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

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