Title XIX of the Social Security Act authorizes federal funding to states for Medicaid, which finances health care for certain low-income children, families, and individuals who are aged or disabled. Although states have considerable flexibility in designing and operating their Medicaid programs, they must comply with federal requirements specified in Medicaid statute and regulation. For example, states must provide methods to ensure that payments for services are consistent with economy, efficiency, and quality of care. Medicaid is an entitlement program: states are generally obligated to pay for covered services provided to eligible individuals, and the federal government is obligated to pay its share of a state’s expenditures under a CMS-approved state Medicaid plan. Our prior and current work addresses five categories of Medicaid claims where we are aware that states have reimbursement-maximizing strategies. Our current work in particular concentrated on these five categories because—on the basis of factors such as nationwide growth in dollars claimed, the results of our past reviews, and work by HHS’s Office of Inspector General (OIG) to assess the appropriateness of claims in these categories—we judged them to be of particularly high risk. Over the past few years, states’ claims in some of these categories have grown significantly in dollar amounts. The five categories of claims we examined, and recent trends in claimed expenditures, are described in table 1. For many years, states have used varied financing schemes, sometimes involving IGTs, to inappropriately increase federal Medicaid reimbursements. Some states, for example, have made large Medicaid payments to certain providers, such as nursing homes operated by local governments, which have greatly exceeded the established Medicaid payment rate. These transactions create the illusion of valid expenditures for services delivered by local-government providers to Medicaid-eligible individuals and enable states to claim large federal reimbursements. In reality, the spending is often only temporary because states require the local governments to return all or most of the money to the states through IGTs. Once states receive the returned funds, they can use them to supplant the states’ own share of future Medicaid spending or even for non-Medicaid purposes. As various schemes involving IGTs have come to light, Congress and CMS have taken actions to curtail them, but as one approach has been restricted, others have often emerged. Table 2 describes some of the states’ financing schemes over the years and how Congress and CMS have responded to them. A leading variant of these illusory financing arrangements today involves states’ taking advantage of Medicaid’s upper payment limit (UPL) provisions. Although states are allowed, under law and CMS policy, to claim federal reimbursements for supplemental payments they make to providers up to the UPL ceilings, we have reported earlier that payments in excess of the provider’s costs that are not retained by the provider as reimbursement for services actually provided are inconsistent with Medicaid’s federal-state partnership and fiscal integrity. For example, we have reported that by paying nursing homes and hospitals owned by local governments much more than the established Medicaid payment rate and requiring the providers to return, through IGTs, the excess state and federal payments to the state, states obtain excessive federal Medicaid reimbursements while their own state expenditures remain unchanged or even decrease. Such round-trip payment arrangements can be accomplished via electronic wire transfer in less than an hour. States have then used the returned funds to pay their own share of future Medicaid spending or to fund non-Medicaid programs. Problems with excessive supplemental payment arrangements remain, despite congressional and CMS action to curtail financing schemes. For example, in our current review of states’ use of contingency-fee consultants, we found an example in Georgia that illustrates how current law and policy continue to allow states to generate excessive federal reimbursements beyond established Medicaid provider payments for covered services. Georgia and its consultant developed five UPL arrangements using IGTs—one each for local-government-operated inpatient hospitals, outpatient hospitals, nursing homes and for state- owned hospitals and nursing homes. Over the 3-year period of state fiscal years 2001 through 2003, the state made supplemental payments totaling $2.0 billion to nursing homes and hospitals operated by local governments (see fig. 1). A sizable share of the $2.0 billion payments was illusory, however. In reality, the nursing homes and hospitals netted only $357 million because they had initially transferred $1.7 billion to the state Medicaid agency, through IGTs, under an agreement with that agency. The state combined this $1.7 billion with $1.2 billion in federal funds, which represented the estimated federal share of its supplemental payments to local-government facilities of $2.0 billion. The state thus had a funding pool of $2.9 billion at its disposal. From this pool, the state made the $2.0 billion in supplemental payments to local-government providers and retained $844 million to offset its other Medicaid expenditures. In our view, the inappropriate use of IGTs in schemes such as UPL financing arrangements violates the fiscal integrity of Medicaid’s federal- state partnership in at least three ways. The schemes effectively increase the federal matching rate established under federal law by increasing federal expenditures while state contributions remain unchanged or even decrease. We previously estimated that one state effectively increased the federal share of its total Medicaid expenditures from 59 percent to 68 percent in state fiscal year 2001, by obtaining excessive federal funds and using these as the state’s share of other Medicaid expenditures. There is no assurance that these increased federal reimbursements are used for Medicaid services, since states use funds returned to them via these schemes at their own discretion. In examining how six states with large schemes used the federal funds they generated, we previously found that one state used the funds to help finance its education programs, and others deposited the funds into state general funds or other special state accounts that could be used for non-Medicaid purposes or to supplant the states’ share of other Medicaid expenditures. The schemes enable states to pay a few public providers amounts that well exceed the costs of services provided, which is inconsistent with the statutory requirement that states provide for methods that ensure that Medicaid payments are consistent with economy and efficiency. We previously reported that, in one state, the state’s proposed scheme increased the daily federal payment per Medicaid resident from $53 to $670 in six local-government-operated nursing homes. Another category of claims where states have used questionable practices to maximize federal reimbursements is services provided to children in schools and associated administrative costs. Medicaid is authorized to cover services to, for example, Medicaid-eligible children with disabilities who may need diagnostic, preventive, and rehabilitative services; speech, physical and occupational therapies; and transportation. School districts may also receive Medicaid reimbursement for the administrative costs of providing school-based Medicaid services. Our work in this area has addressed claims for Medicaid school-based health services and administration. In 1999, we found a need for federal oversight of growing Medicaid reimbursements to states for Medicaid school-based administrative services, including outreach activities to enroll children in Medicaid. In April 2000, we reported that Medicaid expenditures for school-based health services totaled about $1.6 billion for services provided by schools in 45 states and the District of Columbia, while Medicaid administrative expenditures were about $712 million for costs billed by schools in 17 states. We found that some of the methods used by school districts and states to claim reimbursement for school-based health services did not ensure that the services paid for were provided: some claims, for example, were made solely on the basis of at least one day’s attendance in school, rather than on documentation of any actual service delivery. Methods used by school districts to claim Medicaid reimbursement failed in some cases to take into account variations in service needs among children. With regard to Medicaid school-based administrative costs, we found that some methods used by school districts and states did not ensure that administrative activities were properly identified and reimbursed. Poor controls resulted in improper payments in at least two states, and there were indications that improprieties could have been occurring in several other states. We further found that, in some states, funding arrangements among schools, states, and private consulting firms created adverse incentives for program oversight and caused schools to receive a small portion—as little as $7.50 for every $100 in Medicaid claims—of Medicaid reimbursement for school-based administrative and service claims. We reported that 18 states retained a total of $324 million, or 34 percent, of federal funds intended to reimburse schools for their Medicaid administrative and service claims; for 7 of the states, this amounted to 50 to 85 percent of federal Medicaid reimbursement for school-based health services claims. In addition, contingency fees, which some school districts paid to private consultants for their assistance in preparing and submitting Medicaid claims, ranged from 3 to 25 percent of the federal reimbursement, further reducing the net amount that schools received. In response to recommendations we made to the Administrator of CMS, CMS has clarified guidance for states on submitting claims for school- based administrative activities. Subsequent to our work, HHS OIG conducted reviews of school-based claims in 18 states from November 2001 through June 2005, several of which have identified issues with the appropriateness of claims related to consultants’ projects. In our own most recent work, we determined that Georgia was retaining a share of the additional federal reimbursements gained from its claims for Medicaid school-based services. Georgia’s contingency-fee consultant assisted the state with its Medicaid claims for school-based services in a project that generated about $54 million in federal Medicaid reimbursements over the 3 years the consultant was paid and that, on the basis of state data, we estimate continues to generate about $25 million annually. As before, we found that the school districts were not receiving all of the federal Medicaid reimbursements that were generated on their behalf. According to a state official and documents provided by the state, the state retained $3.9 million, or 16 percent, of federal reimbursements that were claimed on behalf of the school districts for state fiscal year 2003, most of which was used to pay its contingency-fee consultant and about $1 million of which was used to cover the salaries and administrative costs of the five state employees who administered school- based claims in Georgia. A growing number of states are using consultants on a contingency-fee basis to maximize federal Medicaid reimbursements. CMS reported that, according to a survey it conducted in 2004, 34 states had used consultants on a contingency-fee basis for this purpose, an increase from 10 states reported to have such arrangements in 2002. In the 2 states where we examined selected projects that involved the assistance of contingency-fee consultants, Georgia and Massachusetts, we found that the projects generated a significant amount of additional federal reimbursements for the states: from fiscal year 2000 through 2004, an estimated $1.5 billion in Georgia and nearly $570 million in Massachusetts. For those additional reimbursements, Georgia paid its consultant about $82 million in contingency fees, and Massachusetts paid its consultants about $11 million in contingency fees. We identified claims from contingency-fee consultant projects that appear to be inconsistent with current CMS policy and claims that are inconsistent with federal law; we also identified claims from projects that undermine Medicaid’s fiscal integrity. Such projects and resulting problematic claims arose in each of the five categories of claims that we reviewed in Georgia, Massachusetts, or for some categories, both states. We observed two factors common to many projects that we believe increase their risk. First, many projects were in categories of Medicaid claims where federal requirements for the services have been inconsistently applied, are evolving, or were not specific. Second, many projects involved states’ shifting costs to the federal government through Medicaid reimbursements to other state or local-government entities. For the five categories of claims we reviewed where states frequently used contingency-fee consultants to maximize their federal Medicaid reimbursements, we identified problematic claims in each category in either Georgia or Massachusetts or in both states. These projects resulted in claims that appear to be inconsistent with current CMS policy and that, for one project, were inconsistent with federal law. We also identified claims that were inconsistent with the fiscal integrity of the Medicaid program. I have already discussed our current findings regarding Georgia’s use of IGTs in UPL supplemental payment arrangements and its project to increase claims for school-based Medicaid services and administrative costs. We also reviewed Georgia’s and Massachusetts’s use of contingency- fee consultants to increase federal reimbursements for targeted case management services, rehabilitation services for mental or physical disabilities, and states’ claims for administering their Medicaid programs. In these two states, our findings were most significant in the areas of targeted case management and rehabilitation services. Georgia and Massachusetts—with the help of their contingency-fee consultants—developed approaches to maximize federal Medicaid reimbursements by claiming costs for targeted case management (TCM) services under state plan amendments that CMS had approved prior to 2002. Georgia’s consultant assisted the state in increasing federal Medicaid reimbursement for TCM services provided by two state agencies: the Department of Juvenile Justice and the Division of Family and Children’s Services. In Massachusetts, contingency-fee consultants helped the state increase federal reimbursement for TCM services provided by three state agencies: the Departments of Social Services, Youth Services, and Mental Health. These case management services in Georgia and Massachusetts appear integral to the states’ own programs; the states’ laws, regulations, or policies called for case management services in these programs, and the case management services were provided to all Medicaid- and non- Medicaid-eligible children served by the programs. More recently, CMS has denied coverage for comparable services by other states because CMS determined that the services are an integral component of the state programs providing the services. For example, in fiscal year 2002, CMS denied a state plan amendment proposal to cover TCM services in Illinois and in fiscal year 2004 it found TCM claims in Texas unallowable, in part because the TCM services claimed for reimbursement were considered integral to other state programs. As in Georgia and Massachusetts, the TCM services in Illinois were for children served by the state’s juvenile justice system. In Texas, such children were served by the state’s child welfare and foster care system. In fiscal year 2003, we estimate that Georgia received $17 million in federal reimbursements for claims for TCM services provided by its two state agencies, of which about $12 million was for services that appear to be integral to non-Medicaid programs. In fiscal year 2004, Massachusetts received an estimated $68 million in federal reimbursements for services that appear to be integral to non-Medicaid programs in the three state agencies whose TCM projects were developed by consultants. CMS officials agreed with our assessment that the claims for TCM services in these two states were problematic. Our review of projects involving rehabilitation services found concerns with methods and claims in Georgia. Georgia’s consultant helped the state increase federal Medicaid reimbursements for rehabilitation services provided through two state agencies by $58 million during state fiscal years 2001 through 2003. The consultant suggested that state agencies— which pay private facilities under a per diem rate for providing room and board, rehabilitation counseling and therapy, educational, and other services to children in state custody—base their claims for Medicaid reimbursement on the private facilities’ estimated costs, instead of on what the state agencies actually paid those facilities. The state agencies increased their claims for Medicaid reimbursement without increasing their payments to the facilities. In some cases, the state agencies’ Medicaid claims for rehabilitation services alone exceeded the amount paid by the agencies for all the services the facilities provided to children. Specifically, for 82 of the residential facilities (about 43 percent), the amount the state Medicaid agency reimbursed the two agencies in state fiscal year 2004 exceeded the total amount these agencies actually paid the residential facilities for all services, not just rehabilitation services. One facility, for example, was paid by the Division of Family and Children’s Services $37 per day per eligible child for all services covered by the per diem payment, but the state agency billed the Medicaid program $62 per day for rehabilitation services alone. CMS officials agreed with our conclusion that claims from this contingency-fee project were not in accord with the statutory requirement that payments be efficient and economical. During our work we observed two factors that appear to increase the risk of problematic claims. One factor involved federal requirements that were inconsistently applied, evolving, or not specific; the second involved states’ claiming Medicaid reimbursement for services provided by other state or local-government agencies. Despite CMS’s long-standing concern about state financing arrangements for both TCM and supplemental payments, for example, the agency has not issued adequate guidance to clarify expenditures allowable for federal reimbursement. Federal TCM and supplemental payment policy for allowable claims in these categories has evolved over time, and the criteria that CMS applies to determine whether claims are allowable have been communicated to states primarily through state-specific state plan amendment reviews or claims disallowances, rather than through formal guidance or regulation. Inconsistently applied policy for allowable TCM services. In 2002, CMS began to deny proposed state plan amendments that sought approval for Medicaid coverage of TCM services that were the responsibility of other state agencies. CMS had determined that such arrangements were not eligible for federal Medicaid reimbursement for several reasons: (1) the services were typically integral to existing state programs, (2) the services were provided to beneficiaries at no charge, and (3) beneficiaries’ choice of providers was improperly limited. However, CMS approved Georgia’s and Massachusetts’s state plan amendments for TCM services before 2002. Although CMS has been applying these criteria to deny new TCM arrangements—for example, in Maryland, Illinois, and Texas—it has not yet sought to address similar, previously approved TCM arrangements that are inconsistent with these criteria. CMS regional officials told us they could not reconsider the TCM claims from two agencies in Georgia and four in Massachusetts because they were waiting for new guidance that the agency was preparing. CMS has been working on new TCM guidance for more than 2 years, according to agency officials. As of May 2005, however, this guidance had not been issued. CMS’s fiscal year 2006 budget submission identifies savings that could be achieved by clarifying allowable TCM services, but CMS had not published a specific proposal at the time we completed our work. Evolving policy for allowable supplemental payment arrangements. For several years, we and others have reported on state financing schemes that allow states to inappropriately generate federal Medicaid reimbursement without the state’s paying its full share. Although Congress and CMS have taken steps to curb these abuses, states can still develop arrangements enabling them to make illusory payments to gain federal reimbursements for their own purposes. Recognizing that states can unduly gain from supplemental payment arrangements, such as UPL payment arrangements that use IGTs, since fiscal year 2003 CMS has worked with individual states to address such arrangements. At the same time, the agency has not issued guidance stating its policy on acceptable approaches for UPL payment arrangements, specifically the use of IGTs and the relationship to state share of spending. CMS’s budget for fiscal year 2006 proposes to achieve federal Medicaid savings by curbing financing arrangements that have been used by a number of states to inappropriately obtain federal reimbursements. The specific proposal, however, had not been published at the time we completed our review. Unspecified policy on allowable Medicaid rehabilitation payments to other state agencies. CMS has not issued policy guidance that addresses situations where Medicaid payments are made by a state’s Medicaid agency to other state agencies for rehabilitation services. CMS financial management officials told us that states’ claims for rehabilitation services posed an increasing concern, in part because officials believed that states were inappropriately filing claims for services that were the responsibility of other state programs. CMS does not specify whether claims for the cost of rehabilitation services that are the responsibility of non-Medicaid state agencies are allowable. CMS’s fiscal year 2006 budget submission identifies savings that could be achieved by clarifying appropriate methods for claiming rehabilitation services. CMS had not published a specific proposal at the time we completed our review. The second factor we observed that increased the financial risk to the federal government of reimbursement-maximizing projects was that the projects shifted state costs to the federal government by claiming Medicaid reimbursement for services provided by other non-Medicaid state or local government agencies. Medicaid reimbursement to government agencies serving Medicaid beneficiaries is allowable in cases where the claims apply to covered services and the amounts paid are consistent with economy and efficiency. However, the projects and associated claims we reviewed showed that reimbursement-maximizing projects often involved services and circumstances that Medicaid should not pay for—such as illusory payments to government providers. As we describe in the report issued today, the problems we identified with states’ Medicaid claims stemming from contingency-fee projects illustrate the urgent need to address certain issues in CMS’s overall financial management of the Medicaid program. These issues, however, are not limited to situations that involve contingency-fee consultants. We have identified problems with claims in states other than Georgia and Massachusetts that have undertaken reimbursement-maximizing activities, without employing consultants, in categories of long-standing concern, such as supplemental payment arrangements. CMS relies on its standard financial management controls to identify any unallowable Medicaid claims that states may submit, including those that might be associated with reimbursement-maximizing contingency-fee projects. However, CMS lacks clear, consistent policies to guide the states’ and its own financial oversight activities. Furthermore, in our previous work on CMS’s financial management, we found that the agency did not have a strategy for focusing its resources most effectively on areas of high risk. In our current work, we found that CMS has known for some time that two high- risk categories we identified—claims generated from consultants paid on a contingency-fee basis to maximize reimbursements and claims generated from arrangements where state Medicaid programs are paying other state agencies or government providers—were problematic. For example, CMS had listed these two categories on a financial tracking sheet of high-risk areas as of 2000. At an October 2003 congressional hearing, the CMS Administrator expressed concern that the Medicaid program was understaffed and that consultants in the states were “way ahead of” CMS in helping states take advantage of the Medicaid system. CMS has undertaken important steps to improve its financial management of the Medicaid program. A major component of the agency’s initiative is hiring, training, and deploying approximately 100 new financial analysts, mainly to regional offices. These analysts are responsible for identifying state sources of Medicaid funding and contributing to the review of state budget estimates and expenditure reports. Expectations for CMS’s new Division of Reimbursement and State Financing and for the 100 new financial analysts are high and their responsibilities broad. It is too soon, however, to assess their accomplishments. For more than a decade, we and others have reported on the methods states have used to inappropriately maximize federal Medicaid reimbursement and have made recommendations to end financing schemes. CMS has taken important steps in recent years to improve its financial management. Yet more can be done. Many of the problematic methods we examined involved categories of claims where CMS policy has been inconsistently applied, evolving, or unspecified. They have also involved increasing payments to units of state and local government—which states have long used to maximize federal Medicaid funding, in part because IGTs can help facilitate illusory payments—suggesting that greater CMS attention is needed to payments among levels of government, regardless of whether consultants are involved. We believe that it is important to act promptly to curb opportunistic financing schemes before they become a staple of state financing and further erode the integrity of the federal-state Medicaid partnership. Addressing recommendations that remain open from our prior work on state financing schemes and on CMS’s financial management could help resolve some of these issues. In addition, in the report being issued today, we are making new recommendations to the Administrator of CMS to improve the agency’s oversight of states’ use of contingency-fee consultants and to strengthen certain of the agency’s overall financial management procedures. These recommendations address developing guidance to clarify CMS policy on TCM, supplemental payment arrangements, rehabilitation services, and Medicaid administrative costs; ensuring that such guidance is applied consistently among states; and collecting and scrutinizing information from states about payments made to units of state and local governments. Understandably, states that have relied on certain practices to increase federal funds as a staple for the state share of Medicaid spending are concerned about the potential loss of these funds. The continuing challenge remains to find the proper balance between states’ flexibility to administer their Medicaid programs and the shared federal-state fiduciary responsibility to manage program finances efficiently and economically in a way that ensures the fiscal integrity of the program. States should not be held solely responsible for developing arrangements that inappropriately maximize federal reimbursements where policies have not been clear or clearly communicated or where CMS has known of risks for some time and has not acted to mitigate them. Without clear and consistent communication of policies regarding allowable claims in high-risk areas, such as those for TCM and UPL where billions of dollars are claimed each year, CMS is at risk of treating states inconsistently and of placing undue burdens on states to understand federal policy and comply with it. Mr. Chairman, this concludes my prepared statement. I will be happy to answer any questions that you or Members of the Committee may have. For future contacts regarding this testimony, please call Kathryn G. Allen at (202) 512-7118. Katherine Iritani, Ellen M. Smith, Helen Desaulniers, and Kevin Milne also made key contributions to this testimony. Medicaid Fnancing: Sates’ Use of Coningency-Fee Consultants to Maximize Federal Rembursements Highlighs Need for Improved Federal ti Oversight. GAO-05-748. Washington, D.C.: June 28, 2005. High-Rsk Seres: An Updae. GAO-05-207. Washington, D.C.: January 2005. Medicaid Program Integrity: Sate and Federal E orts to Prevent and Detect Improper Payments. GAO-04-707. Washington, D.C.: July 16, 2004. Medicaid: ntergovernmena Transers Have Fac tated State Fnancing Schemes. GAO-04-574T. Washington, D.C.: March 18, 2004. Medicaid: mproved Federal Oversight of State Fnancing Schemes Is Needed. GAO-04-228. Washington, D.C.: February 13, 2004. Medicaid Fnancial Management: Beter Oversght of State Claims for Federal Rembursement Needed. GAO-02-300. Washington, D.C.: February 28, 2002. Medicaid: HCFA Reversed Is Posi on and Approved Addi onal Stae Financing Schemes. GAO-02-147. Washington, D.C.: October 30, 2001. Medicaid: Sae Financng Schemes Agan Drive Up Federal Payments. GAO/T-HEHS-00-193. Washington, D.C.: September 6, 2000. Medicaid n Schools: mproper Paymens Demand mprovements in HCFA Oversight. GAO/HEHS/OSI-00-69. Washington, D.C.: April 5, 2000. Medicaid n Schools: Poor Oversght and Improper Payments Compromse Potenta Bene t. GAO/T-HEHS/OSI-00-87. Washington, D.C.: April 5, 2000. Medicaid: Quesionable Practices Boost Federal Payments for School- Based Services. GAO/T-HEHS-99-148. Washington D.C.: June 17, 1999. This is a work of the U.S. government and is not subject to copyright protection in the United States. It may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.

Summary: Medicaid--the federal-state health care financing program covering almost 54 million low-income people at a cost of $276 billion in fiscal year 2003--is by its size and structure at significant risk of waste and exploitation. Because of challenges inherent in overseeing the program, which is administered federally by the Centers for Medicare & Medicaid Services (CMS), GAO added Medicaid to its list of high-risk federal programs in 2003. Over the years, states have found various ways to maximize federal Medicaid reimbursements, sometimes using consultants paid a contingency fee to help them do so. From earlier work and a report issued today (GAO-05-748), GAO's testimony addresses (1) how some states have inappropriately increased federal reimbursements; (2) some ways states have increased federal reimbursements for school-based Medicaid services and administrative costs; and (3) how states are using contingency-fee consultants to maximize federal Medicaid reimbursements and how CMS is overseeing states' efforts. For many years, GAO has reported on varied financing schemes and questionable methods used by states to increase the federal reimbursements they receive for operating their state Medicaid programs. These schemes and methods can undermine Medicaid's federal-state partnership and threaten its fiscal integrity. For example, some states make large supplemental payments to government-owned or government-operated entities for delivery of Medicaid services while requiring these entities to return the payments to the state. This process creates the illusion of valid expenditures in order to obtain federal reimbursement, effectively shifting a portion of the state's share of program expenditures to the federal government and increasing the federal share beyond that established by formula under law. Medicaid funding is available for local school districts for certain health services for eligible children and for administrative costs. To claim increased federal Medicaid reimbursement, however, some states and school districts have used methods lacking sufficient controls to ensure that claims were legitimate. GAO also found funding arrangements among schools, states, and private consulting firms where some states retained up to 85 percent of reimbursements for administrative costs. In some cases, school districts paid contingency fees to consultants. A growing number of states are using consultants on a contingency-fee basis to maximize federal Medicaid reimbursements. As of 2004, 34 states--up from 10 states in 2002--used contingency-fee consultants for this purpose. GAO identified claims in each of five categories of claims from contingency-fee projects that appeared to be inconsistent with current CMS policy, inconsistent with federal law, or that undermined the fiscal integrity of the Medicaid program. Problematic projects often were in categories where federal requirements were inconsistently applied, evolving, or not specific. CMS has taken steps to improve its fiscal management of Medicaid, but a lack of oversight and clear guidance from CMS has allowed states to develop new financing methods or continue existing ones that take advantage of ambiguity and generate considerable additional federal costs.