further complicated by an  increasing lack of comprehensive and current cost data because many  states no longer require all FQHCs and RHCs to submit Medicaid cost  reports. Our analysis of cost-based and BIPA PPS rates from selected  states that used cost-based reimbursement as an alternative payment  methodology did not provide conclusive evidence on the need to rebase or  refine the BIPA PPS.
subsections: section_title: MEI May Not Be an Appropriate Index to Adjust BIPA PPS Rates for Inflation
paragraphs: Our prior work, discussions with stakeholders, and our analysis for this  report raised questions about the appropriateness of the MEI as the index  to annually adjust BIPA PPS rates for inflation. The MEI is designed to  estimate the increase in the total costs for the average physician to operate  a medical practice for the purpose of updating physician payment rates  under Medicare. As such, the MEI is intended to be an equitable measure  of cost changes associated with physician time and operating expenses.
We reported in 2001 that the MEI increased at a lower rate than indexes  some states had used previously to adjust payment rates for FQHCs.
Since the MEI adjustment is the only automatic update of BIPA PPS  rates, an FQHC’s or RHC’s ability to manage under the BIPA PPS depends  on its initial payment rate as well as its ability to hold cost growth at or  below the MEI.
Some stakeholders we contacted expressed concern about the use of the  MEI to update BIPA PPS payments to FQHCs and RHCs. Officials from the  National Association of Community Health Centers told us that the MEI  was not an adequate measure of FQHCs’ increasing costs. These officials  pointed to data from the Uniform Data System (UDS), a database of self- reported FQHC data, which suggested that the MEI increased at a lower  rate than FQHCs’ costs. Specifically, the data showed that FQHCs’ total  costs per patient encounter increased approximately 5 to 6 percent  annually between 2001 and 2003, while the MEI increased about 2 to   3 percent annually during the same time period. This concern was echoed  by officials we spoke with from FQHCs and RHCs and by CMS officials  from four regional offices. For example, an official from a Florida FQHC  reported that his center’s costs over the past 3 years had increased by   4.5 to 7 percent a year, while an official from a Florida RHC reported cost  increases of over 10 percent annually. An important objective of a PPS,  however, is to encourage efficiency, so equivalent increases in a provider’s  payment adjustments and its cost trends may not be desirable.
The MEI may not be an ideal index to adjust FQHCs’ and RHCs’ payment  rates for inflation, but other indexes often used to reflect medical care  inflation also have a similar shortcoming. As mentioned earlier, the MEI  was designed to measure the changing costs for the average physician.  However, FQHCs’ and RHCs’ costs may not be comparable to those of the  average physician. FQHCs provide additional services, including enabling  services (such as outreach and translation), and a significant portion of  RHC services may be provided by nonphysician practitioners. Like the  MEI, four other indexes commonly used to reflect changes in medical care  inflation do not reflect the services typically provided by FQHCs and  RHCs. The 2001 to 2003 cumulative increase for the MEI was greater than  the cumulative increases of the Producer Price Index (PPI) for Physician  Offices and the CPI for Urban Consumers for the same period, although  neither of the latter indexes reflect the same services provided by FQHCs  and RHCs. The cumulative increase for the MEI was less than the  cumulative increases for two other indexes—the PPI for General Medical  and Surgical Hospitals and the CPI for Medical Care—but the latter two  indexes included a set of hospital-related services that for the most part  neither FQHCs nor RHCs provided. (See table 11 for a comparison of these  indexes.)
On the basis of our review of literature on medical care indexes and  information from organizations typically involved in developing and  updating these indexes, we determined that no inflation index has been  developed specifically to reflect FQHC and RHC services. Other PPSs,  however, often incorporate an inflation index specifically designed to  reflect changes in the cost of services provided by or the price of  resources used by the providers paid under that PPS. For example, under  the Medicare home health PPS, the payment rate is inflated using a home  health market basket that measures the changes in the prices of goods and  services bought by home health agencies. CMS has similarly developed  update factors for Medicare payment rates for outpatient hospitals and  skilled nursing facilities (see app. II).
section_title: Lack of Cost-Reporting Requirement Hinders Ability to Determine the Need to Rebase or Refine the BIPA PPS
paragraphs: The lack of a Medicaid cost-reporting requirement for FQHCs and RHCs  makes it difficult to determine the need to rebase or refine the BIPA PPS.  Under BIPA, state Medicaid programs were no longer required to collect  cost reports from FQHCs and RHCs, which was how states had previously  collected cost data to help set Medicaid payment rates for these  providers. The decision to collect Medicaid cost data via cost reports or  other methods was therefore left to each individual state. In response to  our survey, many states reported they did not require cost reports from all  FQHCs and RHCs (see table 12). Twenty-one of 51 states (over 40 percent)  reported not requiring cost reports from all FQHCs. Specifically, 2 states  reported no longer requiring any cost reports and another 19 states  reported requiring cost reports from some FQHCs, generally only from  new FQHCs or those with a change in scope of services. Even fewer states  reported requiring cost reports from RHCs. Of the 44 states with RHCs, 22  (50 percent) reported not requiring cost reports from all RHCs—9 states  did not require any RHCs to submit cost reports and 13 states only  required cost reports from some. States that had implemented the BIPA  PPS were especially likely to not have cost-reporting requirements: 20 of  the 33 states using the BIPA PPS for FQHCs (over 60 percent) reported not  requiring cost reports from all FQHCs and 19 of the 33 states using the  BIPA PPS for RHCs (approximately 58 percent) reported not requiring  cost reports from all RHCs. Without comprehensive and current cost data,  determining whether there is a need to rebase or refine the BIPA PPS is  difficult, if not impossible.
section_title: Analysis of Rates from Selected States Provided Inconclusive Evidence on the Need to Rebase or Refine the BIPA PPS
paragraphs: Our comparison of cost-based and BIPA PPS rates for FQHCs and RHCs  from selected states provided inconclusive evidence concerning the need  to rebase or refine the BIPA PPS. From 2001 through 2003, most FQHCs’  and RHCs’ cost-based rates exceeded their BIPA PPS rates in the four  states we reviewed—Iowa, Vermont, Virginia, and Wisconsin. Within  these four states, cost-based rates, on average, were greater than the BIPA  PPS rates for 41 of the 45 FQHCs and 128 of the 163 RHCs included in the  analysis. However, the extent of the difference between cost-based and  PPS rates varied considerably both within and among the states reviewed  (see fig. 3). For example, among the 15 Wisconsin FQHCs we analyzed,  cost-based rates across the 3-year period ranged from approximately 30  percent less than to approximately 70 percent more than BIPA PPS rates.  For the 104 Iowa RHCs we analyzed, cost-based rates ranged from  approximately 35 percent less than to approximately 82 percent more than  BIPA PPS rates. Because the FQHCs and RHCs included in our analysis  were paid cost-based rates, they may have had less incentive to operate  efficiently than if they had been paid under the BIPA PPS. However, it is  unclear whether the difference between cost-based and PPS rates may be  attributed to this possible lack of incentive or if these providers were  operating efficiently but their costs remained higher than what the BIPA  PPS would pay. Given these unknowns and the variability in the extent of  rate differences, the fact that BIPA PPS rates were generally less than  these providers’ cost-based rates is not compelling evidence that BIPA PPS  rates need to be rebased or refined at this time.
section_title: CMS Guidance and Oversight Did Not Ensure Consistent State Compliance with BIPA
paragraphs: CMS guidance to states and regional offices and its oversight of states’  implementation of the new BIPA-mandated payment requirements for  FQHCs and RHCs did not ensure consistent state compliance with the law.  CMS guidance did not adequately address certain BIPA requirements and  thus uncertainties exist about whether and how some requirements for  BIPA compliance have been implemented, such as states’ methodologies  to adjust BIPA PPS rates to account for any change in scope of services.  Since CMS initially approved states’ plans to implement BIPA’s Medicaid  payment provisions for FQHCs and RHCs, its oversight of states’  implementation has been limited. CMS has relied on states’ assurances  that they were in compliance with BIPA and investigated payment issues  only in response to complaints, which CMS said were rare, or when  concerns were identified during a CMS review conducted for other  purposes. As a result, CMS was unaware of certain compliance issues,  including that some states’ BIPA PPS rates and alternative methodologies  were inconsistent with the law.
subsections: section_title: CMS Guidance Did Not Adequately Address Certain BIPA Requirements
paragraphs: CMS’s guidance to its regional offices and the states did not adequately  address certain BIPA requirements and thus did not ensure that states had  enough information to develop payment systems that were consistent with  BIPA. CMS provided its regional offices and states with preliminary  information regarding the new payment requirements for FQHCs and  RHCs within the first 3 months following the enactment of BIPA; however,  the regional offices did not use all of this information consistently. (Fig. 4  provides the timeline of the issuance of CMS guidance.) On January 19,  2001, CMS issued a letter to state Medicaid directors summarizing BIPA’s  new FQHC and RHC payment provisions, but the letter provided no  interpretation of the legislation or clarification as to how CMS expected  states to implement the new payment provisions. The letter also instructed  states to submit SPAs that conformed to the BIPA requirements before the  end of the first calendar quarter of 2001 (March 31, 2001). To assist states  in meeting this deadline, CMS provided regional offices with standard  BIPA-compliant SPA language on March 9, 2001. According to CMS, prior  to approving the SPAs, the regional offices were to work with each state to  ensure that the SPA reflected the specifics of the state’s payment  methodology. While most of CMS’s 10 regions followed this protocol, 1  region approved the SPAs for its six states even though most of these  SPAs still contained only the standard language initially provided by CMS.  These SPAs indicated that states intended to conform to BIPA, but most  contained no details as to how each state planned to implement the new  payment system. Although these states reported to us in response to our  survey the details of how they were paying FQHCs and RHCs, CMS did not  require these states to update their SPAs. As a result, CMS did not have an  official record detailing how FQHCs and RHCs were paid in most of the  states in this region.
While CMS later provided the states and regional offices with more  detailed guidance, this guidance was issued after many states’ SPAs were  submitted and approved. On April 13, 2001, 2 weeks after the deadline for  SPA submission, a CMS official provided regional office staff with  suggested SPA review guidelines by e-mail. By the time this guidance was  provided, all states had submitted their SPAs and CMS had approved 2  states’ SPAs. The April 2001 guidance outlined key points that each SPA  was to include to ensure compliance with BIPA. For example, the  guidance recommended that each SPA explain the averaging methodology  used to determine the base PPS rate. Additional guidance from CMS was  not issued until 5 months later, by which time 57 percent of SPAs (SPAs  for 29 of 51 states) had been approved. Specifically, on September 12,  2001, CMS sent a Question and Answer document to regional office  administrators, who were instructed to provide the guidance to states.  This document provided the most comprehensive guidance to date and  answers to commonly asked questions about BIPA, including what  services should be included in the BIPA PPS rate, ongoing requirements  for the collection and review of cost reports, and the development of BIPA  PPS rates for new centers and clinics.
CMS guidance overall left some requirements for compliance with BIPA  unclear, particularly with regard to the adjustment of BIPA PPS rates due  to a change in scope of services. Although CMS has defined a change in  scope of services as one that affects the type, intensity, duration, and  amount of services, it has not clearly defined these elements or developed  further guidance regarding how change in scope of service adjustments  should be applied. As a result, at the time of our survey, over one-half of  the 39 states using the BIPA PPS had either not defined procedures for  adjusting FQHCs’ and RHCs’ BIPA PPS rates for a change in scope of  services or not specified what would constitute such a change. Among  states with defined procedures, definitions of what constituted a change in  scope of services varied considerably and several included factors that are  not directly related to the provision of services. For example,  documentation from 5 of these states specified relocation, remodeling, the  opening of a new site, or a combination of these as criteria to adjust the  BIPA PPS rate under this provision. However, CMS told us that factors  such as relocation do not constitute a change in scope of services unless  there is a corresponding change in the type, intensity, duration, or amount  of services. Furthermore, CMS has not offered guidance regarding the  requirement for states to adjust base BIPA PPS rates of FQHCs and RHCs  that are paid under an alternative payment methodology in the event of a  change in scope of services. If BIPA PPS rates are not appropriately  adjusted for a change in scope of services, states cannot accurately  compare payments under those rates to payments under an alternative  methodology to ensure payment that is at least equal to the payment under  the BIPA PPS, as BIPA required.
section_title: CMS Oversight Has Been Limited
paragraphs: CMS oversight of states’ Medicaid payment systems for FQHCs and RHCs  has been limited since the approval of the SPAs. CMS officials explained  that they have relied upon states’ assurances that they are in compliance  with BIPA and have not asked states to provide supporting documentation  to verify their compliance with the new payment requirements. For  example, CMS has not required states using an alternative payment  methodology to provide evidence that payment was at least equal to what  would have been paid under the BIPA PPS. Additionally, CMS officials  stated that they would only initiate reviews of FQHC and RHC payment  issues in response to a complaint or if an issue was identified during a  CMS review conducted for other purposes. Regional office officials  reported rarely receiving complaints about Medicaid payments to FQHCs  and RHCs. Furthermore, only one regional office official told us that a  CMS review identified issues related to Medicaid payments for FQHCs and  RHCs. CMS regional office officials reported surveying state Medicaid  offices during the summer of 2003 to determine the status of states’  implementation of the new Medicaid payment system. However, it is  unclear how this information was used since CMS regional office officials  involved with the survey were, on several occasions, unable to accurately  identify the type of payment system—a basic element required for  oversight—used by states within their jurisdiction.
As a result of this limited oversight, CMS was unaware of several  compliance issues we identified regarding payment to FQHCs and RHCs.  Specifically, CMS did not know that more than one-third of the 39 states  using the BIPA PPS may have incorrectly determined the base PPS rates  by inappropriately excluding certain Medicaid-covered services. While this  detail was not included in all SPAs, CMS approved at least two SPAs that  listed such exclusions. Additionally, a CMS official with responsibility for  overseeing Medicaid payments to FQHCs and RHCs acknowledged to us  that one state had not included the costs of all appropriate Medicaid  services in the calculation of the base rates, but was unaware of the other  states we identified that had similarly excluded certain services from their  base rate calculation. CMS was also unaware that 6 of the 25 states with  alternative methodologies were not routinely ensuring that they were  paying at least as much as what would have been paid under the BIPA  PPS. Furthermore, CMS did not know if states using an alternative  payment methodology were updating their BIPA PPS rates for a change in  scope of services, as required by law, before performing this comparison,  but believed that most were not.
section_title: Conclusions
paragraphs: BIPA changed the way that states pay FQHCs and RHCs for services  provided to Medicaid beneficiaries by establishing a PPS to pay these  providers. The BIPA PPS encouraged FQHCs and RHCs to operate more  efficiently than did the prior cost-based reimbursement system.  Additionally, BIPA provided states with the flexibility to implement an  alternative payment methodology, which many states opted to use, but it  also established a minimum level of payment for FQHCs and RHCs.
Although BIPA required states to use the MEI to annually adjust BIPA PPS  rates for inflation, the MEI may not be an appropriate index because it was  designed to estimate the increase in the total costs for the average  physician to operate a medical practice, not the increase in costs  associated with providing FQHC and RHC services. PPSs for other  providers often incorporate an inflation index specifically designed to  reflect changes in the cost of services delivered by those providers, but no  such inflation index has been developed to reflect the services typically  provided by FQHCs and RHCs.
CMS is responsible for overseeing states’ Medicaid programs, including  states’ implementation of the BIPA payment requirements, but its guidance  and oversight have not consistently ensured that states properly  implemented the new requirements. Specifically, CMS approved SPAs that  did not contain sufficient detail to convey basic information, such as  whether the state intended to implement the BIPA PPS or an alternative  methodology, which hindered CMS’s ability to properly oversee states’  payment systems. In addition, CMS guidance did not address certain BIPA  requirements such as how rates were to be adjusted for a change in scope  of services. As a result, some states included factors in their definitions of  change in scope of services that are not directly related to the provision of  services, and other states did not specify what would constitute such a  change or did not define procedures for making the adjustment.  Furthermore, CMS’s oversight has not ensured that states’ BIPA PPSs have  included all Medicaid-covered services as required or ensured that states’  alternative payment methodologies met the legal requirement that  payments be at least as much as they would have been under the BIPA  PPS. Limited CMS oversight may be warranted given the relatively low  share of total Medicaid spending represented by FQHCs and RHCs and the  agency’s many other competing priorities. However, CMS oversight must  be sufficient to ensure compliance with the law. Without such oversight,  CMS is unable to assure Congress that all FQHCs and RHCs are receiving  the level of payment to which they are entitled, which is especially  important in the absence of available evidence to determine whether there  is a need to rebase or refine the BIPA PPS for these providers.
section_title: Matter for Congressional Consideration
paragraphs: In our draft report, we recommended that the Administrator of CMS  explore the development of an inflation index that better captures the cost  of services provided by or price of resources used by FQHCs and RHCs  and propose to Congress, as appropriate, any needed revisions to the  statute. CMS responded that there is currently no evidence or data to  reflect that the need for a revised inflation factor is warranted at this time.  Because we continue to believe that CMS should explore developing an  index that more appropriately reflects the services provided by FQHCs  and RHCs, we maintained this recommendation to CMS and elevated the  issue to a matter for congressional consideration.
Congress may wish to consider directing CMS to explore the development  of an inflation index that better captures the cost of services provided by  or price of resources used by FQHCs and RHCs or develop a strategy to  periodically assess the adequacy of the MEI as an inflation index for  adjusting PPS rates for FQHCs and RHCs.
section_title: Recommendations for Executive Action
paragraphs: To provide for a more appropriate basis for adjusting BIPA PPS payment  rates for FQHCs and RHCs, we recommend that the Administrator of CMS  explore the development of an inflation index that better captures the cost  of services provided by or price of resources used by FQHCs and RHCs  and propose to Congress, as appropriate, any needed revisions to the  statute.
In addition, to better ensure consistent state compliance with the BIPA- mandated Medicaid payment requirements for FQHCs and RHCs, we  recommend that the Administrator of CMS take the following four actions:    Ensure that states’ Medicaid plans provide sufficient information  describing their methodologies for paying FQHCs and RHCs for Medicaid  services, including, at a minimum, whether the state is using the BIPA PPS  or an alternative methodology.
Develop guidance for states describing what constitutes a change in scope  of services provided by FQHCs and RHCs, including the definition of the  specific elements that affect such a change.
Ensure that states’ FQHC and RHC BIPA PPS payment rates do not  inappropriately exclude the costs of Medicaid-covered services.
Ensure that states’ alternative payment methodologies are paying FQHCs  and RHCs at least as much as what would be paid under the BIPA PPS,  including any needed adjustments due to a change in scope of services.
section_title: Agency and State Comments and Our Evaluation
paragraphs: We provided a draft of this report for comment to the Secretary of Health  and Human Services and Medicaid directors in Iowa, Missouri, Nebraska,  New Hampshire, North Carolina, Vermont, Virginia, and Wisconsin. We  received written comments from CMS that represented the views of both  CMS and HRSA. We also received technical comments from CMS and the  states, which we incorporated as appropriate. CMS comments are  included in appendix IV.
CMS commented that it disagreed with the characterizations made in our  report regarding the implementation of the BIPA legislation. CMS  commented that it had little time to address implementation issues  between the enactment of the BIPA legislation in December 2000 and the  January 1, 2001, effective date of BIPA’s new Medicaid payment  provisions. Our draft report acknowledged these dates, and we agree that  there was limited time between the law’s enactment and its effective date.  However, our report addresses a broad range of BIPA implementation  activities, including CMS oversight since BIPA was enacted in 2000. CMS  noted, and the draft report acknowledged, that it issued guidance to the  states in both January 2001 and September 2001. While CMS commented  and our draft report noted that all SPAs have been approved, we disagree  with the CMS assertion that all SPAs are BIPA-compliant. As we noted in  the draft report, at least two states’ approved SPAs documented that  certain Medicaid-covered services would be excluded from the BIPA PPS  rate, a practice that is not compliant with the law and related CMS  guidance. Furthermore, although other states’ SPAs may be   BIPA-compliant, we found several compliance issues with states’ payment  methodologies for FQHCs and RHCs. For example, as noted in the draft  report and acknowledged by CMS in its comments, some states did not  include all Medicaid-covered services in their BIPA PPS rate. With regard  to the requirement that alternative payment methodologies pay at least as  much as the BIPA PPS, CMS commented that it had not received  complaints from FQHCs and RHCs about the amount of payment received  under an alternative methodology. We do not believe that the number of  complaints should be the criteria to evaluate compliance with the statute.  Regardless of whether providers in these states complained, CMS is  responsible for ensuring that states are complying with BIPA  requirements.
On the basis of our recommendations that CMS better ensure consistent  state compliance with the BIPA-mandated Medicaid payment requirements  for FQHCs and RHCs, CMS said that it would take the following actions:  request that SPAs clearly identify whether states intended to implement a  BIPA PPS or an alternative methodology,    contact states to ascertain which Medicaid services they are excluding  from the BIPA PPS rate determination and assist each state in complying  with BIPA requirements for determining the BIPA PPS rate or in  establishing alternative payment methodologies, and  remind states that BIPA requires that alternative payment methodologies  pay at least as much as the BIPA PPS rate.
Although these steps are important, they do not adequately ensure that  states are complying with BIPA requirements. For example, while it is  important to remind states that alternative payment methodologies must  pay at least as much as the BIPA PPS, CMS needs to ensure that states’  alternative methodologies actually pay as much as the BIPA PPS.
In response to our recommendation that CMS explore the development of  an inflation index that better captures the cost of services provided by or  price of resources used by FQHCs and RHCs, CMS said that the MEI was  selected because it is used by Medicare for these providers and that no  evidence currently exists to reflect the need for a revised inflation factor.  As we noted in the draft report, the MEI was designed to measure the  changing costs for the average physician, which may not be comparable to  cost changes experienced by FQHCs and RHCs. For example, FQHCs  often provide additional services, such as translation. Because we  continue to believe that CMS should explore developing an index that  better captures the inflationary changes experienced by FQHCs and RHCs,  we are also elevating this issue to a matter for congressional  consideration.
CMS also did not concur with our recommendation that it develop  guidance for states describing what constitutes a change in scope of  services provided by FQHCs and RHCs. In our draft report we  acknowledged that, in its guidance, CMS defined a change in scope of  services as “a change in type, intensity, duration and/or amount of  services.” The guidance also stated that “a change in the cost of a service  is not considered in and of itself a change in the scope of services.”  However, as noted in our draft report, many states have yet to define  procedures for changes in scope of services and those with defined  procedures sometimes included factors, such as remodeling or relocation,  that were not directly related to the provision of services. Therefore, we  continue to believe that additional guidance, including the definition of the  specific elements that affect a change in scope of services, is necessary.
We are sending copies of this report to the Secretary of Health and Human  Services, the Administrator of CMS, the Administrator of HRSA, and other  interested parties. We will also make copies available to others on request.  This report also will be available at no charge on GAO’s Web site at  http://www.gao.gov.
Please call me on (202) 512-7118 or Debra Draper on (202) 512-5152 if you  have questions about this report. Major contributors to this report are  listed in appendix V.
section_title: Appendix I: Methodology for Review of Selected States Using Cost-Based Reimbursement
paragraphs: To determine the need for rebasing or refining costs for making payments  under the Medicaid prospective payment system (PPS) for Federally  Qualified Health Centers (FQHC) and Rural Health Clinics (RHC), we  obtained detailed information from 5 of the 11 states that used cost-based  reimbursement as their alternative payment methodology for both FQHCs  and RHCs. We followed this approach since the Medicare, Medicaid, and  SCHIP Benefits Improvement and Protection Act of 2000 (BIPA) required  states using an alternative payment methodology to ensure that their  methodology resulted in payment no lower than payment under the BIPA  PPS. We therefore assumed that these states would have data available on  their cost-based payment rates as well as comparative BIPA PPS rates.  Having both rates for each FQHC and RHC in the selected states would  enable us to assess the extent to which FQHCs’ and RHCs’ reasonable  costs were covered under the PPS.
We selected states for the targeted review if, according to their responses  to our survey, they met the following four criteria for both FQHCs and  RHCs:  implemented cost-based reimbursement as their alternative payment  methodology,  required FQHCs and RHCs to submit cost reports and the state audited  them,    had at least 1 year of audited cost reports following the implementation of  their alternative payment methodologies, and    determined what the FQHCs’ and RHCs’ payments would have been if the  state had implemented the BIPA PPS.
According to their survey responses, five states met all of these criteria— Iowa, Missouri, Vermont, Virginia, and Wisconsin.
We requested that the five states provide us the 2001, 2002, and 2003 cost- based and BIPA PPS payment rates for each of their FQHCs and RHCs.  On the basis of their responses we excluded Missouri from further  analysis. Missouri had determined the 2001 BIPA PPS rates for only a  portion of FQHCs and RHCs in the state and had not determined the 2002  or 2003 BIPA PPS rates for any FQHCs or RHCs. Additionally, Missouri  was unable to provide us with 2002 and 2003 per visit cost-based rates.  While we found that Vermont had not determined the 2002 and 2003 BIPA  PPS rates for its FQHCs and RHCs, we were able to estimate those rates  by inflating the 2001 BIPA PPS rates for each FQHC and RHC by the  Medicare Economic Index (MEI), the annual inflation adjustment required  by BIPA.
For our analysis, we included FQHCs and RHCs in the four states for  which 3 full years of data were available—2001, 2002, and 2003. While we  generally relied on and did not independently verify the data provided to  us by the states, we did review the data for reasonableness and to identify  unusual patterns, including outliers. We identified some data that required  follow-up with state Medicaid officials to obtain a better understanding of  the reason for these patterns. As a result of these additional inquiries, one  RHC was excluded from the analysis.
We analyzed the data by state and type of provider (FQHC or RHC). We  assessed (1) the percentage and dollar difference between the cost-based  and BIPA PPS rates and (2) the number of providers whose cost-based  rates exceeded their BIPA PPS rates. This analysis allowed us to compare  reasonable costs with BIPA PPS rates in the selected states. The results of  this analysis for the four states reviewed cannot be generalized to other  states.
section_title: Appendix II: Overview of Prospective Payment Systems
paragraphs: Under prospective payment, a health care provider’s payment is based on  predetermined rates and is unaffected by the provider’s actual costs or the  amount of money charged for products or services. An important objective  of a PPS is to create incentives for providers to operate more efficiently.  This is done by making providers responsible for the difference between  what they are paid and their actual costs. Therefore, providers whose  costs exceed the predetermined payment rate will experience a loss and  those whose costs are less than the payment rate will profit.
subsections: section_title: PPS Structure
paragraphs: In a PPS, the payment rate for a product or service may be determined by  the following general formula:  Payment rate = In ia base payment amoun x update factor x inpu-prce  t i adjusment factor x rea ve value of the produc or servce x oher rate l titti adjusment factors    The initial base payment amount is usually a dollar amount for a specific  year that reflects policymakers’ decisions on the unit of payment for the  unit of service (e.g., visit, episode of care, day) and the appropriate initial  level of payment for the average unit.
The update factor adjusts the initial base amount for inflation and other  factors to set the base level of payment for the rate year.
The input-price adjustment factor raises or lowers the base amount to  reflect geographic price differences, such as differences in wages.
The relative value adjusts the base amount to reflect the expected relative  costliness of the particular product or service compared with that of the  average unit of that product or service.
One or more additional rate adjustment factors designed to reflect certain  characteristics of the provider, the service, or the specific patient may be  applied to the payment rate. For example, the payment rate may be  adjusted on the basis of patients’ severity of illness or condition treated by  a provider, referred to as case-mix. Additionally, some systems include an  adjustment to mitigate the financial risk of providers who incur unusually  large costs. This adjustment may be in the form of an outlier payment in  which additional payments are made to the provider for cases that exceed  a specified threshold.
section_title: Comparison of BIPA PPS with Selected Other PPSs
paragraphs: While it contains some of the features common in other PPSs, the BIPA  PPS differs in other respects. For example, the initial base payment rate  under the BIPA PPS is determined for each provider individually, and not  for a group of providers as is the case for most other PPSs we reviewed.  The BIPA PPS base rate is the average of each individual FQHC’s or RHC’s  reasonable cost per visit in 1999 and 2000. Additionally, the BIPA PPS  does not include an input-price adjustment factor or a calculation of the  relative value of the product. Table 13 compares the key features of the  BIPA PPS to selected other PPSs, specifically those used by states to make  Medicaid payments to nursing homes and those used in Medicare to pay  for home health, hospital outpatient, and skilled nursing home services.
section_title: Appendix III: Medicaid Payment Methodologies for FQHCs and RHCs, by State, as of June 1, 2004
paragraphs: pendix III: Medicaid Payment  thodologies for FQHCs and RHCs, by State,  f June 1, 2004  At the time of our survey, the state had not completed implementation of its BIPA PPS or alternative  methodology. As such, at least some FQHCs or RHCs were being paid an interim payment rate.
State does not have any RHCs.
Kentucky has the authority to use a payment methodology other than the BIPA PPS for paying  FQHCs and RHCs in the counties operating under the state’s 1115 waiver managed care program.
Under Utah’s 1115 waiver, the state has the authority to use a payment methodology other than the  BIPA PPS for paying FQHCs for beneficiaries enrolled in the state’s Primary Care Network program.  According to state officials, FQHCs are reimbursed on a fee-for-service basis for any services  provided to beneficiaries in this 1115 waiver program.
section_title: Appendix IV: Comments from the Centers for Medicare & Medicaid Services
section_title: Appendix V: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Acknowledgments
paragraphs: Major contributors included Michelle Rosenberg, Patricia Roy, Janice  Raynor, Elizabeth T. Morrison, and Daniel Ries.