Medicaid Demonstrations: Approval Criteria and Documentation Need to Show How Spending Furthers Medicaid Objectives
Released: 2015-05-13T00:00:00


Highlights: section_title: Why GAO Did This Study
paragraphs: Medicaid, an over $500 billion joint federal-state program, provides health care coverage to low-income individuals. Section 1115 of the Social Security Act authorizes the Secretary of HHS to waive certain Medicaid requirements and authorize expenditures not otherwise allowed for demonstration projects likely to promote Medicaid objectives. HHS has approved expenditure authorities to allow states to expand Medicaid coverage to populations not otherwise eligible, as well as for other purposes, such as funding for state programs.

GAO was asked to review approved expenditure authorities in recent section 1115 demonstrations. This report examines (1) expenditure authorities approved for purposes of Medicaid coverage, (2) expenditure authorities approved for purposes other than Medicaid coverage, and (3) the criteria HHS uses to determine whether expenditure authorities for purposes other than Medicaid coverage are likely to promote Medicaid's objectives and the documentation of the basis for its approvals. GAO reviewed approval documents for new, extended, or amended section 1115 demonstrations approved by HHS in all 25 states with approvals between June 2012 and October 2013, and interviewed HHS officials.

section_title: What GAO Found
paragraphs: Under Medicaid section 1115 demonstrations, the Department of Health and Human Services (HHS) authorized expenditures not otherwise allowed under Medicaid for a range of coverage-related purposes. HHS approved expenditure authorities to expand coverage to previously uncovered populations in most of the 25 states' demonstrations that GAO reviewed; however, it also modified existing expenditure authorities to end or limit coverage under states' demonstrations as new coverage became available in 2014 under the Patient Protection and Affordable Care Act (PPACA).

In the 25 reviewed states, HHS approved expenditure authorities for a broad range of purposes beyond Medicaid coverage. Two types of noncoverage-related expenditure authorities were significant in terms of approved spending amounts. In 5 states, HHS approved expenditure authorities allowing the states to spend $9.5 billion in Medicaid funding during their current demonstration approval periods (about 2 to 5 years) to support about 150 state programs that would not otherwise have been eligible for federal Medicaid funding. The state programs included those providing health services, insurance subsidies, and workforce training. They were operated or funded by a wide range of state agencies, such as state departments of mental health, aging, and developmental disabilities that may be receiving non-Medicaid federal grants and funds. HHS also approved expenditure authorities in 8 states allowing states to spend more than $26 billion during their current demonstration approval periods (about 15 months to over 5 years) for new types of supplemental payments to hospitals and other providers through capped funding pools for a range of purposes, which included payments to incentivize delivery system or infrastructure improvements.

Although section 1115 of the Social Security Act provides HHS with broad authority to approve expenditure authorities that, in the Secretary's judgment, are likely to promote Medicaid objectives, HHS has not issued specific criteria for making these determinations. Further, HHS's approval documents are not always clear as to what, precisely, approved expenditures are for and how they will promote Medicaid objectives. For example, HHS's approvals in three states authorizing the use of federal Medicaid funds for more than half of the state programs GAO reviewed lacked clear information on how the programs would promote Medicaid objectives, such as how they would benefit low-income populations. In addition, HHS's approvals authorizing funding pools for incentive payments did not always provide clear explanations of how payments to hospitals would promote Medicaid objectives. Finally, approval documentation for some but not all approvals provided assurances that Medicaid funds would not be used for purposes addressed by other federal funding streams. Without clear criteria for assessing how proposed expenditure authorities states are seeking will promote Medicaid objectives, and without clear documentation of the application of those criteria, the bases for HHS's decisions involving tens of billions of Medicaid dollars are not transparent to Congress, states, or the public.

In commenting on a draft of this report, HHS partially concurred with the recommendation on issuing criteria, listing the general criteria it uses. But GAO maintains that more-specific, written guidance is needed. HHS concurred with the recommendation on documentation.

section_title: What GAO Recommends
paragraphs: GAO recommends that HHS issue criteria for assessing whether expenditure authorities are likely to promote Medicaid objectives and document the use of these criteria in HHS's approvals of demonstrations.

section_title: Letter
paragraphs: Medicaid, a joint federal-state program that finances health care coverage  for low-income populations, covered an estimated 65 million beneficiaries  at an estimated cost of over $500 billion in fiscal year 2014. Under the  program, states claim federal matching funds for Medicaid expenditures  from the Department of Health and Human Services (HHS), which  oversees the program at the federal level. Section 1115 of the Social  Security Act authorizes the Secretary of Health and Human Services to  waive certain federal Medicaid requirements and allow costs that would  not otherwise be eligible for federal matching funds for experimental, pilot,  or demonstration projects that, in the Secretary’s judgment, are likely to  assist in promoting Medicaid objectives.approved in these section 1115 demonstrations allow states to receive   Expenditure authorities  federal funds for costs that would not otherwise be matchable under  Medicaid. The demonstrations, including their associated expenditure  authorities, provide a way for states to test and evaluate new approaches  for delivering Medicaid services. Section 1115 demonstrations account for  a significant and growing proportion of federal Medicaid expenditures. In  fiscal year 2014, section 1115 demonstrations accounted for close to one- third of total Medicaid expenditures.

Expenditure authorities approved in section 1115 demonstrations can  allow states to extend Medicaid coverage to populations or services that  would not otherwise be eligible under traditional Medicaid programs. For  example, an approved expenditure authority might allow a state to claim  federal matching funds for coverage of adults who would not otherwise  qualify under Medicaid eligibility criteria, or to alter the state’s Medicaid  benefit package for certain covered populations, for example, by covering  services that otherwise would not be eligible for federal matching funds.  Beyond expanding Medicaid coverage to populations or benefits not  covered under traditional Medicaid, HHS has also approved expenditure  authorities for a variety of other purposes. For example, we previously  reported on states that had obtained approval under their section 1115  demonstrations to claim federal matching funds for supplemental  payments made to providers to help cover their uncompensated care  costs.

We have had long-standing concerns with HHS’s policy, process, and  criteria for reviewing and approving Medicaid section 1115  demonstrations. These concerns have centered on HHS’s implementation  of its policy requiring that section 1115 demonstrations be budget-neutral  to the federal government, that is, that the federal government’s  expenditures under a state’s Medicaid program with a demonstration  should be no higher than they would have been without the  demonstration. The budget neutrality requirement applies to all costs  under the demonstration, including those permitted under expenditure  authorities. In several reports issued between 2002 and 2013, we  reported that by not following its own budget neutrality policy and not  providing clear support for its decisions to fund certain demonstrations,  HHS approved spending limits that were billions of dollars higher than  what the federal spending would have been if the states’ existing  Medicaid programs had continued. While the budget neutrality  requirement conceptually sets a limit on costs authorized under  expenditure authorities, our concerns about HHS’s ability to ensure that  demonstrations remain budget neutral provide reason to examine the  authorities approved.

Given the potential for increasing federal Medicaid spending through  Medicaid demonstrations, you asked us for information on the  expenditure authorities in demonstrations that HHS has recently  approved. For recently approved expenditure authorities in new,  amended, or extended demonstrations, this report examines   (1) expenditure authorities for purposes related to Medicaid coverage;   (2) expenditure authorities for purposes other than Medicaid coverage;  and (3) the criteria HHS uses to determine whether expenditure  authorities for purposes other than Medicaid coverage are likely to  promote Medicaid’s objectives and how the agency documents the basis  for its approvals.

To examine expenditure authorities approved for purposes related to  Medicaid coverage and other purposes, we reviewed new section 1115  demonstrations, as well as extensions or amendments to existing  demonstrations, approved by HHS from June 2012 through mid-October  2013, to ensure we captured the most recent approvals available at the  time we implemented our review. Specifically, using HHS’s online  database of approved section 1115 demonstrations, we identified a list of  demonstrations that included approved expenditure authorities and asked  HHS to confirm this list. We also asked HHS for information on any  additional demonstrations that the agency had approved within that time.  Through this process we identified 25 states that received approval for  new demonstrations, extensions of expiring demonstrations, or  amendments to ongoing demonstrations during our review period. For  each such approval, we examined the list of expenditure authorities and  the demonstration’s relevant special terms and conditions, which set forth  HHS’s conditions and limitations on the expenditure authorities. For new  and extended demonstrations, we included all expenditure authorities  listed in the demonstrations in our scope; for amendments to ongoing  demonstrations, we included any new or modified expenditure authorities  in our scope. We did not review any approvals issued prior to June  2012, even if they pertained to ongoing demonstrations. Once we  identified all the new and modified expenditure authorities approved by  HHS, we categorized them as either relating to Medicaid coverage, such  as those allowing states to cover new populations, or relating to other  purposes, such as those allowing states to receive federal matching funds  for state programs, that is, programs that were primarily funded by the  state before the demonstration. For the expenditure authorities that  allowed states to claim funds for state programs, we developed a list of  the specific state programs using information in the approval documents,  which HHS verified. We also identified any spending caps associated with  certain expenditure authorities to the extent that information was  available. To supplement our document review, we interviewed HHS  officials and obtained additional information and documentation as  needed, such as prior approval documents, to discern whether  expenditure authorities in our review were new or were extensions or  modifications of existing expenditure authorities.

To examine the criteria HHS uses to approve expenditure authorities for  purposes other than Medicaid coverage and how the agency documents  that the expenditures would likely further Medicaid program objectives,  we reviewed expenditure authorities and relevant special terms and  conditions for the demonstrations, interviewed HHS officials, and obtained  additional documentation from HHS to identify the criteria used for  approval and how the department documented that states’ 1115  demonstrations met such criteria. Our work focused on an analysis of  HHS’s approvals of demonstrations and did not examine the extent to  which states spent the funds that were approved.

We conducted this performance audit from August 2013 to April 2015 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: Each state administers its Medicaid program in accordance with its own  state plan, which must be reviewed and approved by HHS, and must  delineate, among other things, the groups of individuals to be covered,  services to be provided, and methodologies for providers to be  reimbursed. Within broad federal requirements, states have flexibility in  deciding which individuals to cover and the range of medical services to  provide in their Medicaid programs. For example, states generally must  cover certain “mandatory” populations and benefits, such as low-income  children and pregnant women and inpatient and outpatient hospital  services, but they also have the option of covering “optional” categories of  individuals and benefits such as children with higher family incomes.  Additionally, coverage of certain institutional services is mandatory under  Medicaid, while coverage of most home- and community-based services  (HCBS) is optional for states. States may also choose from different  delivery systems, such as fee-for-service or managed care.

Under Medicaid, states pay health care providers based on provider  claims for eligible services rendered to Medicaid beneficiaries. In addition  to payments for covered services, states often make Medicaid  supplemental payments to providers, which are typically lump sum  payments that are separate from and in addition to payments made to  providers using regular Medicaid payment rates. One type of  supplemental payment states may make to hospitals is Disproportionate  Share Hospital (DSH) payments. Congress created the DSH program to  help hospitals serving Medicaid and uninsured patients offset their  uncompensated care costs, within facility-specific and state-specific caps,  or limits. States may also make other supplemental payments under their  state plan, sometimes referred to as “Upper Payment Limit (UPL)  payments,” to providers such as hospitals and nursing homes. These  payments are based on the difference between the amount that Medicaid  paid for services using regular Medicaid payment rates and the UPL,  which is an estimate of what the federal Medicare program would pay for  similar services.supplemental Medicaid payments to providers under section 1115  demonstrations.
subsections: section_title: Section 1115 Demonstrations
paragraphs: If a state wishes to change its Medicaid program in ways that deviate  from certain federal requirements, it may seek to do so under the  authority of an approved demonstration, outside its state plan. For  example, section 1115 demonstrations can enable states to test new  approaches to beneficiaries’ health care delivery to generate savings or  efficiencies by expanding benefits to cover populations that would not  otherwise be eligible for Medicaid or altering the Medicaid benefit  package for categories of covered populations while still qualifying for  federal matching funds.demonstrations are often approved to expand Medicaid coverage, HHS  also allows states to make changes to their existing expenditure  authorities, which can include limiting or ending previously approved  coverage. To obtain approval under section 1115 of the Social Security  Act, a state’s demonstration must, in the Secretary’s judgment, be likely  to promote Medicaid objectives.

While the expenditure authorities included in the  States submit applications for section 1115 demonstrations to HHS for  review by a federal review team, led by HHS. consist of negotiations, including the exchange of questions and answers  between the review team and the state. If the demonstration is approved,  HHS issues an award letter to the state and an approval specifying the  Medicaid requirements that are being waived, the expenditure authorities  approved, and the special terms and conditions. The special terms and  conditions encompass the requirements for the demonstration, which  include the conditions and limitations on approved expenditure authorities  as well as specific reporting and evaluation requirements for the  demonstration period. HHS typically approves an 1115 demonstration for  an initial 5-year period that can be amended or extended. In general,  HHS can withdraw a state’s authority to claim federal funding for  expenditures in an 1115 demonstration under certain circumstances,  including if the agency determines that the demonstration no longer  promotes the objectives of the Medicaid program.

The review team includes representatives from the Office of Management and Budget,  other agencies within HHS as applicable, and HHS Secretarial Offices, including the  Assistant Secretary for Planning and Evaluation and the Assistant Secretary for Financial  Resources. were saving Medicaid funds through efficiencies under the demonstration,  such as by implementing managed care. Each approved demonstration  has a federal spending limit for purposes of determining budget neutrality.  As specified in the special terms and conditions for each demonstration,  yearly expenditure targets may be exceeded, but total spending over the  time period of the demonstration must be at or under the overall limit.

section_title: Effect of the Patient Protection and Affordable Care Act (PPACA) on Medicaid Coverage
paragraphs: For many years, section 1115 demonstrations offered the only avenue for  states to provide Medicaid coverage to childless adults, who were  generally ineligible under the program, but this changed with the  enactment of the Patient Protection and Affordable Care Act (PPACA) in  2010. PPACA brought significant changes to the Medicaid program,  including giving states the option to expand Medicaid eligibility to nearly  all adults with incomes at or below 133 percent of the Federal Poverty  Level (FPL), thus removing the program’s historic exclusion of childless  adults from Medicaid eligibility. States opting to cover newly eligible adults  qualified for enhanced federal matching funds beginning January 1,  2014.

In addition to providing states with the option to expand Medicaid, PPACA  also provided new income-based subsidies to make private health  insurance coverage more affordable for certain low- and moderate- income individuals. Specifically, PPACA required the establishment of  health insurance exchanges in each state, where, starting January 1,  2014, eligible individuals can purchase health insurance coverage from  participating plans. In addition, eligible individuals with low- and  moderate-household income may qualify for federal subsidies for   this coverage. Individuals with household income between 100 and   400 percent of the FPL may be eligible for federal premium tax credits  and individuals with household income between 100 and 250 percent of  the FPL may be eligible for cost-sharing reductions.

section_title: HHS’s Approvals Often Modified Existing Expenditure Authorities to Limit Medicaid Coverage under Demonstrations as a Result of PPACA’s New Coverage Options
paragraphs: Among the variety of coverage-related expenditure authorities approved  or modified by HHS during our review period, there were certain  prevailing themes. While HHS did approve some expenditure authorities  that extended coverage to new populations or for new benefits, HHS also  modified existing expenditure authorities in several states to end or limit  coverage of low-income adults or premium assistance payments under  states’ demonstrations, as new coverage options became available under  PPACA. In addition, in almost half of the states we reviewed, HHS  approved or modified expenditure authorities to provide HCBS to certain  populations or to provide full Medicaid coverage to populations already  receiving HCBS. (See app. I for coverage-related and other types of  expenditure authorities approved in all 25 states.)
subsections: section_title: HHS’s Recent Approvals in More Than Half the States Reviewed Served to Limit Coverage of Low- Income Adults and Payments for Premium Assistance under Demonstrations as New Coverage Options Became Available
paragraphs: In 20 of the 25 states we identified with recent approvals, HHS had  approved new or modified existing expenditure authorities for Medicaid  coverage, premium assistance, or both, for low-income adults; however,  often the approvals were to limit the duration of this coverage as new  coverage options became available under PPACA. Twelve of the 20  states had covered low-income adults not eligible for Medicaid prior to  2014 under demonstrations and then had opted to expand Medicaid  coverage to low-income individuals starting January 1, 2014, as allowed  under PPACA. In most of these 12 states, HHS modified states’ existing  expenditure authorities to end their coverage of low-income adults or  permitted them to allow this coverage to expire under their  demonstrations as of December 31, 2013; in 2 states HHS approved new  expenditure authorities allowing the states to start covering low-income  adults but just until the end of 2013. Beginning in 2014, some of these  populations would likely be covered under the states’ Medicaid plans.  Three of the states that limited coverage had not opted to expand   These  Medicaid, as allowed under PPACA, at the time of our review.states received approval to modify their expenditure authorities to end  Medicaid coverage for some individuals with incomes above 100 percent  of the FPL under their demonstrations as of December 31, 2013, at which  time these individuals could purchase coverage through the exchanges  and may also qualify for federal subsidies for this coverage. These states  were also approved to maintain coverage for certain individuals with  incomes up to 100 percent of the FPL, who would not be eligible for the  subsidies if they were to purchase coverage through the exchanges.

Similar to coverage of low-income adults, HHS approved expenditure  authorities for premium assistance in 7 of the 20 states during our review  period, which often limited the duration of coverage under states’  demonstrations as new coverage options were made available through  the exchanges.federal matching funds for different types of premium assistance  payments, including those for employer-sponsored insurance and for  individual private insurance—purchased either outside of or through the  exchanges. Some states had expenditure authorities approved for more  than one type of premium assistance. Appendix II provides information on  the premium assistance programs included in the 1115 demonstrations  we reviewed.

Under these approvals, the states were allowed to claim  Employer-sponsored insurance. Six of the seven states had existing  expenditure authorities for premium assistance for employer-sponsored  insurance, and during our review period, most received approval to  shorten the time frames for this coverage to coincide with the  implementation of the exchanges. For example, while Vermont’s  demonstration is effective until December 2016, the state was approved  to end premium assistance for employer-sponsored insurance on  December 31, 2013, for several different populations. Idaho received approval to offer premium assistance for individuals with incomes above  100 percent of the FPL through December 31, 2013, after which time  these individuals can purchase coverage through the exchange and may  be eligible for federal subsidies for this coverage if they meet certain  criteria. The state also received approval to provide premium assistance  through September 30, 2014, to individuals with lower incomes, who  would not be eligible for federal subsidies if they chose to purchase  coverage through the exchanges. In contrast, some states received  approval during our review period to extend or expand premium  assistance for employer-sponsored insurance. For example, in  September 2012, Utah—a state that had not expanded Medicaid as  provided for under PPACA at the time of our review—received approval  to expand income eligibility for its premium assistance program for  employer-sponsored insurance for nonelderly workers from at or below  150 percent to at or below 200 percent of the FPL.

Individual insurance. HHS also modified expenditure authorities for  premium assistance for private individual insurance coverage in three  states—Massachusetts, Oregon, and Vermont—in anticipation of new  coverage being available for purchase through the exchanges starting in  2014. For example, in Massachusetts and Vermont the duration of  premium assistance was modified for certain adults with higher  incomes—above 133 percent in Massachusetts and 150 percent FPL in  Vermont—to end December 31, 2013, after which time these individuals  could receive federal subsidies to purchase private insurance from the  exchanges.premium assistance for certain disabled adults outside of the exchanges  after December 31, 2013. In contrast to the three states that limited  premium assistance for individual insurance coverage, another state was  approved to expand coverage through premium assistance. Specifically,  HHS approved a new demonstration in Arkansas, which became the first  state to receive expenditure authority allowing federal Medicaid funds be   Massachusetts, however, did receive approval to provide  used to provide premium assistance to enable newly eligible beneficiaries  to purchase private insurance offered through the state’s exchange.

section_title: For Almost Half the States Reviewed, HHS Approved Expenditure Authorities Related to the Delivery of Home- and Community- Based Services
paragraphs: HHS approved expenditure authorities in 12 of the 25 states we  reviewed that allowed states either to target certain populations to  receive HCBS or to provide full Medicaid coverage to populations that  were eligible to receive HCBS through other Medicaid authorities. Some  of these states received approvals for both options. HCBS encompasses  a wide range of services to help individuals who have limited ability to  care for themselves—such as some elderly individuals, some individuals  with human immunodeficiency virus/ acquired immunodeficiency virus  (HIV/AIDS), and some individuals with disabilities—to remain in their  homes or live in a community setting instead of receiving these services  in an institution, such as a nursing facility. HHS officials noted that  states are increasingly seeking expenditure authority under their 1115  demonstrations to cover these types of long-term care services and  supports.

HHS approved expenditure authorities in 7 of the 12 states that allowed  the states to provide HCBS under their demonstrations to specific  populations. For example, Minnesota received approval to provide elderly  individuals who had incomes above the state’s Medicaid standards with  coverage of HCBS to prevent premature entry into nursing facilities and  prevent or delay the spending down of their resources to obtain Medicaid  eligibility.

HHS also approved expenditure authorities in 8 of the 12 states that  allowed the states to provide full Medicaid coverage under their  demonstrations to populations that, prior to the demonstration, were  eligible for HCBS. Within Medicaid, states may provide coverage of  HCBS through various Medicaid authorities, including through section  1915(c) waivers. Under 1915(c) waivers, states may provide coverage  of HCBS for a targeted population that would, if not for the services  provided under the waiver, require institutional care. Through expenditure  authorities approved in their 1115 demonstrations, the 8 states were  allowed to extend full Medicaid coverage to these populations. For  example, Delaware was approved to provide full Medicaid benefits for  elderly and disabled individuals and also children and adults with  HIV/AIDS, who were previously eligible for HCBS.

According to HHS officials, each state that has opted to cover HCBS  services or populations under 1115 demonstrations has done so a little  differently with respect to how the demonstration works in conjunction  with other Medicaid authorities the state may be using to cover HCBS.  For example, officials noted that some states have incorporated coverage  of all HCBS populations into their 1115 demonstrations, ending their  coverage under separate 1915(c) waivers, in order to administer the  program more easily. In another model, HHS approved one state— Kansas—to run its demonstration and 1915(c) waiver programs in parallel   HHS officials stated  even though they may cover the same populations. that they are encouraging states to consider this model because  maintaining 1915(c) waivers provides better assurances that states will  understand and comply with the quality assurance reporting, beneficiary  protection, and other requirements that specifically apply to the HCBS  populations through both types of authorities.

In Kansas, one of the main purposes was to enroll individuals eligible under 1915(c)  waivers into Medicaid managed care plans.

section_title: HHS Approved Expenditure Authorities for a Broad Range of Other Purposes, Including State Programs and New Types of Supplemental Payments
paragraphs: HHS approved expenditure authorities for a broad range of purposes  beyond Medicaid coverage in the states we reviewed. Among these, two  types allowed significant spending. HHS approved expenditure authorities  that allowed states to spend up to $9.5 billion in Medicaid funds for state  programs over the course of the demonstrations. HHS also approved  expenditure authorities that allowed states to make more than $26 billion  in new types of Medicaid supplemental payments to hospitals and other  providers through capped funding pools. (See app. III for information  about other noncoverage-related expenditure authorities approved by  HHS.)
subsections: section_title: HHS Approved New or Modified Existing Expenditure Authorities for $9.5 Billion in Medicaid Funding for More Than 150 State Programs
paragraphs: During our review period, HHS approved new, and extended or modified  existing expenditure authorities that allowed five states—California,  Massachusetts, New York, Oregon, and Vermont—to receive federal  matching funds for more than150 state-operated programs. These five  states were collectively approved to spend $9.5 billion in Medicaid funds  for these programs during their current demonstration approval periods,   Expenditure authorities for some of  which ranged from 2.5 to 5 years.these state programs were in place for longer periods, as demonstrations  were extended or amended. (See app. IV for information on the length of  time expenditure authorities for some state programs have been  continuously approved over the course of their demonstrations.) Prior to  being included in the demonstrations, these programs could have been  financed with state or non-Medicaid federal funding sources, or a  combination of these, such as state appropriations or non-Medicaid  federal grant funding. These state programs include those providing  outreach and treatment services for specific health conditions, insurance  subsidy programs, and workforce development programs, and were  operated or funded by a wide range of different state agencies, such as  state departments of mental health, public health, corrections, youth  services, developmental disabilities, aging, and state educational  institutions. The expenditure authorities provided federal funds to the  state agencies to support these state programs, but unlike coverage- related expenditure authorities they did not confer Medicaid beneficiary  status on the individuals served by the programs. To receive federal  matching funds, states must first allocate and spend state resources for  each health program. The federal matching funds received could replace  some of the state’s expenditures for the programs, freeing up state  funding for other purposes. For example, states could use the freed-up  state funding to invest in health care quality improvement efforts or health  reform initiatives or simply to address shortfalls in states’ budgets.

Massachusetts, New York, and Oregon received approval from HHS for  federal Medicaid funding for more than 40 state programs each, and  California and Vermont were approved for 17 state programs, collectively.  Each approval specifies a limit on the total amount of Medicaid funds  available in the aggregate for these programs and the time frame within  which these funds must be claimed. On average, states were approved  to spend nearly $2 billion (in combined federal and state funding) for state  programs for the entire demonstration approval period, which ranged from  2.5 to 5 years. See table 1 for information on the number of state  programs included in expenditure authorities approved or modified during  our review period.

The expenditure authorities approved by HHS during our review period  supported a broad range of state program costs that would not otherwise  have been eligible for federal Medicaid funding. While many of the  programs offered health-related services, the populations served may  have incomes too high to qualify for Medicaid. Among the many  categories of approved programs were those providing health-related  services; those providing support services, for example, to non-Medicaid- eligible individuals; those providing access to private insurance coverage  for targeted groups; and those funding workforce training programs.

Health-related services. Many of HHS’s approved expenditure  authorities in five states were for state programs offering a variety of  health-related services not necessarily targeted to the Medicaid  population. For example, these included programs for treatment of  prostate or breast cancer, treatment of alcohol dependency, and  immunizations and screenings for newborns across the state.

Support services. HHS approved expenditure authorities for at least  50 state programs in four states that provide support services to  families and individuals. These health programs coordinate care for  the elderly and persons with chronic mental illness, developmental  disabilities, and alcohol dependency, among other conditions, and  were not necessarily targeted to the Medicaid population. Additionally,  HHS approved funding for state programs providing respite care to  caregivers of children with special health care needs, community  services for individuals with head injuries, and short-term living  arrangements for homeless adolescents transitioning to residential  services.

Workforce training. HHS approved expenditure authorities for states  to use federal Medicaid funds for more than a dozen employment and  workforce training programs. States were approved to use federal  Medicaid funding for health care professionals’ training and loan  repayment, as well as for efforts to promote health care worker  recruitment and retention in hospitals and nursing homes.

Private insurance subsidies for private health coverage  purchased on exchanges. HHS also approved expenditure  authorities in two states—Massachusetts and Vermont—to spend up  to a combined $86 million in Medicaid funds for their state-funded  premium subsidy programs to provide additional assistance to  individuals purchasing private insurance coverage through their  states’ exchanges, effective January 1, 2014. Subsidies in these two  states are offered at eligibility levels corresponding with section 1115  demonstration expenditure authority coverage that existed in these  states’ demonstrations up through December 31, 2013. Individuals  eligible for this assistance are not Medicaid beneficiaries and instead  may qualify for premium tax credits and cost sharing reductions for  exchange-purchased coverage, as provided for under PPACA.  Because these federal subsidies may not cover the entire cost of  individuals’ coverage, Massachusetts and Vermont requested  expenditure authority to use Medicaid funding to provide additional  assistance to individuals to offset any premium costs for insurance  coverage purchased on the exchanges not covered through premium  tax credits.

section_title: HHS Approved New or Modified Existing Expenditure Authorities for More Than $26 Billion in New Types of Supplemental Payments to Hospitals through Funding Pools for Uncompensated Care and Incentive Payments for Delivery System Improvements
paragraphs: Another major type of noncoverage-related expenditure authority  approved by HHS in eight states during our review period was that which  allowed states to make new kinds of supplemental payments—that is,  payments in addition to base payments for covered services—to hospitals  and other providers. During our review period, HHS approved expenditure  authorities for pools of dedicated funds—called funding pools—amounting  to more than $26 billion over the course of the current approvals, which  ranged from 15 months to over 5 years. These expenditure authorities  were for flexible funding under funding pools, through which states were  authorized to make supplemental payments for uncompensated care or  for delivery system or infrastructure improvements. In addition, some  states had funding pools approved for other varied purposes, such as  graduate medical education. Demonstration funding pools are subject to  the limitations set forth in the demonstration’s special terms and  conditions, which may differ from those applicable to supplemental  payments made under state plans, such as Medicaid UPL and DSH  payments.
subsections: section_title: Funding Pools for Hospital Uncompensated Care Costs
paragraphs: During our review period, HHS approved expenditure authorities for  hospital uncompensated care funding pools in Hawaii, Kansas, Missouri,  New Mexico, and Tennessee, and modified an existing funding pool in  California. The six funding pools, which total about $7.6 billion in  approved spending, varied in amount and duration—from $37.5 million  over 15 months in Missouri to $4.0 billion over 5 years in California.  Payments were intended to cover providers’ uncompensated care costs  associated with both Medicaid and uninsured patients, similar to  supplemental payments under the DSH program (see table 2).

The expenditure authorities for uncompensated care pools generally  allowed states to claim federal matching funds for payments to hospitals  for inpatient and outpatient uncompensated care costs, as can be done  with DSH funds. In some cases, HHS also authorized uncompensated  care pools for broader uses, including for other services and provider  types. For example, the amendment to California’s demonstration  approved during our review period created a new category of payments  for Indian Health Service clinics and tribal providers in nonhospital  settings, which would not be permitted under DSH.

section_title: Funding Pools for Incentive Payments to Hospitals
paragraphs: During our review period, HHS approved new expenditure authorities for  funding pools to make incentive payments to promote health care delivery  system or infrastructure improvements in Kansas, New Jersey, and New  Mexico, and modified existing funding pools in California and Texas. The  five funding pools, which total nearly $18.8 billion in approved spending,  varied in amount—from $29.4 million in New Mexico to $11.4 billion in  Texas, generally over a 5-year period. These expenditure authorities  were for payments intended to incentivize hospitals, and in some cases  their partners, to make a variety of infrastructure and delivery system  improvements, such as lowering hospitals’ rates of adverse events or  incidence of disease, improving care for patients with certain conditions,  and increasing delivery system capacity. According to HHS officials,  payments from these pools are not related to the costs of the  improvements but rather are established by hospitals, with the state’s and  HHS’s approval, as the payments for achieving designated milestones.  The nature of the milestones depends on the project type. For example,  under New Jersey’s pool, called a Delivery System Reform Incentive  Payment (DSRIP) program, hospitals must complete projects designed to  improve health care quality, efficiency, or population health from a menu  of disease-specific focus areas, such as asthma, diabetes, and chemical   See table 3 for expenditure authorities for incentive payment  addiction.pools that were approved or modified by HHS during our review period.

HHS approved or modified expenditure authorities for other funding pools  for varied, and in some cases unspecified purposes. These included, for  example, $250 million for temporary “transition payments” to New Jersey  hospitals that previously received supplemental payments under New  Jersey’s Medicaid state plan to cover the gap between year 1 of the  demonstration and year 2, when the state’s incentive payment pool  was to begin. $175 million for additional supplemental payments to two public  hospitals in Tennessee, the purposes for which were not specified in  the approval, plus $125 million for graduate medical education. $2.9 million in Missouri to support one specialty provider’s overhead  costs, which per the special terms and conditions could include costs  associated with purchasing billing software, hardware for systems,  extended hours of operation, salaries, benefits and payroll taxes,  professional and contractual services, supplies, insurance, occupancy  costs, depreciation, and other miscellaneous costs.

See appendix V for total spending limits associated with the funding pools  of all 11 states that received new or modified expenditure authorities  related to funding pools (for any purpose) during our review period—that  is, total spending for all funding pools included in the demonstrations,  including for pools created prior to our review period.

section_title: HHS’s Criteria and Approval Documents Were Not Always Clear as to How Approved Expenditures Would Further Medicaid Objectives
paragraphs: Although section 1115 of the Social Security Act provides HHS with broad  authority to approve expenditure authorities that, in the Secretary’s  judgment, are likely to promote Medicaid objectives, HHS has not issued  specific criteria for making these determinations. Further, HHS’s approval  documents were not always clear as to what precisely approved  expenditures were for and how they would promote Medicaid objectives.  In addition, the approval documents did not always specify how states  were to avoid duplication with other federal funding received. In the  absence of clear criteria for approving expenditure authorities and clear  documentation of the application of those criteria, the bases for HHS’s  decisions—involving tens of billions of Medicaid dollars—are not  transparent to Congress, states, or the public.
subsections: section_title: HHS Has Not Issued Specific Criteria for Assessing Whether Expenditure Authorities for State Programs and Funding Pools Promote Medicaid Objectives
paragraphs: While section 1115 of the Social Security Act provides HHS with broad  authority in approving expenditure authorities for demonstrations that, in  the Secretary’s judgment, are likely to promote Medicaid objectives, HHS  officials said the agency has not issued explicit criteria explaining how it  assesses whether demonstration expenditures meet this broad statutory  requirement. Federal standards for internal control of an agency’s  operations stress that in addition to the need for effective internal  communications within an agency, management should also ensure there  are adequate means of communicating with, and obtaining information  from, external stakeholders that may have a significant impact on the  agency’s achieving its goals, such as states in the case of Medicaid  demonstrations. In our view, the criteria HHS uses for approving  expenditure authorities for state programs and funding pools would be  subject to such a communication requirement. However, HHS officials  informed us that the agency has not communicated specific criteria for  assessing these expenditure authorities. For example, HHS’s website  identifies different policy approaches that states may seek to test through  demonstrations—such as the use of innovative service delivery systems  to improve care, increase efficiency, and reduce costs—but does not  specify how HHS will evaluate states’ proposals to determine whether the  proposed demonstration expenditures are likely to promote Medicaid  objectives. In particular, HHS officials said that they have not issued  specific written criteria that by themselves would require HHS to approve  or disapprove expenditure authorities for specific state programs or  funding pools. HHS officials also told us that for a demonstration to be  approved, its goals and purposes must provide an important benefit to the  Medicaid program, but they did not provide more explicit criteria for  determining whether approved demonstration expenditures would provide  an important benefit or promote Medicaid objectives.

In the absence of explicit, written criteria, HHS officials described using  other approaches for assessing expenditure authorities for state  programs and funding pools for alignment with Medicaid objectives. HHS  officials said that HHS considers each proposed demonstration on its own  merits. Further, HHS officials said they consider how the programs or  pools relate to and are connected with overall Medicaid program  objectives and other aspects of the demonstration. In assessing  expenditure authorities for state programs previously funded by the  states, HHS officials said they consider two criteria. First, HHS considers  whether the proposal supports a compelling demonstration purpose.  Second, HHS considers how the proposed state programs are suitable  candidates for federal participation that align with the objectives of the  Medicaid statute. HHS officials said they have told states that HHS is less  open to approving Medicaid matching funds for state programs in certain  categories, such as prisons and corrections, bricks and mortar, and debt  relief or restructuring, although at least one state received approval for a  program that builds housing for the homeless. HHS officials said that  funding pools for uncompensated care must provide necessary support to  providers whose continued operation and participation are essential to the  delivery of health care to low-income populations. Officials also said that  funding pools for incentive payments are assessed in terms of the health  care quality improvement and system redesign objectives proposed, their  relevance to Medicaid beneficiaries, the inclusion of the most appropriate  providers, and whether the incentives are appropriate. In discussing why  HHS has not made these considerations public, HHS officials said that it  is not in the agency’s interest to issue guidelines that might limit its  flexibility in determining which demonstrations promote Medicaid  objectives. However, without such guidance, the rationale for the  agency’s approvals of expenditure authorities is not transparent.

section_title: Approval Documents Did Not Always Specify What Expenditures Were for and How They Would Promote Medicaid Objectives
paragraphs: Demonstration approval documents in the states we reviewed with  expenditure authorities for state programs or funding pools did not  consistently include information indicating what, specifically, the approved  expenditures were for and, therefore, how they would likely promote  Medicaid objectives. Federal standards for internal control provide that all  decisions, such as demonstration approvals, must be clearly documented  and such documentation should be promptly and accurately recorded and  available for review.

Among the five states with approved expenditure authorities for state  programs, two had approvals that included detailed information about the  programs—including program descriptions and target populations—in  what the agency refers to as “claiming protocols.” HHS officials explained  that claiming protocols for state programs outline the methods by which  the state will identify appropriate expenditures and other revenues  supporting the programs. HHS required the two states (California and  Oregon) to submit and receive approval for the claiming protocols as a  condition for claiming federal Medicaid matching funds. It included the  claiming protocols as attachments to the special terms and conditions of  the states’ approvals, which lay out the state’s obligations under the  demonstration. The information provided in the claiming protocols can  help explain how the programs may promote Medicaid objectives.  However, even when claiming protocols were included, HHS’s basis for  approving expenditure authorities for some state programs was not clear.  For example, one state received approval for an expenditure authority for  a state program that issues licenses and approves certifications of  hospitals and certain other providers in the state. The state’s claiming  protocol delineated the program’s mission and funding limits but did not  explicitly address how the program related to the purposes of the  demonstration or to Medicaid objectives.

The approvals for the other three states (Massachusetts, New York, and  Vermont), authorizing nearly half of the state programs in our review, did  not include claiming protocols for most state programs and otherwise  lacked clear information on how the state programs would promote  Medicaid objectives, such as how they would benefit low-income  populations. Several state programs approved for federal Medicaid  funds in these states appeared, on their face, to be only tangentially  related to improving health coverage for low-income individuals and  lacked documentation explaining how their approval was likely to promote  Medicaid objectives. For example, among the programs approved were a  program that funds insurance for fishermen and their families at a  reduced rate; a program that constructs supportive housing for the  homeless; and a program that recruits and aims to retain health care  workers. Overall, state programs that were approved for federal Medicaid  funds appeared to be wide ranging in nature. Table 4 shows the state  programs approved by HHS during our review period, which were  generally listed by program name in the special terms and conditions of  each state’s approval, but often without any further detailed information.

HHS officials stated that, beginning in 2012, the agency required all  states to develop claiming protocols for state programs with more-specific  information on their purposes. In its approval of amendments to New  York’s demonstration in 2013, HHS required the state to develop a  claiming protocol for 20 new state programs but did not require a claiming  protocol for any of the 26 existing state programs approved for continued  funding. Similarly, in its 2013 approval of amendments to  Massachusetts’s demonstration, HHS did not require the state to submit a  claiming protocol for 49 existing state programs. In the case of Vermont,  HHS officials said that a claiming protocol was not needed to support  funding for one program because it was modeled closely on a previously  approved demonstration program. HHS officials also said that during the  time of our review, they began requesting that states proposing that  Medicaid cover certain state programs under demonstration expenditure  authorities complete a spreadsheet tool that, among other things, helps to  identify and exclude the costs of services for which Medicaid should  already be paying.

As with approvals of expenditure authorities for state programs, HHS’s  approvals of expenditure authorities for funding pools also did not  consistently document how expenditures would likely promote Medicaid  objectives. The approvals of incentive payment funding pools we  reviewed (California, Kansas, New Jersey, New Mexico, and Texas)  established a structure for planning, reporting on, and getting paid for  general, system-wide improvements—for example, increasing primary  care capacity or lowering admission rates for certain diseases—but most  provided little or no detail on how the initiatives related to Medicaid  objectives, such as their potential impact on Medicaid beneficiaries or  low-income populations. One exception is New Mexico, which was  required to select outcome measures that reflected areas of high need for  Medicaid and uninsured patients. Further, the criteria for selecting  providers eligible to participate in incentive pools were not apparent in  most of the approvals we reviewed. HHS officials said that the hospitals  that are identified as eligible for incentive payments are those that are  expected to have the most impact on efficiency and quality of care for  Medicaid populations and that often the hospitals selected are those that  have historically received the most supplemental payments, which are  generally allocated to providers serving Medicaid populations. However,  such selection criteria were not apparent in HHS’s approvals, which listed  eligible providers but with no additional information about their role in  providing services to Medicaid populations. For example, none of the  terms and conditions for the five states’ demonstrations established a  minimum threshold of Medicaid or low-income patient volume as the  basis for participation; however, three states’ approvals (New Jersey,  New Mexico, and Texas) required that the payment allocations be  weighted in part on measures of Medicaid or low-income patient  workload.

section_title: Approval Documents Did Not Always Specify How States Were to Avoid Duplication with Other Sources of Federal Funding
paragraphs: HHS’s approvals also varied in the extent to which they provided  assurances that Medicaid funding approved for state programs would be  claimed appropriately and would not duplicate any other potential sources  of non-Medicaid federal funding. In two of the five states reviewed— California and Oregon—the claiming protocols attached to the terms and  conditions clearly identified all other federal and nonfederal funding  sources for each state program. These protocols also included specific  instructions on how the states should “offset” other revenues received by  the state programs related to eligible expenditures and how to determine  the appropriate federal match based on net expenditures exclusive of any   In  Medicaid beneficiaries receiving services through the same program.a third state, Massachusetts, HHS’s approval included a general program  integrity provision that required the state to have processes in place to  ensure that there would be no duplication of federal funding, but the state  was not required to develop a claiming protocol accounting for other  federal funding sources for its 49 state programs. Further, our review of  the expenditure authorities for state programs in two states—New York  and Vermont—found that the approvals for 25 state programs did not  require claiming protocols or otherwise lacked language expressly  prohibiting the states’ use of federal funding for the same purpose.  Combined, the state programs in Massachusetts, New York, and Vermont  accounted for 74 state programs approved for about $4 billion in total  spending. As previously discussed, HHS officials said they started using  claiming protocols after 2012; however, at the time of our review, these  practices were not applied to previously approved state programs. In  addition, in 2012, HHS established an optional application template to  assist states in the development of their section 1115 demonstration  proposals that included a financing form with instruction for states to  identify other federal funds used for the demonstration. The form notes  that this information will help HHS identify potential areas of duplicative  efforts.

Regarding funding pools for incentive payments, only one state’s terms  and conditions required the state (Kansas) to demonstrate that its funding  pool was not duplicating any other existing or future federal funding  streams for the same purpose, and two other state’s terms and conditions  (New Jersey, Texas) required hospitals to demonstrate that incentive  projects do not duplicate other HHS initiatives. Apart from including  explicit protections against duplication in the terms and conditions, HHS  officials said they ask providers to disclose other federal funding they may  be receiving or expect to receive that could represent duplicative funding  and that they also search federal funding databases to identify potentially  duplicative funding.

The extent to which approvals for uncompensated care pools included  protections against potential duplication of federal funds was somewhat  mixed. The approvals placed some limits on the overlap between  payments from the uncompensated care pool and the DSH program but  generally did not address all other federal sources of funding. In the five  approvals we reviewed with expenditure authorities for hospital  uncompensated care pools (California, Hawaii, Kansas, New Mexico,  Tennessee), HHS consistently included a requirement that when states  calculate their hospitals’ DSH payment limits, they include as offsetting  revenue payments received from the uncompensated care pool for  inpatient or outpatient services. In the aggregate, however, if states  establish uncompensated care pools under demonstrations alongside  their state DSH programs, total Medicaid uncompensated care spending  within a state—that is, DSH and uncompensated care pool payments  combined—could result in the use of section 1115 funds to fill  requirements already addressed by statewide DSH allotments. In two of  the six states we reviewed with uncompensated care pools (Hawaii and  Missouri), HHS imposed an overall limit on total uncompensated care  payments (pool payments plus DSH payments) equal to the statewide  DSH allotments authorized by Congress. In the other four states, HHS did  not impose such a limit, such that total payments for uncompensated care  could result in the use of section 1115 funds to fulfill a purpose otherwise  limited by statewide DSH allotments.

section_title: Conclusions
paragraphs: Section 1115 demonstrations account for a significant and growing  proportion of expenditures under the Medicaid program. Ensuring the  long-term sustainability of the program is important for the tens of millions  of low-income beneficiaries who depend on Medicaid to cover their  medical costs. Section 1115 Medicaid demonstrations provide a way for  states to test and evaluate new approaches for delivering Medicaid  services to beneficiaries. Under these demonstrations, the Secretary of  Health and Human Services has broad authority to waive certain  Medicaid requirements and approve expenditures for which states would  not otherwise be able to receive matching funds. In doing so, the  Secretary has responsibility for ensuring the prudent use of federal  Medicaid resources, including ensuring that Medicaid expenditures under  a demonstration will not significantly increase federal costs for Medicaid  above what they would have been without the demonstration. Given the  breadth of the Secretary’s authority under section 1115—the exercise of  which may result in billions of dollars of federal expenditures for costs not  otherwise allowed under Medicaid—explicit criteria are needed to  illuminate how HHS determines that new demonstration spending  promotes Medicaid objectives. Without explicit criteria, HHS’s decision- making will remain obscure to internal and external stakeholders,  including Congress, the states, and the public, and opportunities for  effective communication on this subject will remain elusive.

In addition, without documenting the basis for its approvals, HHS cannot  provide reasonable assurance that it is consistently applying its criteria for  determining whether demonstration expenditures promote Medicaid  objectives. Based on our review, some of the Secretary’s approvals of  1115 demonstrations included information that documented how new  expenditure authorities would promote Medicaid’s objectives, for  example, by including information on how the demonstration related to  health coverage for low-income populations. However, other approvals  did not. For example, some of the demonstrations were for programs  related to health care for the general population without an articulated link  to low-income individuals or only tangentially related to improving their  health coverage, while others were for funding pools for incentive  payments made for a broad array of infrastructure improvements and  other broad purposes. Given the amount of money involved and the  broad array of purposes for which expenditure authorities have been  approved, it is important that HHS document the basis for its decisions  that approved expenditure authorities are likely to promote Medicaid’s  objectives. Furthermore, demonstration approvals should document how  new federal Medicaid expenditures will be coordinated with other federal  funding streams available to states for the same or similar purposes to  avoid duplication.

section_title: Recommendations for Executive Action
paragraphs: To improve the transparency and accountability of HHS’s section 1115  Medicaid demonstration approval process, and to ensure that federal  Medicaid funds for the demonstrations do not duplicate other federal  funds, we are recommending that the Secretary of Health and Human  Services take three actions:  1.  Issue criteria for assessing whether section 1115 expenditure  authorities are likely to promote Medicaid objectives.  2.  Ensure the application of these criteria is documented in all HHS’s  approvals of section 1115 demonstrations, including those approving  new or extending or modifying existing expenditure authorities, to  inform internal and external stakeholders, including states, the public,  and Congress, of the basis for the agency’s determinations that  approved expenditure authorities are likely to promote Medicaid  objectives.  3.  Take steps to ensure that Medicaid demonstration approval  documentation consistently provides assurances—such as through  claiming protocols or the application template—that states will avoid  duplicative spending by offsetting as appropriate all other federal  revenues received when claiming federal Medicaid matching funds.

section_title: Agency Comments and Our Evaluation
paragraphs: We received written comments on a draft of this report from HHS, which  are reprinted in appendix VI. In its response, HHS partially concurred with  one of the recommendations and concurred with the other two  recommendations.

In responding to our recommendation that HHS issue criteria for  assessing whether section 1115 expenditure authorities are likely to  promote Medicaid objectives, HHS said that it partially concurred. HHS  said that all section 1115 demonstrations are reviewed against  “general criteria” to determine whether Medicaid objectives are met,  including whether the demonstration will (1) increase and strengthen  coverage of low-income individuals; (2) increase access to, stabilize,  and strengthen providers and provider networks available to serve  Medicaid and low-income populations; (3) improve health outcomes for  Medicaid and other low-income populations; and (4) increase the  efficiency and quality of care for Medicaid and other low-income  populations through initiatives to transform service delivery networks.  HHS also said that at times, it has issued what it considered to be  criteria for certain types of demonstrations, such as those focused on  substance-use delivery system reform or on services to individuals with  HIV, through an informational bulletin or State Medicaid Director’s  Letter. HHS committed to taking additional steps in the future to require  that demonstration approval documents more clearly articulate how  section 1115 authority is being used to help states address evolving  trends or needs in their Medicaid programs.

HHS’s response was silent, however, as to whether it planned to issue  written guidance on the general criteria noted in its response. Further, we  maintain that the general criteria are not sufficiently specific to allow a  clear understanding of what HHS considers to be approvable Medicaid  purposes. During the course of our review, HHS officials said that it is not  in the agency’s best interest to issue guidelines that might limit the  agency’s flexibility in determining which demonstrations promoted  Medicaid objectives. Based on HHS’s response to our recommendation,  we remain concerned that the agency has not altered its position. Even if  HHS were planning to issue the four criteria noted in its response, they  are no more specific than the broad policy approaches currently  described on HHS’s website and therefore would be insufficient to inform  stakeholders of the agency’s interpretation of its section 1115 authority.  For example, although each of HHS’s four general criteria relates to  serving low-income or Medicaid populations, HHS does not define low- income or what it means to serve these individuals. Several state  programs that were approved for Medicaid spending that we reviewed  appeared, on their face, to be only tangentially related to improving health  coverage for low-income individuals. Similarly, investments in broad  delivery system reforms that were approved for Medicaid spending would  seemingly benefit all patients served by these systems, not necessarily  only or mostly those with low incomes. Unless HHS issues written  guidance that more precisely explains how such demonstrations must  relate to serving low-income and Medicaid populations, the rationale for  the agency’s approvals of expenditure authorities that can amount to  billions of dollars in federal funding is not transparent.

HHS concurred with our other two recommendations, saying that it will   (1) ensure that all future section 1115 demonstration approval documents  (including those for new demonstrations, renewals, and amendments) will  identify how each approved expenditure authority promotes Medicaid  objectives, and (2) take steps to ensure that section 1115 demonstration  approval documentation for state programs, uncompensated care pools,  and incentive pools consistently provides assurances that states will  avoid duplication of federal spending. HHS also provided technical  comments, which we incorporated as appropriate.

As agreed with your offices, unless you publicly announce the contents of  the report earlier, we plan no further distribution until 30 days from the  report date. At that time, we will send copies of this report to the  Secretary of Health and Human Services and other interested parties. In  addition, the report is available at no charge on the GAO website at  http://www.gao.gov.

If you or your staff have any questions about this report, please contact  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 the report. GAO staff who made key contributions to this report  are listed in appendix VII.

section_title: Appendix I: Summary of Types of Expenditure Authorities Approved from June 2012 through October 2013
paragraphs: Table 5 summarizes Department of Health and Human Services (HHS)  approvals of expenditure authorities included in demonstrations approved  or modified between June 2012 and mid-October 2013. Approvals were  for new demonstrations, extensions of demonstrations due to expire, and  amendments that modified the expenditure authorities of ongoing  demonstrations. This information includes the type of approval(s)  received, the demonstrations’ names and approval periods, and the types  of approved expenditure authorities for coverage-related and non- coverage-related purposes. Expenditure authorities for coverage included  expansion to populations such as low-income adults, the addition of  benefits including home- and community-based services (HCBS), and  premium assistance used to purchase health insurance. Non-coverage- related expenditure authorities included funding for state programs,  funding pools, and other purposes.

Appendix I: Summary of Types of Expenditure Authorities Approved from June 2012 through October 2013 State  (Type of  approval  received during  review period)  Arkansas  (New)

X  Appendix I: Summary of Types of Expenditure Authorities Approved from June 2012 through October 2013 State  (Type of  approval  received during  review period)  Illinois  (New)

X  Appendix I: Summary of Types of Expenditure Authorities Approved from June 2012 through October 2013 State  (Type of  approval  received during  review period)  Missouri  (Extension)

Appendix I: Summary of Types of Expenditure Authorities Approved from June 2012 through October 2013 We identified several “other” expenditure authorities HHS approved during this period not related to other categories, including payments to managed care contractors that received certain  exceptions from otherwise applicable Medicaid requirements See app. III for more information on these “other” expenditure authorities.

The demonstration approval period shown is inclusive of the approval periods for two demonstrations. The approval period for New York’s Partnership Plan demonstration was August 1, 2011,  through December 31, 2014. The approval period for the state’s Federal State Health Reform Partnership demonstration was March 31, 2011, through March 31, 2014.

Table 6 below shows expenditure authorities approved or modified by the  Department of Health and Human Services (HHS) from June 2010  through mid-October 2013, allowing states to claim federal Medicaid  matching funds for premium assistance payments under their section  1115 demonstrations. The table includes expenditure authorities that  were newly approved, extended, or amended during this time period. (It  does not include any expenditure authorities for premium assistance that  may have been approved previously in these or other states and were in  effect during this time period.) The table provides information on the  effective dates of the expenditure authorities, the type of premium  assistance approved, and the populations covered.

section_title: Appendix III: Other Expenditure Authorities Approved for Managed Care Organizations and Various State Activities
paragraphs: In addition to expenditure authorities for state programs and funding pool  payments, the Department of Health and Human Services (HHS)  approved expenditure authorities under section 1115 of the Social  Security Act that provided federal Medicaid funds for a variety of other  non-coverage-related purposes. Specifically, HHS approved expenditure  authorities in several states to make payments to managed care  organizations (MCO) that received certain exceptions from otherwise   HHS also approved several  applicable Medicaid MCO requirements.expenditure authorities for states to claim federal matching funds for  specific state activities not related to MCOs.

42 U.S.C. § 11396u-2(a)(4)(A). that promote healthy behaviors earn credits that may be used for  approved health-related expenditures.

HHS also approved expenditure authorities for activities unrelated to  MCOs. For example, Oklahoma was approved to receive matching funds  for expenditures to embed health coaches within practices with a high  number of patients with chronic disease or at high risk for poor health  outcomes. Health coaches provide beneficiaries with a comprehensive  initial evaluation, plan of care, educational materials, referrals, and self- management support. Missouri received approval allowing the state to  continue to receive federal matching funds for expenditures incurred by a  regional health commission for administrative activities related to the  assessment of safety net benefits for the community.

section_title: Appendix IV: Duration of Expenditure Authorities for Some State Programs
paragraphs: The Department of Health and Human Services’ (HHS) approvals of  expenditure authorities for state programs previously financed by the  states have been longstanding in some cases, particularly in cases when  demonstrations were extended or amended. Table 7 shows the duration  of some of the demonstrations that received HHS approval to extend  expenditure authorities for state programs during our review period.

section_title: Appendix V: Total Funding Pool Spending Limits in Selected States
paragraphs: Table 8 summarizes the total funding pool spending limits for the 11  states that received approval from the Department of Health and Human  Services (HHS) for expenditure authorities for funding pools included in  demonstrations approved or modified during our review period, between  June 2012 and mid-October 2013. For states in our scope due to  modifications to ongoing funding pools, other funding pools may have  been in place. This table shows total approved spending limits for all  funding pools in those states’ demonstrations, including those that were  established before our review period. Funding pools were primarily for  uncompensated care costs and incentive payments to carry out delivery  system reform initiatives. Some states received approval for funding pools  for other purposes—for example, additional supplemental payments in  New Jersey and infrastructure payments for a specialty provider’s  overhead costs in Missouri.

section_title: Appendix VI: Comments from the Department of Health and Human Services

section_title: Appendix VII: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact

section_title: Staff Acknowledgments
paragraphs: In addition to the contact name above, Catina Bradley, Assistant Director;  Christine Davis; Anne Hopewell; Shirin Hormozi; Linda McIver;   Perry Parsons; Roseanne Price; and Hemi Tewarson made key  contributions to this report.


Question-summary annotations: questions: question: What occurred to the expenditures for Medicaid coverage?
answer: In the 25 reviewed states, HHS approved expenditure authorities for a broad range of purposes beyond Medicaid coverage.

question: What are the types of non-coverage related expenditures?
answer: Two types of noncoverage-related expenditure authorities were significant in terms of approved spending amounts.
child_questions: question: What are the state implications of the expenditures?
answer: In 5 states, HHS approved expenditure authorities allowing the states to spend $9.5 billion in Medicaid funding during their current demonstration approval periods (about 2 to 5 years) to support about 150 state programs that would not otherwise have been eligible for federal Medicaid funding.

question: How did the HHS approve spending expenditures?
answer: HHS also approved expenditure authorities in 8 states allowing states to spend more than $26 billion during their current demonstration approval periods (about 15 months to over 5 years) for new types of supplemental payments to hospitals and other providers through capped funding pools for a range of purposes, which included payments to incentivize delivery system or infrastructure improvements.

questions: question: What are the HHS's determinations on Medicaid objectives.
answer: Although section 1115 of the Social Security Act provides HHS with broad authority to approve expenditure authorities that, in the Secretary's judgment, are likely to promote Medicaid objectives, HHS has not issued specific criteria for making these determinations.

question: What are the issues of HHS's approval documents?
answer: Further, HHS's approval documents are not always clear as to what, precisely, approved expenditures are for and how they will promote Medicaid objectives.
child_questions: question: What is an example of this?
answer: For example, HHS's approvals in three states authorizing the use of federal Medicaid funds for more than half of the state programs GAO reviewed lacked clear information on how the programs would promote Medicaid objectives, such as how they would benefit low-income populations. In addition, HHS's approvals authorizing funding pools for incentive payments did not always provide clear explanations of how payments to hospitals would promote Medicaid objectives. Finally, approval documentation for some but not all approvals provided assurances that Medicaid funds would not be used for purposes addressed by other federal funding streams.

question: What are the issues of promoting Medicaid objectives?
answer: Without clear criteria for assessing how proposed expenditure authorities states are seeking will promote Medicaid objectives, and without clear documentation of the application of those criteria, the bases for HHS's decisions involving tens of billions of Medicaid dollars are not transparent to Congress, states, or the public.

questions: question: What is Medicaid?
answer: Medicaid, an over $500 billion joint federal-state program, provides health care coverage to low-income individuals.

question: What is section 1115 of the Social Security Act?
answer: Section 1115 of the Social Security Act authorizes the Secretary of HHS to waive certain Medicaid requirements and authorize expenditures not otherwise allowed for demonstration projects likely to promote Medicaid objectives.
child_questions: question: How has HHS changed to become more accommodating to other populations?
answer: HHS has approved expenditure authorities to allow states to expand Medicaid coverage to populations not otherwise eligible, as well as for other purposes, such as funding for state programs.

questions: question: What was GAO asked to review and for how many sections?
answer: GAO was asked to review approved expenditure authorities in recent section 1115 demonstrations.
child_questions: question: What are these reports?
answer: This report examines (1) expenditure authorities approved for purposes of Medicaid coverage, (2) expenditure authorities approved for purposes other than Medicaid coverage, and (3) the criteria HHS uses to determine whether expenditure authorities for purposes other than Medicaid coverage are likely to promote Medicaid's objectives and the documentation of the basis for its approvals.

question: What are the approvals for the new documents?
answer: GAO reviewed approval documents for new, extended, or amended section 1115 demonstrations approved by HHS in all 25 states with approvals between June 2012 and October 2013, and interviewed HHS officials.