Medicaid Financing: States' Use of Contigency-Fee Consultants to
Maximize Federal Reimbursements Highlights Need for Improved
Federal Oversight (28-JUN-05, GAO-05-748).
Medicaid--the federal-state health care financing program
covering nearly 54 million low-income people at a cost of $276
billion in fiscal year 2003--is by its size and structure at risk
of waste and exploitation. Because of challenges inherent in
overseeing the program, administered federally by the Centers for
Medicare & Medicaid Services (CMS), GAO in 2003 added Medicaid to
its list of high-risk federal programs. To help administer the
program, states may employ consultants in a number of roles,
sometimes under contracts whereby payment is contingent upon the
consultant's performance. GAO was asked to report on states' use
of contingency-fee consultants. GAO examined the extent to which
(1) states are using contingency-fee consultants for projects to
maximize federal Medicaid reimbursements, (2) claims from
contingency-fee projects in selected states are consistent with
federal law and policy, and (3) states and CMS are overseeing
claims from such projects.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-05-748
ACCNO: A28219
TITLE: Medicaid Financing: States' Use of Contigency-Fee
Consultants to Maximize Federal Reimbursements Highlights Need
for Improved Federal Oversight
DATE: 06/28/2005
SUBJECT: Claims
Claims processing
Consultants
Federal regulations
Federal/state relations
Financial management
Health care programs
Medicaid
Policy evaluation
Program abuses
Program evaluation
Program management
Risk management
State-administered programs
Reimbursements from government
Georgia
Massachusetts
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GAO-05-748
* Results in Brief
* Background
* Most States Have Employed Contingency-Fee Consultants in a W
* CMS Surveys Found Increasing Use of Contingency-Fee Consulta
* Georgia and Massachusetts Have Extensively Used Contingency-
* Claims from Contingency-Fee Projects Are Not Always Consiste
* Contingency-Fee Projects in Selected States Resulted in Prob
* Targeted Case Management Services
* Rehabilitation Services
* Supplemental Payments
* School-Based Health Services and Associated Administrative C
* Administrative Costs
* Two Factors Increase Risk of Problematic Claims
* Limited State and CMS Oversight of Claims from Contingency-F
* States Have Taken Some Steps to Ensure Appropriate Claims, b
* CMS Has Limited Oversight of Contingency-Fee Projects and As
* Problems Illustrate Need to Improve the Financial Management
* Conclusions
* Recommendations for Executive Action
* Agency and State Comments and Our Evaluation
* CMS's Comments and Our Evaluation
* State Comments and Our Evaluation
* GAO's Response to the State of Georgia's Comments
* GAO's Response to the Commonwealth of Massachusetts's Commen
* General Comments
* Comments on States' Use of Contingency-Fee Consultants
* Comments on Consistency of Contingency-Fee Projects with Law
* Comments on State and CMS Oversight of Contingency-Fee Proje
* GAO Contact
* Acknowledgments
* Order by Mail or Phone
Report to the Chairman, Committee onFinance, U.S. Senate
United States Government Accountability Office
GAO
June 2005
MEDICAID FINANCING
States' Use of Contingency-Fee Consultants to Maximize Federal
Reimbursements Highlights Need for Improved Federal Oversight
Medicaid Contingency-Fee Consultants Medicaid Contingency-Fee Consultants
Medicaid Contingency-Fee Consultants Medicaid Contingency-Fee Consultants
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Medicaid Contingency-Fee Consultants Medicaid Contingency-Fee Consultants
Medicaid Contingency-Fee Consultants Medicaid Contingency-Fee Consultants
Medicaid Contingency-Fee Consultants Medicaid Contingency-Fee Consultants
GAO-05-748
Contents
Letter 1
Results in Brief 4
Background 7
Most States Have Employed Contingency-Fee Consultants in a Wide Range of
Reimbursement-Maximizing Projects 12
Claims from Contingency-Fee Projects Are Not Always Consistent with Law or
Current Policy and Can Undermine Medicaid's Fiscal Integrity 18
Limited State and CMS Oversight of Claims from Contingency-Fee Projects
Raises Concerns about Medicaid Financial Management 33
Conclusions 43
Recommendations for Executive Action 45
Agency and State Comments and Our Evaluation 46
Appendix I Description of Contingency-Fee Projects Referred for Additional
Review 52
Appendix II Summary of Selected HHS OIG Reports on School-Based Claims in
States Employing Consultants 55
Appendix III Comments from the Centers for Medicare & Medicaid Services 56
Appendix IV Comments from the State of Georgia and GAO's Response 67
Appendix V Comments from the Commonwealth of Massachusetts and GAO's
Response 73
Appendix VI GAO Contact and Staff Acknowledgments 91
Related GAO Products 92
Tables
Table 1: Five Categories of Medicaid Claims Reviewed by GAO 4
Table 2: CMS's 2004 Survey Results Showing Categories of Medicaid Claims
in Which States Had Projects Developed with Contingency-Fee Consultants,
January 1999-June 2004 13
Table 3: Five Categories of Medicaid Claims Where Contingency-Fee
Consultants Are Helping States Maximize Federal Medicaid Reimbursements 14
Table 4: Selected States' Consultant Projects Leading to Improper
School-Based Medicaid Claims, as Reported by HHS OIG 55
Figures
Figure 1: The Typical Medicaid Payment Process 9
Figure 2: Georgia's UPL Arrangement with Local-Government Health Care
Providers, State Fiscal Years 2001-2003 25
Abbreviations
CMS Centers for Medicare & Medicaid Services DSH disproportionate share
hospital HCFA Health Care Financing Administration HHS Department of
Health and Human Services OIG Office of Inspector General OMB Office of
Management and Budget TCM targeted case management UMMS University of
Massachusetts Medical School UPL upper payment limit
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United States Government Accountability Office
Washington, DC 20548
June 28, 2005
The Honorable Charles E. Grassley Chairman Committee on Finance United
States Senate
Dear Mr. Chairman:
Medicaid-the federal-state program financing health care for certain
low-income children, families, and individuals who are aged or
disabled-covered almost 54 million people at an estimated cost of $276
billion in federal fiscal year 2003. By a formula established in law, the
federal government paid from 50 to 77 percent of each state's reported
Medicaid expenditures that fiscal year.1 We have previously reported that
the challenges inherent in overseeing a program of Medicaid's size,
growth, and diversity put the program at high risk for waste, abuse, and
exploitation and led us in 2003 to add Medicaid to our list of high-risk
federal programs.2 Medicaid has long been subject to states' seeking to
maximize federal reimbursement. Within broad federal guidelines, states
administer their Medicaid programs by paying qualified health providers
for a range of covered services provided to eligible beneficiaries and
then seeking reimbursement for the federal share of those payments. States
may employ consultants to serve a number of valid Medicaid-related roles,
such as adding needed staff or a particular expertise, and these
consultants may save both the federal government and states money by, for
example, identifying when claims were paid inappropriately and are subject
to recovery. Some consultants may serve under contingency-fee contracts,
whereby a consultant's fee is based, or contingent, upon performance, and
these contingency fees are not eligible for federal Medicaid reimbursement
except in certain cases.3 In the current environment of steadily rising
Medicaid costs straining federal and state budgets,4 states' use of
contingency-fee consultants can be problematic, particularly if controls
are inadequate to ensure that any additional federal reimbursements are
allowable Medicaid expenditures.
1States with lower per capita incomes receive higher federal matching
rates. The federal government also matches states' costs for administering
the Medicaid program, generally at 50 percent. Federal Medicaid matching
rates were increased temporarily by 2.95 percentage points from April 1,
2003, through June 30, 2004, pursuant to title IV of the Jobs and Growth
Tax Relief Reconciliation Act of 2003. See Pub. L. No. 108-27, S:
401(a)(3), 117 Stat. 752, 764-765.
2GAO, High-Risk Series: An Update, GAO-05-207 (Washington, D.C.: January
2005).
The federal government and states each have responsibilities for
administering Medicaid programs and for ensuring that Medicaid funds are
spent appropriately on covered services provided to eligible
beneficiaries. The Centers for Medicare & Medicaid Services (CMS), within
the Department of Health and Human Services (HHS), administers Medicaid at
the federal level, establishing policies and reviewing and approving state
Medicaid plans, which describe how each state's program will operate.
These written plans are considered to be comprehensive commitments by the
states to supervise and administer their Medicaid programs. Further, when
submitting claims for federal reimbursement, each state must certify that
the claimed expenditures-including claims for payments the state made to
providers for medical services and claims for the state's administrative
expenses-are consistent with federal regulations and the state's approved
Medicaid plan. We have earlier reported on the high-risk nature of the
Medicaid program and on various states' use of financing schemes, some
involving consultants, to inappropriately increase federal
reimbursements.5 Some of these reports have raised questions about the
appropriateness of claims for federal reimbursement developed by
contingency-fee consultants and whether state and CMS oversight of claims
developed by contingency-fee consultants is sufficient.
You asked us to provide information about states' use of contingency-fee
consultants and whether resulting projects and claims are consistent with
federal law and policy. In this report, we address the following
questions:
3Contingency fees are eligible for federal Medicaid reimbursement when a
contingency-fee contract (1) results in cost-avoidance savings or
recoveries in which the federal government would share, (2) is
competitively procured, and (3) the savings upon which the contingency-fee
payment is based are adequately defined and the payments documented to the
Centers for Medicare & Medicaid Services' satisfaction.
4We estimate that the average annual rate of growth for the Medicaid
program from 1999 through 2003 was 9.2 percent.
5A list of related GAO products appears at the end of this report.
1. To what extent are states using consultants on a
contingency-fee basis to develop projects to help them maximize
federal Medicaid reimbursements?
2. To what extent are the claims from projects developed by
contingency-fee consultants to maximize federal Medicaid
reimbursements in selected states consistent with federal law and
policy?
3. To what extent do selected states and CMS oversee the claims
from projects developed by contingency-fee consultants to maximize
federal Medicaid reimbursements?
To examine the extent to which states are using consultants on a
contingency-fee basis to develop projects to maximize Medicaid
reimbursements, we obtained information from the HHS Office of Inspector
General (OIG), CMS, and state officials. We also inventoried projects
developed by the major contingency-fee consultants employed by two states,
Georgia and Massachusetts. We selected these states in part on the basis
of information provided by CMS, which indicated that the states had
employed contingency-fee consultants for multiple reimbursement-maximizing
projects. To assess the extent to which claims from such projects were
consistent with Medicaid law and policy, we analyzed selected projects in
Georgia and Massachusetts in five categories of Medicaid claims (see table
1). We concentrated on projects in these five categories because-on the
basis of factors such as nationwide growth in dollars claimed, the results
of our past reviews, and work by HHS OIG to assess the appropriateness of
claims in these categories-we judged them to be of particularly high
risk.6 Because of the number and complexity of contingency-fee projects in
Georgia and Massachusetts, we did not review all such projects in the two
states. Instead, we supplemented our present review with related work in
other states, including our prior reviews and assessments by HHS OIG, CMS,
and state auditors. Where HHS OIG had assessed states' claims-in
particular, Massachusetts's school-based claims-we did not perform a
separate assessment. To evaluate state and CMS oversight of states' claims
from projects developed by contingency-fee consultants, we reviewed the
policies and procedures that selected states and CMS use to monitor
consultant performance. We conducted our work in accordance with generally
accepted government auditing standards from March 2004 through June 2005.
6To review growth in dollars claimed, we reviewed CMS data from states'
Medicaid expenditure reports. To assess the reliability of these data, we
discussed data quality control procedures and reviewed related
documentation with CMS officials. We determined that the data were
sufficiently reliable for the purposes of this report.
Table 1: Five Categories of Medicaid Claims Reviewed by GAO
Source: GAO based on CMS information.
Results in Brief
Most states have used contingency-fee consultants to help implement a wide
range of projects to maximize federal Medicaid reimbursements. CMS reports
that, according to a survey it conducted in 2004, 34 states had used
contingency-fee consultants for this purpose, an increase from 10 states
reported to have done so in 2002. Over the past few years, states' claims
in some of the five categories we examined have grown substantially in
dollar amounts. For example, during fiscal years 1999 through 2003,
combined state and federal spending for one category of Medicaid
services-targeted case management-increased by 76 percent, from $1.7
billion to $3 billion, across all states. In Georgia and Massachusetts,
consultants have developed a wide range of projects across several
categories of Medicaid services. Reimbursement-maximizing projects
generated an estimated $1.5 billion in additional federal reimbursements
during fiscal years 2000 through 2004 in Georgia and nearly $570 million
in Massachusetts. For those additional reimbursements, Georgia paid its
consultant about $82 million in contingency fees, and Massachusetts paid
its consultants about $11 million in contingency fees.
We identified claims from projects developed by contingency-fee
consultants that appeared to be inconsistent with current CMS policy,
claims that were inconsistent with federal law, and claims from projects
that undermined the fiscal integrity of the Medicaid program. We
identified concerns in each of the five categories of claims we reviewed,
including:
o Targeted case management: Consultants in Georgia and
Massachusetts helped the states maximize federal reimbursements by
claiming costs for targeted case management (TCM) services that,
under state plan amendments approved by CMS before 2002, appear to
be inconsistent with CMS's current policy, which does not allow
federal Medicaid reimbursement for TCM services that are an
integral component of other state programs providing the services.
For example, Georgia and Massachusetts claimed and received
federal Medicaid reimbursement for TCM services for youths in
their juvenile justice systems. Starting around 2002, CMS has
disapproved proposed state plan amendments for similar TCM
services in other states, stating that the costs are the
responsibility of the state. In fiscal year 2004, Massachusetts
received an estimated $68 million in federal reimbursements for
TCM services as a result of contingency-fee projects. Georgia
received about $12 million in fiscal year 2003 for its TCM
project.
o Rehabilitation services: Georgia's consultant helped the state
increase federal reimbursements for rehabilitation services
provided through state agencies by $58 million during state fiscal
years 2001 through 2003. The consultant suggested that two state
agencies-which pay private facilities for providing room and
board, rehabilitation, and other services to children in state
custody-base their claims for Medicaid reimbursement on the
private facilities' estimated costs, instead of on what the
agencies actually paid those facilities. The state agencies
increased the amount claimed for Medicaid reimbursement without
increasing the amount paid to the facilities. In some cases, the
amount state agencies claimed for rehabilitation services alone
exceeded what they paid for all the services the facilities
provided to children.
Two factors shared by projects we reviewed signal areas where
claims are at high risk of being problematic, that is,
inconsistent with federal law or current policy or the
federal-state cost-sharing structure and fiscal integrity of the
Medicaid program. One factor was that the projects occurred in
categories of Medicaid claims where federal policy had been
inconsistently applied, was evolving, or was not specific. CMS,
for example, has not consistently applied its policy when
approving state plans to cover TCM expenditures eligible for
federal reimbursement, and it has not clarified its guidance about
appropriate supplemental payment arrangements, despite its
concerns about states' claims in both these areas. A second factor
was that Medicaid payments were made in many cases to state and
local-government agencies as Medicaid providers, a mechanism that
can facilitate an inappropriate shift of state costs to the
federal government.
The states we reviewed and CMS provided limited oversight to
ensure the appropriateness of the projects and associated claims
developed with assistance from contingency-fee consultants.
Georgia's and Massachusetts's oversight efforts were limited and
insufficient to prevent problematic claims associated with
contingency-fee projects. CMS relies primarily on the states and
on its own financial oversight activities to ensure the
appropriateness of consultant projects and claims. Although CMS
has periodically identified concerns with contingency-fee projects
to maximize federal reimbursements, the agency has not routinely
collected information to identify such projects and claims, and it
was unaware of many of the specific projects that we reviewed. Our
findings illustrate the urgent need to address broader oversight
and financial management issues not limited to situations
involving contingency-fee consultants. In Georgia and
Massachusetts, we found problems with claims the states had
submitted without consultant assistance. We also found that other
states have undertaken similar reimbursement-maximizing projects
on their own. CMS has taken some important actions to strengthen
its oversight of state Medicaid programs, such as its initiative
to hire additional financial analysts to assess each state's
program, but the effectiveness of this initiative is not yet
known. Moreover, CMS has not yet implemented several actions that
we have previously recommended on the basis of our past work on
states' financing schemes and CMS's financial management of
Medicaid.
In addition to reiterating several recommendations to CMS and to
Congress from our prior work, this report contains recommendations
to the Administrator of CMS to improve the agency's oversight of
states' use of contingency-fee consultants and to strengthen the
agency's overall financial management procedures. Doing so would
include developing guidance to clarify CMS policy, ensuring that
such guidance is applied consistently among states, and collecting
and scrutinizing information from states about payments made to
units of state and local governments.
In commenting on a draft of this report, CMS stated its belief
that it has already substantially met our recommendations. While
acknowledging that improper Medicaid payments had unquestionably
occurred, CMS provided detailed information to support why it
believes that it (1) was already aware of the concerns identified
in projects we examined and (2) has taken sufficient action to
address these concerns and our related recommendations. Although
we have added additional information on CMS's initiatives to our
report, in our view, CMS has not yet sufficiently identified or
addressed the issues that we found; we believe CMS needs to do
more to identify contingency-fee projects and problematic claims
sooner, before large reimbursements have been made to states.
CMS's current efforts to review states' financing methods-by
examining them when states submit proposed state plan amendments
and obtaining agreement from states to end methods the agency
considers to be inappropriate-do not ensure that CMS's policies
are clear or consistently applied to states. States' financing
methods, for example, may not receive scrutiny if the state does
not propose state plan amendments. We maintain our position that
CMS needs to be more proactive and do more to clarify,
communicate, and consistently apply its policies concerning
high-risk areas.
We also provided a draft of this report to Georgia and
Massachusetts, which commented on the importance of
contingency-fee contracts and states' needs for consultants for
expertise they otherwise would not have. Georgia also commented,
however, that our report implied that states' use of
contingency-fee consultants is somehow illegitimate. We
acknowledge that use of contingency-fee contracts is allowed under
law and that states can employ consultants for a number of valid
Medicaid purposes, but we maintain that our close examination of
projects and associated claims revealed how
reimbursement-maximizing projects can be problematic. In contrast
to CMS's perspective that the agency had known about and was
addressing concerns with projects we reviewed in Georgia and
Massachusetts, both states contend that their claims comply with
the law. Although most may not be illegal, we maintain our
position that, because some projects and associated claims we
examined have been inconsistent with Medicaid's federal-state
cost-sharing design or with current CMS policy, increased
attention is needed to better ensure the fiscal integrity of the
Medicaid program.
Title XIX of the Social Security Act7 authorizes federal funding
to states for Medicaid. States have considerable flexibility in
designing and operating their Medicaid programs, but they must
comply with federal requirements specified in Medicaid statute and
regulations. Each state operates its program under a plan that CMS
must approve for compliance with current law and regulations. CMS
must also approve any amendments to a state's plan.
Consultants can provide a wide range of services to states,
including serving state Medicaid programs. States that lack
sufficient in-house resources can turn to consultants to add staff
or needed expertise. Contingency-fee consultants are particularly
attractive to budget-constrained states because the states do not
need to pay them up front, agreeing to pay instead a percentage of
any additional amounts saved or collected (the contingency fee).
Consultants may also cost states less than developing in-house
expertise, as states can hire them for short-term or specific
projects rather than commit full-time state personnel. Consultants
can also be attractive because they do not generally count against
agency staffing ceilings. Regarding Medicaid, consultants can help
states by performing services such as:
o analyzing federal and state statutory and regulatory
provisions,
o developing or revising state Medicaid policies and procedures
for consistency with federal requirements,
o assisting states in developing state plan amendments for
federal approval,
o assisting states in determining payment rates for providers,
o developing cost allocation plans to support claims for
administrative expenditures,
o training state and local staff in procedures and documentation
for submitting claims for federal Medicaid reimbursement,8
o preparing state claims for federal Medicaid reimbursement, and
o identifying new methods or projects to maximize federal
Medicaid reimbursements.
The typical Medicaid payment process is illustrated in figure 1.
When a Medicaid beneficiary receives care from a health care
provider such as a hospital, physician, or nursing home, the
provider bills the state Medicaid program for its services. The
state in turn pays the provider from a combination of state funds
and federal funds, which have been advanced by CMS each quarter.9
The state then files an expenditure report, in which it claims the
federal share of the Medicaid expenditure as reimbursement for its
payment to providers and reconciles its total expenditures with
the federal advance. In addition to reimbursement for medical
services, the state may claim federal reimbursement for functions
it performs to administer its Medicaid program, such as enrolling
new beneficiaries; reviewing the appropriateness of providers'
claims; and collecting payments from third parties, that is,
payers other than Medicaid, such as Medicare, that may be liable
for some or all of a particular health claim.
Background
742 U.S.C. S:S: 1396, et seq. (2000).
8Throughout this report, we use the term reimbursement to refer to federal
funds received by states from CMS for the federal share of states' claimed
Medicaid expenditures. States generally receive such funds through a
reconciliation process whereby an advance from CMS is reconciled with
states' claimed expenditures. We use the term payment to refer to funds
used by state Medicaid programs to pay Medicaid providers for providing
Medicaid services.
Figure 1: The Typical Medicaid Payment Process
States' claims for federal Medicaid reimbursement-including claims
prepared by or under arrangements developed by consultants-must comply
with a number of federal statutes and regulations. For example, the Social
Security Act requires that states provide methods to ensure that Medicaid
payments are consistent with efficiency, economy, and quality of care.10
CMS policy further clarifies and delineates requirements with which each
state must comply in administering its Medicaid program. CMS policy, for
example, generally prohibits states from claiming federal matching funds
on contingency-fee payments, including contingency-fee payments among
state agencies.11 Each state must also comply with cost principles and
procedures, such as preparing a cost allocation plan to justify its
administrative claims, as established in Office of Management and Budget
(OMB) Circular A-87.12
9Each quarter, states submit to CMS an estimate of their Medicaid
expenditures for the upcoming quarter. CMS then authorizes the states to
draw on federal funds to pay the federal Medicaid share. Massachusetts
officials said that the state fully funds Medicaid payments and is
reimbursed by the federal government.
CMS has an important role in ensuring that state claims comply with
Medicaid requirements. Within CMS, the Center for Medicaid and State
Operations is responsible for approving state Medicaid plans and plan
amendments, working with the states on program integrity and other program
administration functions and overseeing state financial management and
internal control processes. The Center for Medicaid and State Operations
shares Medicaid program administration and financial management
responsibilities with the 10 CMS regional offices. Traditional financial
management analysts in each regional office,13 numbering about 65
nationwide in fiscal year 2005 according to CMS officials, are responsible
for reviewing states' Medicaid claims to determine if expenditures are
complete, properly supported by the state's accounting records, claimed at
the appropriate federal matching rates, and allowable in accordance with
Medicaid law and policy. In addition to CMS, external organizations such
as HHS OIG and state auditors routinely conduct program and financial
audits of state Medicaid programs.
1042 U.S.C. S: 1396a(a)(30) (2000).
11State Medicaid agencies, for example, may employ other state agencies to
perform administrative activities and pay them on a contingency-fee basis.
CMS's guidance notes that contingency-fee payments made to another
government unit for Medicaid administrative activities, whether made
directly by the Medicaid agency or made by another unit and reported to
CMS through the Medicaid agency, are not allowable for federal
reimbursement.
12OMB Circular A-87 applies to federal grants to state and local
governments. It establishes principles and standards to provide a uniform
approach to determining allowable costs and promoting effective program
delivery, efficiency, and better relationships between federal and other
governmental units. The circular establishes requirements enabling states
to allocate allowable central services costs to operating agencies, such
as the state Medicaid agency, by developing cost allocation plans. An
approved cost allocation plan allows the state to assign some of the costs
of centralized administrative and support services to the agencies that
use them on a reasonable and consistent basis. State agencies such as
Medicaid may then claim federal reimbursement for those administrative
costs as allowed by Medicaid statute.
13As discussed later in this report, as part of a new financial management
effort, CMS has an initiative under way to hire approximately 100 new
financial analysts with responsibilities different from those of CMS's
traditional financial management analysts.
In examining the appropriateness of state Medicaid agency claims for
health services provided by local school districts, we have reported
concerns about the role of consultants who were paid on a contingency-fee
basis to maximize federal Medicaid reimbursements. In particular, in June
1999, we testified on the need for federal and state oversight of growing
Medicaid reimbursements to states for Medicaid outreach and other
administrative activities provided in schools.14 We found that school
districts had often contracted with consulting firms to perform claims
development and reporting activities and that they paid these firms fees
ranging from 3 to 25 percent of the total amount of the federal Medicaid
reimbursement for the schools' administrative costs. We found that poor
guidance and insufficient CMS oversight permitted questionable billing
practices by states and created an environment of opportunism in which
inappropriate claims could generate excessive federal Medicaid outlays.
Our subsequent report in April 2000 on school-based health services
discussed similar concerns with growing outlays and insufficient CMS
guidance and oversight to prevent improper reimbursements.15 Since our
2000 report, CMS has clarified guidance on submitting claims for
school-based administrative activities, applying stricter standards and
heightening review of the methods states use to identify administrative
claims for school-based services.16 CMS also disallowed more than $278
million in inappropriate claims from one state.
14GAO, Medicaid: Questionable Practices Boost Federal Payments for
School-Based Services, GAO/T-HEHS-99-148 (Washington, D.C.: June 17,
1999).
15GAO, Medicaid in Schools Improper Payments Demand Improvements in HCFA
Oversght, GAO/HEHS/OSI-00-69 (Washington, D.C.: Apr. 5, 2000).
16CMS, Medicaid School-Based Admnistrative Clamng Guide (May 2003).
Most States Have Employed Contingency-Fee Consultants in a Wide Range of
Reimbursement-Maximizing Projects
An increasing number of states are using consultants on a contingency-fee
basis to maximize their federal Medicaid reimbursements through a variety
of projects, according to CMS. Contingency-fee consultants in the two
states we reviewed-Georgia and Massachusetts-have developed
reimbursement-maximizing projects in each of the five categories of claims
that we reviewed, generating more than $2 billion during state fiscal
years 2000 through 2004 in additional federal Medicaid reimbursements,
mainly in Georgia.
CMS Surveys Found Increasing Use of Contingency-Fee Consultants for
Reimbursement-Maximizing Projects
CMS surveyed its regional offices in fiscal years 2002 and 2004 and found
that an increasing number of states were using consultants on a
contingency-fee basis for projects to maximize federal reimbursements. In
late 2001, CMS discovered that, contrary to CMS policy prohibiting federal
reimbursement for contingency fees in most instances, at least two states
(New Jersey and Virginia) had inappropriately claimed federal
reimbursements for such fees. Subsequently, CMS surveyed its regional
offices to identify which states were using contingency-fee consultants
and for which services. This first survey (spring 2002) showed that 10
states were known by regional staff to be using contingency-fee
consultants for reimbursement-maximizing projects. In response, CMS issued
two letters, in May 2002 and in November 2002, reminding regional offices
and states that although states were allowed to employ contingency-fee
consultants, the contingency fees themselves were not eligible for federal
reimbursement except in certain cases.17
In June 2004, CMS again surveyed its regional offices to determine how
many states had entered into contingency-fee contracts with private
consulting firms to maximize federal reimbursements over the period from
January 1999 through June 2004. This survey identified 34 states involved
in contingency-fee contracts to help them maximize federal Medicaid
reimbursements in a variety of categories. Most frequent were claims for
services provided to Medicaid-eligible children in schools, a category in
which contingency-fee consultants have assisted states for years. CMS
regional offices also reported that 11 states had contracts using
contingency-fee consultants in multiple areas, some having projects in as
many as four different categories (see table 2).
17The May 2002 letter instructed CMS regional administrators to remind
states that federal matching funds were generally not available for
contingency-fee contracts and, where CMS had inadvertently approved such
arrangements, federal matching funds would cease at the end of the
remaining term. The November 2002 letter provided guidance to regional
offices on criteria that states must meet to receive reimbursement for
contingency fees paid to consultants.
Table 2: CMS's 2004 Survey Results Showing Categories of Medicaid Claims
in Which States Had Projects Developed with Contingency-Fee Consultants,
January 1999-June 2004
Source: CMS.
Our review focused on five categories of claims that we considered at high
risk of improper payments: TCM services, services for mental or physical
rehabilitation, supplemental payment arrangements, school-based services,
and administrative costs (see table 3). For most of these categories, CMS
expenditure data show that federal reimbursement of states' claims in
recent years has grown nationwide, sometimes substantially. Although CMS's
2004 survey gathered information on states' use of contingency-fee
consultants, it would not have captured states' arrangements established
outside the survey period. We identified one consultant, for example, who
helped two states develop upper payment limit (UPL) arrangements, although
CMS's 2004 survey did not capture these particular states' contracts. CMS
does not identify the extent to which states' Medicaid claims stem from
projects using contingency-fee consultants to maximize federal
reimbursements.
Table 3: Five Categories of Medicaid Claims Where Contingency-Fee
Consultants Are Helping States Maximize Federal Medicaid Reimbursements
Source: GAO.
aCMS recently reiterated its TCM policy in a 2004 Administrator's decision
that denied approval of a state plan amendment requested by Maryland to
provide TCM services to children in the state's foster care program. See
CMS, Disapproval of Maryland State Plan Amendment No. 02-05, Docket No.
2003-02 (Aug. 27, 2004). The Administrator's decision was based in part on
a statement in the legislative history accompanying the legislation
authorizing coverage for TCM services that payment for TCM services must
not duplicate payments to public agencies or private entities under other
program authorities. See H.R. Rep. No. 99-453, at 546 (1985). We did not
evaluate the basis for CMS's policy as part of this review.
bUPL is the upper bound on what the federal government will pay as its
share of Medicaid costs; it is the federal government's way of placing a
ceiling on federal financial participation in a state's Medicaid program.
UPLs are tied to the methodology that Medicare, the federal health care
program that covers seniors aged 65 and older and some disabled persons,
uses to pay for comparable services.
cSee GAO, Medicaid: Improved Federal Oversight of State Financing Schemes
Is Needed, GAO-04-228 (Washington, D.C.: Feb. 13, 2004) and related
products cited therein.
dFor example, the Medicare, Medicaid, and SCHIP Benefits Improvement and
Protection Act of 2000 directed CMS to issue a final regulation to limit
states' ability to claim excessive federal matching funds through UPL
supplemental payments.
eUnlike CMS's direct review and approval role for states' Medicaid plan
amendments, CMS has an advisory review role for the plans that state
Medicaid agencies prepare for allocating their administrative overhead
costs; at the national level, HHS's Division of Cost Allocation takes the
lead in reviewing these cost allocation plans. The division generally
distributes copies of cost allocation plan sections to affected federal
agencies, including CMS, for comment.
fThese figures include costs associated with school-based administration.
Georgia and Massachusetts Have Extensively Used Contingency-Fee Consultants
From state fiscal years 2000 through 2004, Georgia used a private
consulting firm on a contingency-fee basis for multiple
reimbursement-maximizing projects, including projects in the five Medicaid
claims categories that we reviewed. The consultant provided numerous
services on more than 20 projects, such as creating new methodologies for
developing claims for federal reimbursement, obtaining legal advice to
support reimbursement-maximizing claims, and pursuing retroactive
reimbursement for claims that were not previously reimbursed. The
consultant also helped the state to write state plan amendments and cost
allocation plans. For example, for five UPL projects, the consultant
developed the formulas for calculating the state's UPL, drafted the state
plan amendment to submit to CMS, and drafted provider agreements to
implement the project. For a project in rehabilitation services, the
consultant developed a new methodology for developing claims for federal
reimbursement of payments the state made to providers. For TCM projects
involving two state agencies, the consultant developed revisions to the
state's payment rate; drafted the state plan amendment to implement the
revised rates; drafted revisions to state policy manuals; and conducted
training sessions with case managers, including identifying services that
could be considered as TCM and explaining how to format their case notes
to support Medicaid claims.
Georgia paid the consultant mainly from additional federal Medicaid
reimbursements generated from the contingency-fee projects, although CMS
determined that the state did not claim federal reimbursement for the
contingency fees themselves. Initially, in 1999, Georgia and the
consultant agreed on a contingency fee based on additional federal
reimbursement generated by the consultant's projects. For state fiscal
years 2000 through 2004, the state paid its consultant more than $82
million in contingency fees. After UPL projects generated for Georgia more
than $1.2 billion in additional federal Medicaid reimbursements for state
fiscal years 2001 through 2003, and a dispute developed between the state
and the consultant about the extent to which the additional reimbursements
were attributable to the consultant's project, the state and the
consultant agreed upon an additional $28 million in fees to be paid over 2
years.18 In total, the UPL arrangement and other consultant projects
generated an estimated $1.5 billion in additional federal Medicaid
reimbursements for Georgia over approximately 5 years.
Massachusetts has pursued Medicaid reimbursement-maximizing and
cost-avoidance projects using contingency-fee consultants since the early
1990s. The state has used various private consulting firms, but since
state fiscal year 2000, it has relied primarily on a component of the
University of Massachusetts Medical School (UMMS) to conduct
reimbursement-maximizing and cost-avoidance projects, including projects
in rehabilitation services, supplemental payments, and school-based
services. UMMS has performed a number of services to implement these
reimbursement-maximizing projects, including assisting in drafting state
plan amendments and preparing Medicaid claims for reimbursement.
18The state and the consultant disagreed on the contingency-fee payment
for UPL payments to local-government hospitals and nursing homes. The
state and consultant agreed to an $81 million compromise fee in 2003. At
the time of this agreement, the state had already paid the consultant
about $25 million, and the remaining $56 million was to be paid in yearly
installments of $14 million, with the final installment due in June 2006.
In addition to reimbursement-maximizing projects, Massachusetts's state
Medicaid agency also obtains other services from UMMS through interagency
agreements to help operate its Medicaid program. UMMS performs many of the
state's Medicaid administrative functions, such as analyzing claims to
identify and recover improper payments paid to health providers and
training state and local staff on procedures for submitting claims.19
UMMS was compensated in two ways for its services: (1) for selected
projects, UMMS was paid a contingency fee that came from the additional
federal funds received by the state for the particular
reimbursement-maximizing or cost-avoidance project;20 and (2) the state
paid UMMS from the federal reimbursement for its administrative costs.
Contingency fees paid to UMMS varied by project, generally from 1 to 15
percent of additional federal reimbursement generated or costs avoided.
Administrative costs that were attributable to UMMS were paid by the state
on the basis of UMMS's reported Medicaid-related costs, according to UMMS
officials. Each quarter, UMMS reported its Medicaid-related costs to the
state Medicaid agency, which in turn included these costs on the state's
quarterly expenditure report to CMS. The state then reimbursed UMMS for
its reported Medicaid-related administrative costs. We could not isolate
the amount that UMMS received for administrative costs associated with
federal Medicaid reimbursement-maximizing projects because these costs
were combined with those for other Medicaid projects, such as pharmacy
management and utilization review, which UMMS also conducts for the
Medicaid agency. For all its Medicaid administrative activities, UMMS in
state fiscal year 2004 claimed approximately $60 million (excluding
contingency fees) in state and federal Medicaid reimbursements.
19By ownership, UMMS is not a private consultant, although it shares
several characteristics with private consultants. We included UMMS in our
review because of these shared characteristics, specifically (1) CMS
identified and reported UMMS as a contingency-fee consultant; (2) the
consulting work UMMS does for Massachusetts is done under
"interdepartmental service agreements," which state officials describe as
contracts; (3) UMMS is paid a contingency fee by the state for many of its
state projects; and (4) UMMS officials said the medical school serves as a
contingency-fee consultant for other states and as a subcontractor for
other consultants.
20For example, UMMS was paid a contingency fee of $115,000 in state fiscal
year 2004 for increasing state claims for family-planning services
provided by managed care organizations.
Massachusetts has used other contingency-fee consultants for
reimbursement-maximizing and cost-avoidance projects, including a private
consultant that developed a TCM project and rate-setting proposal for the
state's Department of Youth Services, among others. That private
consultant still served in state fiscal year 2004 as a consultant paid on
a contingency-fee basis, helping state agencies with various
reimbursement-maximizing projects. For state fiscal year 2004,
Massachusetts paid the private consultant about $4 million in fees from
contingency-fee agreements for generating nearly $106 million in savings
and additional federal reimbursements.
According to the Massachusetts Medicaid agency, the state paid more than
$57.5 million to contingency-fee consultants during state fiscal years
2000 through 2004 for projects that generated almost $1.3 billion in funds
for the state through all types of reimbursement-maximizing and
cost-avoidance projects. Some of these projects would have accrued savings
to Medicaid in which the federal government would have shared, such as
program integrity efforts to ensure appropriate payments to individual
providers. Most of the contingency fees (about $37 million) were paid to
UMMS; other (private) consultants were paid about $20.5 million. From
state fiscal years 2000 through 2004, reimbursement-maximizing projects
generated about $570 million in additional federal reimbursements for the
state, for which Massachusetts paid consultants nearly $11 million in
contingency fees. UMMS projects accounted for $540 million of the total,
for which it was paid $9 million in contingency fees.
Claims from Contingency-Fee Projects Are Not Always Consistent with Law or
Current Policy and Can Undermine Medicaid's Fiscal Integrity
We and others have identified claims from contingency-fee consultant
projects that appeared to be inconsistent with current CMS policy and
claims that were inconsistent with federal law. We also identified claims
from projects that undermined Medicaid's fiscal integrity. Such projects
and resulting problematic claims arose in each of the five categories of
claims that we reviewed, either in Georgia or Massachusetts or both.
During our work we observed two factors that appeared to increase the risk
of problematic claims. One factor involved federal requirements that were
inconsistently applied, evolving, or not specific; the second involved
Medicaid payments to government units, which can facilitate the
inappropriate shifting of state costs to the federal government.
Contingency-Fee Projects in Selected States Resulted in Problematic Federal
Reimbursements in Five Categories of Claims
In the five categories of Medicaid services we reviewed, we identified
claims that were problematic in Georgia, Massachusetts, or both. We
identified claims for TCM services that appear to be inconsistent with
current CMS policy and claims for rehabilitation services that were
inconsistent with federal law. In other areas, such as supplemental
payments, we found claims associated with projects that undermined the
fiscal integrity of the Medicaid program and the federal-state
partnership. In addition to our work in Massachusetts and Georgia, we
identified several reports by HHS OIG about other states, which raise
issues about the appropriateness of claims stemming from contingency-fee
contracts for school-based services and for administrative costs.
Targeted Case Management Services
Most of the claims for federal reimbursement of Medicaid TCM services in
Georgia and Massachusetts that we reviewed appeared to be inconsistent
with current CMS policy, which does not allow federal reimbursement for
TCM services that are integral to other state programs.21 Under previously
CMS-approved state plans, consultants helped Georgia and Massachusetts
increase federal TCM reimbursements.22 In Georgia, the consultant assisted
the state in increasing federal reimbursement for TCM services provided by
two state agencies: the Department of Juvenile Justice and the Division of
Family and Children's Services. The consultant assisted Georgia by
streamlining the billing process, drafting a state plan amendment
proposal,23 and increasing the number of Medicaid beneficiaries for whom
these two non-Medicaid state agencies billed case management services,
thus reducing costs to the state for operating these agencies. In
Massachusetts, contingency-fee consultants helped the state increase
federal reimbursement for TCM services provided by three state agencies:
the Departments of Social Services, Youth Services, and Mental Health. The
consultants helped develop state plan amendments that established Medicaid
coverage for the agencies' case management services and assisted with
developing and updating the rates Medicaid would pay providers for TCM
services.24
21See State Medcaid Manual S:4302 and CMS, Dsapproval of Maryland State
Plan Amendment No. 02-05, Docket No. 2003-02 (Aug. 27, 2004).
22CMS approved the states' TCM amendments before 2002.
23The state plan amendment revised the state's existing TCM provision
(approved by CMS in March 2002) to change the payment rate.
In analyzing the TCM projects and the basis for TCM claims, we found that
Georgia and Massachusetts were claiming federal reimbursement, under their
CMS-approved state plan amendments, for TCM services that appeared to be
unallowable under CMS's current TCM policy. Specifically, the claims were
for services that appeared to be integral components of non-Medicaid
programs in these states. The states' laws, regulations, or policies
called for case management services in these programs, and the case
management services were provided to all Medicaid- and
non-Medicaid-eligible individuals served by the programs.25 For example,
all children served by Massachusetts's and Georgia's child welfare
agencies receive a broad range of services to promote their welfare and
protect them from abuse and neglect. To fulfill this responsibility, state
employees provide case management services, refer the children to others
for services, and monitor their well-being and progress. CMS has denied
TCM claims for similar programs in other states. In fiscal year 2002, for
example, CMS denied a state plan amendment proposal to cover TCM services
in Illinois, and in fiscal year 2004 it found TCM claims in Texas
unallowable, in part because the TCM services claimed for reimbursement
were considered integral to other state programs. As in Georgia and
Massachusetts, the TCM services in Illinois were for children served by
the state's juvenile justice system. In Texas, such children were served
by the state's child welfare and foster care system.
In Georgia in fiscal year 2003, the state received an estimated $17
million in federal reimbursements for TCM claims from the Department of
Juvenile Justice and the Division of Family and Children's Services, of
which about $12 million was for services that appeared to be integral to
non-Medicaid programs. In Massachusetts in fiscal year 2004, the state
received an estimated $68 million in federal reimbursements generated by
claims from the Departments of Social Services, Youth Services, and Mental
Health-the agencies whose TCM projects were developed by consultants-for
services that appeared to be integral to non-Medicaid programs.26 CMS
officials agreed with our assessment that the claims for TCM services in
these two states were problematic, and CMS officials noted that they had
been aware of the potential problems in Massachusetts for some time before
our review. CMS officials stated that, under an interagency agreement with
HHS OIG, HHS OIG had initiated an audit of Massachusetts's TCM claims in
December 2003. At the time of our review, HHS OIG's findings had not been
released.
24Contingency-fee payments for TCM claims ended in 2003. According to
Massachusetts officials, the consultants continued to assist the agencies
in processing their TCM claims after 2003 but no longer received a
contingency fee.
25CMS's statements regarding TCM services do not define the phrase
"integral component" but, rather, indicate that the agency considers
whether the services are related to other programs. In the absence of a
CMS definition, we considered (1) whether case management was called for
by state law, regulation, or policy; (2) whether case management was
provided to all Medicaid- and non-Medicaid-eligible clients served by the
program statewide; and (3) whether the services were similar to those that
were provided by states whose TCM state plan amendments or claims had been
denied by CMS.
Rehabilitation Services
Our review of projects involving rehabilitation services found claims that
were inconsistent with federal law from a project in Georgia and
potentially duplicated claims for rehabilitation services in
Massachusetts. Georgia's contingency-fee consultant helped the state
develop a project to increase the rates paid by Georgia's Medicaid program
to two state agencies for rehabilitation services, which in effect allowed
the state to overpay these agencies for one set of services while reducing
the agencies' costs for other, non-Medicaid services. In Massachusetts, a
consultant helped two state agencies increase claims for rehabilitation
services, potentially duplicating other federal Medicaid reimbursements
obtained by the state.
In Georgia, the Department of Juvenile Justice and the Division of Family
and Children's Services place certain children in state custody in private
residential care facilities throughout the state. Under contract with
these state agencies, the residential facilities provide various services,
including many not covered by Medicaid, such as room and board, general
supervision, and educational services. The facilities also provide
rehabilitative counseling and therapy services. The facilities receive a
per diem payment from the state agencies for providing all of these
services. The Department of Juvenile Justice and Division of Family and
Children's Services then bill the state Medicaid agency for mental health
rehabilitation services, one component of the services the agencies pay
the private facilities to provide.27
26In examining CMS expenditure reports, we found that both Georgia and
Massachusetts had categorized non-TCM services, such as rehabilitation
services, as TCM. We obtained estimates from the states of the amount the
states had claimed for TCM services.
As recommended by its contingency-fee consultant, Georgia increased the
rates at which the state's Medicaid agency paid the Department of Juvenile
Justice and the Division of Family and Children's Services for these
rehabilitation services. The per diem amount these agencies paid the
private facilities, however, stayed the same. Specifically, the consultant
recommended that the two state agencies claim Medicaid reimbursement on
the basis of the facilities' estimated costs for rehabilitation services,
rather than on the state agencies' actual per diem payment. Before the
project, the state agencies sought Medicaid reimbursement for that portion
of the per diem payment attributable to the facilities' estimated cost for
providing rehabilitation services. As a result of the change, the state
was able to shift costs it had previously covered to Medicaid. For
example, for one category of children, the percentage of the state's per
diem paid by Medicaid increased from 50 percent under the state's prior
method to 87 percent under the new method, while the share of the per diem
paid by state funds decreased from 29 percent to less than 1 percent. In
some cases, the added reimbursement from the Medicaid agency covered the
other state agencies' own shares of the per diem payments to the
facilities-shares that covered the costs of services other than
rehabilitation. For example, the portion billed to Medicaid of one
agency's per diem payment to one facility increased from $115 to $162
while that agency's own share decreased from $37 to $0. In all, this
project increased the federal Medicaid reimbursement to the state agencies
by $58 million during state fiscal years 2001 through 2003.28
The change in the basis for the expenditures that were claimed for
Medicaid reimbursement resulted in payments from Georgia's Medicaid agency
to the Department of Juvenile Justice and the Division of Family and
Children's Services for services provided by private facilities that in
some cases were higher than what the agencies paid the facilities for all
contracted services combined (Medicaid- and non-Medicaid-covered).
Specifically, for 82 facilities (about 43 percent of the residential
facilities), the amount the state Medicaid agency reimbursed the
Department of Juvenile Justice and the Division of Family and Children's
Services in state fiscal year 2004 exceeded the total amount these
agencies actually paid the facilities for all services, not just
rehabilitation services. One facility, for example, was paid by the
Division of Family and Children's Services $37 per day per eligible child
for all services covered by the per diem payment, but the state agency
billed the Medicaid program $62 per day for rehabilitation services alone.
27Specifically, the state Medicaid agency was billed for "therapeutic
residential intervention services," which are defined by the state as
comprehensive rehabilitation services consistent with the diagnosis and
treatment needs of the child's condition. Therapeutic residential
intervention provides mental health treatment services for emotionally
disturbed and severely emotionally disturbed children. According to state
officials, these rehabilitation services were covered under the state plan
provision authorizing early and periodic screening, diagnostic, and
treatment services, which are comprehensive screening and treatment
services that states provide to children and adolescents younger than 21.
28In addition to the new method for billing Medicaid, the contingency-fee
project also helped Georgia expand the number of Medicaid beneficiaries
and private facilities for which rehabilitation services were billed.
CMS officials agreed with our conclusion that the claims from this
contingency-fee project were inconsistent with federal law. Specifically,
the arrangement was not in accord with the statutory requirement that
payments be consistent with efficiency, economy, and quality of care.
Further, federal Medicaid funds are intended for Medicaid-covered services
for eligible individuals on whose behalf payments are made, not to
subsidize non-Medicaid-covered services.29 In discussing Georgia's
reimbursement-maximizing project, CMS officials also identified a number
of additional concerns, including whether the billing agencies, as well as
the facilities they paid, were qualified Medicaid providers; whether the
facilities' estimates of Medicaid costs were appropriate; and whether all
services included in the facilities' estimates were Medicaid-covered
services. After we brought it to the agency's attention, CMS initiated a
review of this contingency-fee project and the allowability of associated
claims for federal Medicaid reimbursement.
In Massachusetts, a contingency-fee consultant helped two state agencies
increase claims for rehabilitation services that potentially duplicated
federal payments the state had already received because, according to CMS
officials, the services were to be paid for under the state's managed care
agreement. The consultant developed and implemented a project in which the
state's Department of Youth Services (the state's juvenile justice
agency), for example, started billing Medicaid for rehabilitation services
that the state agency was responsible for providing directly to youth it
served. As with Georgia's arrangement, the Department of Youth Services
billed Medicaid for payments the agency made to private facilities that
cared for youths in the state's juvenile justice system. To the extent
that the youth served by the department were enrolled in the state's
Medicaid managed care program, these payments may have duplicated payments
the state had already received for rehabilitation services provided under
that program. States typically accept a fixed federal payment per person
per month for providing a range of services to Medicaid beneficiaries
enrolled in managed care programs. Rehabilitation services are covered by
the managed care payment Massachusetts receives. CMS officials agreed that
it was likely that duplicate payments occurred, because a significant
portion of the state's Medicaid beneficiaries are enrolled in its managed
care program. CMS officials could not, however, estimate the amount of
duplicate payments.
29See 42 U.S.C. S:S: 1396 and 1396a(a)(30) (2000).
Supplemental Payments
Consultants in both Georgia and Massachusetts helped the states implement
supplemental payment arrangements that claimed federal reimbursements on
behalf of state and local-government facilities, which did not retain the
bulk of the Medicaid payments. Although, under current law and CMS policy,
states are allowed to claim federal reimbursements for supplemental
payments they make to providers up to UPL ceilings, we have earlier
reported that payments in excess of a provider's costs that are not
retained by the provider as payment for services actually provided are
inconsistent with Medicaid's federal-state partnership and fiscal
integrity.30 These payments can be illusory: that is, the state can
benefit from the arrangements by appearing to pay the providers more than
they ultimately retain while the state seeks federal reimbursement on the
excess payment. Most of the additional federal Medicaid funding generated
by Georgia's reimbursement-maximizing projects-$1.2 billion during state
fiscal years 2001 through 2003-came through UPL financing arrangements
developed by the state's consultant. The consultant developed five
arrangements-one each for local-government-operated inpatient hospitals,
outpatient hospitals, and nursing homes and state-owned hospitals and
nursing homes. During state fiscal years 2001 through 2003, the state made
supplemental payments totaling $2.0 billion to nursing homes and hospitals
operated by local governments (see fig. 2). A sizable share of the $2.0
billion, however, was illusory. In reality, the health facilities netted
$357 million because they had transferred $1.7 billion to the state
Medicaid agency through a process known as an intergovernmental
transfer.31 The state combined this $1.7 billion with $1.2 billion in
federal funds that had been advanced to the state through the quarterly
advance process. The advanced amount represented the estimated federal
share of the planned supplemental payments to local-government facilities
of $2.0 billion. The state thus had a funding pool of $2.9 billion at its
disposal. From this pool, the state made the $2.0 billion in supplemental
payments to local-government providers and retained $844 million to offset
its Medicaid expenditures.
30See, for example, GAO, Medicaid: Intergovernmental Transers Have
Facilitated StateFinancng Schemes, GAO-04-574T (Washington, D.C.: Mar. 18,
2004), and GAO-04-228 .
Figure 2: Georgia's UPL Arrangement with Local-Government Health Care
Providers, State Fiscal Years 2001-2003
Note: Totals may not add up because of rounding.
31Intergovernmental transfers are a tool that state and local governments
use to carry out their shared governmental functions, such as collecting
and redistributing revenues to provide essential government services.
Despite actions taken by Congress and CMS to narrow loopholes associated
with UPL financing schemes, federal reimbursements for provider payments
made up to the UPL are still allowed under federal law and CMS policy.
Georgia's arrangement illustrates how current law and UPL policy continue
to allow states to inappropriately generate excessive federal matching
payments beyond standard Medicaid payments for services.
Georgia's consultant also developed a UPL arrangement with state-owned
hospitals. During state fiscal years 2001 through 2003, the state made
$108 million in UPL payments to state hospitals, which included $64
million in federal funds. The bulk of the payment, however, was illusory,
in that the hospitals' net increase in payments was $22 million. Through
this arrangement, the state Medicaid agency was able to retain $42 million
in additional funds, which it used to offset its Medicaid expenditures. In
commenting on a draft of this report, the state said that it had agreed
with CMS to end the aspects of its UPL arrangement that resulted in
federal reimbursements exceeding the state's actual payment to the
providers, effective June 30, 2005.
Massachusetts's consultant similarly assisted the state with increasing
federal reimbursements through a UPL arrangement. Under a May 2003
agreement between UMMS and the Massachusetts Medicaid agency, UMMS
developed a UPL project involving government-owned or government-operated
nursing facilities, which entailed illusory payments to providers.32 As in
Georgia, Massachusetts's payments, which involved intergovernmental
transfers, were illusory because the state claimed federal matching for a
UPL payment of $8.6 million when the net payment increase to the nursing
homes was $1.2 million. According to the state comptroller's office, the
Medicaid agency had in August 2003 paid UMMS about $155,000 for the
project, a contingency fee of 5 percent of the $3.1 million in additional
federal Medicaid reimbursements that the project had generated for the
state. As with Georgia, the state Medicaid agency agreed in August 2004 to
end certain aspects of its UPL arrangement effective June 30, 2005.
32The project description indicated that UMMS agreed to help the state
"put the mechanisms in place required to carry out the related
intergovernmental transfer of funds back to the state."
Massachusetts contracted with UMMS to implement two other types of
supplemental payment arrangements (involving disproportionate share
hospital payments), which we were unable to fully evaluate for their
consistency with federal law and policy. The arrangements are complex,
requiring substantial documentation to assess. The information we received
from the state raised legal and policy questions, but the state Medicaid
agency did not produce the extensive documentation we needed within the
time frame of our work. We believe that a separate study of these
arrangements would be required to assess their appropriateness. Where
appropriate, we have referred information to CMS and HHS OIG about
projects within the scope of our work that we were unable to evaluate (see
app. I).
School-Based Health Services and Associated Administrative Costs
HHS OIG has identified concerns with states' school-based claims for
Medicaid services in Massachusetts and in several other states that have
relied on the work of contingency-fee consultants. (See app. II for a
summary of selected HHS OIG reports of states that have used
contingency-fee consultants.) In Massachusetts, HHS OIG reported on
concerns with the adequacy of state and UMMS monitoring of claims for
school-based services to ensure school districts' compliance with federal
and state requirements, estimating that $2.9 million in unallowable
Medicaid claims were paid in state fiscal year 2000.33 HHS OIG found that
the state had inappropriately submitted claims for services that were not
documented as delivered, provided by unqualified providers, or provided to
students who were absent on the dates of the claimed services. According
to state officials, after further review, CMS, which reviews HHS OIG
recommendations and issues final disallowances, imposed a $1.2 million
disallowance. In a separate report on Massachusetts' claims for
administrative costs related to school-based services, HHS OIG found that
in state fiscal years 2000 and 2001, the state did not monitor the
appropriateness of school districts' claims that were compiled by UMMS,34
resulting in at least $5 million in unallowable claims.35
33HHS OIG, Medicad Payments for School-Based Health Services-Massachusetts
Divison of Medical Assistance, A-01-02-00009 (Washington, D.C.: July 14,
2003).
34State officials, in comments on a draft of this report, noted that the
state had disagreed with OIG's finding and noted that no disallowance had
been issued by CMS as of June 2005.
35HHS OIG, Medicaid School-Based Health Services Adminisrative
Costs-Massachusetts, A-01-02-00016 (Washington, D.C.: Sept. 15, 2004).
In commenting on a draft of this report, Massachusetts officials cited a
number of actions taken in response to HHS OIG's reports. To strengthen
oversight of school-based claims, state efforts include enhanced training
and technical assistance to school districts, expanded management
reporting, new monitoring and auditing systems, and a newly established
Director of School-Based Medicaid within the Office of Medicaid.
In the context of documenting Georgia's contingency-fee project related to
school-based claims, we identified a concern with how Georgia was using
additional federal reimbursements gained from school-based claims.
Georgia's contingency-fee consultant assisted the state with Medicaid
claims for school-based services in a project that generated about $54
million in federal Medicaid reimbursements over the 3 years the consultant
was paid and that, on the basis of state data, we estimate continues to
generate about $25 million annually.36 We found that the school districts
were not receiving all of the federal Medicaid matching funds that were
generated on their behalf-a concern we noted in prior reports on state
school-based claims.37 According to a state official and documents
provided by the state, the state retained $3.9 million, or 16 percent, of
federal reimbursements that were claimed on behalf of the school districts
for state fiscal year 2003, most of which was used to pay its
contingency-fee consultant and about $1 million of which was used to cover
the salaries and administrative costs of the five state employees who
administered school-based claims in Georgia.
Administrative Costs
Our work in Massachusetts and Georgia found that neither state had claimed
federal reimbursement for contingency fees they had paid their
consultants. In examining Massachusetts's administrative claims, however,
we found that, despite a major reorganization of state agencies beginning
in mid-2003, the state did not submit a complete cost allocation
plan-which would have provided the basis for its administrative
claims-reflecting its new organization until December 2004. As of April
2005, the revised cost allocation plan had not been approved by HHS.38 We
also found that the state may have claimed more in administrative costs
related to its contingency-fee projects than may have been warranted. For
example, according to the state's claims for administrative reimbursement
for UMMS's costs, 100 percent of one senior official's salary was claimed
as a Massachusetts Medicaid administrative expense, even though the
official had worked on UMMS projects conducted for other states. We also
identified an issue related to Georgia's claims for administrative costs
that we were unable to fully evaluate during our work. As discussed in
appendix I, we have referred information regarding Georgia's
administrative claims to CMS for further review.
36We did not assess whether the school-based health services that the
state claimed were allowable.
37In particular, our earlier reports found that in some states, school
districts received only a small portion of the federal funds that were
claimed on their behalf because states and contingency-fee consultants
shared in the reimbursements. Rather than fully reimbursing schools for
their Medicaid-related costs, some states retained as much as 85 percent
of federal Medicaid reimbursements. According to several state officials,
because states funded a portion of local education activities, Medicaid
services provided by schools were partially funded by the state. Under
this reasoning, some states believed they should receive a share of the
federal reimbursements claimed by school districts. See GAO/T-HEHS-99-148
and GAO/HEHS/OSI-00-69 .
HHS OIG has recently reported on unallowable administrative expenses in
states other than Massachusetts related to their use of contingency-fee
consultants. In October 2004, for example, HHS OIG reported that Colorado
had received about $180,000 in improper federal Medicaid reimbursement
because the state had claimed about $359,000 in consultant fees that were
contingent upon reimbursements from the federal government for Medicaid
family-planning claims.39 The claims were made from April 2002 through
December 2003. Similarly, in November 2004, HHS OIG reported that Virginia
had improperly claimed as Medicaid administrative expenditures the
contingency fees paid to a consultant for federal reimbursement-maximizing
services also related to family-planning services. From October 2001
through April 2003, the state had claimed about $678,000 in unallowable
contingency-fee payments made to a consultant, the federal share of which
was about $339,000.40 Both states agreed that they had improperly claimed
these fees and submitted corrective adjustments. According to a CMS
official, the agency recouped the states' excessive reimbursements.
38The Massachusetts Comptroller's office proposed an interim revision to
the cost allocation plan in a letter dated March 10, 2004, but reviewers
in CMS region I noted that the letter spoke only of the consolidation of
human resource functions and not of broader reorganization issues. In an
April 2004 memo to the HHS Division of Cost Allocation, CMS regional
reviewers commented that the interim revision contained inconsistencies
and mathematical errors and recommended that the state revise and resubmit
its proposal. Another draft submitted in September 2004 was incomplete and
could not be reviewed. In December 2004, the state submitted a revision of
the September draft, which was under review as of April 2005.
39HHS OIG, Contingency Fees Claimed by Colorado as Medicaid Reimbursement,
A-07-04-01009 (Washington, D.C.: Oct. 29, 2004).
40HHS OIG, Review of Virgnia's Contingency Fee Payments for Maximizng
Federa Revenues Claimed by Its Medicaid Managed Care Program,
A-03-04-00213 (Washington, D.C.: Nov. 9, 2004).
In early 2005, CMS acted upon its concerns about states' Medicaid
administrative claims. For example, CMS reported that, in some instances,
evidence showed that states had attempted to shift administrative costs
associated with other social service programs to Medicaid. The President's
budget proposal for fiscal year 2006 contains an initiative to limit
states' allotments for Medicaid administrative claims.41
Two Factors Increase Risk of Problematic Claims
We observed two factors in many reviewed projects that appeared to
increase the risk that claims are problematic, that is, inconsistent with
federal law or policy, or with Medicaid's federal-state partnership and
fiscal integrity. One factor was that they came under areas of Medicaid
claims where federal requirements were inconsistently applied, evolving,
or not specific, at times resulting in inconsistent treatment of states by
CMS. Despite CMS's long-standing concern about state financing
arrangements for both TCM and supplemental payments, the agency has not
issued adequate guidance to clarify expenditures allowable for federal
reimbursement. Federal policy for claims in these categories has evolved
over time, and the criteria that CMS applies to determine whether claims
are allowable have been communicated to states mainly through
state-specific state plan amendment reviews or claims disallowances,
rather than through guidance or regulation. State officials, HHS OIG
auditors, and CMS financial management staff have raised concerns about
the lack of, and need for, improved guidance in a number of categories
that we reviewed. Some officials said that the lack of clear CMS guidance
has allowed states to develop new financial arrangements, or to continue
existing ones, that take advantage of gray areas. In line with these
concerns, we also found that existing guidance on allowable claims had
been inconsistently applied, had evolved over time, or, in the case of
rehabilitation services, had not been specified.
41The CMS Administrator's performance budget for fiscal year 2006 proposes
to establish individual state allotments for Medicaid administrative
claims. CMS's budget request notes that the open-ended financing of
Medicaid administrative claims does not encourage states to administer the
program as efficiently as possible. CMS estimates 5-year budget savings of
$1.1 billion from its proposal. See the Centers for Medicare & Medicaid
Services' performance budget for fiscal year 2006.
o Inconsistently applied policy for allowable TCM services:
Although CMS began to deny proposed state plan amendments that
sought approval for Medicaid coverage of TCM services that were
the responsibility of other state agencies in 2002, states with
such arrangements then in place, such as Georgia and
Massachusetts, were allowed to continue them. For other states,
CMS had determined that such arrangements were not eligible for
federal Medicaid reimbursement for several reasons: (1) the
services were typically integral to existing state programs, (2)
the services were provided to beneficiaries at no charge, and (3)
beneficiaries' choice of providers was improperly limited.42 CMS,
however, had approved Georgia's and Massachusetts's state plan
amendments for TCM services before 2002. Although CMS has since
applied these criteria to deny TCM arrangements or claims-for
example, in Maryland, Illinois, and Texas-it has not yet sought to
address similar, previously approved TCM arrangements that are
inconsistent with these criteria. CMS regional officials told us
they could not reconsider the TCM claims from two agencies in
Georgia and four in Massachusetts because they were waiting for
new guidance that the agency was preparing.43 CMS has been working
on new TCM guidance for more than 2 years, according to agency
officials, and as of May 2005 this guidance had not been issued.
CMS's fiscal year 2006 budget submission identifies savings that
could be achieved by clarifying allowable TCM services, but CMS
had not published a specific proposal at the time we completed our
work.44
o Evolving policy for allowable supplemental payment
arrangements: For several years, we and others have reported on
state financing arrangements that allow states to inappropriately
generate federal Medicaid reimbursement without a corresponding
state expenditure. While Congress and CMS have taken steps to curb
these abuses, states can still develop arrangements enabling them
to make illusory payments to gain federal reimbursements for their
own purposes. CMS has recognized that states can gain from
supplemental, such as UPL, payment arrangements through
intergovernmental transfers. Since fiscal year 2003, for example,
CMS has worked with individual states to address such arrangements
and, under this effort, CMS had identified and made agreements
with Georgia and Massachusetts to change how their UPL
arrangements operated.45 At the same time, the agency has not
issued guidance stating its policy on acceptable approaches for
supplemental payment arrangements, including the allowed methods
for funding the state's share of the Medicaid program. CMS's
budget for fiscal year 2006 proposes to achieve federal Medicaid
savings by curbing financing arrangements that have been used by a
number of states to inappropriately obtain federal reimbursements.
The specific proposal, however, had not been published at the time
we completed our review.46
o Unspecified policy on allowable Medicaid rehabilitation
payments to other state agencies: CMS has not issued policy
guidance that addresses situations where Medicaid payments are
made by a state's Medicaid agency to other state agencies for
rehabilitation services. CMS financial management officials told
us that states' claims for rehabilitation services posed an
increasing concern, in part because officials believed that states
were inappropriately filing claims for services that were the
responsibility of other state programs. CMS does not specify
whether claims for the cost of rehabilitation services that are
the responsibility of non-Medicaid state agencies are allowable.
CMS's fiscal year 2006 budget submission identifies savings that
could be achieved by clarifying appropriate methods for claiming
rehabilitation services. CMS had not published a specific proposal
at the time we completed our review.47
Another factor shared by the reimbursement-maximizing projects we
examined was that they increased Medicaid payments from state
Medicaid agencies to other state or local-government agencies-that
is, to non-Medicaid agencies that may serve Medicaid
beneficiaries-a mechanism that can facilitate an inappropriate
shift of state costs to the federal government. Medicaid
reimbursement to government agencies serving Medicaid
beneficiaries is allowable in cases where the claims apply to
covered services and the amounts paid are consistent with economy
and efficiency. In contrast, the projects and associated claims we
reviewed showed that reimbursement-maximizing projects often
involved services and circumstances that Medicaid should not pay
for-such as illusory payments to government providers.
Georgia, Massachusetts, and CMS provided limited oversight of
claims associated with projects developed with the aid of
contingency-fee consultants to ensure that they were consistent
with Medicaid requirements. The two states' measures to oversee
contingency-fee projects were insufficient to prevent
inappropriate claims, and CMS officials were not always aware of
states' specific projects to maximize federal reimbursement.
Problems we found with CMS's oversight of states'
reimbursement-maximizing projects and associated claims illustrate
the need to address broader financial management issues,
especially as more states adopt reimbursement-maximizing
strategies without hiring consultants.
Georgia and Massachusetts have taken some steps to oversee the
contingency-fee consultants they have engaged for
reimbursement-maximizing projects. Georgia's oversight was
conducted primarily through a steering committee, formed by the
state in 1999, with project review and approval responsibility.
Specifics of implementing the projects were delegated to the state
agencies that generated the enhanced reimbursements. In some
cases, the state Medicaid agency and the steering committee
disapproved proposed projects because they did not comply with
Medicaid law or policy. For example, the consultant proposed that
two state agencies be allowed to bill for TCM for a particular
client in a given month. The state agency determined that this
proposal would result in an inappropriate duplicate billing and
chose to allow only one state agency to bill for TCM services per
client per month. In addition, although Georgia was not required
to notify CMS when a new project was developed by the state's
consultant-and generally did not do so because it believed the
authority to implement various projects was already included in
the state's existing approved Medicaid plan-on occasion, it sought
the advice of CMS's regional office about a project.
Despite Georgia's review of the consultant's proposed projects,
however, the state's oversight did not identify problems with some
of the projects we reviewed. For example, Georgia made several
changes in its rehabilitation program, including a change in how
payment rates to private facilities were calculated. As discussed
in the rehabilitation services section of this report, we believe
the revised rates were not in accord with requirements that
payments be consistent with efficiency and economy. CMS
officials-who had not been asked to approve the states' revised
rates-agreed, and during our review began an investigation to
determine the extent of the problem.
In Massachusetts, oversight for Medicaid reimbursement-maximizing
projects has been shared by the state Medicaid agency, which is
now in the Executive Office of Health and Human Services, and the
Office of the State Comptroller. The Medicaid agency is
responsible for ensuring that the state's claims for federal
reimbursement are consistent with federal requirements. The
Comptroller's office reviews and approves specific
reimbursement-maximizing projects proposed by the Medicaid agency,
manages the accounts that receive reimbursements generated by the
projects, verifies and pays the contingency fees, and reports
program results annually to the state legislature. The
Comptroller's review has focused on the financial implications of
proposals, more than on program implications. Recent state
legislation authorized the Medicaid agency to enter into
contingency-fee contracts with UMMS without the Comptroller's
prior approval and to pay contingency fees up to a ceiling of $30
million for state fiscal year 2005.
The Massachusetts Medicaid agency engaged UMMS to perform many
ongoing operational functions of its Medicaid program. In February
2004, when the Executive Office of Health and Human Services was
designated as the single state Medicaid agency, and staff of the
Medicaid and other state agencies were relocated under UMMS, UMMS
has assisted the state Medicaid agency in carrying out many of its
functions. UMMS in 2004 had major responsibilities for
administering significant operational aspects of the Medicaid
program, such as conducting program integrity and utilization
reviews48 and compiling the state's Medicaid claims for
school-based services, including ensuring the appropriateness of
such claims.49 At the same time, UMMS has also been paid
contingency fees by the state Medicaid agency for numerous
reimbursement-maximizing activities, such as those related to
school-based claims.
In addition to its agreements with the Massachusetts Medicaid
agency to operate portions of the Medicaid program, UMMS also
served as a contingency-fee consultant to other Massachusetts
entities to enhance federal Medicaid reimbursements. UMMS
officials told us that they have contracted on a contingency-fee
basis with about 86 of the state's 356 local school districts to
develop their school-based Medicaid administrative claims and with
about 75 local districts to develop school-based health services
claims. UMMS therefore administers significant operational aspects
of the state's system for school-based Medicaid services,
including overseeing the appropriateness of claims, and acts as a
contingency-fee consultant to prepare some of those claims for
some school districts.50 In audits of Massachusetts's claims for
school-based health services, HHS OIG cited inadequate oversight
by both the state Medicaid agency and UMMS. HHS OIG audited health
claims and administrative expenditures from eight school districts
and found improper claims in both categories.51 In our view, this
dual role-assisting with Medicaid program administration,
including quality control, and consulting with local school
districts on a contingency-fee basis-creates an appearance of
conflict of interest for UMMS, raising questions about UMMS's
incentives for ensuring that claims for federal Medicaid
reimbursement are appropriate.52
The oversight measures that Massachusetts Medicaid officials told
us they had in place to ensure that reimbursement-maximizing
claims compiled by UMMS were consistent with federal requirements
were insufficient to prevent inappropriate claims. The officials
told us, for example, that they relied on edits in the state's
Medicaid Management Information System-the computer system that
processes provider claims for payment-to ensure that the processed
Medicaid claims were allowable. According to the CMS financial
management officials who reviewed Massachusetts's claims, however,
claims from some reimbursement-maximizing projects were not
subject to computer-based edits. The officials estimated that
about 30 percent of the state's Medicaid claims, including some of
those for managed care and supplemental payments, are processed
off system-that is, not through the state's computerized Medicaid
Management Information System-and these off-system claims pose a
greater concern, they told us, because inaccuracies are more
common in them.
CMS did not routinely review projects in Georgia and Massachusetts
that used contingency-fee consultants and in fact was unaware of
some of the specific projects to increase federal reimbursements
that we reviewed. CMS oversight of such projects and the
associated claims was limited because the agency did not routinely
request that states indicate on state plan amendments or
expenditure reports whether consultants were involved in their
development. CMS officials told us they relied primarily on the
states to ensure that projects and claims were appropriate.
Although CMS surveyed its regional offices in fiscal year 2004 to
identify contingency-fee consultant projects by state, our work in
Georgia and Massachusetts identified more projects developed with
assistance from contingency-fee consultants than CMS's survey
reported. CMS officials told us that they became aware of
Georgia's contract with its consultant when a local newspaper
reported a dispute between the state and the consultant. CMS
officials overseeing the Massachusetts Medicaid program told us
they had not examined the relationships between the Medicaid
agency and UMMS, but they told us that during the time of our
review they had asked HHS OIG to investigate the appropriateness
of the state's Medicaid administrative claims, which included
those attributable to UMMS. HHS OIG's investigation was under way
when we completed our work.
CMS has stated that it lacks authority to require states to
disclose contingency-fee arrangements when states are not seeking
federal reimbursement for the fees. CMS officials clarified,
however, that they can request information about the assistance of
a contingency-fee consultant when agency officials are reviewing
state submissions such as state plan amendments, cost allocation
plans, or expenditure reports. Officials said that they did not
routinely request such information in conjunction with these
reviews. In Georgia and Massachusetts, we found CMS reviews
limited in the extent to which they identified concerns with
contingency-fee projects and associated claims in three areas:
o CMS review of state plan amendments: Because states' proposals
for changes to their state plans through amendments might be
general in nature, CMS may not have details to identify the
specific changes that would increase claims. Georgia, for example,
did not submit a state plan amendment about its project to
increase payment rates for rehabilitation services to children in
the state's juvenile justice and child protection systems because
it had concluded that it could change how it claimed Medicaid
reimbursement without changing the state plan section that
authorized the payments. When we discussed this example with CMS
officials, they told us that when a state's plan is broadly
written, the state may not always submit amendments to change the
plan provisions. The CMS officials told us that even in cases
where a contingency-fee consultant was involved in drafting a
state plan amendment-for example, to establish new coverage or
payment rates-they might not be aware of a consultant's
involvement because states do not routinely disclose this
information to CMS.53
o CMS review of cost allocation plans: As previously discussed,
Massachusetts did not submit a complete draft cost allocation plan
to CMS, reflecting its major reorganization, until December 2004.
As of April 2005, the revised cost allocation plan had not been
approved. CMS officials did not explain why Massachusetts was
allowed to continue claiming federal Medicaid reimbursement for
administrative costs on the basis of an outdated cost allocation
plan, other than to say that several other states did not have
current plans. Massachusetts's officials told us they did not
expect major changes as a result of the revised cost allocation
plan, but the extent of any changes cannot be verified until a
revised plan is approved.
o CMS review of Medicaid quarterly expenditure reports: Nothing
in the quarterly expenditure report indicates when a
contingency-fee consultant has assisted in developing specific
categories of claims, making it difficult to identify such claims.
CMS regional financial analysts responsible for reviewing
Massachusetts's expenditure reports told us that it was standard
practice to defer payment to allow further investigation of any
claims for new services when they knew that a consultant had been
involved.54 In such cases, they requested and analyzed further
information from the state. The ability of CMS regional officials
to identify potential problems with states' claims by analyzing
quarterly expenditure reports was limited. Regional CMS officials
responsible for Massachusetts told us they used standard trend and
variance analyses to review the reports and also conducted some
analyses of their own, but they were not confident that these
reviews were adequate to identify problems. CMS regional analysts
are able to conduct only a few focused reviews each year of
potential problems with states' claims identified through their
analyses of the quarterly expenditure reports, and, they told us,
random reviews are not feasible.55
In the CMS regional offices managing Medicaid claims from Georgia
and Massachusetts, available agency resources-especially in terms
of experienced analysts relative to the scale and variety of
claims-have constrained the conduct of financial reviews. Although
Georgia claims federal Medicaid reimbursements totaling
approximately $1.7 billion per quarter, CMS has had only one
financial analyst assigned to review those claims; for
Massachusetts, three CMS analysts are responsible for reviewing
quarterly claims of more than $2 billion.
Our work in Georgia and Massachusetts also identified an area
where consultants were advising states and where CMS does not have
any oversight mechanism. CMS does not review the payment rates
that state agencies other than the Medicaid agency bill to the
Medicaid program for services such as TCM. In Massachusetts, each
of the four non-Medicaid agencies providing TCM services developed
its own rate for billing the services to Medicaid, in some cases
with the assistance of the agency's consultant. In state fiscal
year 2004, these four agencies billed Medicaid a monthly fee for
TCM services that ranged from $178 per person in the Department of
Mental Retardation to $454 in the Department of Youth Services,
according to state officials. Although CMS approved a general
rate-setting provision as part of the original state plan
amendments for these agencies' case management services, the
actual payment amounts are generally reviewed and approved only by
a division of the Massachusetts Medicaid agency. CMS does not
review these state-approved payment amounts, and the HHS Division
of Cost Allocation reviews cost allocation plans related only to
administrative, not service, claims.
The concerns we identified with the appropriateness of states'
Medicaid claims stemming from contingency-fee projects illustrate
the urgent need to address the issues we have identified with
CMS's overall financial management of the Medicaid program.56 We
identified problems with claims in states other than Georgia and
Massachusetts that have undertaken reimbursement-maximizing
activities, without employing consultants, in categories of
long-standing concern, such as supplemental payment arrangements.
In March 2004, for example, when one state sought consultants for
reimbursement-maximizing services for Medicaid and other programs,
the proposed scope of work specifically excluded activities that
the state already had under way, including Medicaid UPL claims,
school-based administrative and service claims, eligibility for
foster children, and TCM services.57 CMS and HHS OIG officials in
the Atlanta regional office told us about reimbursement-maximizing
projects in two states in the region that were developed without
the use of consultants.
CMS relies on its standard financial management controls to
identify or correct any unallowable Medicaid claims that states
may submit, including those that might be associated with
reimbursement-maximizing contingency-fee projects. In assessing
the appropriateness of claims generated from contingency-fee
projects in Georgia and Massachusetts, we found other examples of
potentially unallowable claims that CMS's financial management
controls had failed to uncover. For example, when we discussed
Georgia's contingency-fee project for rehabilitation services, CMS
officials not only agreed with our assessment that the additional
reimbursements from the project were inconsistent with federal
law, but also identified concerns about whether the state agencies
and facilities were qualified providers, cost estimates were
appropriate, and all services were covered by Medicaid.58
Similarly, we identified Medicaid billing concerns in
Massachusetts that did not stem from the contingency-fee projects:
o One state agency-the Department of Mental Retardation, which
was not assisted by a contingency-fee consultant-was billing
Medicaid for TCM services without appropriate documentation.
According to department officials, the agency automatically bills
Medicaid a monthly fee of $178 for each Medicaid-eligible
beneficiary in its TCM caseload. The department does not verify
its billing records with its case managers' records to ensure that
each beneficiary received a covered service each month. Automatic
billing for case management services is not allowed under
Medicaid: to claim federal reimbursement, states must document a
specific service delivered on a specific date.59 The Department of
Mental Retardation received about $19 million in federal
reimbursement for its TCM claims in 2004, according to state
officials. In commenting on a draft of this report, state
officials acknowledged that contacts with clients do not
necessarily occur each month and that the Department of Mental
Retardation's billing for TCM was an area for improvement.
Officials said that a new management information system planned
for state fiscal year 2006 would allow electronic documentation of
contacts with clients and automated verification during the
billing process.
o Three other Massachusetts agencies-the Departments of Social
Services, Youth Services, and Mental Health-billed Medicaid for
TCM services even though the agencies could have been serving some
of the same beneficiaries. A foster child served by the Department
of Social Services, for example, could also be a juvenile offender
served by the Department of Youth Services. State Medicaid
officials permitted each state agency to bill Medicaid for TCM
services and told us they did not consider this practice duplicate
billing, because they believed the agencies provided different
services. The officials told us that the CMS-approved state plan
amendments authorizing TCM services for these agencies would show
that the services differed. Our review of the documents provided
by state officials, however, showed that for two agencies, the TCM
service descriptions were identical60 and for all four agencies,
including the Department of Mental Retardation, the service
descriptions were similar.61 State officials acknowledged that
overlap in eligibility occurred among the agencies but said they
were unaware of the number of Medicaid beneficiaries for whom two
or more TCM services were claimed per month or the amount of
reimbursements claimed for those beneficiaries. In Georgia, in
contrast, only one agency is allowed to bill for TCM services in a
given month for a given beneficiary.
CMS lacks clear, consistent policies to guide the states' and its
own financial oversight activities. Furthermore, CMS officials
have expressed concerns about the agency's ability to review
states' activities in all high-risk areas that the agency has
identified. We found that CMS has known for some time that two
high-risk categories we identified-claims generated from
consultants paid on a contingency-fee basis to maximize
reimbursements and claims generated from arrangements where state
Medicaid programs are paying other state agencies or government
providers-were problematic. For example, CMS had listed these two
categories on a financial tracking sheet of high-risk areas as of
2000.62 At an October 2003 congressional hearing, the CMS
Administrator expressed concern that the Medicaid program was
understaffed and that consultants in the states were "way ahead
of" CMS in helping states take advantage of the Medicaid system.63
CMS has undertaken several important steps to improve its
financial management of the Medicaid program. A major component of
the agency's initiative is hiring, training, and deploying
approximately 100 new financial analysts, mainly to regional
offices. These analysts will be responsible for identifying state
sources of Medicaid funding and contributing to the review of
state budget estimates and expenditure reports. As of April 2005,
CMS reported that 85 new financial analysts had been hired for the
regions, and 10 new analysts were on duty in the central office.
According to CMS, the new analysts have received initial training
in the central office; two meetings per year are planned to bring
all new analysts together for continuing education; and monthly
conference calls take place with all new analysts and regional and
central office officials. In addition, each region has its own
conference call every 2 weeks with officials of CMS's new Division
of Reimbursement and State Financing. This new division, which was
created in January 2005 to centralize and coordinate federal
oversight of Medicaid reimbursement and financial issues,
comprises the two nationwide review teams for state plan
amendments and the 10 new central office funding specialists.
Expectations for the new division and its analysts are high and
their responsibilities broad; it is too soon, however, to assess
their overall accomplishments.
Because of its size, complexity, and federal-state structure, the
Medicaid program has been subject to waste, abuse, and
exploitation. Our work has found that projects developed by
consultants who are paid a fee contingent upon additional federal
reimbursements that they generate pose a financial risk to the
program. It is not possible, however, to quantify the magnitude of
this financial risk, because CMS does not routinely request
information regarding states' use of contingency-fee consultants
to assist with reimbursement-maximizing projects and associated
claims.
Reimbursement-maximizing projects have generated huge
reimbursements for states-more than $2 billion in total over a
5-year period for the two states we reviewed. Large reimbursements
such as these place heavy responsibility on CMS to monitor the
many complex financing arrangements and claims arising from
contingency-fee consultants' reimbursement-maximizing activities.
The concerns we have identified with claims from consultants'
projects and concerns with states' submitting claims that have not
been reflected in state plan amendments and cost allocation plans
illustrate the urgent need for CMS to address certain issues in
its oversight of states' contingency-fee consultant projects and
in its overall financial management. In addition, many of the
problematic financing arrangements we examined involved payments
to units of state and local government-which states have long used
to maximize federal Medicaid funding-suggesting that greater CMS
attention is needed to payments among these units, regardless of
whether consultants are involved.
For more than a decade, we have reported on the various methods
some states have used to inappropriately maximize federal Medicaid
reimbursement and have made recommendations to end such schemes.
CMS has taken several steps to respond to our recommendations and
to address other issues it has identified, including taking steps
to hire 100 new financial analysts and developing budget proposals
for fiscal year 2006 to clarify policies for allowable claims in
several high-risk areas. Nevertheless, specific proposals have not
yet been set forth, approved, or implemented. We continue to
encourage CMS to take steps to identify and curb opportunistic
financing schemes before they become a staple of state financing,
and further erode the integrity of the federal-state Medicaid
partnership, and to do so in a manner that ensures that policies
are clear and consistently applied. With regard to specific
projects we examined for this report, we commend CMS and HHS OIG
for steps they have taken to examine claims from these projects,
including the potential for identifying unallowable claims that
may involve recovery of federal funds. In addition, addressing our
prior recommendations to Congress and CMS that remain open could
also help resolve some of the issues identified in this report.
o Because states continue to take advantage of financing schemes
relying on payments to units of state and local government, we
believe that our earlier recommendation to Congress-to prohibit
Medicaid payments to government providers that exceed their
costs-is still valid and would help safeguard federal Medicaid
funds.64
o Because states, often with the assistance of consultants,
continue to make illusory payments by establishing excessive UPL
payment arrangements, we reiterate three earlier recommendations
that remain open: that the Administrator of CMS (1) establish
uniform guidance for states, setting forth acceptable methods to
calculate UPLs; (2) expedite financial management reviews of
states with UPL arrangements;65 and (3) improve state reporting on
these arrangements.66
States should not be held solely responsible for inappropriately
seeking reimbursements where policies have not always been clear
or clearly communicated. Although CMS has taken steps in recent
years to minimize the federal financial risk involved in
inappropriate financing schemes, the agency must also ensure that
its policies are clear and consistently applied across states.
Otherwise, CMS is at risk of treating states inconsistently and of
placing undue burdens on states to comply. Because of the
potential for a significant financial impact on states that may
have relied on excessive federal funding for certain services,
those states found out of compliance with CMS policy may need to
be granted a transition period for coming into compliance with
clarified CMS requirements.
To improve CMS's oversight of projects involving contingency-fee
consultants and any associated claims for federal Medicaid
reimbursements, we recommend that the Administrator of CMS take
the following two actions:
o Routinely request that states disclose their use of
contingency-fee consultants when submitting state Medicaid
documents, such as state plan amendment proposals, cost allocation
proposals, and expenditure reports, and, in the event that states
do not voluntarily provide this information, seek legislative
authority to require disclosure.
o Enhance CMS review of state Medicaid documents for which states
have used a contingency-fee consultant and take appropriate action
to prevent or recover federal reimbursements associated with
unallowable claims.
To strengthen CMS's overall financial management of state Medicaid
activities, we recommend that the Administrator of CMS take the
following five actions:
o Require that states identify-in Medicaid-related documents such
as state plan amendments and expenditure reports-arrangements or
claims for payments that involve payments to units of state or
local government, such as state- and local-government-owned or
-operated facilities.
o Enhance CMS review of states' Medicaid documents, such as state
plan amendments, cost allocation plans, and expenditure reports,
specifically reviewing payments states make to units of
government, including the methodology behind payment rates to
government units and the basis for any related claims, and take
appropriate action to prevent or recover unallowable claims.
o Establish or clarify and then communicate CMS policies on TCM,
supplemental payment arrangements, rehabilitation services, and
Medicaid administrative costs and ensure that the policies are
applied consistently across all states.
o Ensure that states submit cost allocation plans as required and
establish a procedure for their prompt review.
o On the basis of the findings of this report regarding specific
projects and billing practices, follow up with states' associated
claims and recover federal reimbursements of unallowable claims as
appropriate in Georgia and Massachusetts.
We provided a draft of this report for comment to CMS, Georgia,
and Massachusetts. Each provided written comments, which we
summarize and evaluate below.
CMS commented that the draft report did not accurately reflect the
many activities the agency has taken to address the issues raised
in the report and that recommendations in the report have already
substantially been met. CMS believes that many of the problems
that the draft report highlighted, including those with the
projects in the five high-risk categories of claims that we
selected to review in Georgia and Massachusetts, were already
known to CMS as problematic. For example, CMS said that the five
high-risk categories we cited were highlighted in the President's
budget for fiscal year 2006 as areas in need of reform. CMS
discussed many steps it had taken in recent years to improve the
financial management of Medicaid, which it said were omitted from
the report. Although CMS stated that federal dollars have been
supplanting state dollars and that the Medicaid program is
unquestionably paying for things it should not pay for, the agency
also said it was addressing this problem through work with
individual states to reach agreements to ensure use of appropriate
financing mechanisms and to end inappropriate ones.
We acknowledge that CMS has taken important actions in recent
years to improve the financial management of Medicaid. We believe
our draft report recognized these efforts, including CMS's
creation of the central financial review body called the Division
of Reimbursement and State Financing, and on the basis of CMS's
comments, we have added further information to the report. We also
acknowledge that we selected the two states in our review, Georgia
and Massachusetts, because of the wide variety of contingency-fee
projects in these states that CMS's survey had identified,
including projects in areas where claims were thought to be at
high risk or growing in dollar amounts in recent years. Although
CMS suggested that the scope of our work was limited to these two
states, we did draw upon our prior work and that of HHS OIG to
extend our findings. Moreover, we believe that conducting detailed
work in two states helped us identify systemic issues extending
well beyond these two states. We further note that we established
the scope of our work, including areas we considered to be high
risk, before publication in 2005 of the President's fiscal year
2006 budget that reflected CMS's initiatives for improving its
policy in these same high-risk categories of claims. We believe
this nexus of our work and CMS's stems from our shared objective
of protecting Medicaid's fiscal integrity. At the same time, we
also note that we have raised concerns about certain inappropriate
financing methods in these high-risk areas for many years, that
some prior recommendations remain open, and that problems remain.
In addition to the important steps CMS has taken in recent years
to improve its policies and oversight, we believe that more can
and should be done to better ensure the program is operating as
Congress intended-that is, as a shared federal-state partnership
providing health care resources for covered services for eligible
beneficiaries.
CMS also commented on our specific recommendations, and these
comments are summarized, along with our response, below.
o Regarding our recommendations for improved agency oversight of
states' use of contingency-fee consultants, CMS stated that it
does not have authority to require states to disclose their use of
contingency-fee consultants, although it believes it can request
such information. Consequently, we have adjusted our
recommendation to suggest that CMS routinely request, rather than
require, that states disclose such information, and seek
legislative authority to require such disclosure if states do not
do so. CMS also stated that it recognizes that contingency-fee
consultants are a potential risk factor and that it is committed
to fully assessing the basis for claims in accordance with all
relevant requirements.
o Regarding our recommendations that CMS take certain steps to
improve its overall financial management of state Medicaid
activities, including taking certain steps to improve oversight of
states' claims for payments made to units of government, CMS
discussed its initiative started in August 2003. Under this
initiative, CMS requests information from states on their
financing methods and terminates those that the agency deems are
not consistent with the statutory federal-state financial
partnership. CMS said that, as of June 10, 2005, 23 states had
agreed to terminate one or more financing practices. Although our
draft report acknowledged that CMS had undertaken this effort, we
have added further information to the report about CMS's
initiative. We maintain, however, that CMS's current
state-by-state approach to reviewing states' financing methods-by
examining them when states submit proposed state plan amendments
and obtaining agreement from states to end them-does not ensure
that its policies are clear to states or are consistently applied.
For example, a state's financing methods may not be reviewed if
the state does not submit a proposed state plan amendment. We
maintain our position and associated recommendations that CMS do
more to clarify, communicate, and consistently apply its policies
regarding areas that both CMS and we have identified as high risk.
o Regarding our recommendation that CMS establish or clarify and
communicate its policies on TCM, supplemental payment
arrangements, rehabilitation services, and Medicaid administrative
costs and ensure that the policies are applied consistently across
states, CMS responded that the fiscal year 2006 President's budget
proposals would do so. Our draft report acknowledged these
proposals but also noted that the specific proposals had not been
released as of June 2005. In the absence of concrete proposals and
actions to implement them, we believe our recommendation remains
valid.
o Regarding our recommendation that CMS ensure that states submit
cost allocation plans as required, CMS cited existing requirements
for states to submit cost allocation plans. CMS's comments were
not fully responsive because our recommendation did not address
the need to develop new requirements but to ensure compliance with
existing requirements. We therefore maintain this recommendation.
Regarding our recommendation from prior work that Congress
prohibit Medicaid payments to government providers that exceed
their costs, CMS noted that it included this proposal in the
President's fiscal year 2006 budget. Regarding our prior
recommendation that CMS take steps to improve its oversight of
states' UPL arrangements, CMS noted its current state plan
amendment review process and its financial management review plan
for fiscal year 2005 to review high-risk UPL arrangements as
examples of how it has already responded to our prior
recommendations. Our draft report described CMS's proposal, which
parallels the recommendation we made to Congress in 1994,67 and
CMS's initiative. We revised the report to acknowledge CMS's plans
to implement our earlier recommendation to review high-risk UPL
arrangements and note that not all specific recommendations have
been implemented.
Regarding our discussion in the draft report about our
recommendation from prior work that CMS should more effectively
and efficiently target oversight resources toward areas most
vulnerable to improper payments, CMS strongly disagreed that its
current approach is not effective, and it listed numerous actions
it has taken since our 2002 report making these recommendations.
We agree that CMS has taken numerous actions since 2002. Because
we have an ongoing review of CMS's financial management of
Medicaid related to our 2002 report findings, we revised the
report to remove references to our earlier recommendations.
See appendix III for CMS's written comments.
Georgia and Massachusetts commented on the importance of
contingency-fee contracts and states' use of consultants in
helping states secure resources they otherwise would not have.
Massachusetts commented that seeking federal resources for people
in need when those resources are lawfully available is the
fiscally responsible thing for states to do. The state noted that
nothing in law prohibits contingency-fee contracts and that in
themselves, "contingency-fee contracts do not let states off the
hook for determining what is and what is not appropriate under
Medicaid." Georgia commented that the complexity of the Medicaid
program can and does compel states to turn to expert consultants
for assistance and said that the report inaccurately suggests that
states' use of contingency-fee consulting is somehow illegitimate.
We acknowledge that use of contingency-fee contracts is allowed
under law and that states can employ consultants for a number of
valid Medicaid purposes, and our report has made these points. Our
key findings, however, focus on the need to ensure that financing
methods and associated claims that stem from contingency-fee
projects are consistent with federal law, policy, and the fiscal
integrity and federal-state partnership of the Medicaid program.
Our work identified concerns with claims from contingency-fee
projects that were problematic in these respects.
The two states also commented that the language of the law related
to coverage of the categories of claims we
reviewed-rehabilitation, targeted case management, Medicaid
administration, school-based services, and supplemental
payments-is broad or complex, and they suggested that they have
made good-faith efforts to comply with ever evolving federal
regulations and policy. Both states believe that their claims
comply with the law. Regarding claims for payments made above what
the state was paying individual facilities for rehabilitation
services, Georgia indicated that one specific example we provided
was an exceptional case. Nevertheless, when we sought
clarification from the state on its comments, the state's
explanation did not address our overall concern about the
underlying method for setting Medicaid payment rates. We revised
the report to reflect the state's comments and our continuing
concern. Massachusetts noted that little in the way of regulation
narrows the broad definitions in federal law of covered services;
that the state's definitions of what Medicaid covers within the
categories of claims we reviewed fall within long-standing federal
interpretations; and that GAO's finding the state's definitions
questionable does not make them illegal or improper.
Massachusetts agreed with our conclusion that CMS policy in many
of the areas that we reviewed has been unclear, either because it
has been inconsistently applied, evolving, or is not specific. At
the same time, although most methods and resulting claims we
question may not be illegal, we believe they are inconsistent with
the program's federal-state cost-sharing design, fiscal integrity,
or with current CMS policy. For example, some methods used by
states, in our view, in effect increase the federal share of the
Medicaid program beyond what has been established by a formula in
law and are therefore inappropriate. In the report, we clarified
the basis for our concerns about problematic projects and
associated claims we identified.
Georgia's and Massachusetts's written comments, and our more
detailed responses, appear in appendix IV and appendix V,
respectively. State officials also provided us with technical
comments, which we have incorporated as appropriate.
As arranged with your office, unless you publicly announce the
contents of this report earlier, we plan no further distribution
of it until 30 days after its issue date. At that time, we will
send copies of this report to the Secretary of Health and Human
Services, the Administrator of the Centers for Medicare & Medicaid
Services, and other interested parties. We will also make copies
available to others upon request. In addition, the report will be
available at no charge on the GAO Web site at http://www.gao.gov .
If you or your staff members have any questions, please contact me
at (202) 512-7118. Another contact and major contributors are
included in appendix VI.
Sincerely yours,
Kathryn G. Allen Director, Health Care Issues
This appendix addresses three contingency-fee projects that we
included in but could not fully assess during the time frames of
our review. On the basis of the information we obtained during our
review, we believe that separate studies of these three projects
are warranted. We have referred information about these projects
to the Centers for Medicare & Medicaid Services (CMS) and
Department of Health and Human Services' (HHS) Office of Inspector
General (OIG) for additional review.
In addition to the projects discussed in this report, the
University of Massachusetts Medical School (UMMS) helped
Massachusetts develop two supplemental payment arrangements to
increase federal reimbursements. One project involved supplemental
financing known as disproportionate share hospital (DSH)
arrangements, and one involved federal Medicaid reimbursement for
medical services to inmates of state correctional facilities.
States are required to make DSH payments to hospitals that care
for a disproportionate number of low-income patients. By statute,
hospitals qualifying for DSH payments are subject to a limit on
the amount of supplemental DSH payments they may receive.1 As with
upper payment limit (UPL) arrangements, supplemental payments made
to government providers through DSH arrangements can be illusory:
that is, the state can benefit from the arrangements by appearing
to pay the providers more than they ultimately retain and seeking
federal reimbursement on the excessive payments. In part because
of concerns that large DSH payments were not being used to support
certain hospitals but were instead being used for general state
financing, Congress passed legislation in 1993 and 1997 to
restrict states' ability to make excessive DSH payments.2 After
these restrictions were put in place, combined state and federal
DSH payments declined, totaling approximately $14 billion in
fiscal year 2003, down from $16 billion in fiscal year 1999.
One Massachusetts contingency-fee project helped the state
increase DSH supplemental payments made to four state-owned
hospitals. Massachusetts's consultant developed projects to take
advantage of a temporary DSH increase-which increased federal
reimbursements by an estimated $17 million annually. The
consultant calculated new DSH limits under the federal rules,3
which allowed temporary payments up to 175 percent of unreimbursed
costs. To increase the amount of DSH payments the state could make
to each hospital, the consultant also helped the state reduce its
standard Medicaid payment rates for services provided in these
hospitals. This action increased the amount of supplemental
payments that the state could make and potentially require the
hospitals to return.
A second project involved helping Massachusetts to increase
federal Medicaid reimbursements for medical services to inmates of
state correctional facilities. Payment records indicated that in
state fiscal year 2002, the state Medicaid agency paid UMMS nearly
$300,000 (a contingency fee of 6 percent of about $5 million in
additional federal Medicaid reimbursement) for its work on the
project. Generally, medical care for prison inmates is not covered
by Medicaid.4 HHS OIG reported that a contingency-fee consultant
in another state, New Jersey, had prepared inappropriate claims
that New Jersey used to obtain federal reimbursement for DSH
claims for state prisoners.5 Over a 4-year period, New Jersey
inappropriately claimed more than $11 million in federal Medicaid
reimbursements for DSH payments made on behalf of prisoners. HHS
OIG determined that these payments were unallowable because the
state's Medicaid plan specifically prohibited DSH payments for
inmate hospital care. Because medical care for prison inmates can
be covered by Medicaid under certain circumstances, we sought
additional information from Massachusetts officials to determine
if Massachusetts's arrangement was allowable, but we did not
receive information within the time frames of our review.
In addition to the contingency-fee projects in Georgia discussed
in this report, Georgia's consultant also helped the state seek
additional federal reimbursements for administrative costs. In
particular, the state Medicaid agency began claiming federal
reimbursement for the costs of certain activities carried out by
county public health departments. Using a rate developed by the
consultant, the Medicaid agency claimed reimbursement for the
costs of a variety of health department activities serving the
public, including school-based presentations, presentations to
community groups, mass health screening events, public information
campaigns, and events mobilizing community partnerships.6 Costs
associated with general health education programs promoting
healthy lifestyles are not allowable under Medicaid, even if a
portion of the participants served by the program are on Medicaid.
The state's description of the activities for which claims were
made raised questions, but we did not receive information we
needed within the time frame of our review to make a full
assessment.
Because we believe that separate studies of these three projects
would be required to assess their appropriateness, we have
referred information about these projects to CMS and HHS OIG for
additional review.
The Department of Health and Human Services' (HHS) Office of
Inspector General (OIG) has completed reviews of school-based
claims in 18 states from November 2001 through June 2005. Although
these reviews were not specifically targeted at the role of
consultants paid on a contingency-fee basis, several of the
reports found concerns with the appropriateness of claims from
consultants' projects (see table 4). In fiscal year 2005, HHS OIG
initiated a review specifically of consultants' contingency-fee
projects in all categories of claims.
42A CMS Administrator's decision denying a proposed state plan amendment
from Maryland to cover TCM services articulated criteria that CMS has
applied to evaluate state TCM plan amendments. See CMS, Dsapproval of
Maryland State Plan Amendment No. 0205, Docket No. 2003-02 (Aug. 27,
2004).
43A CMS official stated that the agency's most recent guidance on TCM,
issued in January 2001, contained problems and errors that caused
confusion regarding appropriate TCM claims when non-Medicaid state
agencies were involved.
44The CMS Administrator's performance budget for fiscal year 2006 proposes
to clarify allowable TCM services and align federal reimbursement for TCM
services with an administrative matching rate of 50 percent. CMS estimates
5-year budget savings of $1 billion from reducing the reimbursement for
TCM to the administrative matching rate.
45In commenting on a draft of this report, CMS said that 23 states had
agreed to terminate one or more financing practices that increased the
federal share of the cost of providing Medicaid services, effective with
the end of their state fiscal year 2005. CMS had identified an additional
10 states with similar financing mechanisms that are in the process of
terminating such arrangements. Assessing the provisions of CMS agreements
with individual states is part of an ongoing GAO review.
46The budget proposes to build on CMS's efforts to curb questionable
financing practices by (1) recovering federal funds claimed for covered
services but retained by the state and (2) capping payments to government
providers at no more than the cost of furnishing services to Medicaid
beneficiaries. CMS estimates 5-year budget savings of $5.9 billion from
this proposal. GAO has recommended since 1994 that Congress consider
legislation to prohibit Medicaid payments to government providers that
exceed the providers' actual costs. See GAO, Medicaid: States Use Illusory
Approaches to Shift Program Costs to Federal Government, GAO/HEHS-94-133
(Washington, D.C.: Aug. 1, 1994).
Limited State and CMS Oversight of Claims from Contingency-Fee Projects Raises
Concerns about Medicaid Financial Management
States Have Taken Some Steps to Ensure Appropriate Claims, but Problems Remain
47The CMS Administrator's budget for fiscal year 2006 further clarifies
CMS's concern that states have attempted to shift costs associated with
other social service programs to Medicaid. The budget proposes to clarify
allowable services that may be claimed as rehabilitation. CMS estimates
5-year budget savings of $2 billion from its proposal to clarify allowable
TCM and rehabilitation services. See the Centers for Medicare & Medicaid
Services' performance budget for fiscal year 2006.
48State Medicaid agencies are required to implement program integrity and
utilization reviews to ensure the proper and efficient administration of
their programs by preventing, detecting, and controlling fraud and abuse.
Program integrity reviews focus on ensuring the accuracy of payments to
providers, including detection and recovery of overpayments that may
result from billing errors, failures in computerized claims processing
systems, or fraud. Utilization reviews generally include surveillance and
analysis of Medicaid service-use patterns to ensure that the services are
used appropriately, according to the state Medicaid plan, and that
beneficiaries are not receiving either too many or too few services.
49Among several provisions in the interdepartmental services agreement for
school-based services, UMMS agreed to "[e]stablish and maintain procedures
for claiming medical service costs related to Medicaid spending at local
schools"; "establish and maintain procedures for claiming costs at local
schools associated with the administration of the Medicaid program";
"review and perform quality-control measures on local school cost
information, prior to the compilation of such data for the quarterly
submission to CMS"; and "make quarterly policy and program recommendations
to EOHHS for the school based provider group."
50Under its agreement to administer the state's school-based services
program, UMMS is responsible for establishing procedures and training
district staff, reviewing and submitting claims, and compiling
administrative costs. For this work, UMMS is paid a contingency fee of 1
percent of federal reimbursements generated, up to $950,000 per fiscal
year, and it is reimbursed for 50 percent of its costs via the state's
Medicaid administrative claims.
CMS Has Limited Oversight of Contingency-Fee Projects and Associated Claims
51See HHS OIG A-01-02-00009 (July 14, 2003), and HHS OIG A-01-02-00016
(Sept. 15, 2004).
52We identified another potential concern, outside the scope of our
review, related to UMMS subcontracts with an organization with which UMMS
officials were affiliated. Three UMMS officials sit on the boards of
directors of two related nonprofit corporations. In state fiscal years
2003 and 2004, UMMS paid one of these related corporations more than $2.4
million for subcontracted work. We notified CMS regional officials of our
concerns.
53Another problem with state plan amendment reviews, which CMS has taken
steps to rectify, arose because regional offices used to have
responsibility for reviewing and approving state plan amendments, and
review criteria were not always consistently applied among the regional
offices. Since July 2002, CMS has taken several actions to centralize its
reviews and approvals of many state plan amendments.
54The officials also told us that since 2004, any deferrals of claims must
be approved by the CMS central office.
55When regional CMS officials identified an area of concern, they told us
they typically referred it to the regional OIG office for in-depth audit;
each regional office can conduct only a few focused reviews each year to
quickly assess the nature and scope of potential problems.
Problems Illustrate Need to Improve the Financial Management of Medicaid
56See, for example, GAO, Medicad Financal Management Better Oversight of
State Caimsfor Federal Reimbursement Needed, GAO-02-300 (Washington, D.C.:
Feb. 28, 2002). This report found that CMS's systems for financial
oversight of state Medicaid programs were limited. We recommended a range
of approaches to strengthen internal controls and target limited
resources, including that CMS revise its existing risk-assessment efforts
to more effectively and efficiently target oversight resources to areas
most vulnerable to improper payments. An ongoing GAO review is assessing
CMS's progress in implementing related recommendations. Also, in a 2004
report on state financing schemes (see GAO-04-228 ) we recommended that
CMS improve oversight of state UPL projects, including issuing guidance to
states and setting forth acceptable methods to calculate UPLs. These
recommendations remain open.
57See The State of Arizona Request for Proposals for Revenue Maximization
Services, Solicitation # AD040501, as amended,
https://spirit.az.gov/applications/spirit./pro.nsf/
docnum/adsm-5xfr40?open (downloaded May 20, 2005).
58Federal Medicaid reimbursements to the state in fiscal year 2003 for
these services totaled about $38 million.
59Documentation for TCM claims must include the date of service; name of
recipient; name of provider agency and person providing the service;
nature, extent, or units of service; and place of service. See Section
4302.2 (L) of the State Medicaid Manual.
60Specifically, the state plan sections for both the Department of Youth
Services and the Department of Social Services defined TCM services in
exactly the same language to include the following case manager
activities: "collection of assessment data; development of an
individualized plan of care; coordination of needed services and
providers; home visits and collateral contacts as needed; maintenance of
case records; and monitoring and evaluation of client progress and service
effectiveness." (Collateral contacts include family members and others
involved in the beneficiary's care.)
61For example, all four state agencies covered TCM services whose purpose
was facilitating clients' access to services, conducting assessments or
collecting assessment data, and monitoring and evaluating client progress.
62In 2001, CMS asked each regional office to complete a risk assessment to
identify the extent to which states in each region had attributes
warranting closer CMS financial oversight and scrutiny. The identified
risk factors that regional staff were asked to assess included areas where
federal policy was unclear, states' use of a contingency-fee consultant to
maximize reimbursements, and payments to public providers in which state
Medicaid agencies may lack an incentive to monitor and control
expenditures. Regional officials were to base their assessment of these
and other risk factors on their working knowledge of each state.
Conclusions
63Thomas Scully, Administrator, CMS, responding to questions at a hearing,
Chalenges Facing the Medicad Program in the 21s Century: Hearng before the
Subcommee onHealth, House Commee on Energy and Commerce, 108th Cong., 1st
Sess., Oct. 8, 2003.
64 GAO/HEHS-94-133 .
Recommendations for Executive Action
65In commenting on a draft of this report, CMS said that its fiscal year
2005 work plan includes plans to conduct many of these reviews.
66 GAO-04-228 .
Agency and State Comments and Our Evaluation
CMS's Comments and Our Evaluation
State Comments and Our Evaluation
67See GAO/HEHS-94-133 .
Appendix I: Description of Contingency-Fee Projects Referred for
Additional Review Appendix I: Description of Contingency-Fee Projects
Referred for Additional Review
1DSH payments were an early Medicaid payment area subject to inappropriate
state financing arrangements. As in UPL arrangements, states made
unusually large DSH payments to certain hospitals, which then returned the
bulk of the payments to the states. In response to these arrangements,
Congress capped the amount of DSH payments that each hospital could
receive and limited the total amount of DSH payments that each state could
make to all hospitals. See 42 U.S.C. 1396r-4(f) and (g) (2000).
2Omnibus Budget Reconciliation Act of 1993, Pub. L. No. 103-66, S: 13621,
107 Stat. 312, 629-32; Balanced Budget Act of 1997, Pub. L. No. 105-33, S:
4721, 111 Stat. 251, 511.
3In 2000, Congress generally increased the DSH limit for certain hospitals
from 100 percent to 175 percent of unreimbursed costs, for a 2-year period
effective as of state fiscal years beginning after September 30, 2002. See
Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act,
Pub. L. No. 106-554, App. F, S: 701(c), 114 Stat. 2763A-463, 2763A-571.
4See 42 C.F.R. 435.1008(a)(1).
5HHS OIG, Review of Acute Care Hospita Prison Inmate Expenditures Claimed
by New Jersey to the Dsproportionate Share Hospital Program for the Period
July 1, 1997, through June 302001, A-02-02-01028 (Washington, D.C.: Jan.
9, 2004).
6We earlier reported a similar concern related to school-based services.
In reviewing states' approaches to billing for school-based services, we
found that CMS (then called the Health Care Financing Administration, or
HCFA) had found states inappropriately seeking Medicaid reimbursement for
school-based activities, including general health screenings,
communication with families, and staff training. HCFA interviews with a
sample of staff who had charged their time to these activities showed that
staff members did not know what Medicaid covered, where or how to apply
for Medicaid, or who might qualify for coverage. See GAO/HEHS/OSI-00-69 .
We have also reported a concern that provider payments for school-based
services in several states were not specifically linked to the receipt of
services because claims for reimbursement were triggered simply by school
attendance. See GAO, Medicaid in Schools Poor Oversight and Improper
PaymentsCompromise Potentia Benefit, GAO/T-HEHS/OSI-00-87 (Washington,
D.C.: Apr. 5, 2000).
Appendix II: Summary of Selected HHS OIG Reports on School-Based Claims in
States Employing Consultants Appendix II: Summary of Selected HHS OIG
Reports on School-Based Claims in States Employing Consultants
Table 4: Selected States' Consultant Projects Leading to Improper
School-Based Medicaid Claims, as Reported by HHS OIG
Source: GAO based on HHS OIG information.
aCMS subsequently disallowed $1.2 million in unallowable claims.
Appendix III: Comments from the Centers for Medicare & Medicaid Services
Appendix III: Comments from the Centers for Medicare & Medicaid Services
Now page 44.
Now pages 20 and 21.
Now page 44.
Now page 43.
Now page 40.
Now page 33.
Now pages 24 to 27.
Now page 21.
Now page 45.
Now page 46.
Now page 46.
Now page 46.
Now pages 44 and 45.
Appendix IV: Comments from the State of Georgia and GAO's Response
Appendix IV: Comments from the State of Georgia and GAO's Response
The following is our response to the State of Georgia's comments.
GAO's Response to the State of Georgia's Comments
Our responses to Georgia's comments are numbered below to correspond with
the state's various points (reproduced on pp. 67-69). Georgia generally
stated that (1) the state's claims for targeted case management (TCM),
rehabilitation services, and supplemental payments were made under state
plan provisions approved by the Centers for Medicare & Medicaid Services
(CMS) and (2) we incorrectly concluded that the state used federal funds
generated from reimbursement-maximizing projects to pay consultants. We
have revised the draft to indicate that claims were made under approved
state plans. Also, we noted in the draft report that Georgia complied with
federal requirements in that it did not claim federal reimbursement for
the contingency-fee payments. As discussed below, however, state documents
indicated that additional federal funds generated by
reimbursement-maximizing projects were the source of the state's
contingency-fee payments to its consultant.
The state provided us with specific comments in five areas, which we
summarize and respond to as follows:
1. Georgia commented that we were incorrect in contending that CMS
can or should disallow Medicaid claims for TCM because they are an
integral part of other state programs. Georgia stated that a
statute provides that CMS may not deny payment to a state on the
basis that the state was paying for the services from nonfederal
funds, and it also said that CMS had approved Georgia's state plan
amendment to cover these services. We based our evaluation of
Georgia's TCM claims on CMS's current policy, including the
agency's actions in disallowing TCM claims or state plan
amendments in other states, and we have focused our concerns on
the inconsistent application of CMS's TCM policy. In applying this
policy, CMS had considered arguments similar to those raised by
Georgia, and the CMS Administrator's decision (September 2004)
upheld the application of CMS's current TCM policy. Although we
did not evaluate the legal basis for CMS's TCM policy, we maintain
our position that CMS's policy should be clarified and
consistently applied among states.
2. Regarding rehabilitation services, Georgia stated that it has
not and is not asking for federal matching funds in excess of
costs. We disagree. We found that in some cases the state
agencies' claims to Medicaid were based on facilities' costs
exceeding the agencies' actual payments to individual facilities.
This situation resulted from the agencies' decision to base claims
for payment on the facilities' estimated costs, rather than on the
per diem rate they paid to these facilities. According to the
state, one example described in the report of a Medicaid claim
that exceeded payments to the facility for all services, was an
exceptional circumstance. The state also indicated that this
inadvertent practice was ended for all facilities as of April 1,
2004. Although we sought clarification from the state on its
comments, the state did not address our finding that the
underlying methods for setting Medicaid payment rates was flawed.
3. Regarding supplemental payments, Georgia asserted that it has
historically administered its upper payment limit (UPL) program in
compliance with existing federal regulations and also stated that
it has agreed with CMS to change the financing of its UPL programs
beginning in state fiscal year 2006. The state said that, as of
July 2005, it will no longer continue the practice we described in
our draft report. We revised the report to reflect the state's
agreement with CMS regarding the state's supplemental payments to
government providers.
4. Regarding school-based claims, Georgia commented that we erred
in reporting that the state withheld 16 percent of the federal
reimbursements from the reimbursement-maximizing project involving
claims for services and administrative costs of schools. The state
also said the schools receive 100 percent of the federal
reimbursements generated and that state fees, which support the
administrative costs necessary to ensure that all participating
school systems are complying with program requirements, are paid
exclusively from local funds. During our review, however, the
state provided us a written explanation and a spreadsheet showing
what was paid to schools, indicating that it had withheld 16
percent of the federal reimbursements from the school-based
project and that participating schools received 84 percent of the
federal reimbursements.
5. Regarding administrative claims, Georgia commented that we
incorrectly suggested that the state paid its consultants from
additional federal Medicaid reimbursements generated from
contingency-fee projects. We disagree. Our conclusion was based on
the contract that the state signed with its
reimbursement-maximizing consultant. The contract states that the
contractor (consultant) acknowledges and agrees that no payment is
due from the state agencies or the state of Georgia under the
contract from state-appropriated funds. Further, the contract
explicitly states that the "Contractor's only source of
compensation shall be funds (in the percentage specified in
Contractor's Proposal) generated from Contractor's performance
under this Contract."
The state also provided us with technical comments, which we have
incorporated as appropriate.
Appendix V: Comments from the Commonwealth of Massachusetts and GAO's
Response Appendix V: Comments from the Commonwealth of Massachusetts and
GAO's Response
See comment 3.
See comment 2.
See comment 1.
See comment 7.
See comment 6.
See comment 5.
Now page 12.
See comment 4.
Now page 19.
Now page 45.
Now pages 5, 30, and 45.
See comment 8.
Now page 18.
See comment 9.
Now footnote 43, page 31.
Now page 5.
Now page 24.
See comment 11.
Now page 23.
See comment 10.
Now pages 27 and 28.
See comment 12.
See comment 15.
Now page 33.
Now pages 28 and 29.
See comment 14.
See comment 13.
Now page 41.
See comment 17.
Now page 41.
See comment 16.
Now footnote 5, page 53.
Now page 53.
3
Now footnote 3, page 53.
See comment 18.
GAO's Response to the Commonwealth of Massachusetts's Comments
Our responses to Massachusetts's comments are numbered below to correspond
with the state's various points (reproduced on pp. 73-85). Massachusetts
generally stated that (1) nothing in the law prohibits contingency-fee
contracts, as long as rates fall within broad requirements for the
efficient administration of Medicaid; (2) contingency-fee contracts
provide states with resources they otherwise would not have for vital
administrative tasks; (3) states remain responsible for ensuring
compliance with Medicaid requirements; (4) Medicaid statute and
regulations are broadly stated; and (5) states have the responsibility to
seek federal resources to help people in need when those resources are
lawfully available. The state also provided us with updated information,
which we have incorporated in our report.
Massachusetts's detailed comments and our responses follow.
General Comments
1. Massachusetts noted that the state's funding methods differed
from the typical payment process we describe in the report's
"Background" section. We revised the report to reflect that the
state advances from state funds both the federal and nonfederal
share of Medicaid payments and then seeks federal reimbursement
for those expenditures.
2. Massachusetts commented that we did not sufficiently
distinguish between "inappropriate, but lawful" activities and
activities that violate specific statutes or regulations. We
revised the report to clarify our concerns related to the projects
we examined and to more clearly distinguish the basis for our
concerns related to the projects that we reviewed.
3. Massachusetts commented that it was acting in accord with its
state plan approved by the Centers for Medicare & Medicaid
Services (CMS). We revised the report to clarify that CMS had
approved Massachusetts's state plan amendments for targeted case
management (TCM) services for each of the four state agencies
providing these services. We did not, however, assess whether each
of the four agencies' activities were consistent with the approved
state plan. In addition, we described projects in other states to
illustrate the inconsistent application of CMS policy.
4. See response 2.
Comments on States' Use of Contingency-Fee Consultants
5. Massachusetts commented that we focused too much on increased
claiming and did not adequately consider the reasons for spending
increases and the role of contingency-fee consultants. We
disagree. Our presentation of increased federal expenditures was
descriptive and was one factor we considered in selecting
categories of claims to review. In this section of the report, we
drew no conclusions regarding the appropriateness of state claims.
As we stated in the draft report, we agree that consultants can
have a legitimate role in helping states administer their Medicaid
programs.
6. Massachusetts commented that we discussed projects only in five
selected areas. On the basis of additional information provided by
the state, we revised our report to include summary financial
information on other University of Massachusetts Medical School
(UMMS) projects, including third-party liability and coordination
of benefits activities. Nevertheless, in response to the
congressional request for this review, our scope was to include
contingency-fee projects in revenue-maximizing areas; more
detailed review of other projects was therefore beyond our scope.
7. Massachusetts commented that contingency-fee payments from one
state agency to another do not benefit any other party. Our
concern is not that one state agency may profit from another.
Rather, we are concerned that the two state agencies operating in
concert could inappropriately generate additional federal funds.
Comments on Consistency of Contingency-Fee Projects with Law or Policy
8. Massachusetts commented that we are applying CMS policies that
have not been well articulated and that CMS has approved its state
plan amendments for TCM programs. We use Massachusetts's TCM
programs to illustrate the difficulties states encounter when
dealing with unclear CMS guidance and potential disparate
treatment by CMS. We acknowledge that CMS approved Massachusetts's
state plan amendments for its TCM programs and clarified the
report accordingly. Our concern remains, however, that these TCM
programs do not appear to be consistent with CMS's current TCM
policy and are similar to proposals from other states that CMS is
currently denying.
9. Massachusetts commented that we relied on a January 2001 letter
as CMS policy and that we used criteria-whether the service was
authorized by state law, regulation, or policy-that appear
inconsistent with provisions of the Technical and Miscellaneous
Revenue Act of 1988. We did not rely on CMS's January 2001 letter
as CMS policy. We used the Sate Medicaid Manual (S:4302) and the
September 2004 Administrator's decision (Docket No. 2003-02) as
CMS policy in this area. In addition, because CMS has not defined
services that are integral to another state program, we used the
existence of state law, regulation, or policy as an indicator, not
a determinant, that TCM services were integral to non-Medicaid
programs.
10. Massachusetts commented that managed care payments for
children served by the Department of Youth Services do not include
rehabilitation provided by state agencies; thus, payments to state
agencies for rehabilitation services for these children would not
be duplicative. As described in the draft report, we continue to
be concerned about the potential duplication of coverage because
(1) rehabilitation services are included in the statewide managed
care program, which includes children served by other state
agencies, and (2) it is unclear whether the Department of Youth
Services' managed care rates include rehabilitation services
provided by private providers (as opposed to state agencies), so
Medicaid could be paying both private and public providers for the
same service. CMS officials agreed with our concerns.
11. Massachusetts did not agree that certain aspects of its upper
payment limit (UPL) arrangement-those the state agreed with CMS to
end in June 2005-were inappropriate. While the state's
documentation did not provide sufficient detail for us to assess
the aspects of the UPL arrangement that it had agreed to end, we
revised our characterization of the state's agreement.
Nevertheless, we maintain our view that illusory supplemental
payments in which providers net only a small portion of the
supplemental payments-such as those made in Massachusetts-are
inconsistent with Medicaid's federal-state partnership.
12. Massachusetts commented that it had undertaken a number of
efforts to strengthen oversight of school-based Medicaid claims
and provided additional information on two reports from the
Department of Health and Human Services' (HHS) Office of Inspector
General (OIG). We revised the report to reflect Massachusetts's
efforts to improve oversight of its school-based claims. We also
revised the report to clarify that, upon further review, CMS did
not impose the full HHS OIG-recommended disallowance of $2.9
million but, rather, imposed a $1.2 million disallowance.
13. Massachusetts disagreed with our view that UMMS's role as a
contingency-fee consultant working for school districts to prepare
their claims and as a contingency-fee consultant working for the
state to monitor school district claims creates the appearance of
a conflict of interest. On the basis of our discussions with UMMS
and state Medicaid agency officials and our review of state
documents, we maintain our view but revised the report to more
specifically show UMMS's role in ensuring the integrity of those
claims submitted by schools, including reviewing and performing
quality-control measures on local school cost information.
14. Massachusetts disagreed with our finding in the draft report
that UMMS had inappropriately charged salaries for two senior UMMS
officials as Medicaid administrative expenditures, providing an
agreement between the Medicaid agency and UMMS as support.
Regarding one official, we maintain our view that UMMS charged
excessive time as a Massachusetts Medicaid administrative
expenditure. Although UMMS charged 100 percent of the official's
salary as a Massachusetts expenditure, time sheets provided by the
state Medicaid agency showed that in some months, the UMMS
official charged from 2 to 5 percent of his time to "out-of-state"
projects. Whether the official worked for the Medicaid agency or
UMMS, time spent on out-of-state projects should not be claimed as
a Massachusetts Medicaid administrative expenditure. Regarding
discussion of a second official's time charges, we removed
references to this official in the report on the basis of
additional information provided by the state.
Comments on State and CMS Oversight of Contingency-Fee Projects
15. Massachusetts commented that the draft report focused on state
Medicaid agency policy, not operations, and that it disagreed that
state policies are inappropriate. In our review of individual
projects and state Medicaid agency oversight, we examined and
reported on both the procedures and the policies the state
Medicaid agency had in place to oversee the activities of its
contingency-fee consultants. We maintain our view that some state
Medicaid agency policies, such as those allowing multiple agencies
to bill Medicaid for the same service for the same beneficiary
each month and supplemental payments that do not fully accrue to
providers, are inappropriate.
16. Massachusetts commented that the Department of Mental
Retardation's contact with clients does not necessarily occur each
month, although we found the department had automatically billed
Medicaid for its TCM caseload each month. The state agreed that
the agency's billing was an area that can be improved and that a
new management information system planned for state fiscal year
2006 would allow automated verification of client contacts during
the billing process. We revised the report to reflect the updated
figure for the department's claims in state fiscal year 2004.
17. Massachusetts commented that its policy of allowing multiple
agencies to bill Medicaid for TCM services for the same
beneficiary each month did not constitute inappropriate
double-billing. We reviewed information provided by the state
during our review and concluded that the state did not provide
convincing evidence that the TCM services provided by the four
state agencies were unique. We discussed the matter with CMS and
HHS OIG officials, and they concurred with our conclusion. We
continue to believe that further review is needed.
18. Massachusetts commented that its project for supplemental
disproportionate share hospital (DSH) payments was authorized by
Congress and approved by CMS and that the state disagreed with our
view that such payments can be illusory. We did not question the
state's authority to make supplemental DSH payments up to 175
percent of unreimbursed costs, consistent with statutory authority
to do so for a 2-year period. Rather, our concern was that
hospitals should benefit from increased federal reimbursements and
Massachusetts's arrangement appeared to result in lower payments
to hospitals, despite increased claims for federal reimbursement.
Because we did not fully assess the state's DSH payment process
and net payments to hospitals, our concerns remain, and we believe
that further review is warranted.
AAc Appendix VI: GAO Contact and Staff Acknowledgments
GAO Contact
Katherine Iritani (206) 287-4820
Acknowledgments
Major contributors included Terry Saiki, Tim Bushfield, Jill M. Peterson,
Ellen M. Smith, Ellen W. Chu, Helen Desaulniers, and Kevin Milne.
Related GAO Products Related GAO Products
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Medicaid Program Integrity: Sate and Federal Eorts to Prevent andDetect
Improper Payments. GAO-04-707 . Washington, D.C.: July 16, 2004.
Medicaid: ntergovernmena Transers Have Factated State Fnancing Schemes.
GAO-04-574T . Washington, D.C.: March 18, 2004.
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GAO-04-228 . Washington, D.C.: February 13, 2004.
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GAO/T-HEHS-00-193 . Washington, D.C.: September 6, 2000.
Medicaid n Schools: mproper Paymens Demand mprovements in HCFA Oversight.
GAO/ HEHS/OSI-00-69 . Washington, D.C.: April 5, 2000.
Medicaid n Schools: Poor Oversght and Improper Payments CompromsePotenta
Benet. GAO/T-HEHS/OSI-00-87 . Washington, D.C.: April 5, 2000.
Medicaid: Quesionable Practices Boost Federal Payments for School-Based
Services. GAO/T-HEHS-99-148 . Washington, D.C.: June 17, 1999.
Medicaid: Saes Use usory Approaches to Shif Program Costs toFederal
Government. GAO/HEHS-94-133. Washington, D.C.: August 1, 1994.
(290349)
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Highlights of GAO-05-748 , a report to the Chairman, Committee on Finance,
U.S. Senate
June 2005
MEDICAID FINANCING
States' Use of Contingency-Fee Consultants to Maximize Federal
Reimbursements Highlights Need for Improved Federal Oversight
Medicaid-the federal-state health care financing program covering nearly
54 million low-income people at a cost of $276 billion in fiscal year
2003-is by its size and structure at risk of waste and exploitation.
Because of challenges inherent in overseeing the program, administered
federally by the Centers for Medicare & Medicaid Services (CMS), GAO in
2003 added Medicaid to its list of high-risk federal programs. To help
administer the program, states may employ consultants in a number of
roles, sometimes under contracts whereby payment is contingent upon the
consultant's performance.
GAO was asked to report on states' use of contingency-fee consultants. GAO
examined the extent to which (1) states are using contingency-fee
consultants for projects to maximize federal Medicaid reimbursements, (2)
claims from contingency-fee projects in selected states are consistent
with federal law and policy, and (3) states and CMS are overseeing claims
from such projects.
What GAO Recommends
GAO recommends that CMS improve oversight of contingency-fee projects and
states' reimbursement-maximizing methods. In comments, CMS said its
initiatives substantially respond to the recommendations, and the states
said that their projects comply with law. GAO maintains that additional
actions are needed.
As of 2004, 34 states-up from 10 states in 2002-used contingency-fee
consultants to implement projects to maximize federal Medicaid
reimbursements. Projects varied widely, and because of certain risk
factors-including a nationwide growth in dollars-GAO focused on claims in
five categories (see table). Contingency-fee consultants in the 2 states
GAO reviewed, Georgia and Massachusetts, have developed projects in all
five categories. From these and other projects, for state fiscal years
2000 through 2004, Georgia obtained an estimated $1.5 billion in
additional federal reimbursements and Massachusetts obtained an estimated
$570 million. These states paid contingency fees of more than $90 million.
In Georgia, Massachusetts, or both states, GAO identified claims from
contingency-fee projects in the five categories reviewed that were
problematic because they appeared to be inconsistent with current policy
or were inconsistent with federal law; others undermined Medicaid's fiscal
integrity. For example, for services provided to children in state custody
residing in private facilities, a Georgia project claimed increased
federal Medicaid reimbursements on the basis of the facilities' estimated
costs, which were often higher than the state's actual payments to the
facilities. Problematic projects often involved categories of claims where
federal law and policy were inconsistently applied, evolving, or not
specific. Problematic projects also involved Medicaid payments to
government entities, which can facilitate the inappropriate shifting of
state costs to the federal government.
The states and CMS have provided limited oversight of claims associated
with contingency-fee projects. CMS has not routinely collected information
enabling it to identify claims or projects developed by contingency-fee
consultants to maximize federal reimbursements, despite long-standing
recognition that such claims are at risk of being inconsistent with
federal requirements. Problems GAO identified illustrate the urgent need
to address broader issues in oversight and financial management. CMS has
taken steps to strengthen its financial oversight of Medicaid, but the
agency can do more to reduce the risk of current and emerging financing
schemes, including responding to prior GAO recommendations.
Five Categories of Medicaid Claims Reviewed by GAO
Source: GAO based on CMS information.
*** End of document. ***