Medicaid: States Reported Billions More in Supplemental Payments in Recent Years
Released: 2012-08-20T00:00:00


Highlights: section_title: Why GAO Did This Study
paragraphs: GAO designated Medicaid a high-risk program because of concerns about its size, growth, and inadequate fiscal oversight. The program cost the federal government and states an estimated $383 billion in fiscal year 2010. In addition to regular Medicaid payments to providers, states make supplemental payments, including DSH payments, which are intended to offset the uncompensated costs of care provided to uninsured individuals and Medicaid beneficiaries. States also make other supplemental payments, which we refer to as non-DSH supplemental payments, to hospitals and other providers, for example, to help offset the costs of care provided to Medicaid beneficiaries. GAO and others have raised concerns about the transparency of states’ Medicaid supplemental payments. GAO was asked to provide information on supplemental payments.

GAO examined (1) how much states reported paying in supplemental Medicaid payments during fiscal year 2010 and (2) how non-DSH supplemental payments reported during 2010 compared with those reported during 2006 and reasons for differences. GAO analyzed CMS’s Medicaid expenditure data for all states and information from CMS and other sources about non-DSH supplemental payments in a nongeneralizable sample of 11 states selected to capture a mix of relevant characteristics.

In its comments on a draft of GAO’s report, HHS stated that HHS and CMS will continue their ongoing efforts to improve states’ reporting of supplemental Medicaid payments.

section_title: What GAO Found
paragraphs: States reported $32 billion in Medicaid supplemental payments during fiscal year 2010, but the exact amount of supplemental payments is unknown because state reporting was incomplete. On expenditure reports used to obtain federal funds filed with the Department of Health and Human Services’ (HHS) Centers for Medicare & Medicaid Services (CMS), states reported the following:

A total of $17.6 billion in Disproportionate Share Hospital (DSH) payments. The 10 states reporting the largest total DSH payments in fiscal year 2010 accounted for more than 70 percent of the nationwide total, with 4 states— New York, California, Texas, and New Jersey—accounting for almost half (47 percent). DSH payments as a percentage of total Medicaid payments varied considerably—ranging from 1 to 17 percent—among the 50 states that reported DSH payments.

A total of $14.4 billion in non-DSH supplemental payments to hospitals and other providers. Because not all states reported these payments separately, complete information is not available. Like DSH payments, non-DSH supplemental payments as a percentage of total state Medicaid spending varied considerably—also ranging from 1 to 17 percent—among the 30 reporting states. These payments can also constitute a large portion of states’ expenditures for particular categories of services, such as inpatient or outpatient hospital, nursing facility, or physician and surgical services. For example, non-DSH supplemental payments for inpatient hospital services ranged from 1 to 48 percent of state expenditures for these services among reporting states.

CMS officials told GAO that they were taking steps to improve states’ reporting of non-DSH supplemental payments, including working with states to train staff on reporting of payments and on identifying and resolving reporting problems.

States’ reported non-DSH supplemental payments were more than $8 billion higher during 2010 than during 2006, the year for which GAO previously reported on the amount of these payments. More complete state reporting of payments and new and modified supplemental payments were factors in this increase. The information available to identify changes from 2006 to 2010 came from 39 states that separately reported non-DSH supplemental payments during either 2006 or 2010 or both. Most of the increase was from the 15 states that reported some payments in both years and reported higher non-DSH supplemental payments during 2010 than 2006. In addition, most of the reported increase was for inpatient hospital services. In 11 selected states, GAO found that new and modified supplemental payments contributed to some increases. For example, new and modified supplemental payments for hospital services in Colorado and Illinois are estimated to increase the states’ non-DSH supplemental payments by about $300 million and $1 billion per year, respectively. However, data limitations prevented GAO from quantifying the full extent to which the increase was attributable to new and modified payments. In light of the apparent increase in non-DSH supplemental payments, ongoing federal efforts to improve the completeness of reporting are important for effective oversight and to better understand the payments’ role in financing Medicaid services.

section_title: Letter
paragraphs: In 2003, GAO designated Medicaid—the federal-state program that  finances health care for certain low-income individuals—as a high-risk  program because of growing concern about its size, growth, and  inadequate fiscal oversight, including federal oversight of supplemental  payments. Supplemental payments are separate from and in addition to  payments made at a state’s regular Medicaid rates. The federal  government and states share in the cost of Medicaid, which in fiscal year  2010 totaled about $383 billion. As the program continues to grow in cost  and significance, policymakers and others need better information to  manage the program, including information about the amount and  purposes of Medicaid provider payments. GAO has found that this  includes a need for information about supplemental payments, which  have contributed to Medicaid cost growth in the past.

Medicaid financing is a joint responsibility of the federal government and  states. States pay qualified health care providers for covered services  provided to Medicaid beneficiaries, and then seek reimbursement for the  federal share of those payments. Under the Social Security Act, state  Medicaid payments are required to be consistent with efficiency,  economy, and quality of care and sufficient to enlist an adequate number  of providers. The federal government oversees states’ Medicaid programs  and, by a formula established in law, pays from half to more than  three-fourths of each state’s allowable Medicaid expenditures.

In this report, we use the term state to refer to the 50 states and the District of Columbia.  We do not include Puerto Rico or the U.S. territories of American Samoa, Guam, the  Northern Mariana Islands, or the U.S. Virgin Islands (which have Medicaid programs)  because they did not report supplemental Medicaid payments in 2010.

Medicaid beneficiaries through an automated claims process, these  non-DSH supplemental payments are not necessarily made on the  basis of claims submitted for the delivery of specific services to  particular patients. States have made non-DSH payments to  hospitals, nursing homes, physician groups, and other Medicaid  providers.non-DSH supplemental payments, and payments are not subject to  overall state spending or provider-specific limits.

Unlike DSH payments, states are not required to make  For more than a decade, we and others have reported concerns with the  oversight and transparency of states’ financing arrangements involving  supplemental payments. Our past work had found that the Centers for  Medicare & Medicaid Services (CMS)—the agency within the Department  of Health and Human Services (HHS) with oversight responsibility for  Medicaid—lacked information on the billions of dollars spent on  supplemental payments, including the magnitude of payments, how  individual states were calculating payment amounts, the providers that  received the payments, and the purposes for which they were received.  States have flexibility for making such payments, which could greatly  affect the total Medicaid payments that individual providers receive. To  the extent that some providers receive a substantial proportion of their  Medicaid payments as supplemental payments that are not directly linked  to services or costs, it becomes difficult to compare payment levels  across providers or to evaluate the impact of Medicaid payment policies.

GAO-08-614.

DSH payments has not been clear. Beginning in fiscal year 2010, CMS  implemented new expenditure reporting procedures under which states  were to report certain non-DSH supplemental payments separately from  their regular payments.

Given the lack of transparency of states’ supplemental Medicaid  payments, members of Congress and others have expressed interest in  them. You asked for information regarding how much states reported  spending on supplemental payments, including changes in reported  payments since 2006, the year for which GAO had previously reported on  these payments, and oversight of supplemental payments. This report  addresses the following questions:  1.  How much did states report paying in supplemental Medicaid  payments during fiscal year 2010?  2.  How did non-DSH supplemental payments reported during 2010  compare with those payments reported during 2006, and what were  reasons for differences?

To determine how much states reported paying for supplemental  Medicaid payments during 2010, we analyzed Medicaid expenditure data  that CMS had finalized for federal fiscal year 2010. These are data that  states reported to CMS during fiscal year 2010 using a standardized form,  the CMS-64, to claim federal matching funds. To understand Medicaid  supplemental payments and processes for reporting these payments, we  reviewed relevant federal laws, regulations, and guidance and  interviewed CMS officials. We examined the amount of DSH and  non-DSH supplemental payments reported by individual states and the  nationwide totals, and we analyzed the amounts reported for different  categories of service. In addition, to better understand the contribution of  supplemental payments to state Medicaid spending, we examined the  share of state spending attributed to supplemental payments.

To determine how non-DSH supplemental payments reported during  2010 compared with those payments reported during 2006, we analyzed  2006 and 2010 expenditures for non-DSH supplemental payments that  states reported to CMS separately from their other payments. To  examine reasons for differences between 2006 and 2010 in reported  non-DSH supplemental payments, and to obtain additional information  about states’ reports of these payments, we obtained information from  CMS and public sources about non-DSH supplemental payments in a  judgmental sample of 11 states selected to include a mix of relevant  characteristics. Our selections included some states that separately  reported such payments in only 1 of the 2 years, and states that differed  in absolute and relative changes in reported non-DSH supplemental  payments and changes in categories of payment. The information we  used to select states included published information, as well as  preliminary information from CMS. For each of these states, we  examined information that could help explain net changes from 2006 to  2010 in the state’s reported non-DSH supplemental payment amounts,  such as establishment of new non-DSH supplemental payments,  modification of existing non-DSH supplemental payments, or a change in  reporting that would result in an increase or decrease in the state’s  reported payments. The information we reviewed included information  that states submitted to CMS prior to changing their supplemental  payments. When this information indicated that a supplemental payment  had been established, modified, or terminated, we examined  documentation of how much the state’s payments were expected to  change as a result. Information from these states cannot be generalized  to other states. A more detailed description of our scope and  methodology can be found in appendix I.

To assess the reliability of the data on supplemental Medicaid payments  reported to CMS by the states in 2006 and 2010, we reviewed the  procedures CMS used to obtain and compile the data and discussed the  data with CMS officials. We determined that the data were sufficiently  reliable to describe the amounts of supplemental payments that were  reported separately by states during 2006 and 2010. Because some  states did not separately report all of their non-DSH supplemental  payments during 2006 or 2010, our analysis only captures changes in  non-DSH supplemental payments that were separately reported.  Information is not available that would have allowed us to quantify the  extent to which states did not separately report these supplemental  payments. Therefore, we may not be capturing the full amount of states’  supplemental payments or the degree to which they have changed over  time. We did not examine whether changes in non-DSH supplemental  payments were associated with changes in states’ regular Medicaid  payments.

We conducted this performance audit from November 2011 to July 2012  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: Title XIX of the Social Security Act established Medicaid as a  federal-state partnership that finances health care for low-income  individuals, including children, families, the aged, and the disabled.  Medicaid is an open-ended entitlement program and provided health  coverage for an estimated 53.9 million individuals in 2010.federal requirements, each state administers and operates its Medicaid   Within broad  program in accordance with a state Medicaid plan, which must be  approved by CMS. A state Medicaid plan details the populations that are  served, the categories of services that are covered (such as inpatient  hospital services, nursing facility services, and physician services), and  the methods for calculating payments to providers. The state Medicaid  plan also describes the supplemental payments established by the state  and specifies which providers are eligible to receive supplemental  payments and what categories of service are covered. Any changes a  state wishes to make in its Medicaid plan, such as establishing new  payments or changing methods for developing provider payment rates,  must be submitted to CMS for review and approval as a state plan  amendment. States may also receive approval from CMS for a waiver  from certain Medicaid requirements in order to conduct a Medicaid  demonstration, and these demonstrations may include supplemental  payments. These demonstrations allow states to test new approaches to  deliver or pay for health services through Medicaid. Under certain  demonstrations, a state may cover populations or services that would not  otherwise be eligible for federal Medicaid funding under federal rules.  Some states, including California and Massachusetts, have also in recent  years been allowed to make supplemental payments under Medicaid  demonstrations. The terms and conditions governing such  demonstrations are specific to each demonstration.

All states make supplemental Medicaid payments to certain providers.  DSH payments are made to hospitals and cannot exceed the  unreimbursed cost of furnishing inpatient and outpatient services to  Medicaid beneficiaries and the uninsured. Non-DSH supplemental  payments can be made to hospitals or other providers (such as nursing  homes or groups of physicians) for any category of service provided on a  fee-for-service basis. For example, a state might make non-DSH  supplemental payments on a quarterly basis to county-owned nursing  facilities that serve low-income populations to fill the gap between what  regular Medicaid rates pay toward the cost of services and higher  payments permitted through the UPL. Supplemental payments are  typically made for services provided on a fee-for-service basis, rather  than those provided through Medicaid managed care contracts.

Non-DSH supplemental payments need to be approved by CMS.

To obtain the federal matching funds for Medicaid payments made to  providers, each state files a quarterly expenditure report to CMS—the  CMS-64. This form compiles state payments in over 20 categories of  medical services, such as inpatient hospital services and outpatient  hospital services. States are required to report total DSH payments made  to hospitals and mental health facilities separately from other Medicaid  payments in order to receive reimbursement for them. From 2001 through  2009, when completing the CMS-64 to obtain federal matching funds for  non-DSH supplemental payments, states combined their non-DSH  supplemental payments with their regular payments—those made using  states’ regular Medicaid payment rates. During this period, CMS  requested that states report their non-DSH supplemental payments in a  separate informational section of the CMS-64 that was not the basis for  states receipt of federal matching funds. Instead, states received federal  matching funds based on their reports of expenditure totals that included  both regular and non-DSH supplemental payments. In 2008, we found  that states reported making $6.3 billion in non-DSH supplemental  payments during fiscal year 2006, but that not all states reported their  non-DSH supplemental payments separately from other expenditures of   Starting with the first quarter of fiscal year 2010, CMS’s  the same type.new reporting procedures requested that states report certain non-DSH  supplemental payments separately from their regular payments on the  section of the CMS-64 used to claim federal matching funds.CMS continues to provide federal matching funds to states that report  these payments in combination with regular payments on this form.

section_title: States Reported $32 Billion in Supplemental Medicaid Payments during Fiscal Year 2010, but the Exact Amount of Supplemental Payments Is Unknown
paragraphs: The data CMS finalized for fiscal year 2010 show that states and the  federal government spent at least $32 billion for DSH and non-DSH  supplemental payments during fiscal year 2010, with the federal share of  these payments totaling at least $19.8 billion. States reported $17.6 billion  in DSH payments and $14.4 billion in non-DSH supplemental payments  during fiscal year 2010, but state reporting of non-DSH supplemental  payments separately from regular payments was incomplete, so the exact  amount of non-DSH supplemental payments is unknown.
subsections: section_title: States Reported $17.6 Billion in DSH Payments during Fiscal Year 2010
paragraphs: States reported $17.6 billion in DSH payments during fiscal year 2010,  with the federal government reimbursing states $9.9 billion for its share of  these payments. Fifty of the 51 states reported making DSH payments  during fiscal year 2010, with total reported payments ranging from about  $650,000 for South Dakota to over $3.1 billion for New York.10 states reporting the largest total DSH payments in fiscal year 2010   The   accounted for more than 70 percent of the $17.6 billion nationwide total,  and the 4 states with the largest total DSH payments—New York,  California, Texas, and New Jersey—accounted for almost half   (47 percent) of the nationwide total.

In assessing the contribution of DSH payments to each state’s overall  spending, we found that DSH payments as a percentage of states’  reported Medicaid payments varied considerably among the states.  Among states that reported DSH payments, the percentage ranged from  less than 1 percent (Arizona, Delaware, North Dakota, South Dakota,  Wisconsin, and Wyoming) to 17 percent (New Hampshire). Figure 1  provides information on the amount of each state’s DSH payments and  each state’s DSH payments as a percentage of its total Medicaid  expenditures. (App. II lists each state’s reported DSH payments during  fiscal year 2010, the federal share of those payments, the state’s total  Medicaid payments, and each state’s total reported DSH payment as a  percentage of the state’s total Medicaid payments and of total nationwide  DSH payments.)

The majority of DSH payments were to hospitals for traditional inpatient  and outpatient services. During fiscal year 2010, 83 percent of the  nationwide total of reported DSH payments ($14.7 billion) was paid to  hospitals for traditional inpatient and outpatient services and 17 percent of  the total ($2.9 billion) was paid to mental health facilities for inpatient and  outpatient mental health services.

section_title: States Reported $14.4 Billion in Non-DSH Supplemental Payments during Fiscal Year 2010, but the Exact Amount of These Payments Is Not Known
paragraphs: During fiscal year 2010, states separately reported making $14.4 billion in  non-DSH supplemental payments (of which the federal share was   $9.9 billion), primarily for inpatient hospital services.states were to report non-DSH supplemental payments on the CMS-64  separately from their regular payments for six categories of service. Thirty  states separately reported non-DSH payments during fiscal year 2010,  with reported payments ranging from $125,000 for Vermont to $3.1 billion  for Texas.

In assessing the contribution of non-DSH supplemental payments to each  state’s overall spending, we found that non-DSH supplemental payments  as a percentage of states’ Medicaid spending also varied considerably  across the 30 states that separately reported these payments, ranging  from 1 percent for Vermont to over 17 percent for Illinois. Figure 2  provides information on the amount of each state’s non-DSH  supplemental payments and each state’s non-DSH supplemental  payments as a percentage of its total Medicaid expenditures. (App. II lists  each state’s reported non-DSH supplemental payments during fiscal year  2010, the federal share of those payments, the state’s total Medicaid  payments, and each state’s total reported non-DSH supplemental  payments as a percentage of the state’s total Medicaid payments and of  total nationwide non-DSH supplemental payments.)

Of the six categories of service for which states reported making  non-DSH supplemental payments, states reported the largest amount of  payments for inpatient hospital services. States reported $11 billion in  non-DSH supplemental payments for inpatient services (with a federal  share of $7.7 billion). States reported $1.8 billion in non-DSH  supplemental payments for outpatient services (with a federal share of  $1.15 billion). (See fig. 3.)

The proportion of a state’s reported expenditures that were non-DSH  supplemental payments varied across states and categories of service. In  some states, non-DSH supplemental payments represented very little of  the state’s reported expenditures for a category of service, while in other  states, non-DSH supplemental payments represented more than  one-third of the state’s reported expenditures for a category of service.  For example,

27 states separately reported non-DSH supplemental payments for  inpatient hospital services, and the percentage of their expenditures  for inpatient hospital services that were non-DSH supplemental  payments ranged from less than 1 percent (Virginia and Washington)  to 48 percent (Tennessee);

13 states separately reported non-DSH supplemental payments for  outpatient hospital services, and the percentage of their expenditures  for outpatient hospital services that were non-DSH supplemental  payments ranged from less than 1 percent (Texas) to 57 percent  (Illinois); and

16 states separately reported non-DSH supplemental payments for  physician and surgical services, and the percentage of their  expenditures for physician and surgical hospital services that were  non-DSH supplemental payments ranged from less than 1 percent  (Oklahoma) to 34 percent (West Virginia).

See appendix II for more information about each state’s reported total and  non-DSH supplemental payments for inpatient hospital services,  outpatient hospital services, nursing facility services, physician and  surgical services, other practitioners’ services, and intermediate care  facility services.

The exact amount of non-DSH supplemental payments nationwide is  unknown, in part because not all states that made non-DSH supplemental  payments in 2010 reported them on the CMS-64 separately from regular  payments, and some states separately reported some but not all of their  non-DSH supplemental payments. For example, Georgia reported $0 for  non-DSH supplemental payments during fiscal year 2010, but according  to CMS, it made non-DSH supplemental payments of $120.6 million for  nursing home services during 2010.

CMS officials told us that they are aware that some states did not  separately report all of their non-DSH supplemental payments. Officials  stated that they have taken, and are taking, steps to improve states’  reporting of non-DSH supplemental payments for the six categories of  service. They told us that after revising the form CMS-64 to include lines  for separate reporting of certain non-DSH supplemental payments, they  monitored states’ reports of these payments and, as a result, they learned  that some states had not reported these payments separately. They then  took steps to improve states’ reporting of these payments, for example,  by training state staff in the use of the revised form CMS-64 and asking  regional CMS staff to work with states to identify and resolve reporting  problems. CMS officials also noted, however, that some states  encountered technical difficulties with their state databases. For example,  CMS officials told us that the data systems used by some states in 2010  did not permit them to separate the non-DSH supplemental payments  from their regular payments. CMS officials confirmed that states did not  separately report all non-DSH supplemental payments in 2010 and  acknowledged that CMS cannot definitively determine the extent to which  reporting is incomplete.

section_title: Reported Non-DSH Supplemental Payments Were over $8 Billion Higher during 2010 Than during 2006, and New and Modified Supplemental Payments Were a Factor in the Increase
paragraphs: The 39 states that separately reported non-DSH supplemental payments  during either 2006 or 2010 (or both) reported an increase of $8.1 billion in  non-DSH supplemental payments during this period. Most of this  increase was from 15 states that reported during both years, and most of  the reported increase was for inpatient hospital services. However,  because of the potential for underreporting of supplemental payments for  one or both years, the extent of the actual increase and the contributing  factors cannot be quantified. Our examination of information from CMS  and from public sources about changes in 11 judgmentally selected  states indicates that some states were making new and modified  non-DSH supplemental payments during this period, contributing to the  reported increase. Changes in reporting also contributed to the increase.
subsections: section_title: States Reported $8.1 Billion More in Non-DSH Supplemental Payments during 2010 Than during 2006
paragraphs: The 39 states that separately reported non-DSH supplemental payments  during either 2006 or 2010, or during both years, together reported   $8.1 billion more in non-DSH supplemental payments during 2010 than  2006. Nineteen states separately reported some non-DSH supplemental  payments during both years, with 15 of those states reporting more for  these payments during 2010 and 4 of those states reporting less for these  payments during 2010. Eleven states reported non-DSH supplemental  payments separately only during 2010, and 9 states reported non-DSH  supplemental payments separately only during 2006. (See fig. 4 and   table 1.) Most of the $8.1 billion increase was from the 15 states that  separately reported non-DSH supplemental payments during both years,  with higher non-DSH supplemental payments reported during 2010. The  increase in these states ranged from $1 million (Washington) to   $2.3 billion (Texas). For the 4 states that separately reported lower  non-DSH supplemental payments during 2010, the decrease ranged   from $12 million (Oklahoma) to $608 million (North Carolina).

The largest change in non-DSH supplemental payments separately  reported during 2006 and 2010 was for inpatient hospital services. The  net increase in these separately reported payments was $6.3 billion, and  the number of states that separately reported non-DSH supplemental  payments for inpatient hospital services increased from 23 during 2006 to  27 during 2010. (App. III lists the amounts each state reported separately  for non-DSH supplemental payments during 2006 and 2010 and the  categories of service for which they reported these payments.)

Because of the potential underreporting of non-DSH supplemental  payments during one or both of the years examined, the extent of the  actual increase cannot be quantified. On the basis of some reports,  Medicaid spending on hospital services is increasing, and growth in  non-DSH supplemental payments has been cited as a contributing factor.  A January 2012 article on the growth in U.S. health spending found that  while overall Medicaid spending growth slowed in 2010, Medicaid  spending growth on hospital services increased in 2010 compared to  2009. The researchers attributed the growth in Medicaid spending for  hospital services, in part, to a large amount of non-DSH supplemental  payments reported during the last quarter of calendar year 2010. A March  2012 report by the Medicaid and CHIP Payment and Access Commission  found that states reported over $23 billion in non-DSH supplemental  payments for hospital services during 2011.

section_title: New and Modified Supplemental Payments Contributed to Increases in Reported Payments
paragraphs: Information from CMS and from public sources about changes in 11  judgmentally selected states suggests that some increases from 2006 to  2010 in reported non-DSH supplemental payments were due to increases  in payments states made after establishing new non-DSH supplemental  payments or increasing their existing non-DSH supplemental payments.  The available information suggests that changes to existing payments  also resulted in some decreases from 2006 to 2010 in reported non-DSH  supplemental payments, including, for example, when states terminated  non-DSH supplemental payments.

In recent years, states have submitted and received approval to  implement new non-DSH supplemental payments, according to CMS  officials. Available information, maintained by CMS and derived from state  Medicaid plans from 11 selected states, indicates that new or modified  supplemental payments made by states contributed to increased  non-DSH supplemental payments. For example:  Illinois reported $1.4 billion more for non-DSH supplemental payments  for inpatient hospital services during 2010 than during 2006. From  2006 through 2010, Illinois established new non-DSH supplemental  payments for inpatient hospital services and also modified several  existing payments for these services. Taken together, these new and  modified payments were estimated to result in an increase in Illinois’s  supplemental payments for inpatient services by about $1.2 billion  during fiscal year 2010.

Colorado reported $411 million more for non-DSH supplemental  payments for inpatient and outpatient hospital services during 2010  than during 2006. Colorado established a set of new non-DSH  supplemental payments for inpatient and outpatient hospital services.  These supplemental payments were to a variety of hospital types,  including rural hospitals, hospitals with neonatal intensive care units,  and state teaching hospitals. Effective on July 1, 2009, these new  payments were estimated to result in an increase in payments of  about $300 million during fiscal year 2010.

Arkansas reported $173 million more for non-DSH supplemental  payments for inpatient hospital services during 2010 than during  2006. Arkansas made new non-DSH supplemental payments for  inpatient hospital services provided by private hospitals, and it also  modified existing non-DSH supplemental payments for inpatient  hospital services. Arkansas’s new supplemental payments, effective  July 1, 2009, were estimated to increase the state’s supplemental  payments for inpatient services by about $110 million during fiscal  year 2010.

South Carolina reported $39 million for non-DSH supplemental  payments for nursing facility services during 2010, but did not report  making such payments during 2006. South Carolina had suspended  certain non-DSH supplemental payments for nursing facility services  prior to fiscal year 2006, but it reinstated these payments, effective on  October 1, 2008, with a slight change to payment qualification criteria.  Reinstating these payments was estimated to increase payments by  about $25 million during fiscal year 2010.

According to the available information about changes in these 11  judgmentally selected states, some states’ non-DSH supplemental  payments decreased from 2006 to 2010 because they terminated  supplemental payments or made changes to their Medicaid programs that  reduced supplemental payments. For example:

North Carolina reported $607 million less in non-DSH supplemental  payments for inpatient and outpatient hospital services in 2010 than in  2006. According to CMS, North Carolina discontinued making  non-DSH supplemental payments to non-state government hospitals,  effective on October 1, 2006. Discontinuation of these payments for  inpatient and outpatient hospitals would have resulted in a reduction  in payments.

Georgia reported $221 million less in non-DSH supplemental  payments for inpatient and outpatient hospital services in 2010 than in  2006. Georgia implemented a managed care program in 2007, and  according to CMS, the state estimated that its supplemental payments  (which generally can only be made for services provided on a  fee-for-service basis) were reduced by more than $100 million per  year as a result.

Missouri reported paying $70 million in non-DSH supplemental  payments for inpatient hospital services during 2006 and did not  report making such payments during fiscal year 2010. According to  CMS, the state reported that it did not make non-DSH supplemental  payments for inpatient services during fiscal year 2010 because the  State General Assembly did not approve funding for such payments.

section_title: Changes in State Reporting Also Contributed to Differences in Reported Supplemental Payments
paragraphs: Changes in state reporting of non-DSH supplemental payments also  contributed to differences in amounts between 2006 and 2010. In some  cases, an apparent increase in non-DSH supplemental payments was  due, at least in part, to more complete reporting of non-DSH  supplemental payments in 2010 than in 2006. For example:

Pennsylvania reported $0 for non-DSH supplemental payments during  2006 and $410 million for non-DSH supplemental payments for  nursing facility services during 2010, for an apparent increase of   $410 million in supplemental payments. However, Pennsylvania  made, but did not separately report, non-DSH supplemental payments  for nursing home services during 2006.

South Carolina reported $0 for non-DSH supplemental payments for  physician and surgical services during 2006 and $46 million for  non-DSH supplemental payments for these services during 2010, for  an apparent increase of $46 million in supplemental payments.  However, CMS told us that South Carolina paid $43 million for  non-DSH supplemental payments for physician and surgical services  during 2006, so the actual increase in payments for these services  from 2006 to 2010 was $3 million, not $46 million.

In contrast, an apparent decrease in some states’ non-DSH supplemental  payments was due, at least in part, to not reporting these payments  separately during 2010. For example, as noted above, Georgia made, but  did not separately report, non-DSH supplemental payments during 2010.  States that did not separately report payments during 2010, but did  separately report them in 2006, created the appearance of decreases in  non-DSH supplemental payments.

section_title: Concluding Observations
paragraphs: Medicaid supplemental payments can help ensure that providers make  important services available to Medicaid beneficiaries. However, the  transparency and accountability of these often very large payments have  been lacking. Although CMS has instituted new reporting procedures for,  and more complete reporting of, non-DSH supplemental payments, the  exact amount of these payments is still not known because not all states  have provided complete information as CMS requested during 2010.  Nevertheless, as reporting of non-DSH supplemental payments becomes  more complete, the significance of these payments, in terms of cost,  growth, and contribution to total Medicaid payments for those providers  receiving them, is becoming clearer. Identifying and monitoring Medicaid  supplemental payments and ensuring that they, along with regular  Medicaid payments, are consistent with federal requirements are complex  tasks that will require continued vigilance by CMS. Ongoing federal efforts  to improve the completeness of reporting of Medicaid supplemental  payments are important for effective oversight and to better understand  these payments’ role in financing Medicaid services.

section_title: Agency Comments
paragraphs: We provided a draft of this report to HHS for review. HHS stated that   HHS and CMS will continue their ongoing efforts to improve states’  reporting of Medicaid supplemental payments. HHS’s letter is reprinted   in appendix IV.

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If you or your staff members have any questions, please contact me at  (202) 512-7114 or iritanik@gao.gov. Contact points for our Offices of  Congressional Relations and Public Affairs may be found on the last page  of this report. Major contributors to this report are listed in appendix V.

section_title: Appendix I: Scope and Methodology
paragraphs: This appendix provides information about our analyses of reported  supplemental Medicaid expenditures and our analyses of information  from selected states. Supplemental Medicaid payments include  Disproportionate Share Hospital (DSH) payments to hospitals and other  supplemental payments to hospitals or other providers, which we refer to  as non-DSH supplemental payments. To determine what supplemental  Medicaid payments states reported during fiscal year 2010 and how  non-DSH supplemental payments reported during 2010 compared with  those reported during 2006, we obtained and analyzed data about the  Medicaid expenditures states reported during these 2 years. To examine  reasons for differences between 2006 and 2010 in reported non-DSH  supplemental payments, and to obtain additional information about states’  reports of these payments, we obtained information from the Centers for  Medicare & Medicaid Services (CMS) and public sources about non-DSH  supplemental payments in a nongeneralizable, judgmental sample of   11 states. In addition, we reviewed relevant federal laws, regulations, and  guidance; our prior work on supplemental Medicaid payments; and other  relevant documentation. We also interviewed officials from CMS.
subsections: section_title: Reported Expenditures
paragraphs: To determine what Medicaid payments states reported, we examined  data from the standardized expenditure reports states submit to CMS on  a quarterly basis using form CMS-64. States have 30 days after the end  of a quarter to submit this form and must certify that the data are correct  to the best of their knowledge. CMS reviews these reports and works with  states to resolve any questions before certifying them as final. CMS  transfers the certified, finalized data into a Financial Management Report  (FMR) and makes annual data available on its website. CMS allows  states to make adjustments to their prior CMS-64 submissions for up to   2 years. The annual FMR incorporates adjustments reported by the states  by applying reported adjustments to the fiscal year during which they are  reported, even if an adjustment corrects expenditures reported during an  earlier fiscal year.

Expenditures reported during fiscal year 2010. We obtained fiscal year  2010 FMR data from CMS on December 22, 2011. These data reflected  adjustments to expenditures reported by states on the quarterly reports  filed during fiscal year 2010 and included states’ reported total Medicaid  expenditures, DSH expenditures, and any non-DSH expenditures the  states reported separately from their other expenditures. Fiscal year 2010  was the most recent year for which certified data were available from all  50 states and the District of Columbia. To assess the reliability of the  fiscal year 2010 data, we reviewed the steps CMS took to ensure the  accuracy of expenditure data and we examined the data for outliers or  other unusual values, which we discussed with CMS officials. We  determined that the data were sufficiently reliable to describe the  expenditures reported by the states during fiscal year 2010, although as  discussed in this report, we found that states’ separate reporting of  non-DSH supplemental payments was incomplete.

Expenditures reported during fiscal year 2006. We obtained data  about expenditures reported during fiscal year 2006 as part of work we   For that work, we obtained reported DSH payments  reported in 2008. from CMS’s FMR for fiscal year 2006, which included adjustments  reported by states for prior years. To obtain data about non-DSH  supplemental payments, we extracted expenditure data that had been  reported on a section of the CMS expenditure report—the form  CMS-64.9I—that states were to use for informational purposes during  2006 to identify non-DSH supplemental payments made under Medicaid’s  Upper Payment Limit regulations.adjustments states reported through their CMS-64.9I entries during fiscal  year 2006 and through October 5, 2007. As described in our 2008 report,  our assessment of the reliability of the fiscal year 2006 data included  review of the steps CMS took to ensure the accuracy of expenditure data  submitted to the Medicaid Budget and Expenditure System, comparison  to data we obtained from a nongeneralizable sample of 5 states, and   We adjusted these data to reflect  comparison to similar data published by the Urban Institute. We  determined that the data were sufficiently reliable to describe the  expenditures identified by the states during fiscal year 2006, although as  we discussed in our earlier report, we concluded that states’ separate  reporting of non-DSH supplemental payments was incomplete.

Our analyses of reported DSH and non-DSH payments included  identification of state-by-state and nationwide expenditures for DSH and  non-DSH supplemental payments in both absolute (dollar amount) and  relative (percentage) terms. DSH payments can be made to hospitals for  traditional inpatient and outpatient services and to mental health facilities  for inpatient and outpatient mental health services; we examined reported  payments to both types of hospitals. Non-DSH supplemental payments  can be made for various categories of service (such as inpatient hospital  services or physician and surgical services) provided by hospitals or other  types of providers (such as nursing homes or intermediate care facilities);  we examined payments for specific categories of services.

Some states may not have separately reported all of their non-DSH  supplemental payments during 2006 or 2010. We did not quantify the  extent to which states did not separately report their supplemental  payments. Therefore, we may not be capturing the full amount of states’  non-DSH supplemental payments or the degree to which these payments  have changed over time. We did not examine whether changes in  non-DSH supplemental payments were associated with changes in  states’ regular Medicaid payments.

section_title: Information from Selected States
paragraphs: To examine reasons for differences between 2006 and 2010 in reported  non-DSH supplemental payments, and to obtain additional information  about states’ reports of these payments, we obtained information from  CMS and public sources about non-DSH supplemental payments in a  judgmental sample of 11 states selected to include a mix of relevant  characteristics. We selected a nongeneralizable sample of states,  including some that separately reported non-DSH supplemental  payments (1) in fiscal year 2006, but not 2010 (Georgia and Missouri);   (2) in fiscal year 2010, but not 2006 (Maine, Massachusetts, and  Pennsylvania); and (3) both (Arkansas, Colorado, Illinois, North Carolina,  South Carolina, and Texas). These states differed in absolute and relative  changes in reported non-DSH supplemental payments and changes in  categories of service for which payments were reported. The information  we used to select states included published information as well as  preliminary information from CMS. (For more information about non-DSH  supplemental payments made by these states in 2006 and 2010, see  app. III.)

For each of our selected states, we asked CMS to provide us with  documentation, such as state plan amendments, that could shed light on  observed differences from 2006 to 2010 in reported non-DSH  supplemental payments. We reviewed this information, along with  information from other public sources (such as states’ websites) to  identify possible reasons for changes in reported payments and to  develop rough estimates of the financial impact of planned changes. The  state plan amendments states submit when proposing new supplemental  payments, or modifications to existing payments, include an estimate of  the financial impact of the state plan amendment. This estimate is  intended to reflect the impact of the state plan amendment as a whole,  even if the amendment covers several changes. CMS officials told us that  these estimates are the best available estimates of the financial impact of  changes states make to their state plans.

We did not attempt to develop a full, dollar-by-dollar explanation of any  state’s changes from 2006 to 2010 in reported amounts of non-DSH  supplemental payments. We did not determine the accuracy of states’  estimates of the financial impact of their state plan amendments.  Information from our judgmental sample of 11 states cannot be  generalized to other states.

section_title: Appendix II: Supplemental Medicaid Payments Reported during 2010
paragraphs: This appendix provides state-by-state and nationwide information about  the DSH and non-DSH supplemental Medicaid payments reported during  fiscal year 2010 by the states and the District of Columbia.

Table 2 shows states’ reported Medicaid payments, their DSH and  non-DSH supplemental payments, the federal share of DSH and  non-DSH supplemental payments, and the percentage of the state  Medicaid payments that was for DSH and non-DSH supplemental  payments.

Table 3 shows states’ reported DSH payments, including payments  for traditional and mental health hospitals (as dollar amounts and as a  percentage of the state DSH payments), total DSH payments, and  total DSH payments as a percentage of the national total for DSH  payments.

Table 4 shows states’ reported non-DSH supplemental payments,  including the amounts states reported for certain categories of service  (as dollar amounts and as a percentage of the state non-DSH  supplemental payments), total non-DSH supplemental payments, and  total non-DSH supplemental payments as a percentage of the  national total for non-DSH supplemental payments. The six categories  of service listed are those for which CMS requested information— inpatient hospital services, outpatient hospital services, nursing facility  services, physician and surgical services, other practitioners’ services,  and intermediate care facility services.

Tables 5 through 10 provide additional information about states’  reported Medicaid payments for the six categories of service for which  CMS obtained information about non-DSH supplemental payments— inpatient hospital services, outpatient hospital services, nursing facility  services, physician and surgical services, other practitioners’ services,  and intermediate care facility services. For each of these six  categories, the tables provide the states’ reported Medicaid payments,  non-DSH supplemental payments, the federal share of the non-DSH  payments, and the percentage of the state Medicaid payments for this  category that was for non-DSH supplemental payments.

section_title: Appendix III: Non-DSH Supplemental Medicaid Payments Reported during 2006 and 2010
paragraphs: This appendix provides state-by-state and nationwide information about  non-DSH supplemental Medicaid payments reported during 2006 by the  states and District of Columbia in comparison to similar payments reported  during 2010.

Table 11 shows the total amount of non-DSH supplemental payments  states reported during 2006 and 2010 and the change from 2006 to  2010 in these amounts, both as a dollar amount and as a percentage of  the 2006 total.

Table 12 shows states’ reported non-DSH supplemental payments for  specific categories of service during 2006 and 2010.

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

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

section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Tim Bushfield, Assistant Director;  Kristen Joan Anderson; Helen Desaulniers; Sandra George; Giselle  Hicks; Roseanne Price; and Jessica C. Smith made key contributions to  this report.

section_title: Related GAO Products
paragraphs: Opportunities to Reduce Potential Duplication in Government Programs,  Save Tax Dollars, and Enhance Revenue. GAO-11-318SP. Washington,  D.C.: March 1, 2011.

High-Risk Series: An Update. GAO-11-278. Washington, D.C.: February  2011.

Medicaid: Ongoing Federal Oversight of Payments to Offset  Uncompensated Hospital Care Costs Is Warranted. GAO-10-69.  Washington, D.C.: November 20, 2009.

Medicaid: CMS Needs More Information on the Billions of Dollars Spent  on Supplemental Payments. GAO-08-614. Washington, D.C.: May 30,  2008.

Medicaid Financing: Long-standing Concerns about Inappropriate State  Arrangements Support Need for Improved Federal Oversight.  GAO-08-650T. Washington, D.C.: April 3, 2008.

Medicaid Financing: Long-Standing Concerns about Inappropriate State  Arrangements Support Need for Improved Federal Oversight.  GAO-08-255T. Washington, D.C.: November 1, 2007.

Medicaid Financing: Federal Oversight Initiative Is Consistent with  Medicaid Payment Principles but Needs Greater Transparency.  GAO-07-214. Washington, D.C.: March 30, 2007.

Medicaid Financial Management: Steps Taken to Improve Federal  Oversight but Other Actions Needed to Sustain Efforts. GAO-06-705.  Washington, D.C.: June 22, 2006.

Medicaid Financing: States’ Use of Contingency-Fee Consultants to  Maximize Federal Reimbursements Highlights Need for Improved Federal  Oversight. GAO-05-748. Washington, D.C.: June 28, 2005.

Medicaid: States’ Efforts to Maximize Federal Reimbursements Highlight  Need for Improved Federal Oversight. GAO-05-836T. Washington, D.C.:  June 28, 2005.

Medicaid: Intergovernmental Transfers Have Facilitated State Financing  Schemes. GAO-04-574T. Washington, D.C.: March 18, 2004.

Medicaid: Improved Federal Oversight of State Financing Schemes Is  Needed. GAO-04-228. Washington, D.C.: February 13, 2004.

Major Management Challenges and Program Risks: Department of  Health and Human Services. GAO-03-101. Washington, D.C.: January  2003.

Medicaid: HCFA Reversed Its Position and Approved Additional State  Financing Schemes. GAO-02-147. Washington, D.C.: October 30, 2001.

Medicaid: State Financing Schemes Again Drive Up Federal Payments.  GAO/T-HEHS-00-193. Washington, D.C.: September 6, 2000.

Medicaid: Disproportionate Share Payments to State Psychiatric  Hospitals. GAO/HEHS-98-52. Washington, D.C.: January 23, 1998.

Medicaid: Disproportionate Share Hospital Payments to Institutions for  Mental Diseases. GAO/HEHS-97-181R. Washington, D.C.: July 15, 1997.

Medicaid: States Use Illusory Approaches to Shift Program Costs to  Federal Government. GAO/HEHS-94-133. Washington, D.C.: August 1,  1994.


Question-summary annotations: questions: question: What accounted for the majority of the 17.6 billion DSH payments?
answer: A total of $17.6 billion in Disproportionate Share Hospital (DSH) payments. The 10 states reporting the largest total DSH payments in fiscal year 2010 accounted for more than 70 percent of the nationwide total, with 4 states— New York, California, Texas, and New Jersey—accounting for almost half (47 percent).
child_questions: question: What accounted for half of DSH payments?
answer: The 10 states reporting the largest total DSH payments in fiscal year 2010 accounted for more than 70 percent of the nationwide total, with 4 states— New York, California, Texas, and New Jersey—accounting for almost half (47 percent).

question: How did DSH payments vary?
answer: DSH payments as a percentage of total Medicaid payments varied considerably—ranging from 1 to 17 percent—among the 50 states that reported DSH payments.

questions: question: Why was Medicaid designated a high risk program?
answer: GAO designated Medicaid a high-risk program because of concerns about its size, growth, and inadequate fiscal oversight.

question: Why do states make DSH payments?
answer: In addition to regular Medicaid payments to providers, states make supplemental payments, including DSH payments, which are intended to offset the uncompensated costs of care provided to uninsured individuals and Medicaid beneficiaries.
child_questions: question: Why do states also make non-DSH supplemental payments?
answer: States also make other supplemental payments, which we refer to as non-DSH supplemental payments, to hospitals and other providers, for example, to help offset the costs of care provided to Medicaid beneficiaries. GAO and others have raised concerns about the transparency of states’ Medicaid supplemental payments.

question: What has GAO been asked to do?
answer: GAO was asked to provide information on supplemental payments.