[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]





  EXAMINING MEDICAID AND CHIP'S FEDERAL MEDICAL ASSISTANCE PERCENTAGE

=======================================================================

                                HEARING

                               BEFORE THE

                         SUBCOMMITTEE ON HEALTH

                                 OF THE

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED FOURTEENTH CONGRESS

                             SECOND SESSION

                               __________

                           FEBRUARY 10, 2016

                               __________

                           Serial No. 114-115




[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]






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                    COMMITTEE ON ENERGY AND COMMERCE

                          FRED UPTON, Michigan
                                 Chairman
JOE BARTON, Texas                    FRANK PALLONE, Jr., New Jersey
  Chairman Emeritus                    Ranking Member
ED WHITFIELD, Kentucky               BOBBY L. RUSH, Illinois
JOHN SHIMKUS, Illinois               ANNA G. ESHOO, California
JOSEPH R. PITTS, Pennsylvania        ELIOT L. ENGEL, New York
GREG WALDEN, Oregon                  GENE GREEN, Texas
TIM MURPHY, Pennsylvania             DIANA DeGETTE, Colorado
MICHAEL C. BURGESS, Texas            LOIS CAPPS, California
MARSHA BLACKBURN, Tennessee          MICHAEL F. DOYLE, Pennsylvania
  Vice Chairman                      JANICE D. SCHAKOWSKY, Illinois
STEVE SCALISE, Louisiana             G.K. BUTTERFIELD, North Carolina
ROBERT E. LATTA, Ohio                DORIS O. MATSUI, California
CATHY McMORRIS RODGERS, Washington   KATHY CASTOR, Florida
GREGG HARPER, Mississippi            JOHN P. SARBANES, Maryland
LEONARD LANCE, New Jersey            JERRY McNERNEY, California
BRETT GUTHRIE, Kentucky              PETER WELCH, Vermont
PETE OLSON, Texas                    BEN RAY LUJAN, New Mexico
DAVID B. McKINLEY, West Virginia     PAUL TONKO, New York
MIKE POMPEO, Kansas                  JOHN A. YARMUTH, Kentucky
ADAM KINZINGER, Illinois             YVETTE D. CLARKE, New York
H. MORGAN GRIFFITH, Virginia         DAVID LOEBSACK, Iowa
GUS M. BILIRAKIS, Florida            KURT SCHRADER, Oregon
BILL JOHNSON, Ohio                   JOSEPH P. KENNEDY, III, 
BILLY LONG, Missouri                     Massachusetts
RENEE L. ELLMERS, North Carolina     TONY CARDENAS, California
LARRY BUCSHON, Indiana
BILL FLORES, Texas
SUSAN W. BROOKS, Indiana
MARKWAYNE MULLIN, Oklahoma
RICHARD HUDSON, North Carolina
CHRIS COLLINS, New York
KEVIN CRAMER, North Dakota
                         Subcommittee on Health

                     JOSEPH R. PITTS, Pennsylvania
                                 Chairman
BRETT GUTHRIE, Kentucky              GENE GREEN, Texas
  Vice Chairman                        Ranking Member
ED WHITFIELD, Kentucky               ELIOT L. ENGEL, New York
JOHN SHIMKUS, Illinois               LOIS CAPPS, California
TIM MURPHY, Pennsylvania             JANICE D. SCHAKOWSKY, Illinois
MICHAEL C. BURGESS, Texas            G.K. BUTTERFIELD, North Carolina
MARSHA BLACKBURN, Tennessee          KATHY CASTOR, Florida
CATHY McMORRIS RODGERS, Washington   JOHN P. SARBANES, Maryland
LEONARD LANCE, New Jersey            DORIS O. MATSUI, California
H. MORGAN GRIFFITH, Virginia         BEN RAY LUJAN, New Mexico
GUS M. BILIRAKIS, Florida            KURT SCHRADER, Oregon
BILLY LONG, Missouri                 JOSEPH P. KENNEDY, III, 
RENEE L. ELLMERS, North Carolina         Massachusetts
LARRY BUCSHON, Indiana               TONY CARDENAS, California
SUSAN W. BROOKS, Indiana             FRANK PALLONE, Jr., New Jersey (ex 
CHRIS COLLINS, New York                  officio)
JOE BARTON, Texas
FRED UPTON, Michigan (ex officio)




















  
                             C O N T E N T S

                              ----------                              
                                                                   Page
Hon. Joseph R. Pitts, a Representative in Congress from the 
  Commonwealth of Pennsylvania, opening statement................     1
    Prepared statement...........................................     3
Hon. Marsha Blackburn, a Representative in Congress from the 
  State of Tennessee, opening statement..........................     5
Hon. Frank Pallone, Jr., a Representative in Congress from the 
  State of New Jersey, opening statement.........................     6

                               Witnesses

Alison Mitchell, Analyst in Health Care Financing, Congressional 
  Research Service...............................................     8
    Prepared statement...........................................    10
Anne Schwartz, Ph.D., Executive Director, Medicaid and CHIP 
  Payment and Access Commission..................................    13
    Prepared statement...........................................    15
    Answers to submitted questions...............................   106
Carolyn Yocom, Director Of Health Care, Government Accountability 
  Office.........................................................    33
    Prepared statement...........................................    35
    Answers to submitted questions...............................   108
John Hagg, Director of the Medicaid Audits, Office of Inspector 
  General, U.S. Department of Health and Human Services..........    49
    Prepared statement...........................................    51
    Answers to submitted questions...............................   113

                           Submitted Material

Chart entitled, ``FY2014 Total Spending $3.5 Trillion, submitted 
  by Mr. Shimkus.................................................    70
Statement of the Illinois Health and Hospital Association, 
  submitted by Ms. Schakowsky....................................    90
Statement of the American Academy of Pediatrics, submitted by Mr. 
  Pitts..........................................................    91

 
  EXAMINING MEDICAID AND CHIP'S FEDERAL MEDICAL ASSISTANCE PERCENTAGE

                              ----------                              


                      WEDNESDAY, FEBRUARY 10, 2016

                  House of Representatives,
                            Subcommittee on Health,
                          Committee on Energy and Commerce,
                                                    Washington, DC.
    The subcommittee met, pursuant to call, at 10:00 a.m., in 
room 2123 Rayburn House Office Building, Hon. Joe Pitts 
(chairman of the subcommittee) presiding.
    Members present: Representatives Pitts, Guthrie, Shimkus, 
Murphy, Blackburn, Lance, Griffith, Bilirakis, Long, Ellmers, 
Bucshon, Brooks, Collins, Engel, Capps, Schakowsky, Castor, 
Sarbanes, Matsui, Luja AE1n, Schrader, Kennedy, Ca AE1rdenas, 
and Pallone (ex officio).
    Staff present: Rebecca Card, Assistant Press Secretary; 
Paul Edattel, Chief Counsel, Health; Tim Pataki, Member 
Services Director; Graham Pittman, Legislative Clerk, Health; 
Michelle Rosenberg, GAO Detailee, Health; Chris Santini, Policy 
Coordinator, Oversight and Investigations; Chris Sarley, Policy 
Coordinator, Environment and the Economy; Heidi Stirrup, Policy 
Coordinator, Health; Sophie Trainor, Policy Advisor, Health; 
Josh Trent, Deputy Chief Counsel, Health; Christine Brennan, 
Minority Press Secretary; Jeff Carroll, Minority Staff 
Director; Tiffany Guarascio, Minority Deputy Staff Director and 
Chief Health Advisor; Rachel Pryor, Minority Health Policy 
Advisor; Samantha Satchell, Minority Policy Analyst; and Andrew 
Souvall, Minority Director of Communications, Outreach, and 
Member Services.

OPENING STATEMENT OF HON. JOSEPH R. PITTS, A REPRESENTATIVE IN 
         CONGRESS FROM THE COMMONWEALTH OF PENNSYLVANIA

    Mr. Pitts. The subcommittee will come to order. The 
chairman recognizes himself for an opening statement.
    Today's hearing will provide an opportunity for members to 
discuss the Federal Medical Assistance Percentage or FMAP rate. 
The FMAP is the Federal statutory financing formula that is the 
basis for determining the federal government's financial share 
of most Medicaid and Children's Health Insurance Program 
expenditures, CHIP.
    While exploring the FMAP may seem like a dense topic to 
some, today's hearing allows members to look under the cabinet 
to examine Medicaid's plumbing, how money flows throughout the 
system. It is important for members to understand how the FMAP 
works, because it impacts how an estimated $545 billion in 
program expenditures will be spent this year.
    Federal law specifies the formula for calculating Federal 
Medical Assistance Percentages and requires the Secretary of 
Health and Human Services to calculate and publish FMAP rates 
each year. The statutory formula compares the individual 
state's per capita income to the Nation's per capita income in 
order to determine the portion of Medicaid expenditures the 
federal government will finance in each state. The lower a 
state's per capita income, the greater the assistance the state 
receives from the federal government, so, the higher the 
state's FMAP.
    Federal statute specifies that the basic Medicaid matching 
rate for states will go no lower than 50 percent or higher than 
83 percent. Medicaid has used the basic FMAP formula since its 
creation, more than 50 years ago.
    Since the creation of the Medicaid program, Congress has, 
over time, created several different levels of federal 
financial participation or federal matching for different 
services, benefits, and populations. These higher levels of 
federal matching are exceptions to the general FMAP.
    For example, since the 1970s, the federal government has 
paid 100 percent for services furnished through Indian Health 
Services and tribal facilities and 90 percent for family 
planning services and supplies. These exceptions are higher 
than any state's regular FMAP and apply uniformly to all 
states. Today we will be discussing numerous other exceptions 
to the regular FMAP.
    In recent years, Congress has twice increased FMAPs across 
the board to provide temporary fiscal relief to states during 
recessions. Most recently, Congress added a new level of 
increased federal matching through the Affordable Care Act's 
expansion of the Medicaid program to non-disabled childless 
adults. For new expansion states, the Affordable Care Act 
included a matching rate of 100 percent for the expansion 
population through this calendar year, after which federal 
matching levels decline over time to reach 90 percent by 2020 
and remain at that rate, at least under current law.
    I should also point out that the FMAP also serves as the 
basis for determining the federal government's share of 
expenditures for the Children's Health Insurance Program, CHIP. 
Section 2105(b) of the Social Security Act stipulates an 
Enhanced FMAP rate for both services and administration under 
CHIP. The E-FMAP rate reduces the state's share under the 
regular FMAP rate by 30 percent. Additionally, the Affordable 
Care Act increased the E-FMAP by 23 percentage points, not to 
exceed 100 percent, for fiscal years 2016 through 2019. As a 
result, the federal government is now financing 100 percent of 
the CHIP programs in 12 states.
    Overall, I think today's hearing presents members with an 
important opportunity to better understand the FMAP rate that 
is hardwired into the heart of the program. I also hope members 
will grapple with the challenges created by the current FMAP 
formula, including the ways that the current patchwork of 
federal matching arrangements impacts the integrity of the 
federal and state cost-sharing relationship.
    Today, we have one panel of knowledgeable experts from CRS, 
MACPAC, GAO, and HHS OIG who will present their ideas and 
recommendations on these issues and answer members' questions. 
I appreciate each of the witnesses being here today.
    [The prepared statement of Mr. Pitts follows:]

               Prepared statement of Hon. Joseph R. Pitts

    The Subcommittee will come to order.
    The Chairman will recognize himself for an opening 
Statement.
    Today's hearing will provide an opportunity for members to 
discuss the ``Federal Medical Assistance Percentage'' or ``F-
MAP'' (FMAP) rate. The FMAP is the Federal statutory financing 
formula that is the basis for determining the Federal 
government's financial share of most Medicaid and Children's 
Health Insurance Program (CHIP) expenditures.
    While exploring the FMAP may seem like a dense topic to 
some, today's hearing allows members to look under the cabinet 
to examine Medicaid's plumbing--how money flows throughout the 
system. It is important for members to understand how the FMAP 
works, because it impacts how an estimated $545 billion in 
program expenditures will be spent this year.
    Federal law specifies the formula for calculating Federal 
Medical Assistance Percentages and requires the Secretary of 
Health and Human Services to calculate and publish FMAP rates 
each year. The statutory formula compares individual State's 
per capita income to the nation's per capita income in order to 
determine the portion of Medicaid expenditures the Federal 
government will finance in each State. The lower a State's per 
capita income, the greater the assistance the State receives 
from the Federal government--so the higher the State's FMAP.
    Federal statute specifies that the basic Medicaid matching 
rate for States will go no lower than 50% or higher than 83 
percent. Medicaid has used the basic FMAP formula since its 
creation, more than 50 years ago.
    Since the creation of the Medicaid program, Congress has, 
over time, created several different levels of Federal 
financial participation, or ``federal matching'' for different 
services, benefits, and populations. These higher levels of 
federal matching are exceptions to the general FMAP.
    For example, since the 1970s, the Federal government has 
paid 100 percent for services furnished through Indian Health 
Services and tribal facilities and 90 percent for family 
planning services and supplies.
    These exceptions are higher than any State's regular FMAP 
and apply uniformly to all States. Today we will be discussing 
numerous other exceptions to the regular FMAP.
    In recent years, Congress has twice increased FMAPs across 
the board to provide temporary fiscal relief to States during 
recessions.
    Most recently, Congress added a new level of increased 
federal matching through the Affordable Care Act's expansion of 
the Medicaid program to non-disabled childless adults. For new 
expansion states, the Affordable Care Act included a matching 
rate of 100 percent for the expansion population through this 
calendar year, after which Federal matching levels decline over 
time to reach 90 percent by 2020--and remain at that rate, at 
least under current law.
    I should also point out that the FMAP also serves as the 
basis for determining the Federal government's share of 
expenditures for the Children's Health Insurance Program-CHIP. 
Section 2105(b) of the Social Security Act stipulates an 
Enhanced FMAP rate for both services and administration under 
CHIP. The E-FMAP rate reduces the State share under the regular 
FMAP rate by 30 percent.
    Additionally, the Affordable Care Act increased the E-FMAP 
by 23 percentage points (not to exceed 100 percent) for fiscal 
years 2016 through 2019. As a result, the Federal government is 
now financing 100 percent of the CHIP programs in 12 states.
    Overall, I think today's hearing presents members with an 
important opportunity to better understand the FMAP rate that 
is hardwired into the heart of the program. I also hope members 
will grapple with the challenges created by the current FMAP 
formula--including the ways that the current patchwork of 
Federal matching arrangements impact the integrity of the 
Federal and State cost-sharing relationship.
    Today we have one panel of knowledgeable experts from CRS, 
MACPAC, GAO, and HHS OIG who will present their ideas and 
recommendations on these issues and answer Members' questions.
    I appreciate each of the witnesses being here today and 
will now yield to the Vice Chairman of the full committee, Mrs. 
Blackburn.

    Mr. Pitts. And I yield back the balance of my time. I now 
recognize Mr. Schrader of Oregon for an opening statement.
    Mr. Schrader. Thank you, Mr. Chairman. I will probably 
reserve most of my comments for the question period but I 
wanted to yield some time to Mr. Luja AE1n.
    Mr. Luja AE1n. Mr. Chairman, thank you so very much and to 
our ranking member, I really appreciate the time today.
    I care deeply about these programs. As we see the impact to 
people all across America, this landmark program makes a 
difference in the lives of the poor, our seniors, people with 
disabilities, and truly provides them the peace of mind that 
they can access affordable care without fear of financial ruin. 
We have to be mindful of that.
    One in three children in our country receive coverage 
through Medicaid and the Affordable Care Act's expansion of 
this program is strengthening coverage throughout the United 
States. In my home State of New Mexico, more than 250,000 
people have benefitted from the ACA's Medicaid expansion.
    In New Mexico, we have also recently seen what happens to 
people when they can't receive the care that they need. More 
than 2 years ago, New Mexico's Behavioral Health System was 
needlessly upended by the state when they suspended Medicaid 
payments to 15 providers. This resulted in disruptions and gaps 
in patients' care.
    On Monday, just a few days ago or just 2 days ago, ten 
additional providers were cleared of fraud. In total, 13 have 
now been exonerated. This manufactured crisis which has 
impacted some of New Mexico's most vulnerable never should have 
occurred and left our Behavioral Health System in shambles.
    It takes decades to build a strong system of care in New 
Mexico's largely rural underserved areas. Where sole providers 
become vital to the fabric of our community, those 
relationships and developing that trust with patients is 
critical and we have to rebuild that system now.
    To achieve that goal, I am finalizing a bill that would 
encourage states like New Mexico to make the necessary 
investments in their Behavioral Health Systems when Congress 
ask states to update and modernize their infrastructure for 
enrollment. We provided states with an Enhanced FMAP to do just 
that. If we want states to invest in behavioral health, we 
should provide an enhanced federal matching rate to prioritize 
these investments. The United States has never supported mental 
health in this way. Especially with the expansion of Medicaid 
across the country, we must ensure that states continue to 
improve their capacity to provide mental health services.
    I look forward to the testimony and discussing how we can 
use FMAP to strengthen our Behavioral Health System.
     And with that, Mr. Chairman, I would yield back the 
balance of my time to Mr. Schrader.
    Mr. Schrader. Thank you very much. Anyone else on the 
Democratic side? Ms. Matsui.
    Ms. Matsui. Thank you very much for yielding and I thank 
the witnesses for being here today and the chairman for having 
this hearing.
    For the past 50 years, the Medicaid program has 
successfully improved the ability of lower income Americans to 
access essential health services. Today, more than 72 million 
Americans depend on Medicaid and CHIP for their health 
insurance. The vast majority of these enrollees are children, 
the disabled, or the elderly.
    In addition to improving healthcare access, Medicaid is 
notable for its program efficiency. Medicaid provides more 
comprehensive benefits than private insurance and provides 
those benefits at lower out-of-pocket costs. In addition, 
Medicaid per beneficiary costs are lower than per beneficiary 
costs for Medicare and private insurance and those costs are 
growing far more slowly than either Medicare or private 
insurance.
    The Medicaid program continues to improve its efficiency 
and its demonstration projects allow the states the flexibility 
to test new models of delivery that improve program value. 
Instead of talking about ways to reduce Medicaid, we should be 
talking about ways to strengthen Medicaid, to expand coverage, 
to improve quality of care and, in turn, improve health 
outcomes for millions of Americans. Thank you and I yield back 
to Dr. Schrader.
    Mr. Schrader. Anyone else on the Democratic side? Mr. 
Pallone.
    Mr. Pitts. You will get your full time.
    Mr. Schrader. Mr. Pallone, I will give Mr. Sarbanes an 
opportunity then you will get your full time.
    Mr. Pallone. Oh, sure.
    Mr. Schrader. Mr. Sarbanes.
    Mr. Sarbanes. I will be very quick. I am looking forward to 
the testimony.
    I had the opportunity for about 18 years as an attorney to 
work with retirement communities, nursing homes, assisted 
living facilities in the State of Maryland and saw how critical 
the resource of Medicaid is for our seniors. And so keeping 
this program strong and also exploring opportunities to 
innovate with it and figure out how the program can support 
seniors in a number of different settings, as we move forward 
and the opportunity to do that in a way that can also save some 
of the costs and be efficient I think is something we want to 
explore.
    So, it is a really important program and this particular 
formula for funding has worked overall very well. So, we look 
forward to your testimony so we can understand that more and 
think about the potential for future development of the 
program.
    I yield back.
    Mr. Schrader. I yield back our time, Mr. Chairman.
    Mr. Pitts. The chair thanks the gentleman. I now recognize 
the vice chair of the full committee, Mrs. Blackburn, for 5 
minutes for opening statement.

OPENING STATEMENT OF HON. MARSHA BLACKBURN, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF TENNESSEE

    Mrs. Blackburn. Thank you, Mr. Chairman. And I want to 
welcome you all and thank you for being here.
    This is an issue that we continue to look at and review and 
it is appropriate that we do. When I am at home and in my 
district, one of the things I hear about most often are the 
efficiencies and the inefficiencies of working through the 
Medicaid delivery system which, in our state is TennCare. You 
all probably know it and know the stories of TennCare well.
    What we need to do as we continue to review these funding 
formularies and the mechanisms, transparency is important, 
continued oversight is important, integrity in the program is 
something that is important. I think another thing that is a 
topic for discussion as we look at the formulary and what the 
basis ought to be is saying is it time to give Medicaid back to 
the states for the states to administer this program. That is 
another way to look at it. And we will be interested to hear 
your thoughts on that.
    Many of our governors and many of our state elected 
officials would like to see us do that. They think they could 
be more efficient and Ms. Matsui mentioned the opportunity for 
some to innovate in their states. And yes, indeed, looking at 
new flexibilities that allow innovation is something that maybe 
we need to have greater discussion about that.
    So, welcome to all of you and thank you. And Mr. Chairman, 
I will yield to Mr. Shimkus, it looks like, is seeking time. 
Yield to Mr. Shimkus.
    Mr. Shimkus. Thank you. I appreciate my colleague from 
Tennessee.
    I am just going to throw something on the table. I have got 
questions later on. But Mr. Chairman, I was visited by a 
delegation of businessmen from Puerto Rico last night and they 
have--and I just want to raise this because I think for the 
average member this financial crisis, we are now starting to at 
least know a little bit about it. But since we are on Medicaid, 
I was told that they have a $300 million cap on spending. They 
are not in the Medicaid system. They don't have FMAP. And there 
is an impending cliff coming in April of 2017 that I think is 
worthy of our attention and maybe a hearing and a discussion 
because if what I was told was true, it is an impending 
additional disaster for that part of our country that really 
doesn't have a voting member of the House of Representatives.
    So with that, I will throw that out and I will yield back 
to my colleague.
    Mrs. Blackburn. I thank the gentleman. Anyone else seeking 
time before I yield it back to the chairman?
    Mr. Chairman, I yield back.
    Mr. Pitts. The chair thanks the gentlelady and I recognize 
the ranking member of the full committee, Mr. Pallone, for 5 
minutes for an opening statement.

OPENING STATEMENT OF HON. FRANK PALLONE, JR., A REPRESENTATIVE 
            IN CONGRESS FROM THE STATE OF NEW JERSEY

    Mr. Pallone. Thank you, Mr. Chairman and thanks for holding 
the hearing for the witnesses being here today.
    I believe the government exists to help all Americans 
succeed and improving and strengthening Medicaid for 
generations to come continues to be a primary goal of mine. 
Medicaid is not a welfare program. It is a health insurance 
program that more Americans depend on than any other single 
federal health program. In fact, Medicaid provides more than 
one in three children with a chance at a healthy start in life 
and one in seven Medicare seniors are actually also Medicaid 
seniors. The truth is, the overwhelming majority of the more 71 
million Medicaid beneficiaries are children, the elderly, the 
disabled, and pregnant women, all our most vulnerable 
populations.
    Medicaid was designed at the federal level to expand and 
contract according to a state's need and that is a tenant we 
must protect and improve, not reverse. And despite the 
incredibly complex nature of its shared federal and state 
financing, Medicaid is an efficient program, its cost per 
beneficiary is substantially lower than private insurance and 
Medicare and in recent years, these costs have grown far more 
slowly.
    The facts also show that Medicaid has a lower improper 
payment rate than many of our federal health programs, all of 
which cover less people.
    Every single state Medicaid program has undertaken projects 
testing new models of care delivery that promote quality and 
value in the Medicaid program. In fact, the Medicaid program is 
often called the innovation incubator.
    So, as you know more about Medicaid's financing structure 
or FMAP today, let's think how to build on these efforts. That 
is the right way to promote a value-based Medicaid program for 
the future. FMAP may not be perfect but merely looking at 
baselines, growth factors, and state contributions ignores the 
most critical issue, which is providing care in the most 
efficient way possible to some of our most complicated 
populations, the tens of millions of low-income vulnerable 
beneficiaries that rely on Medicaid and the healthcare 
providers and plans that serve them.
    I yield back, unless someone else--I think our other 
members have all had an opportunity, Mr. Chairman, so I yield 
back.
    Mr. Pitts. The chair thanks the gentleman.
    That concludes the opening statements. As always, all 
members' written opening statements will be made a part of the 
record.
    We have one panel with us today, four witnesses. Let me 
introduce them in the order of their testimony.
    First of all, Allison Mitchell, Analyst in Health Care 
Financing, Congressional Research Service. Thank you for 
coming. Secondly, Dr. Anne Schwartz, Executive Director, 
Medicaid and CHIP Payment and Access Commission, MACPAC. Thank 
you for coming. Carolyn Yocom, Director of Health Care, 
Government Accountability Office, GAO. Thank you for coming. 
And John Hagg, is it? Hagg, Director of the Medicaid Audits, 
Office of Inspector General, U.S. Department of Health and 
Human Services.
    Thank you all for coming. You will each be given 5 minutes 
to summarize your testimony. Your written testimony will be 
made a part of the record.
    So, at this point, the chair recognizes Ms. Mitchell, for 5 
minutes for her summary.

     STATEMENTS OF ALISON MITCHELL, ANALYST IN HEALTH CARE 
   FINANCING, CONGRESSIONAL RESEARCH SERVICE; ANNE SCHWARTZ, 
PH.D., EXECUTIVE DIRECTOR, MEDICAID AND CHIP PAYMENT AND ACCESS 
COMMISSION; CAROLYN YOCOM, DIRECTOR OF HEALTH CARE, GOVERNMENT 
ACCOUNTABILITY OFFICE; AND JOHN HAGG, DIRECTOR OF THE MEDICAID 
AUDITS, OFFICE OF INSPECTOR GENERAL, U.S. DEPARTMENT OF HEALTH 
                       AND HUMAN SERVICES

                  STATEMENT OF ALISON MITCHELL

    Ms. Mitchell. Chairman Pitts, members of the subcommittee, 
thank you for the opportunity to appear before you today to 
provide an overview of the Federal Medical Assistant 
Percentage, or the FMAP, and the exceptions to the FMAP.
    Medicaid is financed by both the federal government and the 
states and the federal share of Medicaid expenditures is 
determined by the FMAP. The FMAP varies by state and it has a 
minimum of 50 percent and a statutory maximum of 83 percent. 
And for a state with a 60 percent FMAP, the state gets 60 cents 
back from the federal government for every dollar it spends on 
its Medicaid program.
    The FMAP is also used to determine the federal share of 
other federal programs, such as the Temporary Assistance for 
Needy Families contingency funds and the FMAP is also used to 
calculate the Enhanced FMAP or E-FMAP, which determines the 
federal share for the state Children Health Insurance Program 
or CHIP.
    The FMAPs are calculated annually and they vary according 
to each state's per capita income. So, states with high per 
capita income receive lower FMAP or matching rates and states 
with low per capita income receive higher matching rates.
    Currently, in fiscal year 2016, regular FMAP rates range 
from 50 percent in 13 states to 74 percent in Mississippi. And 
the E-FMAP used by CHIP is higher than the regular FMAP and it 
is determined by reducing the state share under the FMAP by 30 
percent. And for fiscal year 2016 through 2019, there is a 23 
percentage point increase in the E-FMAP. That means the current 
statutory range for the E-FMAP is 88 percent to 100 percent and 
in fiscal year 2016, 12 states are receiving that 100 percent 
E-FMAP.
    The per capita income amounts used in the FMAP formula are 
equal to the average of the three most recent calendar years of 
data from the Department of Commerce. This helps to moderate 
the fluctuations in states' FMAP rates over time. Also, the per 
capita income amounts used to calculate the FMAP rates are 
several years old by the time the FMAP goes into effect.
    The FMAP is impacted by each state's income and population 
relative to the national average. The impact of the national 
economic downturn or upturn on a particular state will be 
related to that structure of that state's economy.
    The FMAP changes from year to year for most states and 
these changes are often within one percentage point. However, 
even these small changes can have major budgetary implications.
    The exceptions to the regular FMAP have been made for 
certain states' situations, populations, providers, and 
services. There are currently more than 20 exceptions to the 
FMAP. Some of these are quite old and some of them are newer. 
For instance, since the beginning of the Medicaid program, most 
administrative services have been matched at a 50 percent for 
all states and starting in the 1970s, services provided to 
Medicaid enrollees at Indian Health Service facilities have 
been reimbursed at 100 percent.
    Also, the District of Columbia's FMAP rate is not 
determined according to the statutory formula. It is set in 
statute at 70 percent and that has been the case since 1998. 
And the Patient Protection and Affordable Care Act added a 
couple of new FMAP exceptions. The main one there is the FMAP 
for the matching rate for the newly eligible individuals under 
the ACA Medicaid expansion. For these individuals, states 
receive 100 percent matching for 2014 through 2016 and that 
phases down to 90 percent in 2020 and subsequent years.
    The federal share of Medicaid expenditures used to be about 
57 percent on average across all states in a typical year. 
However, with the exceptions to the FMAP added by the ACA, this 
has increased and in 2014, fiscal year 2014, the federal 
government paid about 60 percent of Medicaid expenditures on 
average across all the states.
    This concludes my statement and I would be happy to answer 
questions at the appropriate time.
    [The prepared statement of Alison Mitchell follows:]
    
    
    
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    Mr. Pitts. The chair thanks the gentlelady and now 
recognizes Dr. Schwartz, for 5 minutes for your summary.

                   STATEMENT OF ANNE SCHWARTZ

    Ms. Schwartz. Good morning, Chairman Pitts and the members 
of the subcommittee on Health. As MACPAC's Executive Director, 
my testimony today reflects the consensus views of the 
commission itself anchored in a body of analytic work over the 
past 5 years and we appreciate the opportunity to share 
MACPAC's views this morning.
    At the request of the leadership of this subcommittee and 
your colleagues in the Senate, MACPAC is engaged in a long-term 
work plan focused on advising Congress about policies and 
financing reforms to ensure Medicaid sustainability. To date, 
we have focused on documenting trends in Medicaid expenditures, 
looking at the drivers of this spending and considering the 
incentives created by the current system of financing.
    As others have already described, state Medicaid programs 
received federal fund to match the funds they spend on health 
services to Medicaid beneficiaries and its financing 
arrangement goes back to the program's very beginnings 50 years 
ago.
    Today, the federal share is determined by the FMAP with 
higher matching rates to states that have lower per capita 
incomes relative to the national average and vice-versa with 
exceptions for certain populations, providers, and services. 
Spending for administration is general matched at 50 percent. 
CHIP has its own match rates, known as the Enhanced FMAP, which 
is substantially higher than those under Medicaid, in some 
cases at 100 percent.
    At various points in the program's history, congressional 
regulatory action have increased the FMAP for specific 
activities. For example, to help execute certain program 
functions, such as implementation of modernized eligibility and 
enrollment systems to create stronger incentives for states to 
provide optional benefits and to encourage states to expand 
eligibility to optional groups, such as women diagnosed with 
breast and cervical cancer.
    Enhanced match has also been used to provide fiscal relief 
to states during economic downturns or when affected by 
disasters. In addition, increasing the federal match can allow 
Congress to make policy changes without imposing additional 
costs on states, for example, as was the case with the required 
increase in payments to primary care physicians in 2013 and 
2014.
    As others on the panel will note, this system of financing 
has been criticized for providing open-ended amounts of federal 
funds and for not incentivizing states to be efficient. 
Moreover, it can encourage states to broaden Medicaid to 
include other health activities, where possible, in order to 
draw down federal funds.
    On the other hand, these incentives, while strong, are not 
absolute. States may not claim federal share unless they spend 
state dollars, raised from legal sources, on activities that 
are legally matchable. Mindful of their own budget constraints, 
as well as other political and economic factors that shape 
their health care markets and the design of their Medicaid 
programs, states respond differently at different times and in 
different circumstances.
    So, let me provide a few examples. States do make informed 
choices about the design of their programs and thus, they don't 
always take up the opportunity to draw enhanced match. Section 
2703 of the ACA provided authority for states to create health 
homes integrating care for people with chronic conditions and 
mental health conditions and it provided a 90 percent federal 
match for 2 years and fewer than half of the states have done 
so, with only 20 states and the District of Columbia adopting 
the model as of December 2015.
    Second, because states must raise state share, they do not 
always take advantage of all federal dollars that are available 
to them.
    In the case of CHIP, of the $21.1 billion in federal funds 
appropriated for fiscal year 2015, only $11.3 billion was 
provided to states in allotments based on their prior year 
spending.
    In addition to the other criticisms under the matching 
formula that will be discussed by others on the panel, I would 
add several other concerns that MACPAC has identified. First, 
the differential between the federal match for services and 
administration exerts downward pressure on states' willingness 
to invest in activities such as measuring utilization and 
quality, collecting and analyzing data, and ensuring program 
integrity. In the 37 states where health services are matched 
at greater than 50 percent, states can increase the total 
Medicaid budget by prioritizing spending for services over 
administration.
    The federal government does provide enhanced matching funds 
for some administrative activities but enhanced match is not 
available for others that could improve efficiency and promote 
value. For example, the differential between the two match 
rates creates a disincentive for states to focus on prevention 
of fraud and abuse. Such functions are matched at 50 percent, 
while the activities of the Medicaid Fraud Control Unit which 
are aimed at detecting fraud and abuse after they have occurred 
are matched at 75 percent.
    Over the next several months, MACPAC will be focusing 
intensively on program financing and design questions. Our 
analysis will consider design questions and will also consider 
the impact of these approaches on states, plans, providers and 
beneficiaries. We look forward to sharing this work in our June 
report.
    [The prepared statement of Anne Schwartz follows:]
    
    
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    Mr. Pitts. The chair thanks the gentlelady and now 
recognizes Ms. Yocom, for 5 minutes for her summary.

                   STATEMENT OF CAROLYN YOCOM

    Ms. Yocom. Thank you. It is a pleasure to be here today to 
discuss the Medicaid formula, and GAO's work surrounding this 
issue.
    As we have talked about, the FMAP formula is based on a 
state's per capita income in relation to the national average. 
And it is over a 3-year period, which smooths out the 
fluctuations in the business cycle and focuses on longer-term 
trends. This is helpful to states in terms of their budgets and 
budgetary planning.
    In prior work, we have noted concerns regarding how FMAP 
formula allocates funds across the states, including during 
times of recession or economic downturn. My statement today 
focuses on the FMAP and options for more equitably allocating 
Medicaid funds across states and methods of better targeting 
increased assistance to states during an economic downturn.
    With regard to the more equitable allocation of Medicaid 
funds across states, per capita income is a poor proxy for 
states' fiscal capacity, as well as for the size and 
composition of a state's population in need of Medicaid. First, 
per capita income does not fully measure state resources. It 
includes some things, like wages, grants, and interest, but it 
does not include other resources such as corporate income.
    Second, per capita income does not take into account 
differences across the states in the health care service needs 
of low-income people, nor does it include any measure of 
geographic difference in the cost of providing such services.
    As an alternative to per capita income, GAO has identified 
three measures that could be used to allocate Medicaid funding 
more equitably. Two of these measures account for service 
demand and they also account for geographic cost differences. 
This improves equity among beneficiaries by ensuring that the 
level of services across states has the ability to offer a 
comparable level of services for each person in need. The third 
measure accounts for state resources and this improves taxpayer 
equity by ensuring that taxpayers in poorer states are not more 
heavily burdened than those in wealthier ones. These three 
measures could be combined to provide a basis for allocating 
Medicaid funds in a more equitable manner than what currently 
occurs using the FMAP.
    With regard to targeting increased assistance to states 
during recessions and other economic downturns, Congress has 
acted on multiple occasions to provide states with temporary 
increases in the FMAP. Such assistance is important, for during 
economic downturns, Medicaid enrollment often increases, while 
available state revenues decline.
    At the request of Congress, GAO was asked to consider 
methods of assisting states during economic downturns. We 
recommended that Congress consider enacting an FMAP formula 
that provides automatic timely and temporary FMAP assistance to 
states in response to an economic downturn. We developed a 
prototype formula that would automatically start and end 
assistance and it would target the amount of such assistance 
based on the extent to which each state is affected by a 
particular downturn.
    Our prototype formula uses a monthly employment to 
population ratio and it begins when a threshold number of 
states experience declines in this ratio. This automatically 
triggers the start of the FMAP assistance. And once triggered, 
the assistance is calculated based on two factors. First, on 
increases in state unemployment. This serves as a proxy for 
changes in Medicaid enrollment. And then secondly for decreases 
in wages and salaries and this serves as a proxy for declines 
in available state revenue.
    Ending the temporary FMAP would be based on the employment-
to-population ratio but with the ability to gradually return 
states to their regular FMAPs.
    In conclusion, our work has found that alternatives to the 
current FMAP could more equitably allocate funds to states and 
provide additional support during the economic downturns.
    This concludes my prepared statement. I would be pleased to 
answer questions at the appropriate time.
    [The prepared statement of Carolyn Yocom follows:]
    
    
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    Mr. Pitts. The chair thanks the gentlelady and now 
recognizes Mr. Hagg, for 5 minutes for his opening statement.

                     STATEMENT OF JOHN HAGG

    Mr. Hagg. Good morning, Chairman Pitts and other 
distinguished members of the committee. Thank you for the 
opportunity to testify about the Officer of Inspector General's 
work associated with the Federal Medical Assistance Percentage 
Matching Rates. My statement describes two vulnerabilities 
associated with the federal-state partnership that governs the 
financing of the Medicaid program.
    First, in certain areas of enhanced matching rates, OIG has 
seen states claim federal reimbursement for expenditures that 
do not qualify. Second, in some instances, we have seen states 
use financing mechanisms to shift costs to the federal 
government. I will briefly discuss each of these issues.
    Most Medicaid expenditures are eligible for federal 
reimbursement at their regular matching rate. The regular FMAP 
rate varies by state and, as said earlier today, cannot be 
lower than 50 percent or higher than 83 percent. There are 
numerous exceptions, however, that allow for the use of 
enhanced rates. For example, family planning services are 
reimbursed at a 90 percent FMAP rate. Enhanced FMAP rates 
provide states with additional federal funding for specified 
populations and services but they also create vulnerabilities 
that expenditures could be claimed incorrectly.
    The OIG has conducted audits to determine if expenditures 
were included in the correct enhanced rate categories. In 
general, we have found instances where states incorrectly 
claimed expenditures in one of the enhanced rate categories, 
instead of properly claiming the expenditures at the lower 
regular FMAP rate. As an example, we have found many cases 
where states use the 90 percent enhanced family planning rates 
for services that were Medicaid eligible but did not qualify as 
family planning. In total, we identified more than $82 million 
that states received inappropriately.
    In addition to vulnerabilities that exist with enhanced 
FMAP categories, the shared nature of Medicaid financing 
provides opportunities for states to shift cost and distort the 
federal-state cost-sharing partnership. While mechanisms such 
as provider taxes, intergovernmental transfers, and inflated 
payment rates increase state funds, they distort statutorily 
determined FMAP rates and undermine the federal-state 
partnership in financing the Medicaid program.
    In the 2014 review of health care provider taxes, we found 
that a gross receipts tax on Medicaid managed care 
organizations in one state appeared to be an impermissible 
health care related tax under federal requirements. Using this 
tax, the state obtained nearly $1 billion in federal Medicaid 
funds from 2009 to 2012. CMS issued guidance to states in July 
2014 to clarify its policy. We are currently performing work to 
determine if states are in compliance with this guidance.
    State policies that inflate federal costs for Medicaid are 
not new. In a series of reports from 2000 to 2005, we found 
numerous examples in which states used intergovernmental 
transfers to increase the amount of Medicaid expenditures the 
federal government would pay. In some cases, states transferred 
the additional federal money to their general treasury to be 
used for other purposes. Both Congress and CMS took action to 
close this loophole. While the changes dramatically improved 
the situation, they did not entirely eliminate the problem. 
Collectively, the findings of our work over a number of years 
suggest that improvements are still needed to safeguard federal 
Medicaid funds, including a definitive regulation linking 
payments for public providers to the actual cost of providing a 
service.
    In conclusion, the federal and state governments share 
responsibility for operating the Medicaid program and for the 
integrity of the dollars invested. Given projected growth in 
Medicaid, it is critical that CMS and states focus on 
strengthening program integrity. OIG is committed to providing 
effective oversights to help ensure that inappropriate payments 
are detected and that eligible beneficiaries receive the needed 
and appropriate health care services.
    I would be happy to answer your questions.
    [The prepared statement of John Hagg follows:]
    
    
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    Mr. Pitts. The chair thanks the gentleman. That concludes 
the opening statements of the witnesses. I will begin the 
questioning and recognize myself for 5 minutes for that 
purpose.
    Ms. Yocom, GAO has offered alternatives for allocating 
federal Medicaid funding in a more equitable way. Can you 
explain how GAO considers equity when thinking about the 
Medicaid funding formula? And can you explain how or why some 
states are advantaged and others are disadvantaged by the 
current FMAP formula?
    Ms. Yocom. Yes, we look at equity from two perspectives. 
The first is that of the beneficiary and making sure that the 
state has the capacity to provide the same level of service as 
across all the states. It doesn't mean that the state chooses 
to but it does mean that that capacity is there.
    And then secondly, we look from the perspective of the 
taxpayer and so that you make sure that a wealthier state is 
not paying more or less than a poorer state, that it is in 
relation to what is available for the state to fund the 
program.
    With regard to advantages and disadvantages of the formula 
itself, yes, right now the floor, as I believe Dr. Schwartz 
mentioned, the 50 percent floor of the FMAP does mean that some 
states are propped up with more assistance than other states. 
To date, no state has reached the top of the matching rate. 
There also is some research out there that shows that the 
matching formula is showing more and more compression to that 
50 percent level.
    So, it is a mixed bag for the states.
    Mr. Pitts. Thank you.
    Dr. Schwartz, almost a year ago, I, along with Chairman 
Upton and Chairman Hatch asked MACPAC to engage in developing 
policy options to ensure the sustainability of the Medicaid 
program. However, it was not until MACPAC's most recent meeting 
a few weeks ago that staff even briefed the commissions on old 
Medicaid ideas from the 1980s and 1990s. And with all due 
respect, why has this taken so long? What could be more 
important than developing solutions to strengthen Medicaid and 
CHIP?
    Ms. Schwartz. Thank for that question.
    We began our discussion of financing alternatives actually 
beginning in February of last year with this session to discuss 
a range of alternatives. And in that particular session, we 
spoke a lot about shared savings. Subsequent to that, we spent 
time at every commission meeting since then: May, September, 
October, December, and again, as you say in January, focusing 
on spending trends, helping understand the context, 
understanding the policy levers that are available to state and 
federal governments, to address concerns about spending, and to 
understand the drivers of that spending.
    So, I have a long list of activities that we have 
undertaken, some issue briefs that we have published, the work 
that is leading up for our publication in our report to 
Congress in June and I would be happy to share that with you 
and brief your staff in detail about those activities.
    Mr. Pitts. All right, thank you.
    Mr. Hagg, your testimony noted that multiple Inspector 
General audits found repeated state errors in claiming the 90 
percent Enhanced Family Planning Match and, as a result, OIG 
recommended that 19 states return more than $82 million to 
taxpayers. Was this money ever returned?
    Mr. Hagg. I believe it has been. Our reports are issued to 
the states. We make recommendations to the states. And if we 
found overpayments, we would recommend they pay that money 
back. CMS, as the action official, would work with the states 
to get that money back, assuming CMS concurs with our 
recommendations. And I think in most cases, they have.
    Mr. Pitts. Do you know why CMS didn't catch states' errors 
in claiming federal financial participation before the claims 
were paid?
    Mr. Hagg. Not definitively. CMS has different controls in 
place. They could probably more fully answer that question as 
to why they wouldn't catch errors. Based on what I know, they 
have staff located throughout the country who receive 
expenditures from the state on a quarterly basis. They are the 
front line for trying to review and identify any problems that 
might be out there. But of course, it is billions of dollars 
and they have a short amount of time to----
    Mr. Pitts. Yes, maybe part of the problem could be a lack 
of specific federal statutory and regulatory definition of what 
family planning services are.
    Ms. Mitchell, the Speaker, the President, and members of 
the House have noted the financial crisis in Puerto Rico. Mr. 
Shimkus earlier mentioned Medicaid in Puerto Rico. Can you 
briefly discuss how Puerto Rico's program compares or is 
different than an average state's Medicaid program?
    Ms. Mitchell. Sure. So, Puerto Rico and all five 
territories, the Medicaid program is financed a bit 
differently. Rather than the open-ended funding that states 
receive, the territories get caps on the funds. So, they have 
an annual cap. The ACA provided some additional funding that is 
available to the territories, and I believe that was the fiscal 
cliff that was referred to earlier is due to that funding. It 
was about $6.5 billion and the territories have through 2019 to 
spend that money but it looks like Puerto Rico is going to 
spend through that faster than that. And their matching rate 
for the territories is set at 55 percent. It does not go 
through the statutory formula for the FMAP.
    Mr. Pitts. Thank you. My time has expired.
    The chair recognizes Mr. Schrader for 5 minutes for 
questions.
    Mr. Schrader. Thank you, Mr. Chairman. I appreciate that.
    Ms. Mitchell, would you say that the rates for Medicaid 
reimbursement are primarily cost-based?
    Ms. Mitchell. Sorry, could you say that?
    Mr. Schrader. The rates that are set for Medicaid 
reimbursement are primarily cost-based?
    Ms. Mitchell. The provider rates?
    Mr. Schrader. Yes.
    Ms. Mitchell. Well, states set their own provider rates. 
They have a lot of discretion in setting their provider rates.
    Mr. Schrader. I apologize. No, I am talking about when you 
reimburse a state, it is based on the costs that are submitted 
by the state. Is that correct?
    Ms. Mitchell. Oh, yes. I am sorry. Yes, so there is a 
quarterly process where states, for every quarter, submit 
estimates on how much they are going to spend and they are 
provided an amount of money to draw down throughout the 
quarter.
    Mr. Schrader. Right.
    Ms. Mitchell. And at the end of the quarter, they have to 
submit documentation for the actual expenditures.
    Mr. Schrader. I get that.
    Ms. Schwartz, do you think that is a good way to reimburse, 
just based on cost rather than quality or what they are 
actually getting for the type of service that you are paying 
for?
    Ms. Schwartz. I guess as I noted in my testimony, that the 
FMAP, with the exception of the exceptions, is neutral on the 
type of spending. And you could certainly move to a system in 
which you valued certain services higher. It would be 
complicated but it is an area that could be tested on a smaller 
scale. I think doing that nationally would be exceedingly 
difficult across the many populations and the many services the 
Medicaid program offers.
    Mr. Schrader. I think that is why we have a number of 
waivers, so that each state can figure out what program 
probably works best for them, as long as it is officially 
audited, I think.
    Ms. Yocom, I am actually concerned about your report. Your 
report focuses on paying more for costs. And I think it is 
going to be a big additional cost to the United States 
taxpayer. The geographic diversity is purely cost-based. Where 
is the geographic diversity in your report regarding better 
quality of care in certain parts of the country versus other 
parts of the country for the dollars that are actually spent? 
That would be, I think, of great interest to the consumer, both 
the person getting the health care, as well as the taxpayer.
    Ms. Yocom. Yes. Our report does focus on geographic 
differences. And to a certain extent, state spending itself 
reflects some of those differences.
    Mr. Schrader. But that just reflects the cost. It doesn't 
reflect what you are getting for that. Is that correct?
    Ms. Yocom. That is correct.
    Mr. Schrader. OK. I think that is the problem, Mr. Chairman 
and members of the committee, that we need to be focusing on. 
Say what you will about the ACA but regardless of that, I think 
the focus of health care going forward in our country is going 
to be about getting bigger bang for the buck. The reports from 
OIG and GAO, I think try and get at that in some ways but I 
think they are a little outmoded. Nowadays for health care, we 
need to be looking at better ways to do things.
    The coordinated care model pioneered in my state and 
several other states I think is something I would like to see 
some of these reports start to focus on. It is complicated. The 
formula proposed by Ms. Yocom is also pretty complicated, if I 
look at it closely. So, I would like to look at that quality 
part of the reimbursement.
    Mr. Hagg, given some of the uses of the Medicaid dollars 
you have identified that don't seem to fit the classic category 
of Medicaid services, does seem kind of a play on what the 
chairman is talking about. Does CMS Medicaid actually have 
adequate revenues to police the program?
    Mr. Hagg. Well, that is a big job, for sure. As I said 
before, CMS could probably provide a better answer about the 
resources they have and the way they use those resources right 
now to oversee state expenditures or additional resources they 
might need.
    I know they have staff located throughout the country who 
receive the state expenditures on a quarterly basis. They are 
the front line for the first review but, again, we are talking 
about hundreds of billions of dollars in a short amount of time 
that they have to review those expenditures.
    Mr. Schrader. But it sounds like they could use a few more 
dollars.
    Out of the five or six recommendations you make, are there 
two or three you would like or think Congress should 
particularly focus on in working with CMS to review?
    Mr. Hagg. Well, specifically, if you are talking about 
trying to make sure expenditures are in the correct enhanced 
FMAP categories, bottom line, it really comes down to states 
doing a better job and taking better care and making sure that 
those expenditures are claimed appropriately. It is the state's 
job to do that. There is no way that CMS or any oversight is 
going to be able to get to every single layer that might be out 
there. So, states need to know their responsibilities and make 
sure that they claim properly.
    From CMS' standpoint, it probably would be good for CMS to 
try to reinforce with the states what the states' 
responsibilities are so the states clearly know the importance 
of properly claiming.
    Mr. Schrader. Very good. With that, I yield back, Mr. 
Chairman.
    Mr. Pitts. The chair thanks the gentleman and now 
recognizes the vice chair of the full committee, Mrs. 
Blackburn, for 5 minutes for questioning.
    Mrs. Blackburn. Thank you, Mr. Chairman.
    Ms. Yocom, I want to come to you. I thank you for being so 
persistent and consistent in coming to us.
    Let's go back to the formulary issue. In looking at the 
FMAP, I want to hear from you when you look at the per capita 
or the total taxable resources, what do you think is the better 
option and why would that option be your choice?
    Ms. Yocom. From GAO's perspective, total taxable resources 
are a much better indicator of a state's available resources to 
finance the program. I just looked at this yesterday and there 
is about a 40 percent difference between the total taxable 
revenue and per capita income. So, 40 percent more additional 
spending is included within total taxable resources. And what 
happens is you have inequities across states in terms of what 
is reflected in the per capita income. States with a lot of 
people who work in one location and live in another, those 
kinds of things don't always get counted in the correct manner. 
Corporate gains and corporate taxes and then also high-energy 
states are other areas where the allocations aren't necessarily 
consistent.
    Mrs. Blackburn. OK, thank you for that.
    Let's talk about additional assistance that is sometimes 
available during an economic downturn and how that affects a 
state and how would that affect the states' incentives and how 
should we approach that. Because you want to be helpful but you 
don't want to have a system where they are dependent on this 
and just say oh, well.
    Ms. Yocom. Right. Well, states, in the 50-year history of 
the program, have always been in a bind during an economic 
downturn. People lose their jobs and their children, at least, 
and sometimes the adults, qualify for Medicaid. So you have an 
increase in Medicaid enrollment. And then along with that, tax 
revenues go down because it is a recession or a downturn. So, 
they have more people in the program and less money to pay for 
it.
    One of the advantages of a federal-state partnership is the 
federal government offering that balancing of those 
circumstances.
    Mrs. Blackburn. Let me ask you this. States that have 
accessed those funds, once the economy recovers, how quickly do 
they go about removing those individuals from the rolls?
    Ms. Yocom. It honestly varies a great deal.
    Mrs. Blackburn. OK.
    Ms. Yocom. And probably the hardest part of any kind of 
automatic assessment, adjustment like we are talking about, is 
when to turn off the assistance. Unemployment tends to be a 
lagging economic indicator so recovery can be slow.
    Mrs. Blackburn. All right, thank you for that.
    Ms. Schwartz, MACPAC has publicly supported the extension 
of the Enhanced Federal Matching Rate for Medicaid Eligibility 
Systems. Talk to me about the criteria that MACPAC uses for 
assessing whether to support an enhanced federal matching rate, 
just if you will quickly articulate that.
    Ms. Schwartz. Sure. In our letter commenting on that role, 
the criteria that compelled the commission in that instance to 
be supportive of the continued Enhanced FMAP were that the FMAP 
rate would be tied to concrete performance standards by the 
state and that these would improve the eligibility in the 
enrollment process, both from the perspective of the 
beneficiary and from program administrators who enhance data 
collection reporting and improve administrative capacity. And I 
think this enhanced rate also recognizes that Congress already 
approves enhanced match for mechanized systems and increasingly 
enrollment in eligibility processes, which would have once been 
largely administered face-to-face are no mechanized systems as 
well. So, those are the criteria used in that respect.
    Mrs. Blackburn. OK, thank you. I yield back.
    Mr. Pitts. The chair thanks the gentlelady and now 
recognizes the gentlelady from California, Ms. Matsui, for 5 
minutes for questions.
    Ms. Matsui. Thank you, Mr. Chairman.
    Dr. Schwartz, I want to ask you about long-term and FMAP 
enhancements. The majority of seniors and people with 
disabilities want to remain at home to receive long-term 
services and supports, instead of going to a nursing home or an 
institution. Research demonstrates that this is more cost-
effective. Yet, despite some success, many states lag behind in 
providing services at home because of Medicaid institution 
bias, where nursing home coverage is mandatory and home and 
community-based services are optional.
    Congress has passed several FMAP incentives to fix this 
problem, such as Community First Choice, the Balancing 
Incentive Program, and Money Follows the Person. Some have 
expired or will expire soon. I believe this committee should 
absolutely be having a conversation on reauthorization of these 
programs, which are overwhelmingly bipartisan.
    Dr. Schwartz, how well have those FMAP incentives worked?
    Ms. Schwartz. The Balancing Incentives Program was focused 
on targeting states that spent less than half of their long-
term services and supports money on home and community-based 
services to help them make this shift from facilities 
community-based services. And states were invited to submit a 
budget and a plan for how they would do that.
    Of the 17 states that had participated in the first 
quarter, 11 exceeded that threshold. It is not possible for me 
to say whether it was the Enhanced FMAP that did that or some 
of the other supports that were provided as part of that 
program and states may continue to make progress toward their 
goals, even though the enhanced match has expired.
    In addition, stats have many other avenues by which they 
can shift services from a nursing facility to home and 
community-based services, both through state plan options and 
through waiver services.
    So, there are a variety of approaches that states can take 
and tailor to their specific needs and populations.
    Ms. Matsui. Can you comment on some of the organizations 
you would have to improve upon the incentives that we have to 
states to show that people can remain at home?
    Ms. Schwartz. MACPAC has not made a recommendation on 
creating a financial incentive to do that. We closely monitor 
what is going on in the long-term services and support state 
space but are encouraged by the shift to home and community-
based services, which is both fiscally promising and also 
responsive to patient and family needs and desires.
    And one area where we are closely monitoring is the move to 
manage long-term services supports, which we are still learning 
about and we still are looking forward to some of the outcome 
measures about how that shift is going.
    Ms. Matsui. Thank you. I think you will realize how much 
interest there is in long-term care delivery, especially in a 
population that is growing and the families willing to in some 
way accede to the wishes of their parents.
    And so I think it is something where long-term delivery in 
this country, which Medicaid, the single largest payer, 
deserves a lot of our attention on this committee.
    Ms. Yocom, the committee has been very interested in GAO's 
proposal for automatic trigger. I think the idea of making FMAP 
even more responsive to states leads to a worthwhile 
discussion. I have a couple of additional questions to clarify 
this proposal.
    Why does a prototype formula focus on providing increased 
assistance during national economic downturns and not regional 
downturns?
    Ms. Yocom. Sure. The big issue with the regional downturn 
is it is not always regional. For example, if there is a 
recession that is association with energy, it can be spread 
across states, all the way across the country from Alaska to 
Texas, to Wyoming, and so on. And it is much more difficult to 
think about targeting a small group of states like that. So, 
our focus has been more on the national downturn.
    Ms. Matsui. Could we look at that a little bit more? 
Because I am thinking about our recent recession which was 
caused by the housing crisis. And there are certain areas of 
the country that were really hit harder than others. I think if 
you look on a map, you can kind of identify those areas. I am 
just saying that I think that is something to look at because I 
think if you wait to look at the national model, we will miss 
those really hard-hit regional areas.
    Ms. Yocom. Yes.
    Ms. Matsui. Something to consider with any discussion are 
the winners and losers of the policy, whether some states may 
benefit more on their policy than others. And I think, to a 
certain degree, we are talking about this when I talk about the 
regional downturn.
    So, what type of variation can be seen with the enactment 
of your emergency trigger proposal?
    Ms. Yocom. Well, there is a lot of variation. That is maybe 
the bad news from your perspective. The good news is the 
variation is very dependent on which states are affected by the 
downturn and it changes from recession to recession.
    In our work, we looked at four different downturns and the 
differing effects that happened on states. So, while one state 
may not get an additional FMAP, it would be because they didn't 
need it that particular time.
    Ms. Matsui. OK, thank you very much.
    Mr. Pitts. The chair thanks the gentlelady and now 
recognizes the vice chair of the subcommittee, Mr. Guthrie, for 
5 minutes for questions.
    Mr. Guthrie. Thank you. Thank you, Chairman, for calling 
this hearing. I know it is a very complex financing system we 
have. And I think a couple of things, one of its states it 
appears, you know what Mr. Hagg you have found is just improper 
billing. Another thing is just trying to find ways to maximize 
the way the FMAP formula works in ways that probably we didn't 
intend but it is not necessarily wrong on their point.
    But in your testimony, you did note that provider taxes, 
intergovernmental transfers and upper payment limits have the 
effect of distorting the FMAP rates and ``undermine the 
federal-state partnership in financing health care.''
    While this is a long-standing concern of OIG, can you 
comment on what degree you think this distortion may have 
increased in recent years, given the budget challenges states 
are facing?
    Mr. Hagg. Well, we haven't studied the extent of which 
those mechanisms have increased in recent years. So, I don't 
know definitively. I think it is safe to say, at least, 
generally speaking what we see specifically involving health 
care provider taxes, I think those have been on the rise in 
recent years.
    Mr. Guthrie. And Ms. Yocom, do you have any comments that 
shed light on that question?
    Ms. Yocom. I can't give you a specific number. I do know 
that our work has shown an increase in provider taxes and an 
increase in supplemental payments and these can be used to have 
an influence on the amount of federal money that is received.
    Mr. Guthrie. Thank you for that. And then Ms. Yocom, I have 
a question for you as well.
    I would be interested to learn more about the assistance 
distributed under GAO's prototype formula. Am I correct that 
this prototype formula would have been less costly than the 
assistance provided through the Recovery Act?
    Ms. Yocom. Yes, you are. We tested it over several 
recessions and it ranged from providing $9 billion in 
assistance to about $36 billion, which was under the big 
recession.
    The reality is, though, that the Recovery Act was 
attempting to do more than make Medicaid whole. They used 
Medicaid as a vehicle to provide additional state support.
    Mr. Guthrie. OK. And am I correct in understanding that if 
Congress were to implement the prototype formula compared to 
current law, not the Recovery Act but the current law, this 
change would need to be offset, since it would increase federal 
outlays during a downturn?
    Ms. Yocom. I believe so. You would really have to work with 
CBO on that. They are the experts.
    Mr. Guthrie. OK, it appears to be.
    And Dr. Schwartz, when MEDPAC presents this committee with 
recommended changes to the Medicare program, it routinely also 
provides the committee with recommended policies to adopt to 
offset the changes. Unfortunately, MACPAC does not offer ideas 
about ways to offset Medicaid or CHIP changes. If MACPAC wants 
us to be able to move forward on your recommendations, why 
doesn't MACPAC mirror MEDPAC's practice?
    Ms. Schwartz. To that point, I would first note that a 
number of our recommendations have had no budgetary impact and 
in that case, a no-saver would be needed.
    We are now engaging, as part of our work on children's 
coverage, in particular, and the work that we would be doing 
for you on financing, looking to see what kinds of saving 
options might be out there. And we do always try to work with 
CBO in understanding the fiscal effects of the recommendations. 
And that has certainly affected the commission's decision-
making when considering different options.
    Mr. Guthrie. All right, thank you.
    And I will just close with this statement. I was in the 
state government in Kentucky and we do a biannual budget. So, 
just general revenue budget, my first one was the year 2000, 
so, for 2001 and 2002. And our biannual budget in Kentucky is 
about $13 billion. That is not exact but it is close. And since 
then, talking about the strains on state budgets, since then I 
know we have cut universities, we have had a lot of strain. And 
I think last year's biannual budget was close to $19 billion. 
So, it has gone up a third in a decade or whatever. And so it 
has been consumed, a large part, there is other things, drivers 
of the debt, but a large part of it is Medicaid. And so as 
these states are looking, I think, for opportunities to 
maximize FMAP and to make their budgets balance, it is just 
Medicaid is continuing to consume more and more of our federal 
deficit and more and more of what states do.
    So, this is helpful for us so we can get a handle on this. 
If we don't there is going to be no discretionary money for 
states to spend in educating our children and it is going to be 
difficult for us to ever get our budget balanced, if we don't 
do so.
    So, your information today has been very helpful and I 
appreciate that very much. I yield back.
    Mr. Pitts. The chairman thanks the gentleman. And now I 
will recognize the gentleman from New Mexico, Mr. Luja AE1n, 
for 5 minutes for questions.
    Mr. Luja AE1n. Mr. Chairman, thank you very much.
    As we all know, Medicaid is a lifeline to so many but as I 
noted in my opening statement, New Mexico's Behavioral Health 
System is in crisis as well. I described the upheaval that has 
resulted in the Susana Martinez administration going after so 
many of these providers. And as I said today, there were just 
on Monday ten more of those providers that had allegations 
against them of fraud were exonerated. And contractors were 
brought in from outside of the state to take over a system. The 
current infrastructure was dismantled and we need a lot of 
support there.
    But with that being said, during the New Mexico 
delegation's many conversations with CMS on the crisis and its 
impact in New Mexico, we, the delegation, asked CMS to provide 
us with data that CMS was receiving from the State of New 
Mexico that they are collecting from them. We hope that the 
data could provide us with something insightful, with a better 
look at what was happening on the ground and not happening on 
the ground. Unfortunately, after months and months of delay, 
the response that the delegation from New Mexico received from 
CMS was that CMS admitted that the stated-provided data had, 
and I quote, ``significant limitations.'' This left CMS largely 
unable to determine which, ``areas and populations may be 
experiencing decreases in utilization.''
    So, the data being collected right now, at least from the 
State of New Mexico, is not able to help anyone make any 
decisions. So, without access to meaningful data, how is it 
possible for the people of New Mexico or us here to make 
decisions and how can people hold policymakers accountable?
    Without access to meaningful data, no one can know if 
enough is being done to ensure that the most vulnerable are 
protected and without access to meaningful data, we can't 
determine how best to strengthen the program for the most 
vulnerable. That is why I am interested in determining how we 
can use FMAP to help states build out and prioritize behavioral 
health infrastructure, data, and access.
    So, Dr. Schwartz, if we want states to build and maintain 
strong behavioral health systems, are there ways we can use 
FMAP to do so?
    Ms. Schwartz. I would say first to the point of data, the 
issue of data is one that MACPAC has consistently noted and 
noted concern about the need for data for many purposes, for 
program integrity purposes, for the purposes of improving value 
and monitoring quality and improving quality. And this is an 
area where CMS has been working to change its system to 
something called the T-MSIS, the Transformed MSIS, which has 
been going much more slowly than anyone would have anticipated.
    There are many things that states could do to strengthen 
behavioral health systems. Of course, states might prefer 
Enhanced FMAP. States have many options in the types of 
benefits that they can provide in behavioral health and states 
are, there is wide variation in how they do that. They have a 
wide variation in how they structure their systems in terms of 
the providers that they have, their use of managed care for 
behavioral health. So, a whole range of strategies.
    MACPAC's work at the moment is trying to look at whether 
there are barriers and whether those barriers are in the 
practice environment, the state environment, or the federal 
environment for integration of behavioral health services with 
physical health services. Because for many of these 
populations, regular contact with a physical health provider is 
their major point of contact with the health system.
    Mr. Luja AE1n. And so you answered the next question that I 
was going to pose, which was if you could speak how Congress 
has used FMAP to incentivize states to prioritize health care 
delivery systems. And one of the areas that it seems that 
Enhanced FMAP has worked is the long-standing family planning 
enhanced match, which appears to have drastically improved 
Medicaid access to families.
    But with that being said, the bill that I am working on 
provides an Enhanced FMAP to states that prioritize investments 
and infrastructure access and data collection. I would be 
curious to hear what types of suggestions you have about the 
interventions that are important that would maybe be most 
successful to help this program.
    Ms. Schwartz. I would be happy to take a look at that for 
you and get back to you on the details of it. There may be some 
technical assistance that we can provide in that regard.
    Mr. Luja AE1n. I appreciate that Dr. Schwartz.
    And Mr. Chairman, thank you so much for this important 
hearing today and I yield back the balance of my time.
    Mr. Pitts. The chair thanks the gentleman. I know recognize 
the gentleman from Illinois, Mr. Shimkus, for 5 minutes for 
questions.
    Mr. Shimkus. Thank you, Mr. Chairman. If Graham would put 
the slide up.
    Every time I deal with a Medicaid debate, of course, Ms. 
Yocom, you know you have seen this numerous times, the red is 
what the CBO would say is the mandatory spending, the blue is 
the discretionary budget. When we have a budget fight and there 
is a threatened shutdown, it is on the blue that the fight is 
about. So, this is a simple question but it is one that we, 
here out in the district, we use that term mandatory or we use 
the word for portions of the red, not all of them, as 
entitlement spending.
    Anyone want to comment on those two words as good words or 
bad words to use? Ms. Mitchell. What should they be called? Are 
they good?
    Ms. Mitchell. I don't know. I don't know that I am 
qualified to answer that.
    Mr. Shimkus. OK.
    Ms. Mitchell. But entitlement, meaning that Medicaid is an 
entitlement, meaning that both the states are entitled to 
Medicaid funding and individuals are entitled to Medicaid 
coverage, so that means there is no cap and states cannot put 
on----
    Mr. Shimkus. And that makes it mandatory because they are 
entitled to the coverage.
    Ms. Mitchell. Yes.
    Mr. Shimkus. Dr. Schwartz?
    Ms. Schwartz. Yes, all these----
    Mr. Shimkus. These are important. It might sound like a 
goofy talk but it is really out there. People get confused. And 
if we are trying to deal with what Mr. Guthrie was talking 
about, the national debt, part of the national debt is our 
promises to pay entitled people with mandatory spending.
    Ms. Schwartz. You know the labels are all extremely value-
laden but you point out correctly that when states spend money 
on these services that are authorized within the statute, 
populations who are entitled to those services and deemed 
eligible by those states, those funds flow through and the 
federal share is mandatory. It is not subject to an 
appropriation.
    Mr. Shimkus. Great, thank you.
    Ms. Yocom, did I fairly, accurately talk through that?
    Ms. Yocom. Yes, I think that your statement is accurate.
    Mr. Shimkus. Mr. Hagg?
    Mr. Hagg. I am not sure I would have anything new to add. 
Obviously, Medicaid is a very important program. For the people 
who receive their health insurance through it, it is a 
tremendously important program.
    Mr. Shimkus. Right but this is a 2014 pie chart of $3.5 
trillion of federal spending and then, again, the discretionary 
portion is anywhere between $1 trillion and $1.2 trillion and 
the rest is, as you have identified entitled or mandatory 
payment to meet the entitlement. So, I appreciate that.
    [Slide shown.]
    
    
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    Mr. Shimkus. We had a discussion. In fact, Mr. Lujan also 
mentioned this 90 percent enhanced family planning match that 
we discussed based upon it.
    Mr. Hagg, does the OIG have the capacity to continually 
audit all states' claimed federal matching for family planning 
services?
    Mr. Hagg. No, we don't have that capacity.
    Mr. Shimkus. Given that the Medicaid program is a shared 
federal and state responsibility and given OIG's limited 
resources, is it fair to say that states have a responsibility 
to do audits and prioritize oversight where there are known 
vulnerabilities?
    Mr. Hagg. Yes, I think that is fair to say. You know it 
starts with the states. The states have the responsibility to 
make sure that the expenditures they claim are accurate, in the 
case of family planning or other enhanced FMAP categories that 
the correct expenditures are in those categories.
    Mr. Shimkus. Great, thank you.
    And Dr. Schwartz, in your testimony, you noted one concern 
with the FMAP is that states have an incentive to broaden 
Medicaid to include other state health functions, where 
possible, in order to draw down federal funds. Can you 
elaborate and give an example of what you mean?
    Ms. Schwartz. I think when state resources are tight, there 
are incentives to look for other sources of revenue, whether it 
is for school-based services, transportation, or public health 
services.
    From MACPAC's perspective, our focus has always been on 
looking for policies to make sure that the eligibility 
decisions are made correctly, that the services are provided 
to, enrollees are medically necessary and appropriate and the 
providers meet the federal and state participation 
requirements.
    Mr. Shimkus. So, states are dipping into Medicaid dollars 
for other services that may not be appropriate, based upon the 
definition of Medicaid. They are gaming the system.
    Ms. Schwartz. That is the distinction that I want to make. 
And I am sure that the gentleman from the OIG may speak to this 
as well. From MACPAC's perspective, when states claim federal 
match, those services must be legally matchable from legal 
sources of revenue, even if they are provided in different 
settings.
    Mr. Shimkus. And that is your recommendation. Your 
recommendation is that they follow that.
    Ms. Schwartz. Yes.
    Mr. Shimkus. OK, that is it. Thank you, Mr. Chairman.
    Mr. Pitts. The chair thanks the gentleman. I know recognize 
the gentlelady from Illinois, Ms. Schakowsky, for 5 minutes for 
questions.
    Ms. Schakowsky. Thank you. Thank you, Mr. Chairman.
    The importance of Medicaid just simply can't be overstated. 
I want to start with that because just yesterday the CDC 
released new data showing that states that have expanded 
Medicaid have an uninsured rate of ten percent for adults age 
18 to 64, probably still too many, but yet compared to an 
uninsured rate of 17.3 percent for non-expansion states.
    However, many states, including my home state of Illinois, 
received FMAP rates very close to the statutory minimum of 50 
percent. In fact, Illinois receives an estimated 3.1 percent of 
annual FMAP funding that covers 4.8 percent of the nation's 
Medicaid beneficiaries.
    And I would like unanimous consent to enter into the record 
a document prepared by the Illinois Hospital Association which 
highlights the importance of Medicaid to Illinois.
    Mr. Pitts. Without objection, so ordered.
    Ms. Schakowsky. It is well-known that Medicaid payment 
rates are low, especially compared to the payment rates of 
Medicare and the private industry, private insurance. The need 
to adequate payments to Medicaid providers is incredibly 
important in providing stability in our healthcare system and 
ensuring access to providers for Medicaid beneficiaries. States 
have the flexibility of providing supplemental payments to 
providers and I believe this flexibility should be maintained.
    So, Ms. Schwartz, let me ask you. While some of the 
testimony today has focused on supplemental payments made to 
providers, I am more concerned about ensuring that providers 
receive adequate payments for services provided under Medicaid. 
Are underpayments to providers a systemic problem in the 
Medicaid program?
    Ms. Schwartz. I think that on the physician side, the 
literature has really consistently shown a relationship between 
fees and physician participation. And when fees are lower, 
physicians are less willing to participate and, therefore, the 
potential for access problems. The lower rate that Medicaid 
generally pays for a physician's services relative to Medicare 
is also well-documented and that was part of the thinking 
behind the primary care payment increase in 2013 and 2014.
    On the hospital side, it is significantly more complicated 
because states can pay hospitals through many different 
mechanisms, including their base payment rates, non-DSH 
supplemental payments, and DSH payments.
    The degree to which total payments to hospital in the 
aggregate varies considerably across states and we don't know a 
lot about hospital-specific payments. And for that reason, 
MACPAC has recommended 2 years ago and more recently in the DSH 
report that we released on February first that we need more 
data to better understand how hospitals are being paid. We 
recommended that the secretary collect and report hospital-
specific data on all types of Medicaid payments that they 
receive and on the sources of the non-federal share so we can 
determine net Medicaid payment and we can help answer the kinds 
of questions that are you are raising.
    Ms. Schakowsky. I am sorry. What happened February first, 
did you say?
    Ms. Schwartz. On February first, MACPAC released a 
statutorily required report to look at Medicaid payments to 
Disproportionate Share Hospitals.
    Ms. Schakowsky. OK, thank you.
    States, including Illinois, use intergovernmental transfers 
or IGTs to legitimately, I believe, fund their Medicaid 
programs. Medicaid statute, since its inception, requires 
states to use state general funds to pay for 40 percent of 
their share of Medicaid funding. States are afforded 
flexibility to fund their portion and draw down the federal 
share. In addition, many states use provider assessments to 
ensure stability in their Medicaid programs. Without provider 
assessments, Illinois' Medicaid program would cover less than 
70 percent of the cost for Illinois hospitals to care for the 
state's most vulnerable population.
    So, Ms. Schwartz, is there a component of these legitimate 
payment mechanisms that--isn't it really the states and the 
providers that are willing to put up their share and shifts the 
burden really to them, a burden that they are willing to 
accept, which I see as a good thing?
    Ms. Schwartz. I guess just to build on what I said 
previously, states are allowed to use intergovernmental 
transfers. We know much less about those intergovernmental 
transfers than I think we would like to know and that is part 
of the rationale for our recommendation to collect more data on 
that. We have been relying on some work GAO did that is 
illustrative of the issue but not nearly as comprehensive that 
you would need to make a significant policy change in that 
area.
    Ms. Schakowsky. But isn't it sort of obvious that if the 
states' ability to creatively finance their Medicaid programs 
are further restricted, that it would led to cost them services 
and benefits for the beneficiaries?
    Ms. Schwartz. It is hard for me to predict how states would 
react. States may have other sources and I couldn't comment on 
the specific reaction that states would have to such a change.
    Ms. Schakowsky. And so you are looking more carefully into 
this. And when do we expect to know something?
    Ms. Schwartz. Well, I think legislation is needed for the 
Secretary to collect those data.
    Ms. Schakowsky. I yield back.
    Mr. Pitts. The chairman thanks the gentlelady.
    Ms. Schwartz. Excuse me. I am sorry, sir.
    Mr. Pitts. Yes.
    Ms. Schwartz. I just need to correct what I said. The 
Secretary doesn't need legislation but the Secretary has been 
reluctant to and, therefore, it might be wise on the part of 
the congress to actually direct the Secretary to do that.
    Mr. Pitts. The chair thanks the gentlelady. I now recognize 
the gentleman from Virginia, Mr. Griffith, for 5 minutes for 
questions.
    Mr. Griffith. Thank you very, Mr. Chairman.
    Ms. Yocom, I have tremendous appreciation for the work that 
GAO does to evaluate policies and advise the committee. 
However, I am concerned that the current that the current 
process for appointing commissioners for MACPAC may be 
fundamentally flawed.
    For example, the MACPAC statute explicitly allows for 
Medicaid directors to serve on the commission, however, there 
is not one single Medicaid director serving on the commission 
today but Medicaid is supposed to be a federal-state 
partnership. So, I ask, why hasn't GAO put someone on the 
commission who is actually running a Medicaid program today?
    Ms. Yocom. Sir, I know that the Comptroller General is 
working on a response to the committee's request and I would 
like to defer until that comes to you.
    Mr. Griffith. I appreciate that.
    And Dr. Schwartz, I have got to tell you, as an attorney, I 
am very troubled by an apparent conflict of interest from some 
of the commissioners. Having read Ms. Rosenbaum's reply to 
Chairman Upton and Pitts, I have to tell you it was 
unsatisfactory in my judgment. In my opinion, when you read 
that letter carefully, it is a clear conflict under legal 
ethical standards that the chairwoman, even though she wasn't 
chairwoman at the time, would sign onto a case adverse to the 
House of Representatives when she is a sitting MACPAC 
commissioner. It doesn't matter whether she was chair or not at 
the time.
    And when you look at her letter, not only is she an 
attorney, which is clear in the letter, but she goes on to 
state that this case that she got herself involved in is ``the 
focus of my life's work.'' It is so core to her that that is 
her number one concern. If that is not the appearance of 
impropriety or a conflict of interest in the standard legal 
definition, I, frankly, don't know what is.
    And then she goes on in her letter to say that but now that 
I am chairwoman, I am not going to do any more work on that 
case. Well, if she has a conflict now as a chairwoman which she 
feels means she shouldn't work on that case, she shouldn't have 
worked on that case in the first place.
    And the issue is not resolved on the conflict of interest 
issue but it is also not exclusively her problem. One of the 
current commissioners sits on the board of a nonprofit which is 
involved in legal advocacy and has been involved in at least 
one class action suit against a state Medicaid program. Now, I 
have got to tell you, I can't see how these are not conflicts 
of interest in the sense of I understand there is a financial 
conflict of interest people talk about. I am talking about a 
judgment conflict of interest. In the legal standards, as an 
attorney, one of them is not just that you have a direct 
conflict but that there is an appearance of impropriety. There 
is an appearance of impropriety. And I think that it ought to 
be of concern and you all ought to be disturbed at MACPAC that 
you didn't anticipate that this would be a problem for the 
public and for members of congress.
    We need, as Congress, we need objective recommendations for 
strengthening Medicaid and CHIP. Given the concerns that the 
committee leaders have raised, I hope you understand my worry 
that MACPAC recommendations will be viewed as somewhat tainted, 
that there may be some conflict in there and that we can't rely 
on that, as we ought to be able to, as credible or objective in 
all cases.
    Now you know I know folks are good people and I don't know 
Ms. Rosenbaum but when you look at her letter, this is my 
life's work. That is the sign of a good person. But in this 
case, there was a mistake made, an appearance of impropriety, 
and she shouldn't be doing both her life's work and filing 
briefs or amicus briefs in opposition to the United States 
House of Representatives.
    As members of this committee know, and as others who have 
followed me through the years know, it is not a new position 
for me to recommend that we change the way we do things and 
that perhaps these appointments ought to be made directly by 
Congress. I plan to introduce a bill that will make MACPAC 
directly appointed by both parties. It is not a partisan bill, 
in that sense. Both parties, majority and minority would get 
appointments, House and Senate would get appointments. And I 
believe that is a proper way for us to proceed going forward.
    I look forward to working with folks to try to make that 
better. If they don't like the way we have the numbers 
configured, that is obviously something that can be discussed. 
But as a legislative advisory panel, we need to know we are 
getting the right stuff and that people don't have conflicts so 
steeped in their own personality that they would write a letter 
back to us and, in defense, say, ``But this is my life's 
work.''
    I yield back.
    Mr. Pitts. The chair thanks the gentleman and recognizes 
the gentlelady from California, Mrs. Capps, for 5 minutes for 
questions.
    Mrs. Capps. Thank you, Mr. Chairman, and thank you to the 
panelists for your testimony today.
    While I always appreciate the chance to talk about the 
importance of Medicaid and CHIP. To both families and 
communities, it is critical that any proposed changes do not 
undermine the program's important role in our health care 
safety net. Unfortunately, we continue to see plans from some 
of my colleagues to cap services or to block the program, both 
ideas that would not make health care more affordable but 
would, instead, leave some of those who need the program 
without it and shift the cost to states and localities. This 
would undermine the fundamental principles of the program and I 
cannot express enough how damaging that would be to patients 
and my constituents. But we can all agree that there are ways 
to make the program more responsive on the financial end.
    Studies show that when the current federal formula for FMAP 
uses per capita income as a proxy to reflect a state's 
financial resources and Medicaid needs, it is a poor proxy for 
both. This misrepresentation sustains significant funding 
disparities among states taxed by the federal government with 
serving the health needs of their low-income residents. And 
states like California that have relatively higher financial 
resources but also relatively higher poverty rates, are 
misunderstood as having lower Medicaid cost pressures than the 
already do.
    In fact, one study undertaken by California Common Sense, a 
nonpartisan research group in my state, found that by using a 
more accurate measure of poverty and need, California should be 
receiving a 15 percent higher FMAP rate.
    Dr. Mitchell, how does the current FMAP under-reimburse 
states like California who have higher Medicaid cost pressures 
than are reflected?
     Ms. Mitchell. Well, GAO has done a lot of work in this 
area but you know with the current formula, they are only 
looking at the per capita income. So, they are not taking into 
consideration the number of poor people in the state, the 
number of people eligible for Medicaid. None of those factors 
are taken into account.
    Mrs. Capps. Without this more accurate measure that looks 
at the financial--well, maybe I should just stop and say does 
GAO want to respond.
    Ms. Yocom. Ms. Mitchell is correct. Our work has shown one 
of the ways that it plays out is you can have two states with 
the same per capita incomes and the way it translates into the 
Medicaid program has a really different effect. For example, a 
state with a high number of disabled and elderly individuals is 
going to be struggling to finance their program more than a 
state that is primarily comprised of children and families.
    Mrs. Capps. OK, thank you.
    So, without this more accurate measure that looks at the 
financial resources and Medicaid needs of the state, states 
like mine, California, have worked with their health care 
providers to maintain a stable functioning safety net health 
care system. One way they have done so is through our state's 
provider fee, that is used to help pay for the non-federal 
share of their Medicaid program.
    Federal Medicaid law requires that provider assessments be 
broad-based and uniformly imposed and federal laws and 
regulations guard against the misuse of provider assessments by 
states that seek to receive higher federal matching rates than 
statutorily allowed.
    In California, the provider community is strongly 
supportive of the fee, even non-safety net providers. The fee 
has been approved by CMS and is used right. Money that comes 
from the state health care system goes right back into it, 
targeting the providers who provide the most under and 
uncompensated care. Over the years, however, we have heard 
rumblings against the program. To be clear, cutting provider 
fees would hurt all individuals in the state, not just working 
families.
    Before the California fee went into effect, a dozen safety 
net hospitals were about to close their doors, not because they 
didn't have patients to care for but because they couldn't 
afford to stay open. The provider fee has given them new life 
so that they are there in the community for both Medicaid 
patients but also any community member who needs care.
    And with that, Mr. Chairman, I yield back the balance of my 
time.
    Mr. Pitts. The chair thanks the gentlelady and now 
recognizes the gentleman from Missouri, Mr. Long, for 5 minutes 
for questions.
    Mr. Long. Thank you, Mr. Chairman.
    Ms. Yocom, why is it that the current FMAP formula isn't 
sufficient for dealing with economic downturns?
    Ms. Yocom. A lot of it has to do with the timing and the 
fact that, as Ms. Mitchell talked about, the data that are 
represented by the FMAP calculation, in addition to not be 
complete enough, are also old. So, when you are in a steady 
economic time or a time of growth, it doesn't cause a problem. 
It is during a downturn that the real effects take place 
because the FMAP is reflecting economic circumstances that were 
several years ago.
    Mr. Long. OK, have you assessed how well the prototype 
formula would have worked in these previous downturns?
    Ms. Yocom. We have. Our first effort to create a model like 
this addressed about 90 percent of recession-related costs. And 
where we found that it was lacking was for states that were 
slow to enter a downturn and slow to recover. And so then we 
adjusted the way that we end the assistance period, based on 
states' activities and, did some slight improvement. I don't 
think we calculated the percentage of cost coverage since then 
but we believe it is a pretty strong formula.
    Mr. Long. You believe it is what?
    Ms. Yocom. It is a pretty strong formula for assessing 
states with their financial needs.
    Mr. Long. OK, my next question here is for you or Dr. 
Schwartz, whoever wants to take it first.
    What type of other policy proposals have been proposed in 
the past replacing FMAP and improving financing to the Medicaid 
program?
    Ms. Yocom. What types of policies have been proposed?
    Mr. Long. Yes, what type of policy proposals have been 
proposed in the past for replacing the FMAP and improving 
financing in the Medicaid program?
    Ms. Yocom. There was, at one point, legislation looking at 
adjusting the FMAP during a downturn. I do not know how far it 
got in the statutory path.
    Mr. Long. Dr. Schwartz.
    Ms. Schwartz. MACPAC has just conducted an historical 
review of major reform proposals and we are working on cleaning 
that up so that we can share it with the members of the 
committee and your staffs. Some of the ideas that have been 
talked about over the past 20 to 30 years include block grants, 
as have been stated earlier, per capita caps, capped 
allotments. Those are some of the proposals that we will be 
looking at going forward but we will provide you an analysis of 
some of those ideas.
    Mr. Long. And how would those options change the incentives 
and disincentives facing states?
    Ms. Schwartz. Well, they differ from each other in how they 
are designed but, in general, they change the nature of the 
relationship between the federal government and the states in 
providing more fiscal discipline in limiting the resources 
either in total or based on the number of enrollees or other 
mechanisms of that type.
    Mr. Long. OK, so there would be incentives and 
disincentives for states.
    Ms. Schwartz. Yes.
    Mr. Long. OK, thank you all. I appreciate your testimony 
here today. With that, I yield back.
    Mr. Pitts. The chair thanks the gentleman. I now recognize 
the gentleman from New York, Mr. Engel, for 5 minutes for 
questions.
    Mr. Engel. Thank you very much, Mr. Chairman.
    Mr. Hagg, I just have a couple of quick questions for you, 
based on the issues you have raised regarding my home State of 
New York. In your testimony, you noted past issues regarding 
reimbursement for developmental centers and residential 
habilitation centers. And in both of these instances, it was 
clear that both our state and CMS made administrative errors 
that resulted in overpayments for these services and, in both 
instances, all parties involved, including the State of New 
York and CMS largely agreed with OIG's findings. Is that not 
correct?
    Mr. Hagg. Yes, I think that is correct.
    Mr. Engel. Yes. It is my understanding that, following this 
report, New York and CMS worked cooperatively to both fix the 
problem in the future, as well as agreed upon a financial 
settlement to resolve the issue. That is true as well.
    Mr. Hagg. That is correct, yes. Initially it was trying to 
fix the problem moving forward and then it required some audit 
work looking backwards to figure out the scope of the problem, 
the extent of the problem. And then yes, the state and CMS 
worked closely together to reach that settlement. Yes.
    Mr. Engel. Thank you. Your testimony today also included 
the results of many investigations and my reading of these 
reports would indicate that nearly all ended with cooperation 
between the states and CMS to resolve the issues at hand. Is 
that correct?
    Mr. Hagg. Well, are you talking about the audits involving 
some of the Enhanced FMAP claiming areas?
    Mr. Engel. Yes.
    Mr. Hagg. Yes, I think, I don't have a list in front of me 
but I would think most, if not all, of those audits, CMS 
concurred with the recommendations that we made. I think in a 
lot of cases, the states agreed with our findings and 
recommendations as well. So, yes, CMS, as the action official, 
would work with the states to help implement those 
recommendations.
    Mr. Engel. OK. And finally, would you agree that most 
investigations on issues similar to New York's are addressed in 
a generally cooperative manner that improves the program 
integrity in the long-run?
    Mr. Hagg. I am sorry. Could you repeat that again?
    Mr. Engel. That the investigations on issues similar to the 
ones we have in New York, as you pointed out New York wasn't 
the only state, that those issues are generally addressed in a 
cooperative manner that improves program integrity in the long-
run?
    Mr. Hagg. Generally speaking, yes. If CMS agrees with the 
recommendations we make in the states then, yes, there is a 
cooperative effort to try to help the program moving forward. 
Sometimes there are disagreements where states disagree with 
the findings that we have, with the recommendations that we 
make. Sometimes CMS disagrees with us. But by and large, when 
there is agreement, yes, there is a cooperative effort to help 
improve the programs moving forward.
    Mr. Engel. All right. Well, thank you. I just wanted to get 
those clarifications on the record. OIG has done very good, in 
my opinion, to ensure that reimbursements in the Medicaid 
program remain accurate and certainly, OIG has raised issues in 
the past but it is clear that these issues are solvable and 
always nearly end with both long-term program improvement and 
amicable agreement between the federal and state government. 
So, I just wanted to get that on the record.
    Thank you, Mr. Chairman. I yield the remainder of my time.
    Mr. Pitts. The chair thanks the gentleman and now 
recognizes the gentleman from Florida, Mr. Bilirakis, for 5 
minutes for questions.
    Mr. Bilirakis. Thank you, Mr. Chairman. I appreciate it 
very much. I want to thank the panel for their testimony.
    GAO has listed Medicaid as a high-risk program for more 
than a decade. I am sure that you know that. The IG's Office's 
2015 Top Management and Performance Challenge Report has 
Medicaid fraud, waste, and abuse listed in the number one spot.
    Mr. Hagg, this week the Energy and Commerce Committee sent 
a letter to the IG's office asking for additional information 
on Medicaid payments related to deceased beneficiaries and 
deceased providers. Do you know the size and scope of the 
problem, how much money is being wasted, there shouldn't be any 
money wasted as far as I am concerned, what services or 
payments are being made, and why life status cannot be 
determined in a timely or accurate way?
    And I think it should be pretty simple but if you can 
answer that question, I appreciate it.
    Mr. Hagg. Yes, I don't have an answer to the scope of the 
problem or the magnitude of the problem.
    Over the years, we have conducted various audits going back 
a number of years, where we would identify Medicaid payments 
that were made for people that were deceased. We currently have 
some ongoing work looking at a few different states, trying to 
determine the extent of the problem for those individual 
states. It wouldn't be a national look but it would for 
individual states determine the extent of which payments are 
made for people that are deceased.
    Mr. Bilirakis. Well, why wouldn't we look at all 50 states 
in this case?
    Mr. Hagg. That is a resource issue. It is a lot of data to 
crunch and review. And once you have things that look like 
errors, there is specific work that needs to be done to look 
behind to make sure that we are actually talking about someone 
who is deceased. So, it just requires a lot of resources.
    Mr. Bilirakis. Well, it is my understanding we have had 
spot checks before and it just hasn't done anything. Why not a 
comprehensive look at the problem? As far as I am concerned, it 
is a big issue.
    Mr. Hagg. Well, I don't disagree with you. And you would 
think it would be something that over time we would be able to 
get correct.
    Mr. Bilirakis. How do you engage with the states?
    Mr. Hagg. How do we engage with the states?
    Mr. Bilirakis. Yes.
    Mr. Hagg. Well, anytime----
    Mr. Bilirakis. Get the information necessary for the 
analysis.
    Mr. Hagg. Well, just like all of our work, we try to look 
at areas that we believe are high-risk areas of 
vulnerabilities, whether it is across states or in specific 
states. We decide, once we see those vulnerabilities, to 
conduct audit work that would address those specific areas, 
those vulnerabilities. If we decide to audit a specific state, 
we obviously meet with the state and talk to them about the 
audit we are going to perform, the scope that it would entail, 
and the methods that we would use. And we work with the state 
to get the data we need to make determinations to fulfill our 
objectives.
    Mr. Bilirakis. How many states have you identified so far?
    Mr. Hagg. For payments for deceased beneficiaries?
    Mr. Bilirakis. Yes, and how much money is involved?
    Mr. Hagg. Well, currently, I don't know the extent of the 
errors. We have ongoing work in two or three states, one that 
work is completed. We can talk about our findings more. Right 
now, I don't have any findings to report because the work isn't 
completed.
    Going back 10 years or more, there would be audits 
conducted by us and other groups that would find Medicaid 
payments for deceased beneficiaries. I think the amounts would 
vary from a million or two million here or there to higher 
amounts like in twenty-five million or more.
    Mr. Bilirakis. That is outrageous as far as I am concerned. 
OK, well please keep me informed----
    Mr. Hagg. We would be glad to do that.
    Mr. Bilirakis [continuing]. Because I need to follow up on 
this.
    Thank you very much. I yield back, Mr. Chairman.
    Mr. Pitts. The chair thanks the gentleman. I now recognize 
the gentleman from Indiana, Dr. Bucshon, for 5 minutes for 
questions.
    Mr. Bucshon. Thank you, Mr. Chairman.
    Medicaid is a critical program. I was a physician in my 
previous career. I am still a physician but now I am here. But 
in my view, it needs broad reform and we are talking about some 
aspects of the law today.
    In many states, having Medicaid does not guarantee access 
to health care, other than through the emergency room and that 
is true today as it has been for quite a while. As the costs 
continue to rise overall in health care, more stress will be 
put on this critical program.
    One of the failures of the ACA is addressing coverage and 
not addressing cost. And without honestly looking at some of 
the things that are driving the cost and solving those, we are 
going to continue to be talking about coverage when we are 
missing the boat because it doesn't guarantee access.
    Price transparency for the consumer in health care doesn't 
exist. Quality transparency is getting better. The combination 
of those two is the value that you get from a service.
    Looking at tort laws, antitrust and stark law reforms, and 
many other things to try to help decrease the costs in our 
health care system will be imperative to the other things that 
we look at structurally within the Medicaid program.
    And this question goes to Dr. Schwartz or Ms. Yocom. Has 
anyone looked at Medicaid recipients and their ability to find 
access to a primary care physician, other than through the 
emergency room? So, for example, you have a Medicaid 
population. Has anybody surveyed them and found out the 
percentage of them that can't find a primary care physician to 
take care of them?
    Ms. Schwartz. There are a number of different surveys that 
have been done to look at access for Medicaid beneficiaries. 
One is using the National Health Interview Survey and asking a 
number of questions about access. Unfortunately, using that 
survey, we can't get state estimates. So, some of the variables 
that would be important about how states design their programs, 
you can't tell.
    Another approach that has been taken more recently by a 
group of researchers at the University of Pennsylvania is to do 
what they call Secret Shopper and call and pose as a private 
insurance patient or Medicaid patient and to see what the 
access barriers are. And they do see some differentials. In 
that study, they were also looking at difference in fees and 
found that states that had higher fees in the Medicaid program 
did have fewer barriers to access.
    Ms. Yocom. There is another national survey. Again, we 
cannot get down at the state level, which shows that from the 
perspective of the beneficiaries Medicaid access is viewed as 
comparable to that of private insurance with regard to initial 
primary care. And the difficulties reported in obtaining care 
get higher when you are talking about specialty care or 
behavioral health services, in particular.
    Now, what we don't know is the frame of references of those 
individual respondents, if they were previously uninsured and 
being on Medicaid may make things easier.
    Mr. Bucshon. Yes, I understand the study but amongst the 
community that I represent, we hear all the time about 
difficulty finding physicians and we are hearing more about 
Medicare patients, finding access to primary care physicians 
because physician practices are closed to those populations, 
based on the low reimbursement rates.
    Mr. Hagg, when the state claim a higher federal matching 
rate than they are entitled, what is the process for the 
federal government to be made whole?
    Mr. Hagg. Well, specifically tied to the work that we 
performed, if the state agrees and CMS agrees, it could be a 
fairly quick process. And the next quarter, the state would 
return the funds.
    Mr. Bucshon. That is the question. So, the next quarter of 
the payment can be rectified?
    Mr. Hagg. If the state agrees that it is an overpayment. 
Now, if they disagree, there are certain appeal rights that 
they have that they can go through. Once those appeal rights 
are exhausted and it is still determined to be a legitimate 
overpayment, an overpayment that CMS agrees with, as the action 
official, CMS would issue a disallowance letter to the state. 
That may take several quarters to actually get the money back 
at that point, then.
    Mr. Bucshon. OK, great. And Ms. Yocom, obviously, there is 
a tradeoff between complexity and accuracy involved in 
alternative measures to determine and to allocate Medicaid 
funding to the states. Can you just briefly comment on that?
    Is there any not complex, accurate way to do this or is it 
just a balance?
    Ms. Yocom. Unfortunately, there probably isn't. There is a 
tradeoff, though, between how complex you want your formula to 
be versus how simple it is to implement.
    I think really, at the end of the day, it is a 
congressional policy decision of how important it is to be as 
equitable as possible across the states.
    Mr. Bucshon. Thank you. My time is up. I yield back.
    Mr. Pitts. The chair thanks the gentleman and now 
recognizes the gentleman from New York, Mr. Collins, for 5 
minutes for questioning.
    Mr. Collins. Thank you, Mr. Chairman.
    Let me explain, perhaps, a problem I have and then we will 
ask a little input. I am from Buffalo, New York, Erie County, 
New York, one of the poorest cities in the United States of 
America and hence, one of the poorest counties, with a very 
high percentage of Medicaid.
    So, it is my understanding that there are about 13 states 
out of 50, New York being one, that forced the counties to pick 
up a large piece of the state's share. Now in 37 out of 50 
states, the state picks up their share, the federal picks up 
their share, and that is it. And that reimbursement rate is 
dependent on the state income level, compared to the national 
average.
    In New York and I think 12 other states, though, the state 
forces a big piece, as much as half of that state share down to 
the 62 counties in New York. So, New York being considered a 
wealthy state because of New York City, Westchester County, we 
are at the lowest level. We are reimbursed 50 percent. But in a 
poor county, then, like Erie County, the largest upstate county 
in New York, that share comes back to the county. We are only 
getting 50 percent. Yes, Mississippi, which has the same 
relative income level, gets 74 percent. So, you can see where 
yes, it is a state issue, perhaps, but I believe this 
reimbursement was to protect, if you will, the taxpayers of the 
poor states. Well, think of Erie County as a state. We are a 
very poor county, yet we are only reimbursed at 50 percent 
because of that.
    So, my thought would be having a state like New York that 
is 62 counties that forces it back on the counties, we should 
have 62 different reimbursement rates that accept that Erie 
County is a very poor county.
    And to put it in perspective, the county, little county, 
well it is a big county, but our county share of Medicaid was 
give or take $120 million a year, $120 million. Our entire 
county property tax was only $110 million. One hundred percent 
of our county property tax would not even cover our Medicaid 
portion. So, we had to dip into our sales tax collections to 
cover that. And then everything else in our budget from 
highways to all other services, jails, was covered by sales 
tax.
    So, I think you can see the dilemma we have as being one of 
the states where the state is forcing substantial costs, what 
they call the state share but in New York it is state and 
county share, and that we are a poor county.
    So, I guess the question, I don't know, perhaps to Ms. 
Mitchell, I have to assume it wouldn't be that hard to have 62 
reimbursement rates, one for each county in New York. The data 
is easily available, I would presume. I know it would take a 
bill in Congress to say for those states which push it back to 
the local level, we will look at each county as a separate 
entity and recalculate that rate.
    And I know that is different than what we have now, but 
that wouldn't be that difficult to do, would it?
    Ms. Mitchell. I believe it could be possible to do that and 
unfortunately, at this point, those sort of decisions are made 
on a state level. States have a lot of discretion in how they 
design their program and how they fund their Medicaid program.
    Mr. Collins. But if a state did like New York, though, you 
could then go back to the federal government and say here is 
New York State's program so, in this case, let us recalculate 
for the 62 counties. I know it would take an act of Congress to 
do that but I think you can sense my frustration, as the county 
executive of a very poor county, being treated like we were 
from Westchester County, or Suffolk County, or Nassau County 
but we weren't, you know home to the City of Buffalo, third 
poorest city in the United States.
    So, would anyone else want to comment on that? Have you 
heard this argument from others? I mean there are 12 or 13 
other states that do likewise. A lot of people have no idea 
this even happens.
    So, with that, I guess I will yield back the balance of my 
time but my thought would be if you could get Congress to move, 
the first question would be how hard would it be? And I don't 
think it would be that hard to calculate 62 different rates for 
New York, just the press of a spreadsheet button and there you 
go.
    Thank you very much, Mr. Chairman. I yield back.
    Mr. Pitts. The chair thanks the gentleman. I now recognize 
the gentlelady from Indiana, Mrs. Brooks, for 5 minutes for 
questions.
    Mrs. Brooks. Thank you, Mr. Chairman and thank you to the 
witnesses for your testimony.
    I want to commend, actually, my home State of Indiana for 
taking the lead in developing a groundbreaking approach in what 
is known as Healthy Indiana Plan, HIP 2.0. And it is an 
innovative, consumer-drive, health insurance program, as you 
know, designed to empower members to take personal 
responsibility for the health care decisions. And just as HIP 
2.0 encourages individuals to take responsibility, FMAP should 
encourage states to take responsibility of their financial 
health of the state Medicaid program.
    I would like to just talk about, because I think this is an 
important discussion, on how we maximize the federal dollars to 
provide for the best health outcomes for our nation's most 
vulnerable populations. And Ms. Schwartz, last Congress, I 
joined a bipartisan group of colleagues from the Women's Caucus 
to urge the renewal of CHIP. And moving forward, I want to 
ensure that we continue to provide care for those roughly 8 
million children and pregnant women around the country, 
including roughly 84,000 children in Indiana.
    MACRA extended CHIP through the end of next September and 
the ACA increased CHIP's already enhanced FMAP by 23 percent. 
So, under MACRA, the federal government is paying, as you said, 
all the costs for CHIP in 12 states and paying 90 percent of 
the costs in an additional 20 states.
    So, the last time that the MACPAC commented on CHIP, there 
was a 2-year extension. And now that there is a more in-depth 
examination, I hope the commission is examining as to what 
degree a lack of a state contribution may affect the state 
incentives to ensure that Medicaid payments are appropriate and 
accurate. Can you comment on that?
    Ms. Schwartz. Certainly. The commission has a very 
aggressive work plan and is very focused and has committed to 
having a package of recommendations for Congress by the end of 
this calendar year, so that when Congress turns its attention 
again to funding for CHIP in the next Congress, that MACPAC's 
recommendations will be available. We are looking at many 
different aspects of the program, benefits, affordability, 
state administration and financing. And all of these will fold 
into those recommendations. You can see that that will be on 
the agenda, consume a considerable amount of the commission's 
time at every meeting over the course of this year.
    Mrs. Brooks. And is MACPAC evaluating incentives in CHIP's 
current program financing?
    Ms. Schwartz. Yes.
    Mrs. Brooks. And what, if any actions, has CMS taken to 
ensure the accuracy and the appropriateness of federal and 
state payments?
    Ms. Schwartz. I can't speak to what CMS' actions have been 
in this area. I can check into that and get back to you.
    Mrs. Brooks. OK, thank you.
    Mr. Hagg, the list of top management challenges for HHS 
identified protecting the Medicaid program from waste, fraud, 
and abuse as the number one challenge. When do you expect OIG 
report of the findings on this issue will be made public and 
can you talk about will your analysis review whether 
individuals whose medical services were financed at the 
enhanced matching level were actually eligible under the 
statute? And you talked a bit about that in your testimony. Can 
you expand on that?
    Mr. Hagg. Well, yes, a few different things. One, the list 
of top management challenges is really to highlight for the 
Department and others, external parties, the areas that we 
believe have large vulnerabilities. It doesn't tie to a 
specific report that we would put out to say specific problems 
have been solved or not. We have a body of work in Medicaid 
covering a lot of different areas and the results that we find 
leads us to the conclusion that Medicaid is a high-risk area. 
So, that is one thing.
    As far as some of the Enhanced FMAP rate categories, the 
one specifically you are talking about for the newly eligible 
population, we have some work ongoing. It is two different 
tracts, really. The first is some audit work that my team is 
doing. It is focused on states and the actions they are taking 
and claiming. The second tract is being done by our Office of 
Evaluations and Inspections. They are looking at CMS' 
oversights and their responsibilities and the action that CMS 
is taking.
    We anticipate that work being done sometime later this 
year. For the audit work as early as, well, probably not before 
the end of this calendar year. For the work that focuses on 
CMS, probably no earlier than maybe late summer.
    Mrs. Brooks. Is there a report that those of us who are 
working on Congressman Guthrie's Medicaid Task Force Reform 
efforts, is there a report that you can point to where we can 
dig in on the waste, fraud, and abuse recommendations that OIG 
has made?
    Mr. Hagg. Yes. Well, one, you have seen the top management 
challenges. That will lay out some of the things that we found. 
We have a semi-annual report that we put out, obviously, that 
highlights some of the areas of the bigger issues that have 
been identified.
    We have a compendium of unimplemented recommendations that 
talk about specific things that we think can still be done to 
help improve the program. And then beyond that, I would be glad 
to try to provide some of reports involving some of the bigger 
impact or higher risk areas that we have identified issues.
    Mrs. Brooks. Thank you. Thank you all for your work. I 
yield back.
    Mr. Pitts. The chair thanks the gentlelady. That concludes 
the questions of members present.
    There will be follow-up questions that we will send. We 
will send those to you in writing. We ask that you please 
respond promptly.
    Mr. Schrader.
    Mr. Schrader. Thank you, Mr. Chairman. I just briefly want 
to recognize that Medicaid basically insures almost 40 percent 
of the children in the United States of America. So, the impact 
of Medicaid on children should not be far from our minds. We 
have heard a lot of testimony today to that effect.
    So, I would like to ask unanimous consent to submit a 
statement from the American Academy of Pediatrics for the 
record, sir.
    Mr. Pitts. Without objection, so ordered.
    Mr. Schrader. Could I make just one final comment?
    Mr. Pitts. Yes, sir.
    Mr. Schrader. Just to keep the hearing in perspective, I 
appreciate the hearing. It is very timely, very important. At 
this point in time, it is pretty clear that there has been an 
uneven economic recovery. The good vice chair alluded to the 
fact that Medicare enrollments have increased over the last few 
years and I think that is indicative of the fact that a lot of 
folks are struggling to keep up, despite the fact that 
unemployment is way down and we are getting back our mojo, I 
think, as a country, but it is uneven at best.
    So, Medicaid provides I think a very important role. I 
would also like to point out that despite the complexity and 
although we have heard a lot about some of the unclear rules 
maybe from CMS in how the Medicaid money should be 
administered. And OIG and GAO have done a good job, I think, in 
pointing out some of the potential problems with 
interpretations program, no one has done anything wrong.
    So, at the end of the day, I would just like to point out 
that as far as a government program goes, Medicaid has the 
lowest improper payment rates of any federal health program. 
So, let's keep it in perspective and talk about what we need to 
be doing.
    Last comment, sir, thank you for your indulgence, is that 
the real answer to driving the cost down is, again, quality-
based reimbursement. That is how you get the biggest bang for 
the buck without hurting the people that need the program the 
most.
    So, I am hoping that we have that opportunity to talk about 
this and some of the other ideas that come out of this hearing. 
And I really appreciate the fact that we have had this hearing.
    I yield back, Mr. Chairman.
    Mr. Pitts. The chair thanks the gentleman. Does the 
gentleman from Massachusetts seek recognition?
    Mr. Kennedy. Yes, if I may.
    Mr. Pitts. The gentleman is recognized for 5 minutes for 
questioning.
    Mr. Kennedy. Thank God. I apologize to all that were 
waiting and letting me catch my breath.
    Chairman, thank you for holding the hearing. To our 
witnesses, thank you for being here. Thank you for your 
testimony.
    Mr. Hagg, I wanted to direct the first question at you sir, 
if I may. One report that OIG has highlighted was a review of 
Medicaid claim adjustments in Massachusetts between 2008 and 
2010. I wanted to take a moment with you to discuss the report. 
The main finding, as I understand of the report was that our 
state over claimed federal revenue around the time of the 
American Recovery and Reinvestment Act.
    So, to start, the Recovery and Reinvestment Act was 
implemented in 2009. Is it true that nearly at the same time 
the Commonwealth implemented a new Medicaid management 
information system around that as well?
    Mr. Hagg. I believe that is correct.
    Mr. Kennedy. And so is it correct that after OIG's findings 
were raised that the Commonwealth agreed to address the issues, 
so long as CMS agreed with OIG's interpretation?
    Mr. Hagg. I would have to go back and look at the report. 
At this point, I am not sure I remember specifically exactly 
what the state comments were on our findings.
    Mr. Kennedy. OK. So, if I jogged the memory, and said that 
if OIG reported the Commonwealth overcharged by $106 million, 
does that strike you as----
    Mr. Hagg. Yes, those were our findings. I just don't recall 
what Massachusetts' reaction was to those findings.
    Mr. Kennedy. So my understanding, sir, is that under OIG's 
interpretation on the other end of the ARA period, 
Massachusetts would have been undercharged by $108 million. 
Does that part ring a bell?
    Mr. Hagg. Well, I don't know that our audit period looked 
through that far. I don't think it covered that much. We 
focused on a specific period of time and the adjustments the 
state made during that time period.
    If the state believed that at the end of the period, the 
opposite effect would occur, then certainly, CMS, as the action 
official, would work with the state to take that into 
consideration and correct it.
    Mr. Kennedy. I appreciate that. I think the issue was, 
looking at one time period, the state had overcharged the 
federal government $106 million but looking at another time 
period, was in fact overcharged by $108 million. And you are 
saying you don't recall it but would look.
    Mr. Hagg. Well, again, CMS is going to be the action 
official on this. I am pretty sure that CMS concurred with our 
findings and recommendations.
    Now, without looking at that specific period that you are 
talking about or the state is talking about with an under 
claim, I really don't have the answer to that, whether that is 
accurate or not.
    Mr. Kennedy. Understood.
    Mr. Hagg. It really would be up to CMS, as the action 
official, to look at the information. If they wanted to come 
back and ask us to look at it, too, we would do that. But it 
would be up to CMS to try to resolve our findings and then the 
additional information, I guess, that the state has
    Mr. Kennedy. Great. And I come at this from the perspective 
that I agree with you wholeheartedly that program integrity is 
absolutely critical.
    And to the extent that the Commonwealth of Massachusetts 
OIG and CMS are able to work together to address the issue and 
didn't, I think it is fantastic. I think it is an isolated 
issue that ended up coming from a series of concurrent changes, 
such as the new information systems launch and, at the same 
time, a one-time stimulus. Hopefully, those challenges are 
behind us.
    Ms. Mitchell, if I can ask, you noted in your report that 
the FMAP is utilized to determine the federal share of other 
programs in the government as well. I was hoping you could 
comment on this and lay out a few of them.
    Ms. Mitchell. About what?
    Mr. Kennedy. The ways that FMAP is used for other programs.
    Ms. Mitchell. Sure. The regular FMAP is used to determine 
the federal share of a number of programs. And the ones that I 
am recalling right now are the Temporary Assistance for Needy 
Families Contingency Funds and the Foster Care Title IV-E 
funding.
    Mr. Kennedy. And so, ma'am, if our committee were to adjust 
FMAP funding in any way, we would also be affecting the funding 
for those programs as well. Is that right?
    Ms. Mitchell. I think it depends on how the legislation is 
written. If it is specific to the Medicaid program and you 
maintain the FMAP for the other programs, you could do that or 
it could apply to the other programs.
    Mr. Kennedy. OK. Thank you very much. And I yield back, Mr. 
Chairman.
    Mr. Pitts. The chair thanks the gentleman. I now recognize 
the gentleman, Mr. Ca AE1rdenas, 5 minutes for questions.
    Mr. Ca AE1rdenas. Thank you very much, Mr. Chairman.
    I thank you all for joining us today. We appreciate your 
knowledge and your expertise on these matters.
    My first question is for Mr. Hagg. One report that OIG has 
highlighted was a review of federal reimbursement for family 
planning services in California, specifically in the San Diego 
area. I would like to take a moment to discuss a portion of the 
report.
    In this report, over half of the improper claims were noted 
to be for visits that included testing for sexually transmitted 
infections. Is it true that after this report, CMS released 
guidance clarifying that STI testing is classified as family 
planning services for the purpose of calculating the FMAP?
    Mr. Hagg. I am not sure that is true. I would have to look 
back at that.
    CMS put out a letter to the state Medicaid directors in 
2014. I probably would need to refer back to that letter. I 
know it clarified some previous guidance and I think it revised 
some previous positions that CMS had taken. I should look back 
at the letter but I think that would have been, sexually 
transmitted infections would have been, classified as family 
planning-related, which would be claimed at the regular FMAP 
rate, not at the enhanced family planning rate.
    Mr. Ca AE1rdenas. OK, thank you. I appreciate that, Mr. 
Hagg.
    I also think it is also worth noting that as a result of 
OIG's recommendations, we have made programmatic changes to 
maximize program integrity moving forward, such as implementing 
an ICD-based reimbursement system. OIG's oversight has, indeed, 
provided worthwhile suggestions beyond STIs, which we are 
appreciative of.
    On the whole, I am pleased that this discrepancy in 
interpretations between the states and OIG has been resolved. I 
hope that with this administrative issue resolved, we can 
continue to move past this and past the simple difference of 
opinions and towards further actions that strengthen Medicaid 
for all of our beneficiaries.
    I have another one. My next question is for Dr. Schwartz. 
Again, thank you for joining us, doctor.
    I would like to ask you a question regarding upcoming work 
you noted in your testimony. In the summary sections, you noted 
that MACPAC is now focusing intensively on financing and design 
questions associated with alternatives, such as block grants, 
per capita caps, and capped allotments. I was somewhat alarmed 
that the sentence went on to describe that it would examine 
issues related to these alternatives, specifically baselines, 
growth factors, and state contributions. Were these three items 
only made as brief examples or does MACPAC plan to examine 
other effects of financing changes as well?
    Ms. Schwartz. Yes, they are both design issues to consider, 
which are those that were mentioned in my written statement as 
well as issues of impact. And a work plan analysis will also 
look at the impact on states, plans, providers, and 
beneficiaries. And another type of impact that we intend to 
look at is how changes in financing could affect other programs 
that rely on Medicaid to finance medical care for populations 
they serve, such as child welfare and special education.
    Mr. Ca AE1rdenas. OK, so you are cognizant of what could 
occur as a result of these alternative financing mechanisms and 
how they would affect system deliveries amongst all of our 
states.
    Ms. Schwartz. Yes, that is part of our work plan.
    Mr. Ca AE1rdenas. OK. One concern that has been raised is 
that alternatives to restructure Medicaid financing are often 
intended to reduce federal Medicaid expenditures. This 
subsequently places a larger burden on states and providers. I 
am concerned this could have a negative effect on access to 
care. Will this consideration be included in the June report?
    Ms. Schwartz. Yes.
    Mr. Ca AE1rdenas. OK. When you say yes, to what effect do 
you elaborate on that? Do you give examples? Do you extrapolate 
out on previous examples where we have done cuts in the past?
    Ms. Schwartz. I think our analysis will do both. We 
certainly have the experience from what states do now, when 
facing constrained spending. We can use data to help us look at 
the impact of different assumptions and so we can do both 
qualitative and quantitative analyses to look at those 
questions.
    Mr. Ca AE1rdenas. And are there potential examples where 
cuts have had negligible to beneficial effects on local output 
of services and do we have examples that you could actually 
point to that have had negative effects in the past?
    Ms. Schwartz. The states have sort of a defined tool kit in 
which they currently use to address issues of spending growth. 
They can address enrollment. They can addresses, prices, 
payment rate. They can address covered benefits and they can 
also do innovations to change the delivery of care and all of 
those provide good examples for helping us think about future 
approaches to finance.
    Mr. Ca AE1rdenas. Thank you so much, Mr. Chairman.
    Mr. Pitts. The chair thanks the gentleman. I believe that 
concludes questioning now.
    I remind members they have 10 business days to submit 
questions for the record. So, they should submit their 
questions by the close of business on Wednesday, February 24th.
    Good hearing. Very complicated issue. Important to educate 
all the members and the public. Thank you very much for your 
testimony. Without objection, the subcommittee is adjourned.
    [Whereupon, at 12:08 p.m., the subcommittee was adjourned.]
    [Material submitted for inclusion in the record follows:]
    
    
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