Title XIX of the Social Security Act established Medicaid as a federal-state partnership that finances health care for low-income individuals, including children, families, the aged, and the disabled. Medicaid is an open-ended entitlement program and provided health coverage for an estimated 53.9 million individuals in 2010.federal requirements, each state administers and operates its Medicaid Within broad program in accordance with a state Medicaid plan, which must be approved by CMS. A state Medicaid plan details the populations that are served, the categories of services that are covered (such as inpatient hospital services, nursing facility services, and physician services), and the methods for calculating payments to providers. The state Medicaid plan also describes the supplemental payments established by the state and specifies which providers are eligible to receive supplemental payments and what categories of service are covered. Any changes a state wishes to make in its Medicaid plan, such as establishing new payments or changing methods for developing provider payment rates, must be submitted to CMS for review and approval as a state plan amendment. States may also receive approval from CMS for a waiver from certain Medicaid requirements in order to conduct a Medicaid demonstration, and these demonstrations may include supplemental payments. These demonstrations allow states to test new approaches to deliver or pay for health services through Medicaid. Under certain demonstrations, a state may cover populations or services that would not otherwise be eligible for federal Medicaid funding under federal rules. Some states, including California and Massachusetts, have also in recent years been allowed to make supplemental payments under Medicaid demonstrations. The terms and conditions governing such demonstrations are specific to each demonstration. All states make supplemental Medicaid payments to certain providers. DSH payments are made to hospitals and cannot exceed the unreimbursed cost of furnishing inpatient and outpatient services to Medicaid beneficiaries and the uninsured. Non-DSH supplemental payments can be made to hospitals or other providers (such as nursing homes or groups of physicians) for any category of service provided on a fee-for-service basis. For example, a state might make non-DSH supplemental payments on a quarterly basis to county-owned nursing facilities that serve low-income populations to fill the gap between what regular Medicaid rates pay toward the cost of services and higher payments permitted through the UPL. Supplemental payments are typically made for services provided on a fee-for-service basis, rather than those provided through Medicaid managed care contracts. Non-DSH supplemental payments need to be approved by CMS. To obtain the federal matching funds for Medicaid payments made to providers, each state files a quarterly expenditure report to CMS—the CMS-64. This form compiles state payments in over 20 categories of medical services, such as inpatient hospital services and outpatient hospital services. States are required to report total DSH payments made to hospitals and mental health facilities separately from other Medicaid payments in order to receive reimbursement for them. From 2001 through 2009, when completing the CMS-64 to obtain federal matching funds for non-DSH supplemental payments, states combined their non-DSH supplemental payments with their regular payments—those made using states’ regular Medicaid payment rates. During this period, CMS requested that states report their non-DSH supplemental payments in a separate informational section of the CMS-64 that was not the basis for states receipt of federal matching funds. Instead, states received federal matching funds based on their reports of expenditure totals that included both regular and non-DSH supplemental payments. In 2008, we found that states reported making $6.3 billion in non-DSH supplemental payments during fiscal year 2006, but that not all states reported their non-DSH supplemental payments separately from other expenditures of Starting with the first quarter of fiscal year 2010, CMS’s the same type.new reporting procedures requested that states report certain non-DSH supplemental payments separately from their regular payments on the section of the CMS-64 used to claim federal matching funds.CMS continues to provide federal matching funds to states that report these payments in combination with regular payments on this form. The data CMS finalized for fiscal year 2010 show that states and the federal government spent at least $32 billion for DSH and non-DSH supplemental payments during fiscal year 2010, with the federal share of these payments totaling at least $19.8 billion. States reported $17.6 billion in DSH payments and $14.4 billion in non-DSH supplemental payments during fiscal year 2010, but state reporting of non-DSH supplemental payments separately from regular payments was incomplete, so the exact amount of non-DSH supplemental payments is unknown. States reported $17.6 billion in DSH payments during fiscal year 2010, with the federal government reimbursing states $9.9 billion for its share of these payments. Fifty of the 51 states reported making DSH payments during fiscal year 2010, with total reported payments ranging from about $650,000 for South Dakota to over $3.1 billion for New York.10 states reporting the largest total DSH payments in fiscal year 2010 The accounted for more than 70 percent of the $17.6 billion nationwide total, and the 4 states with the largest total DSH payments—New York, California, Texas, and New Jersey—accounted for almost half (47 percent) of the nationwide total. In assessing the contribution of DSH payments to each state’s overall spending, we found that DSH payments as a percentage of states’ reported Medicaid payments varied considerably among the states. Among states that reported DSH payments, the percentage ranged from less than 1 percent (Arizona, Delaware, North Dakota, South Dakota, Wisconsin, and Wyoming) to 17 percent (New Hampshire). Figure 1 provides information on the amount of each state’s DSH payments and each state’s DSH payments as a percentage of its total Medicaid expenditures. (App. II lists each state’s reported DSH payments during fiscal year 2010, the federal share of those payments, the state’s total Medicaid payments, and each state’s total reported DSH payment as a percentage of the state’s total Medicaid payments and of total nationwide DSH payments.) The majority of DSH payments were to hospitals for traditional inpatient and outpatient services. During fiscal year 2010, 83 percent of the nationwide total of reported DSH payments ($14.7 billion) was paid to hospitals for traditional inpatient and outpatient services and 17 percent of the total ($2.9 billion) was paid to mental health facilities for inpatient and outpatient mental health services. During fiscal year 2010, states separately reported making $14.4 billion in non-DSH supplemental payments (of which the federal share was $9.9 billion), primarily for inpatient hospital services.states were to report non-DSH supplemental payments on the CMS-64 separately from their regular payments for six categories of service. Thirty states separately reported non-DSH payments during fiscal year 2010, with reported payments ranging from $125,000 for Vermont to $3.1 billion for Texas. In assessing the contribution of non-DSH supplemental payments to each state’s overall spending, we found that non-DSH supplemental payments as a percentage of states’ Medicaid spending also varied considerably across the 30 states that separately reported these payments, ranging from 1 percent for Vermont to over 17 percent for Illinois. Figure 2 provides information on the amount of each state’s non-DSH supplemental payments and each state’s non-DSH supplemental payments as a percentage of its total Medicaid expenditures. (App. II lists each state’s reported non-DSH supplemental payments during fiscal year 2010, the federal share of those payments, the state’s total Medicaid payments, and each state’s total reported non-DSH supplemental payments as a percentage of the state’s total Medicaid payments and of total nationwide non-DSH supplemental payments.) Of the six categories of service for which states reported making non-DSH supplemental payments, states reported the largest amount of payments for inpatient hospital services. States reported $11 billion in non-DSH supplemental payments for inpatient services (with a federal share of $7.7 billion). States reported $1.8 billion in non-DSH supplemental payments for outpatient services (with a federal share of $1.15 billion). (See fig. 3.) The proportion of a state’s reported expenditures that were non-DSH supplemental payments varied across states and categories of service. In some states, non-DSH supplemental payments represented very little of the state’s reported expenditures for a category of service, while in other states, non-DSH supplemental payments represented more than one-third of the state’s reported expenditures for a category of service. For example, 27 states separately reported non-DSH supplemental payments for inpatient hospital services, and the percentage of their expenditures for inpatient hospital services that were non-DSH supplemental payments ranged from less than 1 percent (Virginia and Washington) to 48 percent (Tennessee); 13 states separately reported non-DSH supplemental payments for outpatient hospital services, and the percentage of their expenditures for outpatient hospital services that were non-DSH supplemental payments ranged from less than 1 percent (Texas) to 57 percent (Illinois); and 16 states separately reported non-DSH supplemental payments for physician and surgical services, and the percentage of their expenditures for physician and surgical hospital services that were non-DSH supplemental payments ranged from less than 1 percent (Oklahoma) to 34 percent (West Virginia). See appendix II for more information about each state’s reported total and non-DSH supplemental payments for inpatient hospital services, outpatient hospital services, nursing facility services, physician and surgical services, other practitioners’ services, and intermediate care facility services. The exact amount of non-DSH supplemental payments nationwide is unknown, in part because not all states that made non-DSH supplemental payments in 2010 reported them on the CMS-64 separately from regular payments, and some states separately reported some but not all of their non-DSH supplemental payments.