Medicaid Demonstrations: Approvals of Major Changes Need Increased Transparency
Released: 2019-05-17T00:00:00

Letter

Background

Medicaid Section 1115 Demonstrations

A total of 43 states operated at least part of their Medicaid programs under demonstrations, as of November 2018. State demonstrations can vary in size and scope, and many are comprehensive in nature, affecting multiple aspects of a state’s Medicaid program. Nationally, federal spending under demonstrations represented over 30 percent of all federal Medicaid spending in fiscal year 2016. (See app. II.)

Demonstrations are typically approved by CMS for an initial 5-year period, but some states have operated portions of their Medicaid programs under a demonstration for decades. This can be achieved by a state requesting approval by CMS for one or more 3- to 5-year extensions of an existing demonstration (referred to as an extension). States often make changes to their demonstrations, either through the extension process or by requesting to amend a demonstration during the approval period (referred to as an amendment). From January 2017 through May 2018, CMS approved applications for a new demonstration, extension, amendment, or a combination of these in 23 states. (See fig. 1.)

Each demonstration is governed by special terms and conditions (STCs), which reflect the agreement reached between CMS and the state, and describe the parameters of the authority granted to the state. For example, the STCs may define for what populations and services funds can be spent under the demonstration, as well as specify various state reporting requirements. The STCs also include a spending limit for the demonstration that is meant to ensure the demonstration is budget neutral to the federal government; that is, the federal government should spend no more under a state’s demonstration than it would have spent without the demonstration.

Transparency Requirements for Demonstration Applications

Requirements for new demonstrations and extensions. As required under PPACA, HHS issued regulations in 2012 to address transparency in the approval of applications for new demonstrations and extensions. The regulations include requirements for states to seek public input on their proposals prior to submitting an application to CMS, requirements for information states must include in their public notices and applications, and procedures that CMS would follow upon receiving the application. CMS reviews the submitted application to check for compliance with these regulations, before seeking additional public input through a 30-day comment period at the federal level. (See fig. 2.) The regulations also provide CMS discretion to engage in additional transparency activities on a case-by-case basis.

Requirements for amendments. The 2012 regulations do not apply to states seeking to amend existing demonstrations. Instead, the transparency requirements for amendments are set by guidance HHS issued in 1994 and in the individual STCs that govern each demonstration. The requirements from the guidance and STCs include, for example, that the state seek public input prior to submitting its application and provide in its application an explanation of its process for notifying the public and a detailed description of what is being amended, including the impact on beneficiaries.

Transparency Requirements Post- Approval

CMS’s regulations also include monitoring and evaluation requirements to ensure that the outcomes of demonstrations are transparent.

Monitoring. States must perform periodic reviews of the implementation of their demonstrations, and the STCs typically require states to report those outcomes to CMS periodically. The regulations also require states to conduct a public forum within 6 months after the implementation date of the demonstration, and annually thereafter, to solicit public comments on the progress of the demonstration project and summarize issues raised in monitoring reports submitted to CMS. The regulations require that states submit the annual monitoring reports to CMS.

Evaluation. States are required to conduct evaluations to assess whether their demonstrations are achieving the state’s goals and objectives. After a demonstration is approved, states are required to submit an evaluation design to CMS for review and approval. The evaluation design must discuss the hypotheses that will be tested, the data that will be used, and other items outlined in the STCs. In the event that a state wishes to extend its demonstration, the state’s extension application must include, among other things, a report presenting the evaluation’s findings to date, referred to as an interim evaluation report. States are also required to submit final evaluation reports at the demonstration’s end. All evaluation designs and reports are to be made public.

CMS Has Developed Procedures for New Demonstrations and Extensions to Improve Transparency of Approvals, but Weaknesses Remain

CMS Has Developed Procedures to Improve the Transparency of Demonstration Approvals

Transparency Requirements for New Demonstrations and Extensions The transparency requirements for new Medicaid section 1115 demonstrations and extensions of existing demonstrations are established in federal regulations at 42 C.F.R. part 431, subpart G.

We found that CMS has developed procedures for assessing states’ applications for new demonstrations and extensions against the transparency requirements established in 2012 (see sidebar). Specifically, CMS’s procedures involve reviewing incoming applications for new demonstrations or extensions against detailed checklists the agency designed to align with transparency requirements in the regulations. (CMS refers to these as completeness checks.) For example, the checklist for new demonstrations includes checks for whether the application included a description of the demonstration; any proposed changes to the benefits, delivery system, or eligibility requirements; information on the public hearing(s) and public comment process the state conducted; and a summary of the issues raised in the state public comment process. (See fig. 3.) We found that CMS completed checklist reviews for each of the 11 applications for new demonstrations or extensions that CMS approved from January 2017 through May 2018.

CMS has also developed and implemented procedures for seeking public input at the federal level and making that input publicly available. This includes CMS sending email notifications to individuals who have registered on the agency’s website when demonstration applications are open for public comment; posting the application on the website where the public can post comments during the 30-day comment period; and maintaining the public comments on the website, which are maintained indefinitely, according to CMS officials. We found that CMS conducted a federal comment period for all 11 of the new and extension applications in our review period.

In addition to storing the federal public comments, CMS’s website contains a record of key decisions and documents for each demonstration (referred to as the administrative record). The administrative record includes states’ applications, as well as CMS’s approvals, denials, and decisions about the completeness of applications—a requirement under the 2012 regulations. CMS officials told us that they include additional documents as standard practice, though they are not required to be posted, such as a fact sheet on the demonstration and other official communication between the agency and the state, to support transparency. CMS first launched this section of its website in December 2011 with an aim to improve access to Medicaid program information, including information on demonstrations, and redesigned the website in 2013 to improve functionality. The administrative record provides a history, dating as far back as 2011, of what a state has tested, how the approach has evolved over time, and what has been learned from the approach.

CMS’s Policies and Procedures for Ensuring Transparency of Demonstration Approvals Have Weaknesses

We identified several areas of weakness in CMS’s policies or procedures for ensuring transparency in approvals of new demonstrations and extensions of existing demonstrations. These weaknesses related to the transparency of major changes made to pending applications, the transparency of changes to approved spending limits, and inconsistency in CMS’s review of applications for compliance with transparency requirements for new demonstrations and extensions.

Transparency of Major Changes to Pending Applications

CMS did not apply a consistent approach to ensuring transparency in two states that made major changes to their demonstration applications mid- review. Indiana and Kentucky submitted changes to pending applications, the first for an extension and the latter for a new demonstration that had substantial potential effects for some beneficiaries. Indiana’s changes included adding new eligibility requirements for some beneficiaries, and Kentucky’s changes included accelerating the effective dates of new requirements to maintain eligibility (see sidebar).

CMS did not require either state to solicit public input, though both states opted to hold a public comment period on the proposed changes concurrent with CMS’s review. Further, CMS reviewed Indiana’s proposed changes against limited transparency requirements but did not do so for Kentucky. Indiana submitted a final version of its application summarizing public input and the state’s response, while Kentucky did not. Thus, the extent to which these comments were considered at the state and federal levels was not transparent to the public. Figure 4 shows a timeline of the events surrounding Indiana’s and Kentucky’s requests to make changes to their pending demonstration applications.

Kentucky: In July 2017, Kentucky submitted changes to its pending application for a new demonstration, including: replacing a provision for a year-long phase-in of a proposed 20-hour per week work and community engagement requirement for beneficiaries with a 3- month phase-in of the requirement; and disenrolled for 6 months for failing to timely report changes in income or other circumstances affecting eligibility.

CMS approved a significant increase in the spending limit for a portion of Florida’s demonstration—which appeared to reflect a change in the agency’s position on the allowable use of the funds—without making transparent the basis for this decision. Specifically, CMS increased the spending limit for a pool of funds for payments to offset providers’ uncompensated care costs by close to $1 billion in 2017 after having reduced the limit 2 years earlier. In its approval letter, CMS provided limited information on the basis for this change. CMS stated that the limit was based on the state’s most recent data on uncompensated care costs, but did not disclose a significant change in its methodology for setting these limits. In unpublished correspondence to Congress, CMS indicated that the calculation of the spending limit was broadly consistent with previous policy with one significant change. Specifically, the letter indicated that whether the state had opted to expand Medicaid coverage to low-income, childless adults as provided for under PPACA would no longer factor into the limit, thus allowing CMS to include uncompensated care costs for this population in setting the limit. This change led to increasing the state’s spending limit to $1.5 billion annually. (See text box.) Moreover, CMS noted plans to apply this change across all states going forward. CMS officials, however, did not indicate that they had publicly communicated this policy change to all states. In past reports, we have recommended that HHS make public the basis for demonstration approvals including the basis for elements used to set spending limits, and in 2008, we raised the issue as a matter for Congress to consider. CMS has taken a number of steps in the last several years to update and make public its policies for setting spending limits, but has not yet taken action to make public the basis of spending limits.

CMS Decision to Increase Spending Limit for a Funding Pool in Florida’s Medicaid Section 1115 Demonstration In letters to Florida, CMS wrote:

April 14, 2015: “…over time, CMS has had a number of concerns about the LIP , including its lack of transparency, encouragement toward overreliance on supplemental payments, and distribution of funds based on providers’ access to local revenue instead of service to Medicaid patients. Last year, CMS made clear that LIP would not continue in its current form….We will approach review of a LIP proposal from Florida based on several key principles. First, coverage rather than uncompensated care pools is the best way to secure affordable access to health care for low-income individuals, and uncompensated care pool funding should not pay for costs that would be covered in a Medicaid expansion.…”

October 15, 2015: “…Pursuant to our June 23, 2015 agreement in principle, establishing the size, duration, and distribution methodology for the Low Income Pool (LIP)…The total computable dollar limit in demonstration year 10 (2015-2016) will be $1 billion. In demonstration year 11 (2016-2017) the total computable dollar limit will be $607,825,452…”

August 3, 2017: “For the extension, CMS has established an amount for the low-income pool’s (LIP) uncompensated care pool to be approximately $1.5 billion annually, based on the most recent available data on hospitals’ charity care costs.”

Inconsistency in CMS’s Review of Applications for Compliance with Transparency Requirements

Finally, we observed some inconsistencies in CMS’s reviews of states’ applications for their compliance with the transparency requirements for new demonstrations and extensions.

Expected changes in enrollment were not always included in state public notices. In two of the four applications for new demonstrations and extensions for which we conducted in-depth reviews (Florida’s extension and Washington’s new demonstration), estimates for the expected increase or decrease in enrollment were not included in the state’s public notice documents as required. CMS officials told us that they are revising procedures to resolve such inconsistencies, including making additions to written standard operating procedures.

Evaluation information was not always included in state applications. Although states seeking extensions are required to submit an interim evaluation report, Florida only included a statement in its application that it had recently executed an evaluation contract and had no findings to report. According to CMS, Florida’s evaluation design was not approved until weeks before the extension application was due. Despite not having information on whether Florida’s demonstration was meeting its goals, CMS officials considered the state’s application complete, stating that Florida had met the intent of the regulation by providing its findings to date. In 2018, we reported that there were limitations in state evaluations of demonstrations, in part, due to how CMS sets requirements for evaluations, and we made a recommendation to improve CMS’s procedures. In line with our recommendation, CMS has since developed an enhanced set of STCs that specify when evaluation reports are due, and reported in November 2018 that it is in the process of developing protocols to ensure that these requirements are consistently included in the STCs.

CMS Applies Limited Transparency Requirements in Approving States’ Amendments to Existing Demonstrations

Transparency Requirements for Amendments Applications for amendments to Medicaid section 1115 demonstrations are subject to requirements for seeking public input outlined in guidance the Department of Health and Human Services (HHS) issued in 1994 and those included in the special terms and conditions governing each demonstration.

CMS applies limited transparency requirements to states’ applications to amend existing demonstrations, despite the fact that states may propose significant changes to demonstrations through amendments (see sidebar). CMS does not place limits on what changes can be made through amendments. From January 2017 through May 2018, CMS approved 21 amendments in 17 states, and we found that at least 17 amendment applications were pending CMS approval as of January 2019. These 17 states made a wide range of changes to their demonstrations through amendments. For example, one state amended its demonstration to cover dental services for adults with disabilities, while other amendments included such changes as requiring beneficiaries to work or participate in community engagement activities as a condition of maintaining Medicaid eligibility, as was done through amendments in Arkansas and New Hampshire during the period we reviewed. As it does with applications for new demonstrations and extensions, CMS reviews amendment applications by using a checklist, conducting a federal public comment period, and posting state demonstration documentation on the CMS website. However, the transparency requirements for amendments applied during the checklist review are more limited than the requirements for new demonstrations and extensions. (See fig. 5.)

The transparency requirements for amendment applications are more limited than those for new demonstrations and extensions in the following key areas, potentially limiting CMS’s ability to ensure public transparency for the approvals of amendments.

No requirement to hold a state public comment process or provide CMS a summary of public input received. For amendments, states have a range of options for seeking public input and, unlike for new and extension applications, states are not required to submit a summary of the public input received on their applications and how they responded. Instead, in amendment applications, states are only required to describe the process the state used to solicit public input. Among the three amendment approvals for which we conducted an in-depth review, California did not hold a formal public comment period and did not provide CMS information on any public input it received, neither of which is required under the transparency requirements for amendments.

No requirement to include expected changes in enrollment and costs. In contrast with requirements for new demonstrations and extensions, CMS does not require states to include in amendment applications the expected increase or decrease in enrollment, and the amendment applications we reviewed included limited or no information on changes to enrollment. (See text box.) CMS also does not require information on expected changes in costs for all amendments, and we found variation in the information included in amendment applications, including limited or no information on costs.

No minimum requirements for information to be included in the public notice. Unlike the transparency requirements for new demonstrations and extensions, there are no requirements specifying what information states must include in their public notices for amendments. For example, Arkansas did not include in its public notice information on the changes to enrollment estimated from any of the amendment provisions.

In addition to the differences in the transparency requirements for amendment applications, we identified inconsistencies in how CMS applied the transparency requirements for amendment applications across states, particularly the requirements related to describing changes to the demonstration evaluations. For amendments, as is similar to extensions, states are required to describe how the demonstration’s evaluation will be revised to incorporate amendment provisions. The following are examples of the inconsistencies:

CMS determined that Massachusetts’s amendment application, which proposed to waive non-emergency medical transport, eliminate provisional eligibility for most populations, and cover former foster care youth, was determined to be incomplete (that is, not in compliance with the transparency requirements), partially due to the state not submitting a revised evaluation design plan.

In contrast, CMS determined that Arkansas’s application, which did not include a revised evaluation design plan, was complete. Arkansas noted in its application that the state planned to revise its evaluation to test two additional hypotheses. However, the added hypotheses did not address, for example, the waiver for retroactive eligibility proposed in the application.

Among the 18 other demonstration amendment applications CMS approved during our review period, there was variation in the information the states included about the changes to the demonstration’s evaluation hypotheses or design. For example: Iowa submitted an amendment application, which CMS determined to be in compliance with transparency requirements, to waive retroactive eligibility for all beneficiaries, and said that it was not changing the evaluation design based on the amendment provisions.

In at least two other states’ amendments—Florida and Utah—the applications, which CMS determined to be in compliance with transparency requirements, did not include any information on the changes to the evaluation due to the amendment or indicated that the state would be making changes at a later date.

The potential effects of policy changes states make through amendments can be comparable to effects of new demonstrations and extensions. CMS has considered taking further steps to ensure transparency for amendments, but has not done so. Specifically, in both its response to comments in the 2012 final rule and a subsequent letter to state Medicaid directors in 2012, CMS indicated that the agency intended to evaluate the types of amendments submitted by states and issue further guidance on how the notice and comment provisions would be applied to amendments that have a significant impact. However, CMS did not issue such guidance and officials told us that they had no plans to do so.

CMS officials told us that including standard requirements in demonstration STCs for submitting amendment applications helps improve the transparency of amendments. However, the standard requirements that CMS has included do not ensure that states provide information to the public or CMS on the effect of an amendment on enrollment and costs, key pieces of information for amendments that have and may continue to have a significant impact. According to federal standards for internal controls related to risk assessment, federal agencies should identify and manage risks related to achieving agency objectives. Without a policy with robust transparency requirements for amendment applications with significant impacts, there is the potential that states and CMS will fail to receive meaningful public input on the amendment and thereby lack complete understanding of the impact. As a result, CMS may not be positioned to mitigate any potential risks in the demonstrations being amended or when other states request to test similar policies in the future.

CMS Has Used Public Input in Making Demonstration Approval Decisions, but the Extent to Which Input Influenced Monitoring and Evaluations Was Not Always Clear

CMS Reviewed Comments Received through the State and Federal Public Input Process for its Approval Decisions, and in Some Cases Approved Changes Consistent with the Comments

CMS reviewed state descriptions of issues raised during the state public input process and the state’s response as part of its application review. Applications for six of the seven approvals for which we conducted in- depth reviews summarized themes from the comments that were received and included the states’ responses to these comments. State responses included laying out changes the state made to the proposal in response to the comments, clarifying certain aspects of the proposed demonstration, or providing justification for not making a change. However, the level of detail in state summaries of their responses to these comments varied considerably. For example:

Washington application for new demonstration. Washington provided an extensive summary of the comments received, categorized by themes, along with the state’s responses to each of them. One commenter suggested a 1-year implementation period to ensure that sufficient planning and preparations were undertaken before the new demonstration officially went into effect. The state agreed that this was “essential to assure operational readiness and critical success of this demonstration,” and revised its proposal to include a 9-month implementation period.

Florida application to extend demonstration. In contrast to Washington, Florida’s application to extend its managed care program provided a long list of state comments and nearly all were addressed with a standard response from the state that the comments were taken into consideration, but no changes to the existing STCs were being requested. These included concerns about access and choice under current pharmacy networks, and other access issues such as difficulties in obtaining referrals to specialists. Florida officials told us that they addressed stakeholder concerns through the state public comment process, which includes public forums, and that they are not necessarily required to provide any additional explanation in the state’s application to CMS. Florida officials also stated that some demonstration elements stem from state legislation, which limits their ability to make changes in response to comments.

According to CMS officials, historically, the agency has not requested the full set of comments that are submitted to the states. None of the states that we reviewed attached the actual comments that were received to the application—only summaries—though some posted them on their website or had them available upon request, according to state officials. CMS officials told us the agency has not consistently requested that states provide the actual comments received; however, in the last year and a half the agency has been making more of an effort to request the full set of comments instead of solely relying on the summaries provided in the applications. Officials said they anticipate that this will be the agency’s standard practice going forward.

In making demonstration decisions, CMS reviews and summarizes all input received during the federal comment period. CMS created a summary of comments received for all seven of the demonstrations we reviewed. Officials said that these summaries are used to brief CMS leadership as part of the decision-making process. We found that the level of detail in the summaries we reviewed varied, ranging from bulleted lists identifying and detailing common themes in support, opposition, or both, to a few brief sentences covering all comments. This variation often reflected the differences in the number of comments received and the significance of the concerns raised. For example:

CMS received about 100 comments on Washington’s application during the federal comment period that were predominantly supportive of the new demonstration, and CMS’s summary was a brief overview.

In contrast, CMS received thousands of comments on Kentucky’s application for each of the three federal comment periods held for that new demonstration, with many opposed to or concerned with certain aspects of the application. CMS’s summaries of comments received on the Kentucky application provided an overview of the issues raised, along with counts of how many fell within different themes and how many were in support, opposition, or unrelated to what was being proposed.

CMS officials explained that there are unique circumstances surrounding each demonstration—a comment period with many concerns raised or conflicting viewpoints will necessitate a longer and more detailed summary than one that has broad support and few, if any, areas of disagreement.

We found instances where CMS approved changes to certain aspects of the demonstrations that were in line with concerns raised by the comments. Among the seven demonstrations we reviewed in-depth, CMS received comments for four demonstrations that included concerns about the state’s proposal: Arkansas, Indiana, Kentucky, and Massachusetts. For Arkansas and Kentucky, CMS either approved more limited changes than what the state initially proposed or required that certain beneficiary protections be in place.

Arkansas: In its amendment application, Arkansas requested a waiver of the requirement to provide retroactive eligibility, among other things. Commenters were concerned that the state’s proposal to eliminate retroactive eligibility would result in gaps in coverage, adverse health outcomes, and medical debt for members. In CMS’s approval, the agency acknowledged these concerns and allowed the state to reduce the period for retroactive eligibility from 90 days to 30 days but not eliminate it completely. (See fig. 6.)

Kentucky: In Kentucky, some commenters were concerned about the state’s proposal to implement a work and community engagement requirement as a condition of Medicaid eligibility, noting that individuals need to be healthy to work or look for a job. CMS said in its January 2018 approval that Kentucky was exempting medically frail individuals from this requirement, but CMS would also be requiring that the state add certain protections for vulnerable individuals, including maintaining a system that identifies, validates, and provides reasonable accommodations.

We also found there were instances where CMS approved certain aspects of the demonstrations despite concerns raised by the comments. CMS’s rationale for those decisions varied across demonstrations. For example, CMS noted in one instance that sufficient controls were planned to address the concerns raised, and in another instance noted that the potential benefits of the demonstrations outweighed the risks. The following are examples of when CMS approved aspects of states’ demonstrations without changes.

Arkansas: In Arkansas, some commenters were opposed to the enforcement mechanism for the state’s proposal to institute a work and community engagement requirement as a condition of maintaining eligibility. The state proposed to disenroll beneficiaries who fail to fulfill these requirements for any 3 months during a calendar year and lock them out from coverage until the start of the next calendar year. CMS approved this proposal and provided an explanation of the circumstances under which it would happen, underscoring that individuals have three opportunities (each of the months they fail to fulfill the requirements) to rectify the situation or seek an exemption before they would ultimately lose coverage. CMS indicated in the approval letter to Arkansas that it believed the health benefits of community engagement outweigh the health risks with respect to those who fail to respond.

Indiana: In Indiana, some commenters were opposed to the state’s proposal to institute a work and community engagement requirement as a condition of maintaining eligibility. They argued, in part, that beneficiaries who are able to work are already doing so and the requirement is unnecessarily burdensome. CMS responded that employment is positively correlated with health outcomes and imposing these requirements serves the purposes of the Medicaid statute. (See fig. 7.)

In an effort to improve transparency around its approvals, CMS began providing a high-level summary and response to public comments in the demonstration approval letters beginning in January 2018. Agency officials said this will be their standard practice going forward. Our review of the approval letters sent between January 1, 2018, and July 31, 2018, confirmed that CMS included a discussion of some of the issues that were raised in 10 of 11 letters. For example, the approval letters explained the decision to reduce the period of retroactive eligibility in Arkansas instead of eliminating it completely, as well as the decision to approve Indiana’s proposal to implement work and community engagement requirements. However, the approval letters do not respond to every concern raised. For example, a number of commenters were concerned with a request in Arkansas’s amendment application to no longer offer presumptive eligibility, but CMS did not respond to these concerns in the approval letter. CMS officials told us that the agency is striking a balance between transparency and processing applications in a timely manner.

The Extent to Which CMS Used Public Comments to Inform Monitoring and Evaluation Decisions Was Not Always Clear

Among the four demonstration approvals for which we conducted in-depth reviews and where public comments raised concerns—approvals for Arkansas, Indiana, Kentucky, and Massachusetts—we observed instances where CMS added specific monitoring requirements to the STCs that aligned with these concerns and other cases where the agency did not. For example:

The STCs required Arkansas to submit a monitoring plan for its work and community engagement requirement in order to monitor eligibility operations and the impact on beneficiaries reapplying for coverage after being disenrolled for noncompliance.

In contrast, CMS did not require a monitoring plan for the Indiana and Kentucky demonstrations, which also included work and community engagement requirements where the public raised concerns about the effects on beneficiaries. This remains the case for Indiana; however, CMS’s new approval of Kentucky’s demonstration in November 2018 included additional monitoring requirements. Specifically, the November 2018 STCs required Kentucky to submit a monitoring protocol that includes measures for monitoring enrollment, disenrollment, and eligibility suspension, among other things.

In other cases where public comments raised concerns about the impact of demonstrations on beneficiaries, including changes in eligibility requirements (e.g., retroactive eligibility), we did not observe specific monitoring requirements included in the STCs. Though CMS did not provide any specific examples, officials told us that they consider public input when making decisions about monitoring requirements. Officials also said they were developing monitoring metrics and tools that they plan to use consistently going forward for states implementing work and community engagement requirements. As of January 2019, officials said these materials were in draft form and under review.

Regarding evaluations, the extent to which CMS considered concerns raised through public comments for the four demonstration approvals was also not always clear, including how input informed the evaluation requirements in the STCs. For example, commenters on the applications submitted by Indiana and Kentucky raised concerns about aspects of the work and community engagement requirements proposed by each state, such as the requirements for reporting work or other activities and the circumstances under which beneficiaries would lose coverage.

In the STCs for Indiana, CMS did not include specific hypotheses that the state would be required to test related to its work and community engagement policies. Instead, CMS noted that the state’s goals should inform the evaluation, subject to CMS approval. For example, Indiana’s goals included determining whether implementing work and community engagement requirements will lead to sustainable employment and improved health outcomes among beneficiaries.

In the STCs for Kentucky’s initial approval in January 2018, CMS included the same language as in Indiana—that the goals should inform the state’s evaluation. However, in the STCs approved for Kentucky in November 2018, CMS added some broad guidance for Kentucky’s draft evaluation design. Specifically, CMS included a variety of hypotheses that the state must evaluate, such as the effect of work requirements on enrollment and the impact of the demonstration on uncompensated care costs.

When approving evaluation designs, the extent to which CMS considers areas of risk identified through public input is also unclear at this time. As of January 2019, evaluation designs for the Arkansas and Indiana demonstrations were under review at CMS and Kentucky had not yet submitted one.

Regarding Arkansas’s evaluation design, CMS sent a letter to the state providing comments and feedback that seem to align with some of the concerns raised about the demonstration through public input. Specifically, the November 2018 letter from CMS raised concerns with the state’s “broadly defined” expected outcomes of the demonstration, which included culture of work and personal life stability. CMS recommended that the state revise the design to include a list of quantifiable outcomes and measures that capture the important features, such as increased employment (e.g., hours worked, wages) and improved health (e.g., health care utilization).

For Massachusetts, the one demonstration with an approved evaluation design, the extent to which CMS considered public input during approval was unclear. For example, with regard to Massachusetts’s proposal to discontinue provisional eligibility for most adults, commenters raised concerns about the potential effects on beneficiaries’ timely access to coverage and care; however, the evaluation design did not include plans to examine the effects of the policy on beneficiaries.

Though CMS did not provide specific examples of how public input had informed evaluation designs, CMS officials said requirements for evaluations have been evolving as they have gained experience in understanding the public’s concerns. Officials also said they were developing robust evaluation guidance that they plan to use consistently going forward for states implementing work and community engagement requirements. As of January 2019, officials said this guidance was in draft form and under review.

Conclusions

While CMS has long recognized the importance of public input in the demonstration approval process, the agency has developed more robust procedures for ensuring transparency since the beginning of 2012. Despite this progress, CMS’s approach to ensuring transparency when states propose major changes to their demonstrations has significant gaps. The lack of policies for ensuring transparency when states make major changes to pending applications and limited transparency requirements applied for amendments—which are being used by some states to make major changes to their demonstrations—puts CMS’s goal of transparency at risk. These gaps may leave the agency and the public without key information to fully understand the potential impact of the changes being proposed, including on beneficiaries and costs. These risks take on increased importance given that CMS is encouraging states to use the flexibility provided under demonstrations to test changes to their Medicaid programs that could have significant effects for beneficiaries and other stakeholders.

Recommendations for Executive Action

We are making the following two recommendations to CMS: The Administrator of CMS should develop and communicate a policy that defines when changes to a pending section 1115 demonstration application are considered major and should prompt a new review of the application against the transparency requirements applicable to the pending application. (Recommendation 1)

The Administrator of CMS should develop and communicate a policy whereby applications for section 1115 demonstration amendments that may have significant impact are subject to transparency requirements comparable to those for new demonstrations and extensions. (Recommendation 2)

Agency Comments and Our Evaluation

We provided a draft of this report to HHS for review and comment. HHS concurred with both recommendations. HHS’s comments are reproduced in appendix III.

Regarding our first recommendation concerning when states submit major changes to pending demonstration applications, HHS stated that it will develop (1) standards for determining when such changes are so substantial that it would be appropriate for HHS to solicit additional public input, and (2) a process for informing states and the public about the additional comment period. These steps appear to formalize the approach CMS has already been taking as demonstrated by the agency’s response to the changes submitted by Indiana and Kentucky to their applications. Our recommendation, however, requires additional actions. In particular, we recommended that CMS develop and communicate a policy that includes standards for when changes are substantial enough to warrant a new review of the application against the transparency requirements. The transparency requirements, among other things, call for states to provide for public notice and input at the state level before they submit their applications. As such, holding an additional federal comment period would not be sufficient to meet our concerns.

Regarding our second recommendation—concerning transparency requirements for amendment applications that may have significant impacts—HHS said that it has implemented enhanced processes to improve transparency and will review its current processes and develop additional policies and processes, as needed, to enhance the transparency of such applications. However, the enhanced processes HHS referred to do not apply to amendments. Thus, HHS’s planned review of its policies alone would not be sufficient to meet our concerns. HHS’s efforts should also result in actions to develop and communicate a policy that ensures amendments with significant impacts meet transparency requirements comparable to those for other applications, namely new demonstrations and extensions.

As agreed with your offices, unless you publicly announce the contents of this 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, the appropriate congressional committees, and other interested parties. In addition, this report is available at no charge on the GAO website at http://www.gao.gov.

If you or your staff members have any questions about this report, please contact me at (202) 512-7144 or yocomc@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 IV.

Appendix I: Information about Selected Medicaid Section 1115 Demonstration Approvals, January 2017–May 2018

Florida

Massachusetts

Washington

Appendix II: Federal Spending for Medicaid Section 1115 Demonstrations, by State, Federal Fiscal Year 2016

State

Total Medicaid expenditures (dollars in millions)

State

Total Medicaid expenditures (dollars in millions)

Appendix III: Comments from the Department of Health and Human Services

Appendix IV: GAO Contact and Staff Acknowledgements

Staff Acknowledgements

In addition to the contact named above, Susan Barnidge (Assistant Director), Linda McIver (Analyst-in-Charge), Michael Moran, and Jessica L. Preston made key contributions to this report. Also contributing were Drew Long, Vikki Porter, and Emily Wilson.