TITLE: B-309734, Medicaid Demonstration Projects in Florida and Vermont Approved Under Section 1115 of the Social Security Act, July 24, 2007
BNUMBER: B-309734
DATE: July 24, 2007
**************************************************************************************************************************************
B-309734, Medicaid Demonstration Projects in Florida and Vermont Approved Under Section 1115 of the Social Security Act, July 24, 2007
B-309734
July 24, 2007
The Honorable Michael O. Leavitt
Secretary of Health and Human Services
Subject: Medicaid Demonstration Projects in Florida and Vermont Approved
Under Section 1115 of the Social Security Act
Dear Mr. Secretary:
In response to a congressional request, we are evaluating Medicaid
demonstration projects in Florida and Vermont approved by the Department
of Health and Human Services (HHS) under section 1115 of the Social
Security Act (the act).[1] During the course of our work, we identified
several issues that raise concerns about the consistency of these
demonstration projects with federal law.[2] With respect to Florida, our
concerns center on HHS's decision to waive requirements to provide covered
benefits and limit cost sharing without addressing statutory limitations
on its authority to do so. In the case of Vermont, HHS authorized the
state to operate its own Medicaid managed care organization and, through
this arrangement, to apply federal Medicaid matching funds to programs
previously funded by the state. Given our concerns with these
demonstration projects, discussed in detail below, we are bringing them to
your attention. We recommend that you reexamine these projects in light of
our concerns and, where appropriate, either modify the terms of these
projects or seek statutory authorization for them to continue in their
current form.
BACKGROUND
Through the Medicaid program established by title XIX of the act, the
federal government shares with states the expense of furnishing medical
services to certain low-income individuals. States operate their Medicaid
programs under HHS approved plans and must meet certain statutory
requirements for covered services, eligibility, and beneficiary cost
sharing, among other things.[3] Section 1115 of the act, however,
authorizes HHS to waive compliance with certain federal statutory
requirements, as well as to authorize costs that would not otherwise be
included as Medicaid expenditures, "[i]n the case of any experimental,
pilot, or demonstration project which, in the judgment of the Secretary,
is likely to assist in promoting the objectives of [the Medicaid
program]." [4] By its own terms, section 1115 provides HHS with broad
discretion to approve state initiatives that depart from federal statutory
requirements, subject to a determination that they are experimental in
nature and likely to assist in promoting program objectives. Describing
these limitations, one court emphasized that section 1115 was not enacted
"to enable states to save money or to evade federal requirements, but to
`test out new ideas and ways of dealing with the problems'" programs were
designed to address.[5]
In October 2005, HHS approved Florida's 5-year demonstration project,
Florida Medicaid Reform, to allow the state to give Medicaid beneficiaries
more options with respect to their health care coverage.[6] Florida
requires certain Medicaid beneficiaries to participate in the
demonstration and enroll in designated managed care plans offered by
organizations that compete for enrollees by designing customized benefit
packages that may differ from the set of benefits covered under Florida's
state plan. Alternatively, Medicaid beneficiaries required to participate
in the demonstration may "opt out of Medicaid" and enroll instead in
employer-sponsored plans or, if self-employed, private health plans.[7]
These beneficiaries receive only the benefit of a premium paid by the
state towards the cost of the employer-sponsored or private health
plans.[8]
In September 2005, HHS approved Vermont's 5-year demonstration project,
Global Commitment to Health, under which the Office of Vermont Health
Access (OVHA)--an office within Vermont's Medicaid agency, the Agency of
Human Services (AHS)--operates the state's sole managed care organization
to provide coverage to the vast majority of Vermont's Medicaid population,
subject to a fixed dollar limit on federal Medicaid funds.[9] To implement
the demonstration, AHS entered into an intergovernmental agreement with
OVHA under which AHS makes monthly capitation payments to OVHA.[10] HHS
approved the intergovernmental agreement as a comprehensive risk contract
between the state and a managed care organization and found that it
complied with federal regulations governing Medicaid managed care.[11]
Accordingly, AHS receives federal Medicaid matching funds for the
capitation payments it makes to OVHA.
Under the demonstration, savings from the AHS payments to OVHA are used
for programs previously funded by the state.[12] For purposes of the
demonstration, Vermont enacted legislation establishing the Global
Commitment Fund (Fund) within the state treasury, which consists of
capitation payments made by AHS to OVHA.[13] OVHA enters into agreements,
with other state entities and with providers, for the delivery of Medicaid
services, and payments are made from the Fund for these services. In
addition, payments authorized by OVHA are made from the Fund to state
agencies and departments that have entered into agreements with OVHA for
"allowable managed care organization investments."[14] These state
agencies and departments provide services previously funded by the state
that do not exclusively benefit those eligible for Medicaid.
DISCUSSION
Florida Medicaid Reform--Waiver of Requirement to Provide Mandatory
Benefits
For Florida Medicaid Reform, HHS waived a statutory requirement that
states cover specific hospital and medical benefits for groups of
individuals required to be covered under its state plan (referred to as
"mandatory populations"). Specifically, HHS waived section 1902(a)(10)(A)
of the act, which requires states to cover specific benefits, including
inpatient hospital services, outpatient hospital services, and laboratory
and X-ray services, for these individuals.[15] HHS approved this waiver to
allow Florida to limit benefits for newly eligible beneficiaries covered
by the demonstration to emergency medical services and nursing home level
of care for up to 30 days pending their selection of managed care plans
(or automatic enrollment in managed care plans by the state). According to
CMS, this waiver was designed to ensure that all non-emergency care would
be delivered to Medicaid beneficiaries participating in the demonstration
through a single delivery system that could coordinate and manage care.
The waiver also allows Florida not to provide these required benefits to
those who enroll in employer-sponsored or private health plans. [16] The
benefit packages for these individuals are defined exclusively by the
employer-sponsored or private health plans and may be more limited than
the package of benefits covered under the state plan.[17] As discussed
below, both aspects of the waiver raise concerns given statutory
limitations on HHS's authority.
While HHS has broad authority under section 1115 of the act to waive
requirements of section 1902, this authority is not unlimited. Section
1902(l)(4)(A) of the act expressly limits the agency's authority to allow
states to curtail benefits through a section 1115 waiver, stating that HHS
must require states providing services under such a waiver to cover the
same benefits for certain pregnant women and children as would be required
under a state plan.[18] The pregnant women and children covered by section
1902(l)(4)(A) are: (i) pregnant women with family income at or below 133
percent of the federal poverty level (FPL), (ii) children under age 6 with
family income at or below 133 percent of the FPL, and (iii) children aged
6 to 19 with family income at or below 100 percent of the FPL.[19]
Therefore, with respect to these pregnant women and children, HHS may not
authorize a state to forego its obligation to cover the statutorily
defined set of benefits described above through a waiver under section
1115.
During the initial phase of the demonstration, "poverty-related
children"--that is, children whose family incomes fall within certain
limits--were required to participate in the demonstration and either be
enrolled in managed care plans or employer-sponsored or private health
plans.[20] There is significant overlap between these "poverty-related"
children and the groups of children identified in section 1902(l)(4)(A).
In addition, certain pregnant women included in section 1902(l)(4)(A) are
expected to participate in the demonstration by its fifth year.
Notwithstanding the requirements of section 1902(l)(4)(A), the terms and
conditions governing the demonstration permit Florida to cover only
emergency and nursing home level of care services for beneficiaries for up
to 30 days pending enrollment in managed care plans and to not ensure the
full range of benefits required under the state plan for those who enroll
in employer-sponsored or private health plans.
In response to our inquiries, CMS confirmed that HHS had not waived
section 1902(l)(4)(A) and stated that Florida was not actually limiting
coverage for children and pregnant women for up to 30 days pending their
enrollment in managed care plans.[21] However, the terms and conditions
governing the demonstration and the decision memorandum approving the
demonstration state that beneficiaries will be eligible for only emergency
services and nursing home level of care during this period.[22] Since HHS
may not waive section 1902(a)(10)(A) for the pregnant women and children
identified in section 1902(l)(4)(A), it should take steps to ensure that
the state does not improperly limit services to these individuals pending
their enrollment in managed care plans under the demonstration.
The waiver of section 1902(a)(10)(A), and failure to maintain the
protection required by section 1902(l)(4)(A), could have a more
significant impact on those "opting out of Medicaid" and enrolling instead
in employer-sponsored or private health plans since the package of
benefits provided could be more limited than under the state plan.[23]
With respect to this issue, CMS stated in essence that those eligible for
Medicaid decline Medicaid eligibility by choosing the demonstration
benefit of employer-sponsored or private health plans under Florida
Medicaid Reform. As a result, they are entitled only to the payment of
premiums under the authority of section 1115(a)(2) of the act, under which
expenditures that would not otherwise qualify for Medicaid matching funds
are regarded as matchable expenditures.[24]
The language of section 1902(l)(4)(A) does not support CMS's explanation.
As noted above, section 1902(a)(10)(A) requires states to provide
identified benefits to certain groups of individuals, including certain
pregnant women and children. Section 1902(l)(4)(A) effectively prohibits
states from denying those benefits to the same groups of pregnant women
and children under demonstration projects. CMS acknowledged that section
1902(l)(4)(A) applied to Florida Medicaid Reform and did not dispute that
individuals covered by that section were required to participate in the
demonstration project. With respect to those enrolling in managed care
plans, CMS stated that "even under customized benefit packages," required
services must be provided.[25] In contrast, with respect to those choosing
employer-sponsored or private health plans, CMS suggested that section
1902(l)(4)(A) did not apply because those at issue were a "non-State plan
population" due to their choice of employer-sponsored or private coverage.
However, section 1902(l)(4)(A) does not identify such a choice as a basis
for not ensuring that states provide benefits to the children and pregnant
women within the scope of that section.
Moreover, both the operation of the demonstration and information obtained
from the state of Florida during our related evaluation suggest that the
groups of individuals at issue are "state plan populations,"
notwithstanding their choice of employer-sponsored or private health
plans. Those who "opt" for employer-sponsored rather than managed care
plans nevertheless must qualify for Medicaid under the state plan and
almost all of those required to participate in the demonstration project
during its initial phase were required to be covered by Florida's state
plan, some in categories explicitly referenced in section
1902(l)(4)(A).[26] Before individuals could "opt" for employer-sponsored
or private health insurance and qualify for the state-paid premium under
the demonstration project, Florida would necessarily have had to determine
(or redetermine in the case of those already covered) that they qualified
for Medicaid.[27] Further, HHS's determination that Florida's
demonstration required a waiver of section 1902(a)(10)(A), which
explicitly concerns those eligible for Medicaid under a state plan,
signifies the agency's determination that those choosing
employer-sponsored coverage were otherwise eligible for Medicaid under
that section. Describing the operation of Florida Medicaid Reform, Florida
officials confirmed this, stating
Florida's 1115 Medicaid Reform Waiver does not change or affect Medicaid
eligibility. An individual that opts out of Medicaid [under the
demonstration] continues to be eligible for Medicaid. If a beneficiary
is enrolled in an [employer-sponsored insurance] plan and later chooses
to enroll in a [managed care] plan, then the beneficiary must wait until
his/her open enrollment period . . . in order to request enrollment in
the health plan. However, the beneficiary does not need to reapply to
Medicaid. . . . If an individual were to opt out and enroll in the
[employer-sponsored insurance] plan, but later lose Medicaid coverage
due to excess income or assets, the beneficiary could reapply to
Medicaid.[28]
The state of Florida's comments about the operation of the demonstration
project also confirm that those who choose employer-sponsored or private
health plans under Florida Medicaid Reform differ from individuals who
effectively become eligible for Medicaid under a section 1115
demonstration project (referred to as "expansion populations"). The latter
do not meet eligibility criteria for Medicaid under a state plan, but are
treated as eligible exclusively by virtue of the demonstration
project.[29] Under section 1115(a)(2) of the act, states may claim federal
matching funds for the costs of services provided to these individuals
even though they otherwise are not eligible for Medicaid. If they were to
lose coverage due to a change in status, they, unlike participants in
Florida Medicaid Reform, would have to establish their eligibility under
the state plan.
Florida Medicaid Reform--Waiver of Limits on Cost Sharing
As part of Florida Medicaid Reform, HHS also waived statutory limits on
the imposition of cost sharing requirements on Medicaid beneficiaries so
that Florida could authorize coverage of employer-based or private health
plans with cost sharing requirements in excess of those limits.[30]
Specifically, the agency waived section 1902(a)(14) of the act, which
incorporates section 1916 of the act by reference. With respect to
individuals eligible for coverage under state plans, section 1916
prohibits states from imposing cost sharing under their plans for a
variety of services, including services to those under 18 and services to
pregnant women, and provides that states may impose only nominal cost
sharing under their plans for other services.[31] Those who "opt out of
Medicaid" and enroll in employer-sponsored or private health plans under
the Florida demonstration are required to share costs as specified by
these plans, even if such cost sharing is higher than what the state would
be authorized to impose under section 1916.[32]
While section 1916(f) contemplates waivers of the cost sharing limits
found in other parts of section 1916, it also establishes criteria for the
imposition of other than nominal cost sharing under any waiver authority.
It provides, for example, that cost sharing may not be imposed under any
waiver authority unless the waiver is for a demonstration that tests a
unique and previously untested use of co-payments and does not last longer
than 2 years.[33] HHS did not apply the criteria of 1916(f) to the waiver
of cost sharing limitations in the Florida Medicaid Reform demonstration.
CMS explained that since those who enroll in employer-sponsored or private
plans elect not to apply for benefits under the state plan, they fall
outside the scope of section 1916 and section 1916(f) and, accordingly,
that the waiver of section 1902(a)(14) approved as part of the Florida
demonstration was not required.[34] As discussed above, CMS referred to
the population at issue as being "eligible only for demonstration benefits
authorized under Section 1115(a)(2) [of the act]," namely the premium
payments.[35]
Like CMS's response to our inquiry regarding the requirement to provide
benefits to certain pregnant women and children, its comments here do not
explain why the demonstration did not trigger section 1916 and therefore
why the demonstration did not require a waiver of the cost sharing
limitations contained in that section. To the extent that CMS made
essentially the same point with respect to this issue--that is, that as a
matter of eligibility, those enrolling in employer-sponsored or private
health plans qualify only for benefits as defined by the terms of the
demonstration project--the agency's comments raise similar concerns.
Almost all of the individuals required to participate in the demonstration
during the initial phase were also required to be covered under the state
plan. While Florida will make premium payments on behalf of those who
enroll in employer-sponsored or private health plans under the authority
of section 1115(a)(2) of the act, these individuals differ from those who
otherwise do not meet eligibility criteria under the state plan, but for
whom the cost of services nonetheless gives rise to federal reimbursement,
that is, expansion populations. While the limitations on cost sharing
contained in section 1916 would not apply to such expansion
populations,[36] CMS's comments do not adequately explain why the cost
sharing limitations would not apply to Florida Medicaid Reform
participants who, though enrolled in employer-sponsored or private health
plans, remain eligible under Florida's state plan.
Vermont's Global Commitment to Health
To receive federal Medicaid matching funds for capitation payments made to
a managed care organization, a state is required to enter into a contract
with an entity determined to be a managed care organization. [37] This
type of contract is generally referred to as a comprehensive risk contract
and must meet specific statutory and regulatory requirements.[38] HHS
approved the interagency agreement between AHS and OVHA as such a
contract. HHS also approved the planned use of savings from capitation
payments under the "contract" for programs previously funded by the state.
HHS's approval of the Global Commitment to Health raises the question
whether AHS and its component, OVHA, could enter into a contract as that
term is used in the act because a contract implicitly requires an
agreement between two parties.[39] The statutory definition of the term
"managed care organization" is very broad[40] and does not specifically
address whether state agencies may contract with their own components.[41]
Statutory provisions concerning one particular state, however, suggest
that explicit authority would be needed for a state to contract with
another state office or agency as a Medicaid managed care organization.
Section 4113 of the Omnibus Budget Reconciliation Act of 1987 added a new
paragraph to section 1903(m) of the act, expressly defining the term
"contract" for purposes of the managed care provisions to include an
arrangement under which New Jersey would operate its own health
maintenance organization.[42] New paragraph (6)(A) stated "in the case of
[New Jersey], the term `contract' shall be deemed to include an
undertaking by the State [Medicaid] agency . . . to operate a program
meeting all requirements of this subsection."[43] New paragraph (6)(B),
also added by section 4113, imposed a number of conditions on the
"undertaking." Among other things, it required New Jersey to establish a
separate entity responsible for operating the managed care program, but
provided that a subdivision of the Medicaid agency could serve as that
entity. [44]
CMS acknowledged the specific provision regarding New Jersey, but stated
that the provision was necessary primarily because New Jersey, in contrast
to Vermont, originally declined to organize its publicly operated managed
care organization as a distinct organizational entity (and therefore the
arrangement could not be characterized as either a risk contract or an
intergovernmental agreement).[45] The agency's comment is not responsive
to the issue. As discussed above, section 1903(m)(6) defined the term
"contract" to include an arrangement under which the New Jersey Medicaid
agency would operate as a managed care organization and listed the
conditions under which that definition would apply. Accordingly, the
provision did not merely require New Jersey or other states to establish
distinct organizational entities as a prerequisite to their serving as
managed care organizations; rather, it expressly permitted the New Jersey
Medicaid agency to operate such an organization and, therefore, to
contract with itself. The absence of similar statutory language regarding
Vermont suggests that Congress did not contemplate such an arrangement in
that state.[46] CMS also pointed to the history of payments to state-owned
hospitals and other facilities and stated that it has not precluded state
Medicaid agencies from entering into contractual relationships with other
"distinct units" of the state government.[47] While state agencies may
enter into agreements with other state agencies, divisions, or providers
for the purpose of providing Medicaid services or administering the
Medicaid program, the agency's observations do not address the matter of
authority for an agreement between an office within a state's Medicaid
agency and that agency to qualify as a "contract" for purposes of the
managed care provisions of the act.
Other statutory provisions applicable to Medicaid managed care contracts
suggest that contractual arrangements are to involve an arms-length
agreement between two parties. Specifically, a state may not enter into or
renew a contract with a Medicaid managed care organization unless it has
established a range of sanctions, which may include civil money penalties
and the appointment of temporary management, to be imposed on the
organization in certain circumstances, such as for failing to provide
medically necessary items or services required to be provided to
enrollees, or for misrepresenting or falsifying information provided to
the state.[48] In the case of Vermont, the intergovernmental agreement
does not identify sanctions that AHS could impose on OVHA for violations
of the terms of the agreement and we are unaware of any provision of state
law that does so. Indeed, it is unclear how AHS would effectively impose
sanctions on its own subdivision.
Concerns about whether the arrangement between AHS and OVHA qualifies as a
"contract" raise related questions about the basis under which federal
Medicaid matching funds are available for the capitation payments made to
OVHA and whether the arrangement should be treated like an interagency
agreement for the provision of services under OMB Circular A-87. [49]
Under the circular, costs of services provided by one agency to another
within a state may include allowable direct costs plus a pro rata share of
indirect costs.[50] Therefore, where services are provided under an
interagency agreement, federal matching funds are available only for the
costs incurred by the agency providing the services, or the expenditures
made by that agency--here, OVHA--for its allowable direct and indirect
costs of providing services. The circular does not provide for profit or
other increments above cost--such as the savings in the AHS capitation
payments to OVHA--and therefore does not provide a basis to treat savings
as allowable costs for purposes of obtaining federal matching funds.[51]
In response to our inquiries about the operation of the AHS-OVHA
arrangement, CMS advised that it may be viewed as either a comprehensive
risk contract or as an intra-governmental cost reimbursement arrangement,
or "a hybrid" of the two.[52] A "hybrid" of these two types of
arrangements does not seem possible, however, because one is
capitation-based and the other is cost-based, and, in any case, CMS
pointed to no authority for such a "hybrid." More importantly, the
arrangement appears problematic viewed as either a comprehensive risk
contract or a cost-reimbursement arrangement. Under a comprehensive risk
contract, federal Medicaid matching funds are available for capitation
payments made to a managed care organization on an actuarially sound basis
for services provided to Medicaid eligible individuals.[53] Federal
regulations require states to document the actuarial soundness of the
rates and to provide assurance that the rates are based only on services
covered under the state plan (or costs directly related to providing these
services, including administrative costs) provided under the contract to
Medicaid eligible individuals.[54] Notably, the intent of this regulatory
limitation was to prevent states from obtaining federal Medicaid matching
funds "for things such as State-funded services for which [matching funds]
would not ordinarily be available, by including them in [a contract with a
managed care organization]."[55] However, under the Global Commitment to
Health, HHS expressly approved the use of savings from capitation payments
made to OVHA for programs previously funded by the state. These programs
are generally carried out by other agencies and do not exclusively benefit
those eligible for Medicaid so that federal Medicaid matching funds would
ordinarily not be available for them. [56]
CMS also suggested that, since OVHA must fully expend the capitation
payment for services for Medicaid-eligible individuals and the specified
demonstration purposes, the arrangement between AHS and OVHA has more of
the characteristics of a reasonable cost reimbursement payment methodology
with the "contract" establishing the overall budget.[57] However, the
arrangement between AHS and OVHA allows OVHA to direct funds received in
excess of costs (that is, savings) to programs of other state agencies.
That is to occur only if capitation payments to OVHA yield excess funds,
and then only to the extent of the excess. By definition, such savings
represent an increment of payment above the direct and indirect cost of
providing services and, thus, we see no basis to characterize this
arrangement as one for reimbursement of costs.
CONCLUSION
Our analysis of Florida Medicaid Reform and the Vermont Global Commitment
to Health raises several legal concerns. With respect to Florida, our
concerns center on HHS's decision to waive requirements to provide covered
benefits and limit cost sharing without addressing statutory limitations
on its authority to do so. This matter is most relevant to those enrolling
in employer-sponsored or private health plans. In the case of Vermont, the
agency's approval of an agreement between the Vermont Medicaid agency and
one of its own components as a managed care contract, with federal
matching funds provided for capitation payments, also raises legal
concerns. Given these concerns, we believe that the Secretary should
reexamine these demonstration projects and, as appropriate, either modify
their terms or seek statutory authorization for them to continue in their
present form.
Sincerely yours,
Gary L. Kepplinger
General Counsel
cc: The Honorable Henry A. Waxman
Chairman
Committee on Oversight and
Government Reform
House of Representatives
The Honorable John D. Dingell
Chairman
Committee on Energy and Commerce
House of Representatives
The Honorable Frank J. Pallone,
Jr.
Chairman
Subcommittee on Health
Committee on Energy and Commerce
House of Representatives
The Honorable Sherrod Brown
United States Senate
DIGEST
B-309734
Letter to Secretary of Health and Human Services (HHS) discusses legal
concerns with demonstration projects in Florida and Vermont approved under
section 1115 of the Social Security Act (42 U.S.C. sect. 1315 (2000)).
With respect to Florida, concerns center on HHS's decision to waive
requirements to provide covered benefits and limit cost sharing without
addressing statutory limitations on its authority to do so. In the case of
Vermont, legal concerns are related to HHS's decision to authorize the
state to operate its own managed care organization and, through this
arrangement, to apply federal Medicaid matching funds to programs
previously funded by the state.
------------------------
[1] 42 U.S.C. sect. 1315 (2000).
[2] We did not examine the extent to which arrangements in other states
raise similar legal concerns.
By letter of March 15, 2007, we solicited the views of the General Counsel
of HHS on several questions about the Florida and Vermont demonstration
projects. By letter of April 26, 2007, the Director of the Center for
Medicaid and State Operations, Centers for Medicare & Medicaid Services
(CMS), responded to our inquiries. Throughout this letter, we refer to
this response as the CMS Letter.
[3] See, e.g., Social Security Act sections 1902(a)(10)(A), 1905(a), 1916
(codified at 42 U.S.C. sections 1396a(a)(10)(A), 1396d(a), 1396o (2000)).
[4] 42 U.S.C. sections 1315(a)(1), (2)(A) (2000).
[5] Beno v. Shalala, 30 F.3d 1057, 1069 (9^th Cir. 1994) (citations
omitted).
[6] The demonstration period is from July 1, 2006, through June 30, 2011.
Florida Waiver Authorities, p. 1.
[7] See Florida Medicaid Reform Section 1115 Demonstration, Special Terms
and Conditions (Florida STCs), #36, 40, pp. 10, 13.
[8] See Florida STCs, #68-70, pp. 19-20.
[9] See Global Commitment to Health Section 1115 Demonstration, Special
Terms and Conditions (GC STCs), #32, 51, pp. 16, 22. The demonstration
period is from October 1, 2005, through September 30, 2010. Vermont Waiver
Authorities, p. 1. For the purpose of this demonstration, state
legislation authorized OVHA to serve as a publicly operated managed care
organization. Vt. Stat. Ann. tit. 33 sect. 1901 (2006).
[10] See Final Intergovernmental Agreement Between AHS and OVHA for the
Administration and Operation of the Global Commitment to Health Waiver
(Sept. 30, 2005). Capitation payments are payments that a state agency
makes periodically on behalf of each recipient enrolled under a contract
for the provision of medical services under the state plan, regardless of
whether the particular recipient receives services during the period
covered by the payment. 42 C.F.R. sect. 438.2 (2006).
[11] Under a risk contract, the contractor assumes risk for the cost of
covered services and incurs loss if the cost of furnishing the services
exceeds the payments under the contract. 42 C.F.R. sect. 438.2 (2006). A
comprehensive risk contract covers services identified in federal
regulation. Id.
[12] See GC STCs, #40, p. 17. These programs fall into four broad
categories identified in the demonstration terms and conditions: (i)
reducing the rate of uninsured and/or underinsured in Vermont; (ii)
increasing the access of quality health care to uninsured, underinsured,
and Medicaid beneficiaries; (iii) providing public health approaches to
improve the health outcomes and the quality of life for Medicaid-eligible
individuals in Vermont; and (iv) encouraging the formation and maintenance
of public-private partnerships in health care.
[13] See Vt. Stat. Ann. tit. 33 sect. 1901e (2006). The state legislature
also established the "State Health Care Resources Fund," in the state
treasury to finance the state share of expenditures made under this
demonstration. See Vt. Stat. Ann. tit. 33 sect. 1901d (2006).
[14] Vt. Stat. Ann. tit. 33 sect. 1901e (2006).
[15] 42 U.S.C. sect. 1396a(a)(10)(A) (2000); see also Social Security Act
sections 1905(a)(1)-(5), (17), and (21) (codified at 42 U.S.C. sections
1396d(a)(1)-(5), (17), and (21) (2000)).
[16] Florida Waiver Authorities, #8, pg. 2.
[17] Under the demonstration, Florida is not required to provide benefits
that would result in coverage equivalent to that provided under the state
plan. Florida STCs, #70, p. 20.
[18] 42 U.S.C. sect. 1396a(l)(4)(A) (2000). Section 1902(l)(4)(A) states,
"In the case of any State which is providing medical assistance to its
residents under a waiver granted under section 1115, the Secretary shall
require the State to provide medical assistance for pregnant women and
infants under age 1 described in subsection (a)(10)(A)(i)(IV) [of section
1902] and for children described in subsection (a)(10)(A)(i)(VI) or
subsection (a)(10)(A)(i)(VII) [of section 1902] in the same manner as the
State would be required to provide such assistance for such individuals if
the State had in effect a plan approved under this title."
[19] Id.; see also Social Security Act sections 1902(l)(1), (2) (codified
at 42 U.S.C. sections 1396a(l)(1), (2) (2000)). The statutory provisions
contained in section 1902(l)(4)(A) refer to individuals described in
sections 1902(l)(1) and (2). Subsection (l)(1) refers to pregnant women
and children of varying ages and subsection (l)(2) provides corresponding
family income levels. The scope of section 1902(l)(4)(A) is thus
determined by reading the referenced provisions of section 1902(a)(10)(A)
and sections 1902(l)(1) and (2) together.
[20] "Poverty-related children" are defined as (i) children up to age 1
with family income up to 200 percent of the FPL, (ii) children up to age 6
with family income up to 133 percent of the FPL, and (iii) children up to
age 21 with family income up to 100 percent of the FPL. Florida STCs, #30,
p. 9.
[21] CMS Letter, pp. 2-3. According to the terms and conditions of the
demonstration, once enrolled in managed care plans, children and pregnant
women protected by section 1902(l)(4)(A) will receive required benefits.
Managed care plans must cover all categories of mandatory services,
including medically necessary services for pregnant women and early
periodic screening, diagnosis, and treatment services for children under
21, as well as needed optional services covered under Florida's state plan
as indicated by historical data. In addition, while the amount, duration,
and scope of covered services may vary, plans may not have limits more
restrictive than those in the state plan for children under the age of 21
and pregnant women. See Florida STCs, #49, p. 15.
[22] See Florida STCs, #36, p. 11. In addition, Florida law appears to
provide that Medicaid recipients covered by the demonstration are not
eligible for any services pending their enrollment in managed care plans
since it provides that they are not eligible for mandatory or optional
services. See Fla. Stat. Ann. sect. 409.91211 (West 2007).
[23] CMS suggested that very few individuals had exercised this option.
CMS Letter, p. 2. We understand that as of March 31, 2007, four
individuals were enrolled in employer-sponsored or private health plans.
[24] Responding to our inquiries about HHS's apparent failure to ensure
that benefits would be provided to certain children and pregnant women,
CMS said that section 1902(l)(4)(A) would not extend to individuals who
have chosen not to apply under the state plan, and "instead have applied
only for eligibility under the demonstration." CMS Letter, p. 2. In
addition, in connection with the waiver of cost sharing limitations
discussed below, CMS described those "opting" for employer-sponsored or
private health plans as a "non-State plan population" and explained that
they are "eligible only for demonstration benefits authorized under
Section 1115(a)(2) [of the act]." Id. at 3. Demonstration documents
describe these benefits as "employee costs of authorized
employer-sponsored individual or family insurance coverage for individuals
who would be eligible under the State plan but have elected not to apply
under the State plan." Florida Expenditure Authority #1, p. 3.
[25] CMS Letter, p. 2.
[26] See Florida STCs, #30, p. 9 (describing these individuals as
"mandatory Medicaid eligibles," with limited exceptions).
[27] Id. at #36, pp. 10-11 (stating that at the time of their eligibility
determination, new enrollees will be informed of their option to select a
managed care plan or "opt out of Medicaid," and that at the time of their
eligibility redetermination or their open enrollment period, current
enrollees will be required to enroll in a managed care plan, but may "opt
out of Medicaid" at any time). In addition, describing the automatic
enrollment criteria, the terms and conditions state that each enrollee
will be given 30 days to select a managed care plan after being determined
eligible for Medicaid. Id. at #38, p. 12.
[28] Letter from Thomas W. Arnold, Deputy Secretary for Medicaid, Florida
Agency for Health Care Administration, to Marjorie Kanof, Health Care
Managing Director, GAO, May 23, 2007.
[29] See Spry v. Thompson, 487 F.3d 1272 (9^th Cir. 2007) (discussing the
distinction between those eligible for Medicaid under a state plan and
expansion populations, and overturning a district court holding that
populations eligible for Medicaid only under the terms of a section 1115
demonstration project must be deemed to be eligible under a state plan and
therefore subject to section 1916 of the act).
[30] Florida Waiver Authorities, #4, p. 1. The Deficit Reduction Act of
2005 (DRA) provided states with additional flexibility to impose cost
sharing requirements on certain individuals in previously exempt
populations and to impose more than nominal cost sharing on certain
services under a state plan amendment. Pub. L. No. 109-171, sections
6041-6043, 120 Stat. 4, 81-88 (2006) (to be codified at 42 U.S.C. sect.
1396o-1). HHS's waiver of limitations on cost sharing for Florida Medicaid
Reform did not involve the additional flexibility under the DRA.
[31] 42 U.S.C. sections 1396o(a)(2), (3) and (b)(2), (3) (2000).
[32] Under the demonstration, Florida is not required to provide any cost
sharing assistance or to account for differences between the
employer-sponsored or private health plans and Medicaid. Florida STCs,
#83, p. 23.
[33] Social Security Act sections 1916(f)(1), (2) (codified at 42 U.S.C.
sections 1396o(f)(1), (2) (2000)).
[34] CMS Letter, p. 4.
[35] Id. at 3.
[36] See Spry at 1277.
[37] Social Security Act sect. 1903(m)(2)(A)(i), (iii) (codified at 42
U.S.C. sect. 1396b(m)(2)(A)(i), (iii) (2000)).
[38] See id. at 1903(m)(2)(A); 42 C.F.R. sections 438.1, 438.2, and 438.6
(2006).
[39] See, e.g., Taller & Cooper v. Illuminating Electric Co., 172 F.2d 625
(7^th Cir. 1949); see also Restatement (Second) of Contracts sect. 9
(stating that a contract requires at least two parties as the law does not
provide remedies for a breach of promise to oneself).
[40] See Social Security Act sect. 1903(m)(1)(A) (codified at 42 U.S.C.
sect. 1396b(m)(1)(A) (2000)). The definition includes "a health
maintenance organization . . . , or any other public or private
organization" meeting specified requirements.
[41] HHS regulations define the term "grantee" as the entire state and,
therefore, suggest that state agencies cannot enter into contracts with
their components. See 45 C.F.R. sect. 92.3 (2006) (defining the term
"grantee" to mean "the government to which a grant is awarded and which is
accountable for the use of the funds provided" and noting that "the
grantee is the entire legal entity even if only a particular component of
the entity is designated in the grant award document.").
[42] See Omnibus Budget Reconciliation Act of 1987 (OBRA), Pub. L. No.
100-203, sect. 4113, 101 Stat. 1330, 1330-150 (1987) (adding new section
1903(m)(6) to the act, codified at 42 U.S.C. sect.1396b(m)(6) (2000)). In
1987, section 1903(m) of the act required states to enter into contracts
with health maintenance organizations in order for expenditures made for
their services to qualify for Medicaid matching funds. Although section
1903(m) has been amended since that time, the requirement that a state and
an organization enter into a contract has remained.
[43] Id.
[44] Id.
[45] CMS Letter, p. 5. The legislative history of section 4113 indicates
that action was taken with the intent to address "legal entity and
contract problems" of the New Jersey arrangement. See 133 Cong. Rec.
S29385 (daily ed. Oct. 27, 1987) (statement of Sen. Bradley).
[46] CMS officials told us that the statutory provision regarding New
Jersey demonstrates Congress's intention that such models of service
delivery and financing should be permitted where appropriate. By its own
terms, however, the provision does not demonstrate congressional intent to
authorize all states to employ such a model of service delivery, but only
the intent to provide such authority to New Jersey. See Collingsgru v.
Palmyra Board of Education, 161 F.3d 225, 232 (3d Cir. 1998) (explaining
that the explicit mention of one thing in a statute implies that Congress
intended to exclude similar things that were not specifically mentioned).
[47] CMS Letter, p. 5. CMS did not elaborate or explain what constitutes a
"distinct unit" of state government.
[48] Social Security Act sect. 1932(e)(1) (codified at 42 U.S.C. sect.
1396u-2(e)(1) (2000)).
[49] As a general matter, HHS regulations limit the use of grant funds to
"allowable costs," which are determined in accordance with OMB Circular
A-87. 45 C.F.R. sect. 92.22 (2006).
[50] OMB Cir. No. A-87, Cost Principles for State, Local, and Indian
Tribal Governments, Attachment A, sect. G, Interagency Services.
[51] OMB Cir. No. A-87 at para. 5.
[52] CMS Letter, pp. 7-8.
[53] Social Security Act, sect. 1903(m)(2)(A)(iii) (codified at 42 U.S.C.
sect. 1396b(m)(2)(A)(iii) (2000)).
[54] 42 C.F.R. sect. 438.6(c)(4)(i), (ii)(A), (B) (2006). The regulations
also authorize managed care contracts to cover services for enrollees in
addition to those services covered under the state plan, though the cost
of such services may not be included when determining payment rates. Id.
at 438.6(e). Explaining why such services may not be included, CMS stated
that entities would "typically use `savings,' (a portion of the risk
payment not needed to cover state plan services) to cover [additional
services]." Final Rule, Medicaid Program; Medicaid Managed Care: New
Provisions, 67 Fed. Reg. 40,989, 41,005 (June 14, 2002).
[55] Id. at 41,000-41,001. Prior to the issuance of these regulations,
CMS (then the Health Care Financing Administration) adopted a policy that
HHS would not approve any state waiver application that contained a
requirement for managed care organizations to use savings under the
capitation rate for those not eligible for Medicaid. See Letter from Sally
K. Richardson, Director CMSO, to state Medicaid Directors (June 24, 1998).
As far as we know, CMS has not revoked this policy, and the Medicaid
managed care regulations are consistent with it.
[56] According to state officials, in State Fiscal Year 2006, a total of
$43 million was spent on "managed care organization investments" in a
number of state agencies. Programs funded included those related to health
profession education, health research and statistics, and public health
laboratory services. We understand that Vermont anticipates approximately
$300 million in "savings," or 7 percent of total capitation payments, over
the life of the demonstration project.
[57] CMS Letter, p. 6.