[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]



 
   EXAMINING THE FEDERAL GOVERNMENT'S FAILURE TO CURB WASTEFUL STATE 

                       MEDICAID FINANCING SCHEMES
=======================================================================


                                HEARING

                               before the

                     SUBCOMMITTEE ON ENERGY POLICY,

                      HEALTH CARE AND ENTITLEMENTS

                                 of the

                         COMMITTEE ON OVERSIGHT

                         AND GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             SECOND SESSION

                               __________

                             JULY 29, 2014

                               __________

                           Serial No. 113-140

                               __________

Printed for the use of the Committee on Oversight and Government Reform


         Available via the World Wide Web: http://www.fdsys.gov
                      http://www.house.gov/reform




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              COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

                 DARRELL E. ISSA, California, Chairman
JOHN L. MICA, Florida                ELIJAH E. CUMMINGS, Maryland, 
MICHAEL R. TURNER, Ohio                  Ranking Minority Member
JOHN J. DUNCAN, JR., Tennessee       CAROLYN B. MALONEY, New York
PATRICK T. McHENRY, North Carolina   ELEANOR HOLMES NORTON, District of 
JIM JORDAN, Ohio                         Columbia
JASON CHAFFETZ, Utah                 JOHN F. TIERNEY, Massachusetts
TIM WALBERG, Michigan                WM. LACY CLAY, Missouri
JAMES LANKFORD, Oklahoma             STEPHEN F. LYNCH, Massachusetts
JUSTIN AMASH, Michigan               JIM COOPER, Tennessee
PAUL A. GOSAR, Arizona               GERALD E. CONNOLLY, Virginia
PATRICK MEEHAN, Pennsylvania         JACKIE SPEIER, California
SCOTT DesJARLAIS, Tennessee          MATTHEW A. CARTWRIGHT, 
TREY GOWDY, South Carolina               Pennsylvania
BLAKE FARENTHOLD, Texas              TAMMY DUCKWORTH, Illinois
DOC HASTINGS, Washington             ROBIN L. KELLY, Illinois
CYNTHIA M. LUMMIS, Wyoming           DANNY K. DAVIS, Illinois
ROB WOODALL, Georgia                 PETER WELCH, Vermont
THOMAS MASSIE, Kentucky              TONY CARDENAS, California
DOUG COLLINS, Georgia                STEVEN A. HORSFORD, Nevada
MARK MEADOWS, North Carolina         MICHELLE LUJAN GRISHAM, New Mexico
KERRY L. BENTIVOLIO, Michigan        Vacancy
RON DeSANTIS, Florida

                   Lawrence J. Brady, Staff Director
                John D. Cuaderes, Deputy Staff Director
                    Stephen Castor, General Counsel
                       Linda A. Good, Chief Clerk
                 David Rapallo, Minority Staff Director

      Subcommittee on Energy Policy, Health Care and Entitlements

                   JAMES LANKFORD, Oklahoma, Chairman
PATRICK T. McHENRY, North Carolina   JACKIE SPEIER, California, Ranking 
PAUL GOSAR, Arizona                      Minority Member
JIM JORDAN, Ohio                     ELEANOR HOLMES NORTON, District of 
JASON CHAFFETZ, Utah                     Columbia
TIM WALBERG, Michigan                JIM COOPER, Tennessee
PATRICK MEEHAN, Pennsylvania         MATTHEW CARTWRIGHT, Pennsylvania
SCOTT DesJARLAIS, Tennessee          TAMMY DUCKWORTH, Illinois
BLAKE FARENTHOLD, Texas              DANNY K. DAVIS, Illinois
DOC HASTINGS, Washington             TONY CARDENAS, California
ROB WOODALL, Georgia                 STEVEN A. HORSFORD, Nevada
THOMAS MASSIE, Kentucky              MICHELLE LUJAN GRISHAM, New Mexico


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on July 29, 2014....................................     1

                               WITNESSES

Ms. Katherine Iritani, Acting Director, Health Care Team, 
  Government Accountability Office
    Oral Statement...............................................     6
    Written Statement............................................     8
Mr. John Hagg, Director, Medicaid Audits, Office of Inspector 
  General, Department of Health and Human Services
    Oral Statement...............................................    29
    Written Statement............................................    31
Ms. Cindy Mann, Deputy Administrator and Director, Center for 
  Medicare and the Children's Health Insurance Program Services, 
  Center for Medicare and Medicaid Services
    Oral Statement...............................................    38
    Written Statement............................................    41

                                APPENDIX

July 21, 2014 letter from GAO to Reps. Issa, Lankford and Jordan, 
  submitted by Chairman Lankford.................................    80
July 2014 GAO Report on Medicaid Financing, submitted by Chairman 
  Lankford.......................................................    87
Letters sent to Governors from Rep. Cummings, submitted by Rep. 
  Cummings.......................................................   154


   EXAMINING THE FEDERAL GOVERNMENT'S FAILURE TO CURB WASTEFUL STATE 
                       MEDICAID FINANCING SCHEMES

                              ----------                              


                        Tuesday, July 29, 2014,

                  House of Representatives,
    Subcommittee on Energy Policy, Health Care and 
                                      Entitlements,
              Committee on Oversight and Government Reform,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 10:00 a.m. in 
room 2154, Rayburn House Office Building, the Honorable James 
Lankford [chairman of the subcommittee], presiding.
    Present: Representatives Lankford, Walberg, Woodall, 
Cummings, Speier, Norton, Duckworth, Lujan Grisham, Davis and 
Maloney.
    Staff Present: Brian Blase, Majority Senior Professional 
Staff Member; Will L. Boyington, Majority Deputy Press 
Secretary; Meinan Goto, Majority Professional Staff Member; 
Jessica Seale, Majority Digital Director; Matthew Tallmer, 
Majority Investigator; Sarah Vance, Majority Assistant Clerk; 
Una Lee, Minority Counsel; Suzanne Owen, Minority Senior Policy 
Advisor; and Michael Wilkins, Minority Staff Assistant.
    Mr. Lankford. The committee will come to order.
    Without objection, the Chair is authorized to declare a 
recess of the Committee at any time.
    Good morning.
    I want to begin this hearing by stating the Oversight 
Committee Mission Statement. We exist to secure two fundamental 
principles. First, Americans have the right to know that the 
money Washington takes from them is well spent. Second, 
Americans deserve an efficient and effective government that 
works for them.
    Our duty on the Oversight and Government Reform Committee 
is to protect these rights. Our solemn responsibility is to 
hold government accountable to taxpayers because taxpayers have 
a right to know what they are get from the government.
    We will work tirelessly in partnership with citizen 
watchdogs to deliver the facts to the American people and bring 
genuine reform to the Federal bureaucracy.
    This is the mission of the Oversight and Government Reform 
Committee.
    Today's hearing of the Subcommittee on Energy Policy, 
Health Care and Entitlements is dealing with Medicaid. In the 
last Congress, this committee held five hearings on waste, 
fraud, abuse and mismanagement in the Medicaid Program. At 
those hearings, we highlighted tens of billions of dollars that 
are unaccounted for or improperly paid annually.
    The goal of today's hearing is to get an update on 
progress, discuss additional oversight needs and hear what will 
be done to prevent improper payments in the future.
    In the past, we learned that Texas' Medicaid program was 
spending more on kids' braces than the rest of the state's 
Medicaid programs combined and that both state and Federal 
Government were blind to the problem until a Texas news story 
came out.
    We learned that CMS approved Medicaid managed care rates in 
Minnesota well in excess of what was actuarially appropriate.
    We learned that payment rates for New York State operated 
developmental centers rose to more than $5,000 per patient per 
day, ten times higher than the rates received by private 
facilities in New York that perform similar functions. In 2012, 
taxpayers paid nearly $2.5 billion for about 1,300 patients 
residing in these facilities.
    In March of last year, the Committee released a bipartisan 
report estimating that the state received $15 billion above the 
legally permissible amount over a two decade period through 
these high payment rates.
    On a bipartisan basis, the Committee urged CMS to end the 
overpayments moving forward and to recover an appropriate 
amount of past overpayments. This past Friday, CMS announced 
its intention to recover nearly $1.3 billion in excess 
developmental center payments for 2010 from New York alone.
    We applaud CMS' actions and we encourage CMS to continue to 
recover the full amount due to the federal taxpayer from both 
2011 and 2012.
    Over the past two years, at this committee's request, the 
Government Accountability Office and Health and Human Services' 
Inspector General's Office have both conducted work to shed 
greater light on Medicaid spending. Today, they will present 
their findings and recommendations.
    All states take advantage of the extremely complicated 
Medicaid financing rules to one degree or another to maximize 
federal Medicaid money flowing into their state. At the root of 
the problem is an uncapped federal reimbursement of State 
Medicaid spending. Unfortunately, this problem is likely to get 
much worse with Obamacare's Medicaid expansion.
    Today's hearing will show that Medicaid Program financing 
needs and fundamental reform, not a blanket expansion of the 
program itself.
    GAO will provide evidence that state financing schemes over 
the past five years shift costs to the federal taxpayer. GAO 
will provide testimony that CMS cannot monitor whether state 
financing techniques and Medicaid payments to providers comply 
with legal requirements because the data CMS collects is 
insufficient.
    GAO will also provide testimony that government providers 
tend to receive substantially higher Medicaid payments than 
private providers. For instance, GAO found two local government 
hospitals in New York City that received $400 million in 
Medicaid supplemental payments in 2011 and had an average daily 
payment rate nearly ten times the amount of private hospitals 
in the state.
    The Inspector General will provide testimony about its 
findings from several audits of New York's Medicaid program, 
including a finding that state operated residential centers 
receive hundreds of millions of dollars above costs each year.
    The large payments received by these two local government 
hospitals and the state operated residential centers 
undoubtedly violate Title 19 of the Social Security Act which 
mandates that Medicaid payment rates must be efficient and 
economical.
    The high rates also violate Medicaid upper payment limit 
requirements which prohibit states from claiming federal 
matching funds for Medicaid payments that are in excess of what 
Medicare would have paid for similar services.
    These examples raise serious questions about the ability of 
CMS to effectively oversee State Medicaid spending. How does 
CMS continue to fail to detect State Medicaid spending that is 
clearly not efficient and economical and that violates Medicaid 
upper payment limits?
    What does CMS plan to do about the GAO and IG findings that 
will be presented here today?
    Finally, what steps will CMS take to monitor state 
financing and payment schemes during Obamacare's Medicaid 
expansion?
    All this is a part of our conversations. As I shared with 
the witnesses earlier today, this will be our conversation 
during this time period. We want to be able to get to the facts 
and the process.
    Billions of taxpayer dollars are at stake in this process 
and all of us have a commitment to be able to take care of 
those in greatest need but we all have a commitment to be able 
to honor the federal taxpayer in the process.
    I thank the witnesses for being here today and look forward 
to all of your testimony.
    With that, I will recognize the distinguished Ranking 
Member, the gentlelady from California, Ms. Speier, for her 
opening statement.
    Ms. Speier. Thank you, Mr. Chairman. Thank you to all the 
witnesses who have joined us today.
    Tomorrow is the 49th anniversary of the Medicaid Program. 
In 1965, this country made a pledge to low income working and 
disabled Americans that they would have a safety net to provide 
for their basic health care needs.
    This partnership between the state and federal governments 
has delivered on its promise for nearly 50 years, providing 
critical medical services to the most vulnerable Americans.
    Under the Affordable Care Act, we have extended this 
commitment to millions more Americans. This year, states were 
able to expand Medicaid to all adults under 65 with incomes up 
to 138 percent of the federal poverty level. We are talking 
about a person with an income of approximately $16,000 annually 
or a family of four with an income of $32,900.
    For these newly eligible enrollees, the Federal Government 
will pick up 100 percent of the cost of the expansion from 2014 
to 2016 falling gradually to 90 percent by 2020. Twenty-seven 
states have decided to expand Medicaid. That is a majority of 
the states in this country, including a number of Republican 
controlled legislatures and governors.
    For example, recently Governor Kasich announced his 
decision to expand Medicaid in the state of Ohio stating, ``It 
is going to save lives. It is going to help people. You tell me 
what is more important than that.''
    To the detriment of their state bottom lines, some 
governors and state legislatures are so blinded by hostility 
towards the ACA that they overlook the compelling moral and 
economic reasons to expand Medicaid.
    Similarly, many congressional Republicans view the ACA 
Medicaid expansion as well as the Medicaid Program generally as 
an anathema. Today, we will hear a number of arguments about 
why Medicaid should be cut or turned into a block grant. Let us 
remember we are talking about people making $16,000 a year.
    First, Republicans argue that Medicaid's costs are growing 
out of control but average annual Medicaid cost growth per 
beneficiary over the last 30 years has been no greater than the 
growth of health care cost systemwide.
    In fact, Medicaid's cost growth per beneficiary has been 
growing slower than cost in the private insurance market.
    Second, Republicans argue that the financing structure of 
Medicaid is highly vulnerable to gaming by states that use 
financing mechanisms to maximize federal funding. Some examples 
they point to include the use of intergovernmental transfers, 
IGTs, certified public expenditures, CPEs, and provider taxes.
    Therefore, my colleagues argue, the only way to control 
federal Medicaid costs is to block grant funding.
    It is important to point out that under the current 
statutes and regulations, provider taxes, intergovernmental 
transfers and certified public expenditures are entirely legal 
and permissible ways to finance the non-federal share of 
Medicaid.
    Nearly all 50 states use these financing mechanisms and 
have done so for decades. Moreover, the Federal Government has 
taken a number of steps over the past two decades to limit 
these mechanisms.
    Legislation enacted in 1992, 1997, 2000 and 2006, as well 
as federal regulations and guidances have imposed restrictions 
on states' abilities to draw down additional federal Medicaid 
funds.
    I am not saying that Medicaid is perfect. One problem I 
repeatedly hear about is that Medicaid pays providers much less 
than what Medicare pays. Even after factoring the Medicaid 
Supplemental Payment Program, California hospitals provided 
nearly $14 billion in uncompensated care in 2011.
    This figure includes $5.2 billion in losses due to the 
difference in cost of caring for Medi-Cal patients and what the 
program pays hospitals for those services.
    Although the problem of uncompensated care is particularly 
acute in California, uncompensated care costs and Medicare 
reimbursement rates are an issue for providers nationwide.
    Any effort to restrict state financing of the non-federal 
share of Medicaid or change the upper payment limits must be 
considered in this context and in the context of how such 
changes will affect providers who are already struggling to 
keep the doors open.
    I appreciate that today we are looking at the cost 
implications to the Federal Government by examining legitimate 
and legal practices that states use to fund their non-federal 
share of Medicaid. But if we are serious about preventing and 
identifying waste, fraud and abuse, there is so much more that 
we could be doing.
    We are currently being penny wise and pound foolish if we 
do not fully fund the HHS Inspector General's fiscal year 2015 
budget request which is one of the best tools we have for 
identifying waste, fraud and abuse.
    I look forward to hearing from GAO and OIG regarding their 
concerns and recommendations and from CMS regarding what the 
agency is doing to improve federal oversight of state financing 
of Medicaid costs.
    I also look forward to hearing about any additional actions 
that Congress should take to address these issues.
    With that, I yield back.
    Mr. Lankford. Members will have seven days to submit 
opening statements for the record.
    I would like to enter two additional items into the record. 
This is the July letter from the Office of Inspector General 
relating to the questions we asked. This is the July Medicaid 
Financing Report from the GAO. Without objection, so ordered.
    We will now recognize our first and only panel in this 
conversation.
    Ms. Katherine Iritani is the Acting Director of the Health 
Care Team for the Government Accountability Office. Thank you 
for being here.
    Mr. John Hagg is the Director of Medicaid Audits in the 
Office of Inspector General, Department of Health and Human 
Services. Thank you as well.
    Ms. Cindy Mann is Deputy Administrator and Director at 
theCenter for Medicare and the Children's Health Insurance 
Program Services for the Center for Medicare and Medicaid 
Services.
    Thank you all for being here.
    Pursuant to Committee rules, all witnesses are sworn in 
before testifying. Please stand and raise your right hand.
    Do you solemnly swear or affirm that the testimony you are 
about to give will be the truth, the whole truth, and nothing 
but the truth so help you God?
    [Witnesses respond in the affirmative.]
    Mr. Lankford. Thank you. You may be seated.
    In order to allow time for discussion, I would ask you to 
limit your testimony to five minutes. You have all given 
extensive written testimony as well. That will be made a part 
of the permanent record.
    You may deviate from what you said in your written 
testimony although we would like for it to at least be 
consistent factually. This conversation is yours to be able to 
share additional oral testimony with us.
    The Chair will recognize Ms. Iritani first for her five 
minutes.

                       WITNESS STATEMENTS

                 STATEMENT OF KATHERINE IRITANI

    Ms. Iritani. Thank you, Mr. Chairman.
    Chairman Lankford, Ranking Member Speier and members of the 
subcommittee, thank you for the opportunity to be here as you 
examine how states can shift Medicaid costs to the Federal 
Government.
    The over $400 billion Medicaid Program has been on GAO's 
list of high risk programs since 2003. A contributing reason 
was concerns we had about federal oversight of complex state 
medicaid financing and payment arrangements.
    Medicaid provides care to our Nation's most vulnerable 
citizens. As such, ensuring the program's long term 
sustainability is very important. My remarks today will focus 
on our new report on state medicaid financing and ongoing work 
on state medicaid payments to government providers.
    The bottom line of our recent work is a message about the 
need for transparency. There are significant gaps in data to 
understand both the broader picture of the extent to which 
states rely on different sources to finance their share of 
Medicaid payments and the more detailed picture of what 
Medicaid providers are actually getting paid.
    These gaps in data exist on the financing side and on the 
payment side.
    On the financing side, CMS lacks data on state reliance on 
funds they are obtaining from providers and local governments 
to finance the non-federal share. Within certain limits, states 
are allowed to tax providers and seek contributions from local 
governments to obtain funds for Medicaid.
    For providers, the payment they receive is the net payment, 
that is, what Medicaid pays them less their contributions 
toward Medicaid. states can ultimately shift more of the burden 
of Medicaid cost to the Federal Government by financing new 
payments with funds from Medicaid providers and local 
governments.
    States are required to report provider taxes to CMS but 
data are incomplete and unreliable. states are not required to 
report amounts of contributions from local governments.
    The need for better data on financing is underscored by 
results of our national survey of state medicaid programs. 
states reported they are increasingly relying on providers and 
local governments to help finance Medicaid.
    In 2012, about $46 billion or 26 percent of the non-federal 
share of Medicaid was financed with funds from providers and 
local governments, a 21 percent increase from 2008. Provider 
taxes almost doubled in size during that time from $9.7 to 
$18.7 billion. These changes are allowable within certain 
limits but have important implications for federal costs.
    In one example, the state financed an estimated $220 
million increase in payments to nursing facilities with only a 
provider tax on those facilities plus federal matching funds.
    Now to discuss the payment side. CMS also needs better 
visibility into state medicaid payments. States can have 
incentives to shift costs to the Federal Government by 
overpaying certain providers such as state or local government 
hospitals.
    In doing so, they can leverage federal matching funds for 
the excessive payments and reduce the need for state funding.
    Our ongoing work examining Medicaid payments to government 
providers has been challenged by the lack of good data. At the 
federal level, certain types of large payments that states 
often make are not captured in claims data, nor is data on the 
ownership status of providers.
    Payment data maintained only by states are not always 
reliable or very accessible. The need for better data on 
payment is underscored by the preliminary results from one 
analysis we have been able to complete of one state's payment 
to government and private hospitals.
    This analysis suggests that local governments and hospitals 
in the state received average per day Medicaid payments that 
were 44 percent higher than those made to private providers. 
One outlier hospital's payments were significantly higher than 
others. We estimate this hospital was paid on average $8,800 
per day.
    Such high payments raise questions as to whether payments 
are for Medicaid services and are economical and efficient.
    It is important to note that GAO has a longstanding body of 
work that has found problems in many states. A necessary step 
toward improving oversight and accountability in the Medicaid 
Program is to make payments and financing much more 
transparent.
    Such transparency is needed for CMS, Congress and other 
stakeholders to better ensure that Medicaid spending is 
efficiently and effectively fulfilling Medicaid purposes of 
providing medical assistance to our Nation's low income 
citizens.
    Mr. Chairman, this concludes my testimony and I am happy to 
answer any questions.
    [Prepared statement of Ms. Iritani follows:]
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    Mr. Lankford. Thank you.
    Mr. Hagg?

                     STATEMENT OF JOHN HAGG

    Mr. Hagg. Good morning, Mr. Chairman and other 
distinguished members of the committee.
    Thank you for the opportunity to testify about the Office 
of Inspector General's efforts to identify improper state 
claims of federal Medicaid dollars.
    Per your request, my testimony summarizes OIG reports in 
select areas of the New York Medicaid Program. The two key 
takeaways from my testimony are: one, New York must do a better 
job of monitoring providers to ensure that only allowable 
services are paid and two, CMS must be vigilant in overseeing 
the states to ensure that states do not claim federal 
reimbursement for improper payments.
    The New York Medicaid Program is one of the largest in the 
Country. In fiscal year 2013, New York received more than $26 
billion in federal reimbursements. It had over 5 million 
beneficiaries enrolled.
    With such significant dollars and a sizable beneficiary 
population at risk, it is critical that New York vigorously 
oversee providers and other components of its Medicaid Program. 
OIG has found millions in improper payments including payments 
for services not provided and duplicate payments.
    Based on our reviews, New York should: one, refund the 
federal share of overpayments to the Federal Government. 
Overpayments in the reports referenced in my testimony amounted 
to more than $200 million.
    Two, New York should issue better guidance to the provider 
community regarding federal and state requirements for claiming 
Medicaid reimbursement.
    Three, New York must improve monitoring to help ensure that 
providers are in compliance with applicable federal and state 
rules.
    States alone do not have sole responsibility in overseeing 
the Medicaid Program. Our work has uncovered significant 
problems when states game the system and CMS does not act 
quickly to stop it.
    My prior testimony before this committee discussed payments 
to state-run developmental centers, payments that far exceeded 
the cost of providing services. If New York had used actual 
costs in its rate setting methodology, it would have paid $1.4 
billion less for services in 2009. This would have saved the 
Federal Government as much as $700 million in that year alone.
    These rates escalated drastically over time because the 
state's rate-setting methodology originally approved by CMS in 
1986 significantly inflated the Medicaid daily rate for 
developmental centers and CMS did not prevent the rate from 
increasing to its current levels.
    We have identified similarly inflated payments to New York 
State-run residential facilities. These facilities provide 
habilitation services which assist individuals in obtaining 
skills to live in the community. If New York had used actual 
costs in its rate setting methodology, it would have saved the 
Federal Government as much as $346 million in 2011 alone.
    In April 2013, CMS and New York agreed on a new methodology 
for determining rates paid to state-operated developmental 
centers that will better align rates and costs. CMS needs to do 
the same with the state-operated facilities that provide 
habilitation services to ensure that this methodology meets the 
federal requirements that payments be consistent with 
efficiency and economy.
    These needs are not specific to New York. While my 
testimony today focuses on select issues in the New York 
Medicaid Program, OIG's audits in other states reveal similar 
problems with both state and CMS oversight.
    Given the projected growth in Medicaid, it is critical that 
we promote integrity, accountability and policies to better 
protect Medicaid resources.
    Thank you for your interest in this important issue. I 
appreciate the opportunity to appear before you today. I would 
be happy to answer your questions.
    [Prepared statement of Mr. Hagg follows:]
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    Mr. Lankford. Thank you.
    Ms. Mann?

                    STATEMENT OF CINDY MANN

    Ms. Mann. Good morning, Chairman Lankford, Ranking Member 
Speier and members of the subcommittee.
    Thank you for the opportunity to testify about Medicaid 
financial management. We understand and appreciate your 
interest in this very important topic.
    Medicaid serves 65 million people with a vast array and 
diverse array of health care needs. To serve these individuals, 
states rely on a similarly diverse array of health care 
providers reflecting their local markets, the needs of the 
population and the state's preferred approach to delivering and 
paying for care.
    Our program rules attempt to accommodate this diversity 
while also assuring access to care for eligible individuals and 
sound management of program resources.
    CMS takes very seriously our responsibility to ensure 
proper financial management and we are continuing to refine and 
improve our work driven by a strong and abiding resolve to 
ensure that all of the dollars that are directed to this 
program are spent wisely and for the purpose to which they are 
intended.
    Accountability for assuring appropriate financial 
management lies both with CMS and the states. Our ability at 
CMS to assure proper financial management depends on a large 
degree on our ability to explain clearly to states what their 
responsibilities are with respect to financial management and 
to use our resources to help them to do as good a job as they 
can in that area.
    It is also important for our responsibilities to be 
executed properly to focus on areas where state and federal 
interests may diverge.
    My colleagues with me today are key partners in that 
effort. Both the HHS OIG and the GAO provide valuable state and 
issue specific analyses on which we routinely rely on. I would 
like to acknowledge their work and their contributions.
    I want to use my time this morning to outline just a few of 
the steps we have recently taken to improve financial 
management. The committee has looked closely over the period of 
the last couple of years on the issue of federal upper payment 
limits.
    Consistent with the commitments that we made to this 
committee in March 2013, we required states to submit annual 
demonstrations that their federal upper limits were in fact 
operating consistent with this law.
    Until the guidance was issued, states reviewed upper 
payment limits only when a state made a change. As we saw in 
the instance of New York, without regular review, an upper 
payment methodology that was approved decades ago may stay in 
place and ultimately through the passage of time and events 
become out of compliance with statutory requirements.
    We are now reviewing upper payment limits annually. We have 
received the first submissions and are reviewing them now.
    In May 2014, we issued guidance regarding allowable uses of 
provider related donations in the context of some public and 
private financing arrangements which also usually involve 
supplemental payments.
    We saw some issues arise in a few states and we thought we 
needed to be proactive to let states know what we would and 
would not approve in this area.
    Capitated payments to managed care plans account for about 
30 percent of all our Medicaid spending. Over the past year, we 
have significantly deepened our review of managed care rates 
working hand in hand with our Office of the Actuary and mindful 
of GAO recommendations in this area.
    We have also revamped our payment error rate measurement 
program, known as PERM, to ensure that states properly 
implement the eligibility changes ushered in by the Affordable 
Care Act. PERM error rates in Medicaid have been declining but 
again, we wanted to be proactive in this area because the 
eligibility changes affect all states and are significant so we 
implemented a 50 state strategy so that every state has a PERM 
eligibility review in 2014, 2015 and 2016. Without this change, 
only one-third of the states would have been reviewed in each 
of those years.
    We have also invested significant resources in improving 
the data available to CMS, the states and the public to support 
program and financial management. These activities are in 
addition to our regular review of program expenditures.
    In my remaining time, let me briefly cover a few points 
raised by the testimony from Mr. Hagg and the GAO as well.
    Ms. Iritani's testimony raises two concerns. One relates to 
the non-federal share of financing for the Medicaid Program 
noting that it is within limits and federal law permissions for 
states to rely on both state general revenues and local 
revenues.
    It is common for states to rely on a mix of state and local 
revenues when they finance public services. Medicaid is no 
different and allows for that mix. The GAO's report looks at 
the increase in reliance on intergovernmental transfers and 
local government financing during the time of the recession, 
between 2008 and 2011, where state general revenues were 
declining. We did see states rely more on local revenues.
    States have different reliance on local revenues and the 
Medicaid Program allows that. There is no finding in the GAO 
report that anything was in violation of federal law on that.
    The second finding in the report is based on a preliminary 
analysis looking at some upper payment limit supplemental 
payments to New York hospitals. We have not yet seen the report 
on which this part of the testimony is based so will be eager 
to do so.
    It certainly raises concerns, not that the upper payment 
limit was violated--it appears upper payment limit was intact--
but questions about payments to a particular hospital. These 
are safety net hospitals. These were hospitals that are a part 
of the New York City Health and Hospital Corporation with 
particularly high needs.
    We will look into this payment and certainly commit to 
ongoing efforts to increase transparency on the payment side of 
supplemental payments. We believe that is an important step 
forward and one in which we are already undergoing some work.
    Mr. Hagg's testimony focuses on New York. As he noted, New 
York is a very large and complex program. Our work with New 
York, as with other states, is ongoing. The audits Mr. Hagg 
described are all under active review by CMS.
    As the committee knows and as the Chairman referenced in 
his opening statement, CMS has taken significant action, as has 
New York, with respect to the payments to both institutional 
and community-based public providers of services to people with 
disabilities.
    We have adjusted the rates going forward, completed our 
financial management review with the Office of Inspector 
General, issued a disallowance for the period covered by the 
review and the work continues as the Chairman noted.
    I will close by reiterating our very strong commitment to 
program integrity and financial management, including our 
commitment to continue to improve and enhance our oversight of 
this very important program.
    [Prepared statement of Ms. Mann follows:]
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    Mr. Lankford. Thank you. I will recognize myself for five 
minutes of questioning.
    Ms. Mann, have you all done an estimate of the cost of the 
paperwork just to fulfill the requirements from Medicaid for 
hospital providers and such?
    What was the typical estimate of the cost for them to be 
able to fulfill the paperwork requirements?
    Ms. Mann. Mr. Chairman, I am not sure there are many 
paperwork requirements for hospitals to support their claims to 
states, to support their claims to the managed care plans. We 
do not require direct paperwork submissions from the hospitals. 
We do not pay the claims directly. The states would do that.
    Mr. Lankford. I understand that. Part of the challenge we 
have here is the transparency side of how things are paid. It 
has already come up. We pull the documentation so we know how 
to be able to track that.
    Is there some sort of ballpark guess, if you are going to 
be in the Medicaid Program, obviously the states are running 
the program day to day, what the cost is for the hospital or 
the provider to be able to do separate from the cost to 
actually provide for the patients themselves?
    Ms. Mann. The hospitals would be the best judge of that. 
Obviously their decision to participate in the Medicaid Program 
is theirs, so they determine that it is cost effective for them 
to do so.
    Overall, the Medicaid Program spends less than five percent 
or about five percent on administrative costs.
    Mr. Lankford. Medicaid spends five percent in Washington, 
D.C. or in the hospitals themselves, it is a five percent cost?
    Ms. Mann. Overall, nationwide, in terms of public dollars, 
state and federal dollars, I would have to look into what a 
hospital might spend itself on complying with federal Medicaid 
requirements and how that compares to complying with private 
insurer requirements.
    For example, there are certainly paperwork requirements. 
states need to substantiate the claims and make sure they are 
well documented.
    Mr. Lankford. Right now, you are saying the administrative 
cost for states and local governments and the Federal 
Government is five percent for Medicaid?
    Ms. Mann. Overall, of our expenditures, that is correct.
    Mr. Lankford. But you don't know what it is for the 
hospitals at this point?
    Ms. Mann. No, and I am sure it would vary significantly.
    Mr. Lankford. I am confident that it would. I understand 
that--day to day, different operations of different hospitals.
    You mentioned in your testimony, Ms. Mann, that ``We saw 
issues arise in a few states on the state-provided share for 
that.'' What do you mean by that?
    Ms. Mann. There was a state plan amendment that we received 
from one state, the state of Louisiana that raised questions 
for us about these public/private arrangements. We denied that 
state plan amendment.
    Mr. Lankford. Why?
    Ms. Mann. Because we determined that the state plan 
amendment was about permission to do supplemental payments. In 
all of our inquiries about supplemental payments, we ask for 
the non-federal financing for the supplemental payment.
    We determined that it was based on provider donations that 
we felt violated our provider donation rules and that, as such, 
we could not approve the supplemental payment. We are now 
moving forward with action around the provider donation itself.
    We were concerned that this kind of practice might spread 
and we wanted to make sure that it didn't and so decided to 
issue a national guidance on it.
    Mr. Lankford. For a local government to be able to kick in 
some of the funding, the non-federal share and a state 
government to do that in a non-federal share, I understand 
that. Tell me about the provider tax. Where does that fit into 
this?
    Ms. Mann. This was a provider donation so we have rules 
that govern when a health care provider can also finance a non-
federal share of the program. They might do so through a 
donation, through a provider tax--Congress has established 
pretty elaborate rules and we implemented those rules through 
regulations--to prevent essentially a recycling so that a 
provider can make a donation, receive payment back from the 
Federal Government through the state and in fact not have 
Medicaid service to show for it.
    We felt that the provider donation in this circumstance 
violated the federal rules and we disapproved the supplemental 
payment and acted to provide national guidance.
    Mr. Lankford. Ms. Iritani, you mentioned a couple times in 
your testimony the provider payments, these provider tax issues 
and the non-federal share. Where do you think the providers are 
coming up with those dollars? Hospitals don't have a lot of 
money either at this point.
    When hospitals are providing a provider tax to be able to 
provide this non-federal share, where is that money coming 
from?
    Ms. Iritani. We haven't looked at where providers are 
getting the money but in the three examples we have in our 
report, we looked at financing arrangements in three states, 
including two that involved provider taxes.
    We looked at the effect of the arrangement and estimated if 
the arrangement had not been put in place, what the federal 
share would have been. In each case, we found the federal share 
increased, the payment to the providers increased, and the 
state's share remained the same or decreased.
    Mr. Lankford. I would like to recognize the Ranking Member 
of the full committee, Mr. Cummings, for his questions.
    Mr. Cummings. Thank you, Mr. Chairman.
    Ms. Mann, when Congress passed the Affordable Care Act, we 
included a very important provision that allows states to 
expand their Medicaid programs. States can now provide Medicaid 
services to their constituents with families below 138 percent 
of the poverty line.
    As a result, millions of families, children, pregnant women 
and many others are now able to get critical medical services 
like doctor's visits, prescription drugs and preventive care.
    As a part of this program, Congress pays 100 percent of the 
cost for three years. After that, the amount declines to 90 
percent and the states pay 10 percent. Is that correct?
    Ms. Mann. That is correct.
    Mr. Cummings. This is a great deal for states because it 
allows them to cover millions of additional people who are 
their constituents, people who otherwise might be going to 
emergency rooms for uncompensated care.
    It provides a huge boost to state's budgets, creates jobs 
and health care providers across the Country support it but not 
all states are doing it. states with democratic governors all 
support expanding Medicaid but Republican governors disagree 
among themselves with wildly differing explanations.
    For example, Jan Brewer, the Governor of Arizona, stated 
that expanding Medicaid ``would extend cost effective care to 
Arizona's working poor using the very tax dollars our citizens 
already pay to the Federal Government.''
    She added, ``It will help prevent our rural safety net 
hospitals from closing their doors and boost our economy by 
creating more than 20,000 jobs at a time when Arizona needs 
them most.''
    Similarly, Ohio Governor John Kasich stated, and Ms. Speier 
talked about this a little earlier, ``It is going to save 
lives,'' which I guess means if they don't have it, there will 
be people who will probably die. He went on to say, ``It is 
going to help people and you tell me what is more important 
than that.''
    Ms. Mann, are you familiar with the fact that these two 
governors supported expanding Medicaid in their states?
    Ms. Mann. Yes, I am.
    Mr. Cummings. On the other hand, some Republican governors 
opposed Medicaid expansion and they claim the exact opposite 
that it will cost the state too much money and they will lose 
jobs.
    For example, Texas Governor Rick Perry stated, ``It is like 
putting 1,000 more people on the Titanic when you knew what was 
going to happen.'' Florida Governor Rick Scott stated, ``It 
will be a big job killer because it will cost too much.''
    Ms. Mann, all Democratic governors agree that this program 
is a great deal for their states and constituents but 
Republican governors disagree with each other with some fully 
supporting and others claiming it will be the end of the world. 
Do you know why that is and do you have an opinion on that?
    Ms. Mann. I will say I think there is more bipartisan 
agreement than maybe those numbers might indicate. Many of the 
Democratic governors that supported and enacted expansion have 
legislators controlled by the Republicans and we are seeing 
additional states consider Medicaid expansion for the reasons 
you have outlined, Mr. Cummings, because it helps the residents 
of their states, reduces uncompensated care, brings in 
important federal dollars to the state and obviates the need 
for state and local governments to be able to pay for services 
that now can be covered because people have insurance.
    It makes good fiscal sense, makes good moral sense and 
increasingly, we see states and state legislatures rethinking 
their decision about the Medicaid expansion.
    Mr. Cummings. To me this should not be based on politics, 
should not be based on whether a particular governor is a 
Republican opposed to the Affordable Care Act for political 
reasons.
    This should be based on the facts and the data. Today, I 
sent letters to six Republican governors, three who support 
Medicaid expansion for their constituents and three who oppose 
it. I ask unanimous consent that those six letters be made a 
part of the record, Mr. Chairman.
    Mr. Lankford. Without objection.
    Mr. Cummings. Ms. Mann, I didn't ask them for rhetoric or 
political position. I asked them for the actual data analysis 
that they relied on in making their decisions. How much did 
they estimate the expansion would save or cost, how many of 
their people would be helped or hurt, and how would their state 
budget be affected, positively or negatively.
    My last question to you is whether GAO would be willing to 
assist us in reviewing their responses. I really want to see 
what they say. Would you help us analyze this data and these 
reports so that we can evaluate them thoroughly and better 
understand their decisions?
    Ms. Mann. The question is for GAO?
    Mr. Cummings. Yes, GAO. Would you help us do that?
    Ms. Iritani. We are happy to work with your staff on that.
    Mr. Cummings. Thank you very much.
    I see my time has expired. Thank you, Mr. Chairman.
    Mr. Lankford. Mr. Walberg?
    Mr. Walberg. Thank you, Mr. Chairman.
    Thanks to the witnesses for being here today.
    Ms. Iritani, as I understand, GAO found evidence that 
states were under reporting information on funds received from 
the providers and local governments. Can you discuss your 
findings further?
    Ms. Iritani. Certainly. states are required to report 
provider taxes to CMS on the expenditure reports known as the 
CMS 64.
    We surveyed states to identify provider taxes and we 
discovered there were six states that had reported provider 
taxes to us that were not reported on the CMS 64. CMS officials 
also agreed that the state reported provider tax information is 
not reliable or complete.
    Mr. Walberg. I assume the reason that is important is for 
efficiency?
    Ms. Iritani. For oversight. There are requirements around 
provider taxes in terms of certain federal limits and 
parameters.
    Mr. Walberg. Ms. Mann, I assume that you are concerned 
about the fact that states are under reporting the payments. 
What has CMS done to address this problem?
    Ms. Mann. Absolutely, we are concerned. We require the 64 
reporting and I underscore the word require. It is a 
requirement, not an option, with states. I think both in the 
area of provider taxes and the area of supplemental payments we 
have increased our efforts to assure proper reporting on the 
64s.
    I think the reporting has increased significantly. I don't 
think it is 100 percent there and we are working very hard to 
make sure it is 100 percent there as it should be.
    Mr. Walberg. Any specifics on how you are doing that to get 
the 100 percent?
    Ms. Mann. We are reaching out to every one of the states. 
We do approve provider taxes so we have information about 
provider taxes from different mechanisms so we are cross 
walking our information in particular our regional offices. We 
have ten regional offices around the Country and we are 
specifically reaching out to every state to underscore the 
importance of proper reporting on the 64.
    We have also revised our 64 this year to add some 
additional items for reporting. We certainly agree with the GAO 
that transparency and having proper information is key to good 
oversight.
    Mr. Walberg. Ms. Iritani, I understand another GAO study on 
payments to government-owned providers was hampered by poor 
data and state records. Can you describe some of the challenges 
that the GAO encountered?
    Ms. Iritani. Certainly. We attempted to identify payments 
to government providers that states were making. In doing so, 
we tried to combine data that only states have on supplemental 
payments they make with the claims data at the federal level on 
payments to providers.
    The problems we faced were significant. As an example, 
states may pay providers using different provider identifiers 
than what is captured in the federal claims data. states may 
use multiple state identifiers in paying providers supplemental 
payments.
    We found that one state we contacted didn't have a 
crosswalk between the national provider identifier.
    Mr. Walberg. What state was that?
    Ms. Iritani. That was California. It didn't have a 
crosswalk so that we could not match the state-provided data 
with the federal data very easily.
    Mr. Walberg. As I understand, federal law requires that 
Medicaid payments are efficient and economical, correct?
    Ms. Iritani. That is correct.
    Mr. Walberg. Given that we don't know how much providers 
are receiving through supplemental payments, is it impossible 
for CMS to verify whether payments satisfy the efficient and 
economical criteria?
    Ms. Iritani. Certainly not for those providers receiving 
the large supplemental payments that only states capture data 
for. We estimate that about $43 billion in supplemental 
payments were likely not captured in the federal data. That is 
quite a bit of money.
    Mr. Walberg. I see my time is about to expire, so I yield 
back.
    Mr. Lankford. Ms. Speier?
    Ms. Speier. Thank you, Mr. Chairman.
    Thank you, again, to our witnesses.
    Let me ask you, Ms. Mann, on the issue of provider 
donations, it is kind of an odd concept to me. I think probably 
what we are talking about is uncompensated care that is being 
provided by these hospitals because we, in the Federal 
Government, have required that anyone who shows up at an 
emergency room, regardless of their ability to pay, must 
receive care. Is that a fair assumption?
    Ms. Mann. You are right, that may be considered a provider 
donation in the broader sense, but under our federal law, that 
is not the kind of donation we would be looking for. I think 
they are generally rare. In the case I referenced, it was 
around a lease agreement for a private hospital to agree to 
provide some services to the state that ended up being treated 
as a donation.
    Ms. Speier. It is unusual to have provider donations is 
what it sounds like?
    Ms. Mann. It is not that common for the reasons you would 
imagine.
    Ms. Speier. Mr. Hagg made the point that it is really 
important for CMS to take the example of New York because he 
doesn't presume it to be isolated and look across the Country 
to see to what extent that has happened in other states. Have 
you done that?
    Ms. Mann. Absolutely, and we take our information from our 
experience overseeing financial management in all the states to 
think about how to move forward in New York. For example, we 
issued guidance to all 50 states around annual demonstration of 
the upper payment limit, exactly the issue we identified as the 
problem in New York.
    Ms. Speier. I want to ask a more specific question. Have 
you looked at other states to see if there have been 
overpayments so that you might be able to claw that back?
    Ms. Mann. Yes. We have required annual submissions and we 
look at their data to be able to see if there are overpayments.
    Ms. Speier. Have there been any overpayments?
    Ms. Mann. We are still looking at the first submissions 
provided by states. They were just submitted in 2014. We are 
looking at that now.
    Also, right after New York, we determined some of the 
issues with the New York upper payment limit, that it was an 
old state plan amendment that had an automatic escalator. We 
looked at every state to see what upper payment limit 
methodologies we had accrued over the decade with automatic 
escalators.
    We determined none had the kind of problem we identified in 
New York. We are taking a number of different steps to be able 
to see immediately and then over time, whether these problems 
arise in other contexts.
    Ms. Speier. Are you going to claw back the money in New 
York? Have you taken steps to do that?
    Ms. Mann. We have issued a disallowance in New York. We 
issued the disallowance on last Friday of $1.257 billion for 
the year covered by the financial management review. We have 
worked with New York and effective April 2013, their rates to 
the residential developmental disability centers were lowered 
by about 75 percent.
    We are going to do a further adjustment of that amount 
based on the financial reviews Going forward, since April 2013, 
those rates have been righted.
    We have also addressed the payments rates for their home 
and community-based service waiver public providers. We have 
reached agreement with New York. That is also retroactive to 
April 2013 and the work continues.
    Ms. Speier. Good. Mr. Hagg also referenced the 
rehabilitation services in New York and that you should look at 
them as well. Have you done that?
    Ms. Mann. We are looking at all the audits that OIG has 
done in New York. They are all under active review. Some have 
cleared our review which means we have come to an agreement 
with the OIG and its findings and will do further work with New 
York to do recovery.
    Ms. Speier. Thank you. I am going to move on to Ms. 
Iritani.
    The call in your report really is about transparency.
    Ms. Iritani. That is correct.
    Ms. Speier. If you were to suggest to CMS what steps they 
should undertake to ensure transparency moving forward in terms 
of the data they are getting from states, what would that 
entail?
    Ms. Iritani. We have made a recommendation in our new 
report that CMS develop a data collection strategy for 
improving data on the financing side. We have prior 
recommendations in reports that CMS require provider specific 
payment reporting so that supplemental payments that states 
make that are not captured in federal data are visible to the 
Federal Government for oversight purposes.
    Ms. Speier. Ms. Mann, are you going to undertake that kind 
of transparency?
    Ms. Mann. Yes. We definitely think that transparency on the 
payment side is critically important and we do investigate the 
non-federal share of funding with respect to any action a state 
is taking individually.
    We are looking at different ways to ensure that the rule in 
law that no more than 40 percent of the non-federal share can 
be through non-state sources is abided by. There is no 
indication from the GAO report they were even close to 
violating that but we do want to be proactive and think about a 
statewide reporting structure that may capture that 
information.
    Ms. Speier. My time has expired. Thank you.
    Mr. Lankford. Thank you.
    Mr. Woodall?
    Mr. Woodall. Thank you, Mr. Chairman.
    Thank you all for being here today. I wanted to follow up a 
bit on what Mr. Cummings asked.
    Ms. Mann, Mr. Cummings and you discussed the state Medicaid 
expansion. What are we looking at in terms of dollars for 2014? 
I have seen dollars for 2012, 2011, 2008. What are the expected 
federal Medicaid outlays for this calendar year?
    Ms. Mann. About $308 billion.
    Mr. Woodall. Thinking back to 2012 before the Medicaid 
expansion, it was $251 billion and is $308 billion this time. 
That is about a 20 percent increase. Do you attribute the 
increase in Medicaid spending predominantly to the expansion 
through the Affordable Care Act or do you attribute it 
predominantly elsewhere?
    Ms. Mann. I don't have the earlier number you referred to 
so I can't comment on the 20 percent increase. I don't think it 
was that high.
    Mr. Woodall. How many new people are we trying to add? Can 
you compare the Medicaid population from last year to the 
hopeful Medicaid population this year?
    Ms. Mann. Sure. We have been doing monthly data reporting 
on the changes in enrollment in the Medicaid program, not 
limited to the new eligibles but overall Medicaid enrollment.
    Compared to pre-October 1, 2013, the enrollment has 
increased across all states by 6.7 million people.
    Mr. Woodall. That is an increase of what percent?
    Ms. Mann. We cover about 65 million people.
    Mr. Woodall. About a 10 percent increase in the number of 
folks who are there?
    Ms. Mann. That is right, more as you might expect in the 
expansion states, a greater percentage increase in the 
expansion states and less so although still some increase in 
the states that chose not to expand.
    Mr. Woodall. I will be interested to see when GAO works 
with the Ranking Member on the letters he sent out to 
governors. I don't know if my governor was one of those. I took 
a little offense to the suggestion that governors oppose it for 
political reasons.
    I think my governor opposes it for financial reasons. I 
wanted to ask you all about that. Ms. Iritani, I am looking at 
your report. It tells me that Medicaid is on, and has been for 
11 years, on the list of high risk programs. What has to happen 
to end up on a list of high risk programs? That does not sound 
like an accolade, it sounds like a warning sign.
    Ms. Iritani. GAO's high risk list is put together based on 
work that we do and concerns that GAO has about risks related 
to fraud, waste, abuse, mismanagement or programs in need of 
broad transformation.
    In Medicaid's case, we put Medicaid on our high risk list 
because of concerns about oversight as well as the significant 
growth in the program, as well as the diversity and challenges 
of oversight.
    Mr. Woodall. That is certainly where I would characterize 
our governor as being, that if you have a program in need of 
dramatic transformation, this might not be the right time to 
try to ramp up enrollment.
    I am looking at your report, Mr. Hagg. I think I have 
misread it. It said that the IG's efforts to identify improper 
state claims exceed $450 billion, a half trillion dollars is 
what the IG's office has identified in improper state claims.
    Mr. Hagg. No, that is the total Medicaid spending for I 
think 2013, the $450 billion.
    Mr. Woodall. Help me to understand. It says, ``Thank you 
for the opportunity to testify on ongoing efforts to identify 
improper state claim to federal Medicaid dollars, federal and 
state outlays exceed''--I see exactly what you are saying.
    As the IG is trying to develop its strategy, are you trying 
to identify dollar values, or are you trying to identify the 
number of people affected? How do you direct your limited 
efforts in such a large program?
    Mr. Hagg. It is both. Certainly we try to focus where the 
dollars go, so we do spend a lot of time auditing states like 
New York and some of the other states, Texas and California. We 
focus on quality of care type issues and try to make sure that 
the Medicaid beneficiaries are receiving proper services.
    We try to look for areas we believe to be high risk, the 
areas that sort of stand out compared to others and try to 
direct our limited resources to those high risk areas.
    Mr. Woodall. I see my time has expired.
    Mr. Lankford. Mr. Davis?
    Mr. Davis. Thank you very much, Mr. Chairman.
    Although I am not a member of this subcommittee, I thank 
you for the opportunity to participate.
    Mr. Lankford. Mr. Davis, would you yield for a moment?
    Mr. Davis. Yes.
    Mr. Lankford. I would ask unanimous consent to include Mr. 
Davis and Mrs. Maloney both on this panel for this discussion 
today. Without objection, so ordered.
    Now you are on our panel. How about that?
    Mr. Davis. I am delighted.
    I have been around health care, I guess, for about 40 
years. I have always held that when we passed Medicare and 
Medicaid, those were two of the most effective and best 
decisions that this Country has ever made relative to trying to 
make sure that low income people had access to a level of 
health care.
    Ms. Mann, let me ask, have you observed any changes in life 
expectancy and quality of life since we passed those measures?
    Ms. Mann. I appreciate your comments. Yes, we have seen 
extraordinary changes in the day to day lives of people. We 
have healthy Americans who no longer have the insecurity of 
knowing that if something happens to their family member, they 
could go bankrupt, they could lose their home, or they could 
lose their resources.
    We have enrollment campaigns all the time and have had it 
for years since the Medicaid and CHIP programs were passed. We 
have the testimony from parents about what it means for them to 
know their child has the security of coverage.
    We also know people have significant illnesses. They get 
cancer treatments that they wouldn't be able to get with the 
absence of coverage. They get the benefits of having home and 
community-based services that allow them to live, 
notwithstanding significant disabilities or chronic illnesses, 
in their homes and still be active members of the community.
    It goes well beyond the actual health outcomes but really 
to their ability to live their lives and contribute to their 
communities.
    Mr. Davis. Let me say I greatly appreciate the work of each 
of the agencies represented, but I have always found CMS to be 
a pretty tough outfit in terms of what it is that it does and 
the impact it has on health care delivery with hospitals and 
other providers.
    I happen to represent more hospitals than any other 
congressional district in America and also a large number of 
medical schools and large poor populations, individuals who are 
at or below the poverty line.
    I know Illinois has been mentioned in these discussions a 
little bit but looking at New York, is there anything unique 
that you find about the New York population, especially in say 
New York City, that is being treated and makes use of Medicaid?
    Ms. Mann. We certainly see many positive steps in New York. 
New York was one of the early states to adopt managed care to 
begin to move towards a more integrated delivery system to 
provide services to individuals. It was one of the leaders in 
that and then proceeded to expand its managed care in a slow 
and careful way. I think by and large it has done a good job.
    It has embarked on a recent initiative to improve delivery 
of services and to integrate those services better. It is a 
very hospital-based system, particularly in New York City. I 
think the effort now is to assure there are more community-
based partners to promote better primary care, to reduce 
hospital admissions and through those improvements, to lower 
costs.
    New York is a microcosm of the Nation but as we often say, 
is a little bit more so--many poor people, many hospitals, many 
providers and juggling a lot of issues with a very large 
program.
    Mr. Davis. The characteristics are very similar to much of 
the population that I represent, so I can appreciate the 
efforts they have made. I also recognize that you have to pay 
for what you get but I also believe we have to make sure we get 
as much out of our resources as we possibly can.
    Mr. Chairman, I thank you again. I yield back.
    Mr. Lankford. Ms. Lujan Grisham?
    Ms. Grisham. Thank you, Mr. Chairman.
    I want to try to refocus on the focus of the hearing which 
is examining whether or not we are curbing our wasteful 
spending and looking at whether there are schemes.
    In listening to some of the dialogue today, I don't know 
that I would call them schemes, but in fact, CMS scrutinizes I 
think to a high degree a variety of mechanisms that states use 
when their budgets are precarious given the growth in any 
population.
    Take an elderly, aging and disability population receiving 
institutional care, for example, and the nursing home bed tax 
which some states successfully did by showing an expansion in 
those services. states like New Mexico had some trouble 
including in the Medicaid rate a reimbursement for a tax for 
the services provided by the nursing homes so that comes back 
to the state and back into your Medicaid budget and identifying 
whether or not that gives you an expanded service.
    Is that one of those provider donation kind of schemes that 
we look at across the Country, Ms. Mann?
    Ms. Mann. Yes, that can be. Our provider tax rules say the 
tax has to be broad based so it is not just targeted to 
Medicaid providers. The refinancing and circular payments that 
you describe can't happen.
    Ms. Grisham. Had to be for everybody in the facility, as an 
example, not just those on Medicaid?
    Ms. Mann. That is right and for similar facilities that 
aren't Medicaid providers.
    Ms. Grisham. Every facility licensed to provide that care 
has a tax.
    Ms. Mann. I might note we recently issued on Friday further 
guidance on provider taxes that again looked at a particular 
practice that we saw might be going on and provided 
clarification. That was with regard to managed care 
organizations--okay for a State to construct a broad based tax 
on managed care organizations, but not just Medicaid managed 
care organizations because it can lead to exactly the issue you 
raised.
    Ms. Grisham. I was trying to get out some testimony about 
how these work and why they work or not and what your scrutiny 
or review looks at specifically.
    Ms. Iritani, the GAO released a report today on methods 
like this perhaps that States use to finance their share of 
Medicaid, correct?
    Ms. Iritani. That is correct.
    Ms. Grisham. Your report concludes that States have 
increasingly relied on funds from health care providers and 
local governments, correct?
    Ms. Iritani. That is correct.
    Ms. Grisham. Did you conclude in any of these reports that 
these funds, along with the federal match, the government's 
match, were being wasted, used fraudulently or abused in any 
way?
    Ms. Iritani. We did not.
    Ms. Grisham. I want Medicaid to be leveraged appropriately, 
ethically, legally, managed effectively, want the growth in the 
population to be considered and effectively addressed but I am 
concerned that there are data gaps and transparency issues.
    I am committed with this subcommittee and the entire 
committee and my colleagues to work on those so that we don't 
jump to conclusions. Unfortunately, that happened in my home 
state of New Mexico.
    The New Mexico Human Services Department prematurely 
stopped Medicaid payments to 15 non-profit behavioral health 
providers, that equals 100 percent of them, based on 
allegations of waste and fraud that have thus far turned out to 
be false, untrue.
    This caused severe disruptions in behavioral health care 
services for more than 30,000 adults and children, interrupting 
access to medication, psychiatrists and counselors. As we look 
at balances about what we are doing, I just want to make sure 
that we are clear that the report did not find any of these.
    Ms. Mann, I am looking forward to having you and hosting 
you in Albuquerque in August so that we look at increasing 
access to these very important treatments and making sure these 
vulnerable populations that Medicaid is intended to serve, as 
my colleague, Mr. Davis, so artfully reasserted.
    The point is I think we should not use unverified 
allegations of waste as a pretext to make significant changes 
to important programs like Medicaid which put at risk the very 
people these programs were designed to serve.
    With that, I yield back, Mr. Chairman.
    Mr. Lankford. Mrs. Maloney?
    Mrs. Maloney. Thank you, Mr. Chairman.
    I thank the distinguished panelists for being here today, 
for testifying and for all of your hard work.
    I wish this hearing had chosen to look expansively at the 
Medicaid Program overall and not just at one specific state, 
New York, but I recognize that our panelists here today work 
hard to manage the Medicaid system and program across the 
Country.
    The testimony from GAO correctly points out that the size, 
growth and diversity of the Medicaid Program presents a 
challenge to administration and oversight of the program. The 
challenge in New York is significant.
    We invest more in our Medicaid population than any other 
state, offering coverage to more than 5 million New Yorkers. 
For these individuals, Medicaid is a lifeline and Governor 
Cuomo has taken seriously the long term sustainability of the 
program.
    One of his first initiatives as governor was to launch a 
Medicaid redesign team which saved $2 billion in its first year 
alone.
    First of all, I would like to ask Mr. Hagg, you have 
released a series of reports on improper payments in the New 
York Medicaid system. Is that correct?
    Mr. Hagg. That is correct.
    Mrs. Maloney. Have you done a report similar to this in 
other states?
    Mr. Hagg. We have not. At the committee's request, we 
focused, in the testimony, on eight different Medicaid audit 
issues in New York that we have issued over the past year.
    Mrs. Maloney. Why did you just focus on New York?
    Mr. Hagg. It was at the committee's request.
    Mrs. Maloney. Are there other states that you think have 
similar challenges as New York?
    Mr. Hagg. Yes. New York receives a large amount of federal 
Medicaid reimbursement. Based on that and other factors, we do 
spend a lot of time in New York conducting audits on an annual 
basis.
    We also spend time auditing many other states throughout 
the Country, including larger states like California and Texas.
    Mrs. Maloney. This specific type of report is only for New 
York, so some of the other states that have similar 
populations--New York is an immigration center, New York has a 
high number of disadvantaged, struggling new immigrants, so we 
help these people.
    There are other states that have the same types of 
challenges. Why aren't you doing reports on them?
    Mr. Hagg. We do issue reports on many states throughout the 
Country. On an annual basis, we probably issue 75 or so 
Medicaid audit reports.
    Mrs. Maloney. Similar to this report?
    Mr. Hagg. If you refer to the letter we sent to the 
committee that focused on the eight individual New York reports 
we have issued over the past year, that letter focuses on New 
York because that is what we were asked to talk about in that 
letter.
    Mrs. Maloney. I would like you to come back on other 
states. Let us look and see if this challenge is the same in 
other states with populations like this. Were your findings in 
this series of audits similar to the findings in other states?
    Mr. Hagg. Yes.
    Mrs. Maloney. So it was similar to other states. Was the 
rate of error unusually relative to other programs?
    Mr. Hagg. In New York, the reports we focused on fell into 
two categories. One, it had to do with how the state was paying 
individual providers like home health providers. The second 
category was on the payment methodologies used by the state to 
pay state-operated facilities.
    In those two categories, we have done similar work in other 
states, so in New York we have performed home health audits and 
have performed home health audits in others as well.
    Mrs. Maloney. My question is, are the challenges similar in 
other states as in New York?
    Mr. Hagg. To some degree, yes. When you talk about home 
health providers, when the states are trying to make sure that 
the payments they are making are following all federal and 
state rules, there are challenges in other states as there are 
in New York.
    Mrs. Maloney. Where improper payments are identified, we 
need to make changes that help ensure that only qualified 
providers and beneficiaries access Medicaid resources. I am 
pleased that the supplemental program integrity review issued 
by CMS found that the New York Office of Medicaid Inspector 
General did not substantiate reports of systemic failures that 
would compromise the long term viability of program integrity 
activities.
    That office and its counterparts nationwide are critical to 
identifying improper payments where they exist and recovering 
these funds.
    We often talk about improper payments. I would like to 
understand from you what is included in this term. Are improper 
payments necessarily fraudulent, Mr. Hagg?
    Mr. Hagg. No.
    Mrs. Maloney. What are some of the reasons a payment may be 
classified as improper or noncompliant?
    Mr. Hagg. Specific to the reports we issued in New York, it 
had to do with payments made to providers that did not follow 
specific, applicable federal and state rules. That was one 
category.
    The second category focused on the payment rates for 
developmental centers run by the state and residential 
facilities run by the state. In those cases, we saw that the 
payments rates were extremely high, much higher than the cost 
of providing services, much higher than the payments that were 
made to the private facilities.
    We consider those inappropriate payments because they are 
so much higher that it is so much harder to justify it as being 
economical.
    Mrs. Maloney. My time has expired. I ask permission of the 
Chair to submit in writing additional questions to the 
panelists.
    Mr. Lankford. Without objection, so ordered.
    Mrs. Maloney. Thank you, Ranking Lady, also for helping us 
with this hearing.
    Thank you so much.
    Mr. Lankford. Ms. Duckworth.
    Ms. Duckworth. Thank you, Mr. Chairman.
    The Medicaid Program is a lifeline for the most vulnerable, 
low income and disabled population in Illinois. For the most 
high risk portion of society, this program serves a critical 
purpose, improving health outcomes, improving mental health and 
decreasing the catastrophic medical expenses. In short, it is a 
good investment although it would cost taxpayers more money if 
these folks end up at the emergency rooms.
    Since my state of Illinois is one of the examples used in 
the GAO's report, I wanted to put the discussion into 
perspective. Illinois receives one of the lowest Medicaid 
federal matching rates in the country, barely above the minimum 
required by law, in fact, only 50.76 percent.
    It serves 4.3 percent of the Nation's Medicaid population 
but receives only 3.2 percent of total Medicaid funding. In 
terms of federal money that reaches our state in general, 
Illinois ranks 49th in federal return of all tax dollars. We 
only receive 56 cents back to Illinois for each dollar our 
taxpayers send to Washington.
    I would like to thank the witnesses for joining us today on 
this very important topic. Ms. Iritani, are the 
intergovernmental transfers and provider taxes used by nearly 
all 50 states to finance their Medicaid programs?
    Ms. Iritani. Could you repeat the question?
    Ms. Duckworth. Yes. Are intergovernmental transfers and 
provider taxes used by nearly all 50 states in the Medicaid 
Program?
    Ms. Iritani. Yes, that is correct.
    Ms. Duckworth. It is not just Illinois that does it?
    Ms. Iritani. That is correct.
    Ms. Duckworth. Can you explain why GAO is concerned about 
states' increasing reliance on these sources of funding to 
finance the non-federal share of Medicaid?
    Ms. Iritani. Yes. We are concerned about the transparency 
around how states are financing the non-federal share. There 
are multiple limits and parameters around, for example, user 
provided taxes and as Cindy pointed out, the percentage of 
payments that need to come from state funds. Currently, there 
is no data at the federal level for monitoring that.
    We are also concerned because there is great flexibility 
under the federal rules for concentrating both on the payment 
side and on the financing side, the use of things like 
intergovernmental transfers.
    States can require particular facilities to fund all of the 
non-federal share. It gives states incentives to over pay 
providers that are financing the non-federal share of the 
payment. That is part of why we think there is more 
transparency needed on both the payment side as well as the 
financing side.
    Ms. Duckworth. In addition to greater transparency, I think 
we all support greater transparency, you are not actually 
saying to end the intergovernmental transfers but you are just 
saying you would like to see more transparency?
    Ms. Iritani. Exactly.
    Ms. Duckworth. Does the GAO believe it is necessary to 
adopt proposals made by some of my Republican colleagues to 
block grants to the Medicaid Program in order to address these 
issues?
    Ms. Iritani. Our recommendations have been aimed at the 
Administration and Congress around improving reporting, 
guidance and auditing of certain high risk payments.
    Ms. Duckworth. The GAO recommends a narrow, targeted 
approached focused on improving the reporting and auditing of 
the payments but not actually stopping the system or block 
grants, correct?
    Ms. Iritani. Correct.
    Ms. Duckworth. If I correctly understand your answers, 
these are legitimate, allowable funding streams approved by CMS 
which provide critical support to state Medicaid programs. Can 
you explain a bit more what limits exist to their use of IGTs 
and provider taxes at this point?
    Ms. Iritani. As Cindy mentioned, provider taxes are subject 
to certain requirements that they be broad based and uniform, 
and not provide a direct or indirect guarantee that the 
provider will receive the funds.
    There are very few requirements actually on the use of 
intergovernmental transfers and certified public expenditures.
    Ms. Duckworth. Thank you.
    At a time when federal budgets are tight, it is really 
appropriate to consider all potential savings to the 
government, but I would argue that perhaps the best place to 
start is not legitimate local funding sources for critical 
health care programs, especially not at a time when states are 
under significant budgetary pressure to provide services to 
their most vulnerable populations.
    I really worry that limiting these funding sources will 
inevitably mean less care for the neediest patients, longer 
waits for medical care, closed hospitals and layoffs of medical 
workers.
    In a state with a large rural population, that is a 
significant threat to access to health care for some of the 
poorest residents of my state. In the long run, this will put 
more pressure on both federal and local government and not 
less.
    Thank you.
    I yield back, Mr. Chairman.
    Mr. Lankford. Thank you.
    As this committee is well aware, this is the second round 
of questioning, so there will be no clock during this 
questioning and members may interject at any time to be able to 
have colloquy during any part of the questioning. The same 
pertains to the witnesses as well. If you want to interject, 
you do not have to wait to be recognized. This is the more free 
flowing part of our conversation.
    I do want to ask the question because the Medicaid Program 
has been on the high risk list for so long. How do they get 
off? What would be needed for you to see and say okay, they are 
no longer on there because this has been taken care of?
    Ms. Iritani. We have multiple reports with multiple 
recommendations that have not been implemented by the 
Administration as of yet. For a first step, we believe the 
Administration should implement our recommendations in the case 
of financing and payments in terms of more auditing, more 
reporting and more guidance.
    Ms. Speier. Mr. Chairman, will you yield?
    Mr. Lankford. Absolutely.
    Ms. Speier. I actually applaud the high risk list that GAO 
puts out. We should use it as guidance as we review various 
agencies.
    One of the other big agencies that has been on the high 
risk list, as I understand, for a very long time is the 
Department of Defense, is that not true?
    Ms. Iritani. I cannot speak to that.
    Ms. Speier. I can speak to it. Thank you.
    In truth, we have high risk in many areas within the 
Federal Government.
    Ms. Iritani. There are many areas, yes.
    Mr. Lankford. No question and no dispute on that at all. 
The issue is, it sat out there for a while. We know the issues 
on DOD, they can't fulfill an audit and that is part of the 
responsibility that this committee and others will have to be 
able to make sure they can audit and be able to implement that.
    I am trying to determine for CMS specifically, what can be 
done for Medicaid to begin to move them off that high risk 
list, in terms of a list of recommendations that need to be 
implemented. Ms. Mann, are you familiar with those 
recommendations?
    Ms. Mann. I am familiar with the recommendations. We have 
agreed with many of them and have implemented many of them and 
many are being implemented. GAO has been making recommendations 
about oversight of managed care rates. It is an area in which 
we have deeply engaged ourselves and our Office of Actuaries.
    I think we have made lots of progress on those 
recommendations. In some part, we are a high risk program 
because we are a large program. It is right that there be good 
attention by the GAO, OIG and of course, by CMS and the states 
on the expenditures in the program.
    I want to be clear that we have moved forward with many of 
the recommendations pretty aggressively and continue to do so.
    Mr. Lankford. Ms. Iritani, you have a report we just 
received recently from July of this year. In it on one of the 
pages you talk about two hospitals in New York that received 
$416 million in upper payment limit supplementals compared to 
$70 million in regular payments. Your average on this was 
$8,800 per day per patient.
    Ms. Iritani. That is correct.
    Mr. Lankford. How did you find that?
    Ms. Iritani. We worked very hard to obtain from the state 
the data that only the state maintains on the supplemental 
payments that they make and to match that with provider 
specific analysis of the claims data at the federal level to 
come up with a total amount that individual providers were 
paid.
    We took from the federal data the number of inpatient 
hospital Medicaid days that each hospital provided and came up 
with an average per day payment.
    Mr. Lankford. What is your best guess on how long this kind 
of thing has gone on?
    Ms. Iritani. In terms of this particular arrangement?
    Mr. Lankford. Correct.
    Ms. Iritani. I believe the original state plan amendment 
was approved in the early 2000s.
    Mr. Lankford. We are talking 12 years or so probably this 
has happened?
    Ms. Iritani. Because there isn't payment data at the 
federal level, we did not look at the payments the state was 
making in prior years. We looked at the most recent.
    Mr. Lankford. The obvious question for CMS is, how can you 
miss it? When you have someone who has $70 million in regular 
payments, $416 million in supplemental payments, is there a 
system in place that makes that stand out, set off an alarm, 
something that triggers this is an outlier?
    Ms. Mann. We are certainly in agreement around the 
transparency recommendations and have significantly increased 
transparency around upper payment limits by facility and audits 
by facility. We would agree that more transparency is needed.
    When you look at base payments compared to DSH supplemental 
payments, states have multiple methodologies by which they 
decide to pay different providers. Some receive DSH payments. 
These individual hospitals did not receive any disproportionate 
share hospital payments. Other hospitals might have received 
those payments but not these supplemental payments.
    We need to look at the totality. It was within, we 
believe--we haven't seen the underlying work that the GAO has 
done but we believe it was within the underlying limits of the 
cost based upper payment limit for this class of facilities. 
That being said, we want to make sure for each of the 
facilities identified that the payment is fair and efficient.
    There are lots of different ways in which hospitals get 
paid, some through supplemental payments, some through DSH 
payments and some through base payments.
    There is also transparency on the public side. Before we 
approve the state plan amendment of the supplemental payments, 
there is a notice that goes out to the community so that other 
providers as well as the public know what is being proposed by 
New York. That transparency I think helps within the 
marketplace.
    Mr. Lankford. I would completely agree with that. Do you 
know what the two hospitals are?
    Ms. Mann. We believe they are two hospitals within the 
health and hospital systems that provide rehabilitative 
services.
    Mr. Lankford. Do you feel at this point from an initial 
look that this is appropriate? Other hospitals are paid in 
other ways. You think this one does a lot to fall within the 
efficient system?
    Ms. Mann. I am sorry. What I am saying is that generally on 
the issue of base payments and supplemental payments, there are 
a lot of different factors that go into any hospital payments. 
We have to look more specifically at these payments and will be 
glad to do so.
    Mr. Lankford. The question comes back to transparency then, 
how do we find this? What can be built into the system because 
you said lots of people are paid lots of different ways. It is 
not necessarily going to stand out and no alarm bells go off. 
We come back to it and say these two hospitals together just 
for this small group of patients seem to be such an outlier.
    You may come back to it and you may report back to this 
committee and say, no, everything is fine. These are very high 
risks or high need patients but the initial blush of it looks 
like an outlier. How did that not pop up?
    Ms. Mann. There are a lot of alarm bells that are built 
into the system right now. We will look into this one and 
determine whether both payments to these facilities are 
appropriate but also whether we should take broader steps 
including the transparency recommendations the General 
Accounting Office has recommended.
    Ms. Speier. Mr. Hagg, you actually highlighted 
rehabilitation services as an area that CMS really needs to 
look at. I think I asked the question, Ms. Mann, if you were 
looking at rehabilitation services and you said yes.
    Mr. Hagg, what can be done to have a trigger occur to CMS 
in a way that it hasn't historically?
    Mr. Hagg. I think for rehabilitation services, that was 
through a home and community based waiver. In those situations, 
it requires more thorough review of the waiver, increased 
monitoring, and maybe more often looking at the payment 
methodologies used in those waivers to help develop the payment 
rates.
    Ms. Speier. Let us talk about the waivers. Define what the 
waiver is and how many states have these waivers?
    Mr. Hagg. I don't know exactly the number of waivers. Most 
states use waivers in one way or another. It is a way of saying 
you are waiving certain Medicaid rules to help with a different 
part of the program. You are going to provide different types 
of services that normally aren't provided through Medicaid and 
CMS waives those provisions so that care can be provided.
    Ms. Speier. I know California has had waivers. It is a 
means by which they say we don't have to play by these rules 
but we will provide all these services with this much money. It 
is a way of maybe expanding services or doing things 
differently to maximize benefits and reduce the actual paper.
    Mr. Hagg. Very good services can be provided through 
waivers. The question in our mind here with the work we did, we 
just say that the payment rates, the payment methodology 
resulted in payment rates for the public for the state operated 
residential centers that were like 57 percent above cost that 
were twice what would be paid to similar private facilities. 
That is where our concern lies not so much with the service 
that is being provided but with how much is being paid for the 
service.
    Ms. Speier. I am having a little difficulty now trying to 
understand. If it is more than the private by 50 percent, is 
that what you just said?
    Mr. Hagg. Yes.
    Ms. Speier. But it is still within the waiver that they 
were granted, so it sounds like they were playing by a set of 
rules that everyone agreed to but then when you look at private 
providers they were actually spending a lot more.
    It seems we create a blank check situation conceivably with 
the waiver that creates that kind of divergence between a 
private pay and a waiver payment?
    Mr. Hagg. The terms and conditions of the waiver were 
followed in this case. We didn't question cost here. Our report 
was to CMS and we recommended that CMS and the state work 
together to get the payment rate for those state facilities 
more in line with what we believe to be economy and efficiency.
    One distinction here is I believe payments made under 
waiver don't factor into upper payment limits for those 
facilities. Upper payment limits apply more towards the fee for 
service payments that are made to hospitals, nursing homes and 
intermediate care facilities.
    Ms. Mann. If I might try to clarify, the particular waivers 
that we are talking about here are under 1915(c) to provide 
home and community based services. Many states have them, many 
states have multiple ones to be able to provide those kinds of 
services as alternatives to institutional care for people 
needing long term services.
    Our waivers actually do require that the public providers 
either pay what they pay in private facilities or private 
providers or what costs are. New York needed to come into 
compliance with that term of the waiver. They have done so. We 
have worked with them over the last year to do that. It is 
retroactive to April 2013. That agreement has been reached so I 
think that issue has been resolved.
    One of the areas we are continuing to do more oversight is 
in our home and community based waivers. It is different than 
these other payments.
    Ms. Speier. In this case the waiver required them to do 
something they hadn't done?
    Ms. Mann. That is correct.
    Ms. Speier. Even within the waiver, they were not 
complying?
    Ms. Mann. They were not in compliance and were brought into 
compliance.
    Ms. Speier. Thank you.
    Mr. Lankford. Ms. Norton?
    Ms. Norton. I think it is important to clarify that, in 
other words, the waiver includes and assumes an amount in which 
you will have to be in compliance. It is not an open ended 
notion. That wouldn't make any sense or else everyone would 
want a waiver.
    I think this is an important hearing and I thank the 
Chairman for it. I am sorry I was not able to attend earlier.
    As I understand, the states that have foregone Medicaid 
expansion also have the highest number of uninsured and have 
always had the highest number of uninsured. I have two 
questions about those states.
    That is a lot of money. Do the billions of dollars that are 
not being used by those states go to support the states that 
are using Medicaid expansion?
    Ms. Mann. Certainly it is federal taxpayer dollars being 
used to support the federal share of the Medicaid expansion. 
Federal taxes are raised throughout the Country. To some 
extent, yes, there is cross-subsidization that residents of one 
state may not be getting the benefit of if their state hasn't 
chosen to expand.
    Ms. Norton. How is the health care of these residents who 
do not qualify for Medicaid but cannot in their state qualify 
for expansion, where do they go for health care?
    Ms. Mann. Often, they don't get health care. They often 
don't have a usual place of medical care to get primary care.
    Ms. Norton. But they get sick like everyone else.
    Ms. Mann. They get sick like everyone else but the point is 
they don't get the same health care as someone who is insured. 
When they get sick like everyone else, they often will turn to 
the hospital emergency room or if it is a more acute situation, 
even be admitted to the hospital.
    One of the findings for the states that have expanded, we 
have seen reports coming out of Arkansas and Maryland, for 
example, of the reduction in emergency utilization and hospital 
admissions and uncompensated care since those states moved 
forward with their Medicaid expansions.
    Ms. Norton. That was my next question. Perhaps we are too 
early in the process to get that assessment from all the states 
but one of the most important reasons for passing the 
Affordable Health Care Act was to reduce the use of the 
emergency room, like going to a major hotel to get your health 
care. When will we have some sense of the reduction in 
uncompensated care?
    Ms. Mann. We have actually been seeing reports from 
hospital systems and states around the Country. We would be 
happy to provide the reports we have seen so far. Obviously, as 
you note, it is still a bit early and yet even in this early 
time, we are already seeing in communities across the Country 
some significant decline in uncompensated care.
    Ms. Norton. Mr. Chairman, I would like to know what 
decline, if any, there has been in the District of Columbia. 
There may be other members who would like to know that kind of 
information for their own states as well.
    Mr. Lankford. Absolutely. Is that complete for the District 
of Columbia at this point or at least some preliminary data?
    Ms. Mann. We are not doing the data analysis ourselves. We 
are more relying on analyses that either the local jurisdiction 
or their hospital systems have done or universities. We will 
look at what is available for the District and let the 
committee know.
    Ms. Norton. I am very unclear on uncompensated care. I 
thought that once the Affordable Health Care Act passed, there 
wasn't going to be anymore uncompensated care. You are in a 
state that has not expanded Medicaid and your hospitals, in 
particular, are continuing to get people in the emergency room. 
Is there a process by which you apply to the Federal Government 
to get uncompensated care the same way you did before the 
Affordable Health Care Act was passed?
    Ms. Mann. There is no federal financing for uncompensated 
care per se. It is absorbed first by the hospital and then by 
other payers. It could be state and local payers that are 
cross-subsidizing. It could be businesses and private payers 
who are cross-subsidizing so that the hospital can continue to 
provide a certain degree of uncompensated care.
    When more people are covered and there is lower 
uncompensated care, it is a benefit to all payers of our health 
care system.
    Ms. Norton. Your testimony is that there is no 
uncompensated care available for hospitals in states who are 
accepting people in their hospitals or emergency rooms, there 
is no channel for uncompensated care from the Federal 
Government but the law continues that they must provide care 
for anyone who presents at the hospital?
    Ms. Mann. There is no general uncompensated care fund 
administered by the Federal Government. The Medicaid Program 
has what is called the Disproportionate Share Hospital Payment 
Program that provides a capped amount of dollars to states and 
a key purpose of those dollars is to reimburse hospitals for 
some of their uncompensated care.
    Medicaid has a mechanism to help states and hospitals that 
is a capped allotment that varies by states and in the 
Affordable Care Act, anticipating that uncompensated care would 
be on the decline, Congress reduced the overall level of 
disproportionate share payments, particularly in the out years.
    There is some funding that is available but much of it is 
absorbed overall by our health care system making our health 
care system as a whole more costly. It is one of the reasons 
why providing coverage to everybody can help reduce costs for 
the Nation as a whole.
    Ms. Norton. Could I just ask for the provision of some more 
information to you, Mr. Chairman?
    Mr. Lankford. Sure.
    Ms. Norton. To the extent that you have any information on 
the effect of the viability of hospitals, particularly in those 
states which have not expanded Medicaid, I would be very 
interested in knowing about those hospitals and whether they 
are experiencing difficulty, whether any have closed and what 
the viability is and to the extent you have that information, 
that would be informative.
    Mr. Lankford. If that information is available, that would 
be very much appreciated.
    Let me add one other piece as well. When is the last time 
the list of the disproportionate share hospitals changed? How 
often is that list updated?
    Ms. Mann. The states decide which disproportionate 
hospitals, so there is a federal definition of what a DSH 
hospital could be. The states then decide which hospitals in 
their states they will provide payments to and how much those 
payments will be provided.
    We do annual audits, hospital specific audits, of 
disproportionate share. There is always an evolving list and we 
have those audits on our website.
    Mr. Lankford. Medicare/Medicaid as well? I know that is the 
other side of the building for you, but do you know if the 
Medicare list has changed or how that is updated?
    Ms. Mann. I would want to get back to you precisely on 
that.
    Mr. Lankford. We will follow up.
    Ms. Mann. Thank you.
    Mr. Davis. Mr. Chairman, let me just make one point if I 
could.
    I am so delighted that we emphasized earlier that every 
time there is an improper payment, it does not mean that there 
is an allegation of fraud nor any kind of scheme. Many of these 
hospitals, especially disproportionate share hospitals, 
sometimes will make mistakes or there are errors and payments 
might be received.
    Ms. Mann, I wanted to just ask you are there any provisions 
relative to recovery and what that actually means? I ask that 
question because I have come into contact with, and continue to 
do so, many disproportionate share hospitals which I have that 
are always seemingly on the ropes. They are always wondering if 
they are going to be put out of business, if they going to make 
it, or are they going to be around next year. That level of 
uncertainty kind of keeps them up in the air.
    Are there provisions in terms of looking at these 
situations a certain way to try and figure out how we can make 
sure that we salvage them as opposed to causing them to close 
or go out of business?
    Ms. Mann. You are absolutely right. They tend to be very 
critical providers of services in low income communities. We 
certainly want, through the Medicaid Program generally and the 
DSH Program, to afford them some stability.
    Obviously the expansion provides the greatest opportunity 
for some of those hospitals to increase their revenues because 
they are serving those people who are now uninsured and for 
whom Medicaid payment could be issued.
    We try to provide some predictability on DSH payments. 
Again, it is a federal/state responsibility in terms of states 
deciding what those payments would be. The audits provide, I 
think, some stability. I think when there is transparency and 
clarity on payments, then everyone can feel comfortable that my 
dollars are spent and received correctly and I can continue to 
receive them subject to the state's decisions.
    Let me mention one thing about whether the overpayments--
your first comment--are not always because of fraud but often 
because of just mistakes that are made. In addition, the OIG 
audits, for example, will look at, as Mr. Hagg testified, 
whether federal or state requirements are being met beyond 
federal requirements.
    New York, for example, has many requirements that they 
impose on their providers that are well above what the Federal 
Government provides. Some of those are excellent requirements 
for training and certifications. They are not required by 
federal law but the Office of Inspector General's protocol is 
to look at violations of those protocols as well as others.
    It is a little bit of a double edged sword for states 
because to the extent they are doing more regulating of 
providers, they run the risk of sometimes falling short of not 
always in every situation meeting those requirements. It is an 
area that we are looking at to see whether that is a way in 
which we ought to be proceeding in terms of our calculation of 
overpayments.
    Mr. Davis. Thank you very much.
    Thank you, Mr. Chairman.
    Mr. Lankford. Ms. Duckworth?
    Ms. Duckworth. Thank you, Mr. Chairman.
    I would like to hear a bit more about what we are doing to 
improve oversight of the Medicaid Program, particularly with 
respect to state financing of the non-federal share, going back 
to that discussion.
    Ms. Mann, can you provide an overview of CMS' upper payment 
limits demonstration initiative and how it differs from past 
practice?
    Ms. Mann. Sure, I would be glad to.
    On the issue of non-federal share, as Ms. Iritani 
testified, it is allowable for states to use local resources to 
meet their non-federal share requirement. Many states rely on 
local revenues. In the state of Colorado, for example, more 
than half of its state and local revenues are locally 
generated. Vermont is the opposite, much more State, not local.
    States raise their money in different ways and the Medicaid 
Program allows a recognition of that diversity in how States 
will raise their money. We ask about non-federal share to make 
sure it is a proper financing of any action that is before us.
    With respect to the upper payment limit itself, which is a 
cost-based limit as to the amount of total dollars that can be 
spent to certain classes of providers, we have embarked on a 
new initiative requiring every State to submit annually 
demonstrations that their upper payment limit--they used to 
have to certify, now they have to demonstrate with publicly 
available data by facility what the costs are so that we are 
assuring that not only are they computing the upper payment 
limit correctly but that we compute the upper payment for each 
State for each class of facility.
    That data is publicly available. We are pouring through it 
now and we will determine whether there are any particular 
payments that run afoul of the upper payment limit and whether 
any further action is needed. It is a significant effort being 
undertaken.
    Ms. Duckworth. If you applied to the past, would the upper 
payment limit program you are initiating now have identified 
payments such as those run by the New York Office of People 
with Developmental Disabilities, would it have caught those?
    Ms. Mann. It would have. I might add the State shares 
responsibility with the Federal Government to assure that it 
follows federal law. The State did certify for years that it 
was following the upper payment limit and its payments were 
within the limit. The limit was not imposed in the last couple 
of years.
    We did not review that annually. We relied on their 
certification and only reviewed it when they made a change 
which they didn't make for many years. Now the annual 
demonstration of the upper payment limit to us gives us an 
additional tool in addition to what the State has before them 
to make sure these kinds of payments would not happen again.
    Ms. Duckworth. Ms. Iritani, was that the kind of thing that 
would be helpful in our earlier discussion talking about 
greater reporting and greater transparency? Would a process 
like this be helpful in providing the oversight?
    Ms. Iritani. We think the initiative Ms. Mann discussed is 
a good step. However, we feel there are still significant gaps 
in their oversight. In the particular case of the hospitals we 
identified receiving the very high payments, we looked at the 
UPL demonstration and the hospitals that had received these 
high payments. The payment amounts they were receiving were not 
identified.
    We looked at other documentation the State submitted to CMS 
around that payment arrangement and none of the documentation 
actually identified the actual payments those facilities 
received.
    Ms. Duckworth. I certainly would welcome more oversight. I 
just want to make sure that we continue to provide services to 
persons with disabilities and other vulnerable groups. Thank 
you very much.
    I yield back, Mr. Chairman.
    Ms. Speier. Mr. Chairman, if I may. Ms. Iritani, based on 
what my colleague, Ms. Duckworth, has said, it sounds like we 
still have a way to go to create that kind of transparency that 
is necessary.
    I don't want a lot of happy talk here at the end where we 
think we have made all this advancement and in fact, we are 
just kind of nibbling around the edges. What more should be 
done by CMS to make sure that we are addressing the gaps and 
creating meaningful transparency?
    Ms. Iritani. On the payment side, CMS needs to know how 
much providers are actually getting paid. Without having 
supplemental payment data, they cannot know that. The current 
mechanisms they have for approving payments such as the one 
with the hospitals are not identifying the actual payments 
individual facilities are being paid.
    On the financing side, CMS' oversight is also not 
identifying the extent that individual facilities are 
contributing the non-federal share and with the flexibility 
under federal rules, States can ask individual facilities to 
fund all of the non-federal share of a payment which 
effectively reduces the facility's payment significantly. From 
the provider's perspective, the net payment is what they are 
receiving.
    Mr. Lankford. Can you go into greater detail on that last 
statement? How does that work?
    Ms. Iritani. The 60-40 requirement in terms of the State 
being required to contribute 40 percent is applied in the 
aggregate, not for individual payment arrangements. It allows 
States to concentrate a requirement, for example, through an 
intergovernmental transfer on a particular facility to provide 
all of the non-federal share.
    This is part of what creates the incentive for States to 
over pay individual facilities that are financing the non-
federal share.
    Mr. Lankford. How would do that and why would a facility 
say let us do the bulk of the payment? That is not natural, I 
would say, for a facility to say, we would like to pay the 
majority of this tax. Why would they do that?
    Ms. Iritani. I think there could be arrangements where they 
are receiving what might be considered excessive payments. From 
the standpoint of the providers, they understand the State 
needs to provide the non-federal share, so they are either 
being required to contribute or are voluntarily doing so.
    Mr. Lankford. Can you provide us any examples with that?
    Ms. Iritani. For example, the two hospitals we identified 
in our statement that were receiving the $8,800 per day 
estimated payment from Medicaid, those providers were also 
financing the non-federal share of those payments.
    When you consider the match rate for New York, that would 
reduce the payments they were receiving considering the net 
payments less the non-federal share they were receiving. We 
still think that even if you cut that $8,800 per day in half it 
is still much higher than what local government hospitals in 
the city were receiving.
    Mr. Lankford. For those facilities, they were paying a much 
higher rate and the provider tax basically the share that needs 
to come in from the non-federal entity but they are also being 
paid a much higher rate when actually they are being paid for 
their services?
    Ms. Iritani. Exactly. That is how the cost shifting can 
occur.
    Mr. Lankford. Ms. Mann, do you want to comment on that?
    Ms. Mann. Thank you. Again, we would totally agree with the 
recommendation for greater transparency. I just want to make 
sure that everyone is clear that the steps that have been taken 
are significant.
    Overall, these payments are within what is called the upper 
payment limit established by Congress by classes. The classes 
that were established divide public providers, State providers 
and local providers to try and address some of these financing 
issues.
    That upper payment limit assures that in the aggregate the 
payments to that class of providers can be no more than the 
cost.
    Mr. Lankford. But an individual hospital may get a much, 
much higher rate?
    Ms. Mann. That is right and as we noted before, not saying 
anything about the validity of this particular payment because 
we need to look at it more closely, these hospitals were not 
getting disproportionate share payments and they were specialty 
hospitals within the New York City health and hospital system.
    There may be different things going on that we will want to 
look at but within the context in terms of the exposure of 
potentially excess payments, it is within an overall aggregate 
cost structure. To the extent they are getting those payments, 
other providers within those classes are not.
    Mr. Lankford. Right. To the extent of that these two 
hospitals received about ten times more in that supplemental 
than my state did in total for DSH payments. I would say they 
were an outlier to say the least and may need some further 
examination.
    I have a question and a statement. I don't know if anyone 
else has additional questions. GAO, there is a sentence in your 
report that I want to follow up and get greater detail on. 
``CMS has taken steps to improve the transparency and oversight 
of Medicaid financing and payments but has not implemented all 
of GAO's prior recommendations and has generally disagreed with 
GAO's new recommendation.'' What is the new recommendation you 
are referencing there?
    Ms. Iritani. The new recommendation is that CMS develop a 
data collection strategy for improving the completeness and 
accuracy of data that they have on how States are financing the 
non-federal share.
    Mr. Lankford. Is it accurate to say you disagree with that 
or is that something you are in the process of implementing?
    Ms. Mann. First of all, the recommendations on the 
supplemental payments and public reporting of that is a new 
recommendation that has not yet been shared with us. It was 
just announced at this testimony. I believe we fully agree with 
that.
    The particular recommendation before was on whether we 
should do public reporting of financing of each facility's 
payment. We think it is probably more helpful to have public 
reporting of the supplemental payments to the facilities and 
then overall, the State's use of distribution of non-federal 
share of dollars.
    It was more the particular proposal and using a particular 
data set that we thought was not exactly right, certainly not 
in the spirit of making sure that there is good information 
about both the non-federal share financing and certainly the 
actual payments themselves.
    Mr. Lankford. The difficulty is are we getting accurate, 
matchable data that we can actually line up what is happening 
in individual locations with what is being paid so we know what 
a provider is being paid.
    Ms. Mann. That is right. We totally agree with that.
    Mr. Lankford. When is that coming so that we know that?
    Ms. Mann. We will be working on that and we will be in 
communication with the committee about that.
    Ms. Iritani. Mr. Chairman, may I respond?
    Mr. Lankford. Yes.
    Ms. Iritani. The recommendation we have to improve facility 
specific reporting of Medicaid payments has been in place for 
many years. That was made to CMS in a report. I don't have the 
date right now but it has been many years.
    Mr. Lankford. Not necessarily public reporting of that but 
it is available to CMS to be able to access that data?
    Ms. Iritani. Correct. Our work on Medicaid payments to 
government providers is ongoing. We expect a report by the end 
of the year. We do not have recommendations yet.
    Mr. Lankford. Additional comments? Let me drop my one 
bombshell since it has been referenced several times and on the 
dais as well. It is the comment about block granting which 
several folks have talked about.
    Much of what we have talked about today is transparency of 
information coming back to the Federal Government. If there 
comes a day that we identify to a State whether it be a pilot 
program or whatever it may be, this State is given the ability 
to be able to manage its people, we are not having to play the 
provider share game and who is doing the provider attacks and 
what municipality.
    They have the amount of money they are getting right now 
attached to that State and the responsibility to be able to 
take care of their people in that State.
    Most of the issues we talked about today go away because 
much of the fight is how much information are we getting from 
States and other people. They simply have the responsibility in 
their State which I would assume States are doing anyway, doing 
whatever they can.
    The Medicaid leadership in each State comprises some pretty 
amazing people scattered around the Country trying to do some 
very hard work to be able to manage people in their State of 
great need and who are very, very vulnerable.
    I know this is an ongoing conversation today about 
transparency. I wanted to be able to mention the block granting 
concept in the days ahead because it has come up several times 
in this conversation. Much of what we talked about being high 
risk is reporting requirements that all go away and we move 
from reporting requirements to taking care of people as the 
first and primary priority there.
    Ms. Mann, why do I think you might disagree with that?
    Ms. Mann. A couple of things. I totally agree with we 
should be moving to more outcome based measurement of 
performance of our program. That is something we have been 
working with and something I think States totally agree with. I 
fully agree with that.
    I guess where I would disagree is that what we are worrying 
about here, which I think is not the norm. I think you are 
absolutely right, Medicaid programs are run well. Hard working 
people are running them trying to deliver good services to 
people who need those services.
    To the extent that we worry about State use of those 
federal dollars and arrangements with providers, block granting 
those dollars and saying we have no responsibility over those 
dollars seems to me to exacerbate the legitimate concerns we 
think the committee has around ensuring always we have sound 
financial management.
    If there is need for more financial management, the answer 
is not to have less.
    Mr. Lankford. I just have the belief that there are people 
in individual States that actually care for their people, not 
just the people in Washington, D.C.
    Ms. Mann. I totally agree.
    Mr. Lankford. I think there is a way to be able to do 
financial transparency of how it is being spent but 
understanding the care in the decision making, the waivers that 
have come up multiple times today if those move through a State 
happen much faster and the capability to be able to experiment 
with how you deliver quality care to even more people happens 
at a faster rate when it is made on a local level.
    When it is done here in Washington, D.C., they are numbers 
on a page because there is no way to be able to manage it. It 
is the same hearing we have had here multiple times. There is 
such a high rate, as we mentioned, not necessarily fraud but it 
is money we don't know about, and they haven't completed all 
the paperwork, all the signatures aren't there.
    It is difficult to do for 50 States and 50 processes. It is 
much different to do in an individual State.
    I know I have taken us off track but I wanted to bring that 
up at the end.
    I thank you for your testimony. I thank you for bringing 
the additional written documents. We look forward to some 
follow up questions and getting additional data.
    With that, we are adjourned.
    [Whereupon, at 12:00 p.m., the subcommittee was adjourned.]


                                APPENDIX

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               Material Submitted for the Hearing Record

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