    Medicaid: CMS Needs More Information on the Billions of Dollars
    Spent on Supplemental Payments (30-MAY-08, GAO-08-614).

    The financing of the $299 billion Medicaid program is shared
    between the federal government and states. States pay qualified
    providers for covered Medicaid services and receive federal
    matching funds from the Department of Health & Human Services'
    (HHS) Centers for Medicare & Medicaid Services (CMS) for
    expenditures authorized in their state Medicaid plans. In
    addition to these standard Medicaid payments, most states make
    supplemental payments to certain providers, which are also
    matched by federal funds. GAO was asked for information about
    Medicaid supplemental payments. GAO examined (1) what information
    states report about supplemental payments on Medicaid expenditure
    reports and (2) in selected states, how much was distributed as
    supplemental payments, to what types of providers, and for what
    purposes. GAO analyzed CMS's Medicaid expenditure reports and
    surveyed five states that make large supplemental payments.
    -------------------------Indexing Terms-------------------------
    REPORTNUM:   GAO-08-614
        ACCNO:   A82222
      TITLE:     Medicaid: CMS Needs More Information on the Billions of
    Dollars Spent on Supplemental Payments
         DATE:   05/30/2008
      SUBJECT:   Budget obligations
    	     Cost sharing (finance)
    	     Data collection
    	     Data integrity
    	     Federal aid to states
    	     Federal funds
    	     Federal regulations
    	     Federal/state relations
    	     Health care programs
    	     Hospital care services
    	     Hospitals
    	     Local governments
    	     Managed health care
    	     Medicaid
    	     Payments
    	     Reporting requirements
    	     State programs
    	     Program implementation
    	     GAO High Risk Series
    	     Medicaid Disproportionate Share Hospital
    	     Program

    	     Medicaid Program
    	     Medicaid Upper Payment Limit

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    GAO-08-614

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    Report to the Ranking Member, Committee on Finance, U.S. Senate:

    United States Government Accountability Office:
    GAO:

    May 2008:

    Medicaid:

    CMS Needs More Information on the Billions of Dollars Spent on
    Supplemental Payments:

    GAO-08-614:

    GAO Highlights:

    Highlights of GAO-08-614, a report to the Ranking Member, Committee on
    Finance, U.S. Senate.

    Why GAO Did This Study:

    The financing of the $299 billion Medicaid program is shared between
    the federal government and states. States pay qualified providers for
    covered Medicaid services and receive federal matching funds from the
    Department of Health & Human Services� (HHS) Centers for Medicare &
    Medicaid Services (CMS) for expenditures authorized in their state
    Medicaid plans. In addition to these standard Medicaid payments, most
    states make supplemental payments to certain providers, which are also
    matched by federal funds. GAO was asked for information about Medicaid
    supplemental payments. GAO examined (1) what information states report
    about supplemental payments on Medicaid expenditure reports and (2) in
    selected states, how much was distributed as supplemental payments, to
    what types of providers, and for what purposes. GAO analyzed CMS�s
    Medicaid expenditure reports and surveyed five states that make large
    supplemental payments.

    What GAO Found:

    CMS Medicaid expenditure reports show that states made at least $23
    billion in supplemental payments in fiscal year 2006, with the federal
    share of these payments totaling over $13 billion. States made $17.1
    billion in payments through Disproportionate Share Hospital (DSH)
    programs, which under federal law provide additional reimbursement, up
    to a cap, to hospitals that serve large numbers of low-income
    individuals. In addition, states made at least $6.3 billion in non-DSH
    supplemental payments, including payments through Upper Payment Limit
    (UPL) programs, under which states make payments to providers up to the
    upper limit for obtaining federal matching funds. However, information
    on non-DSH supplemental payments was incomplete. The exact amount and
    distribution of fiscal year 2006 non-DSH payments to states are unknown
    because states did not report all their payments to CMS. CMS officials
    said that they were updating reporting requirements to collect better
    information on supplemental payments, including finalizing a rule
    proposed in 2005 responding to federal law that required states to
    report more detailed information on DSH payments and seeking improved
    UPL payment information. As of April 2008, specific implementation
    dates for these actions were not known. CMS�s plans did not include a
    requirement that states report all UPL payments on a facility-specific
    basis, as GAO recommended in 2004 (See Medicaid: Improved Federal
    Oversight of State Financing Schemes Is Needed, GAO-04-228). GAO
    believes this 2004 recommendation remains valid.

    The five states GAO surveyed�California, Massachusetts, Michigan, New
    York, and Texas�reported making $12.3 billion in Medicaid supplemental
    payments in federal fiscal year 2006 through programs with broadly
    stated purposes, with half of these payments made to local government
    hospitals. Collectively, the five states reported making payments
    through 48 supplemental payment programs, with each state operating
    from 3 to 15 different programs that paid hospitals, nursing
    facilities, or other providers. The five states reported purposes for
    their programs that often focused on various categories of eligible
    providers serving individuals on Medicaid, with low incomes, or without
    insurance. The state Medicaid plan sections establishing the states�
    supplemental payments did not always clearly identify how the payments
    would be calculated. CMS officials said that as part of an oversight
    initiative started in 2003, CMS ensures that state plans demonstrate a
    link between the distribution of supplemental payments and Medicaid
    purposes. However, not all state supplemental payment programs have
    been reviewed under CMS�s initiative. In each of the five states,
    supplemental payments were concentrated on a small proportion of
    providers: the 5 percent of providers receiving the largest amount of
    supplemental payments in individual states received from 53 percent to
    71 percent of all supplemental payments. Some providers received
    substantial payments from more than one supplemental payment program.

    What GAO Recommends:

    GAO recommends that the Administrator of CMS (1) expedite issuance of
    the final rule implementing additional DSH reporting requirements and
    (2) develop a strategy to identify all of the supplemental payment
    programs established in states� Medicaid plans and review those
    programs that have not been subject to review under CMS�s 2003
    initiative. CMS generally agreed with these recommendations.

    To view the full product, including the scope and methodology, click on
    [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-614]. For more
    information, contact James C. Cosgrove at (202) 512-7114 or
    cosgrovej@gao.gov.

    [End of section]

    Contents:

    Letter:

    Results in Brief:

    Background:

    CMS Reports Show $23 Billion Spent on Medicaid DSH and Non-DSH
    Supplemental Payments in Fiscal Year 2006, but This Amount Is Likely
    Understated as Information on Non-DSH Payments Is Incomplete:

    Five Surveyed States Reported Distributing $12.3 Billion in
    Supplemental Payments in Fiscal Year 2006 for Broadly Stated Purposes,
    Often to Local Government Hospitals:

    Conclusions:

    Recommendations for Executive Action:

    Agency Comments and Our Evaluation:

    Appendix I: Scope and Methodology:

    Appendix II: Information on Medicaid Supplemental Payments in the
    States and the District of Columbia, as Reported by States:

    Appendix III: Summary of Medicaid Supplemental Payment Programs in Five
    Surveyed States:

    Appendix IV: Distribution of Medicaid Supplemental Payments, by
    Provider Type and Ownership, in Five Surveyed States:

    Appendix V: Extent That Supplemental Payments Were Concentrated and
    Providers Received Multiple Payments:

    Appendix VI: Comments from the Department of Health & Human Services:

    Appendix VII: GAO Contact and Staff Acknowledgments:

    Related GAO Products:

    Tables:

    Table 1: Medicaid Arrangements Using Supplemental Payments to
    Inappropriately Generate Federal Payments and Federal Actions to
    Address Them, 1987 through 2002:

    Table 2: Number of Medicaid DSH and Non-DSH Supplemental Payment
    Programs, Number of Providers Receiving Payments, and Total Payment
    Amounts Made in Fiscal Year 2006, as Reported by the Five Surveyed
    States in January 2008:

    Table 3: California's Supplemental Payment Programs and Numbers of
    Providers Receiving Payments in Fiscal Year 2006, as Reported by the
    State in January 2008:

    Table 4: Supplemental Payments Made in Fiscal Year 2006, Grouped by
    Provider Type and Category of Ownership and Ranked by Total Payment
    Amount, as Reported by the Five Surveyed States in January 2008:

    Table 5: State DSH Payments Made in Fiscal Year 2006 as a Percentage of
    Total State Medicaid Payments and Total National DSH Payments, by
    State:

    Table 6: State Non-DSH Payments Made in Fiscal Year 2006 as a
    Percentage of Total State Medicaid Payments, Ranked Alphabetically by
    State:

    Table 7: California Supplemental Payment Programs from Which Payments
    Were Made in Fiscal Year 2006, as Reported to GAO by the State in
    January 2008:

    Table 8: Massachusetts Supplemental Payment Programs from Which
    Payments Were Made in Fiscal Year 2006, as Reported to GAO by the State
    in January 2008:

    Table 9: Michigan Supplemental Payment Programs from Which Payments
    Were Made in Fiscal Year 2006, as Reported to GAO by the State in
    January 2008:

    Table 10: New York Supplemental Payment Programs from Which Payments
    Were Made in Fiscal Year 2006, as Reported to GAO by the State in
    January 2008:

    Table 11: Texas Supplemental Payment Programs from Which Payments were
    Made in Fiscal Year 2006, as Reported to GAO by the State in January
    2008.

    Table 12: Supplemental Payments Made in Fiscal Year 2006 by Provider
    Type in Five States, as Reported to GAO by the States in January 2008:

    Table 13: Supplemental Payments Made in Fiscal Year 2006 by Provider
    Ownership Category in Five States as Reported to GAO by the States in
    January 2008:

    Table 14: Concentration of Supplemental Payments to Top 5 and Remaining
    95 Percent of Providers Receiving Payments in Fiscal Year 2006 in Five
    States, as Reported to GAO by the States in January 2008:

    Table 15: Number of Providers Receiving Payments from Multiple
    Supplemental Payment Programs in Five States for Fiscal Year 2006, as
    Reported to GAO by the States in January 2008:

    Figures:

    Figure 1: State DSH Supplemental Payments in Fiscal Year 2006:

    Figure 2: State DSH Supplemental Payments as a Percentage of States'
    Medicaid Payments in Fiscal Year 2006:

    Figure 3: Proportion of Total DSH Payments Made by States, by Category
    of Service:

    Figure 4: Distribution of Non-DSH Payments Reported by 28 States on CMS
    Expenditure Reports in Fiscal Year 2006, by Category of Service and by
    Category of Provider:

    Figure 5: Distribution of Supplemental Payments Made in Fiscal Year
    2006 across Different Types of Providers, as Reported by the Five
    Surveyed States in January 2008:

    Figure 6: Distribution of Supplemental Payments Made in Fiscal Year
    2006 by Provider Ownership Category, as Reported by the Five Surveyed
    States in January 2008:

    Figure 7: Proportion of Fiscal Year 2006 Supplemental Payments Made to
    Top 5 Percent of Providers, by Payment Type, in Each of the Five
    Surveyed States, as Reported by States in January 2008:

    Abbreviations:

    CMS: Centers for Medicare & Medicaid Services:

    DSH: Disproportionate Share Hospital:

    FMR: Financial Management Report:

    HCFA: Health Care Financing Administration:

    HHS: U.S. Department of Health & Human Services:

    UPL: Upper Payment Limit:

    [End of section]

    United States Government Accountability Office:
    Washington, DC 20548:

    May 30, 2008:

    The Honorable Charles E. Grassley:
    Ranking Member:
    Committee on Finance:
    United States Senate:

    Dear Senator Grassley:

    Since 2003, Medicaid--the federal and state program that finances
    health care for certain low-income individuals--has been on GAO's list
    of high-risk programs because of concerns about the program's size,
    growth, diversity, and fiscal management.[Footnote 1] One management
    challenge stems from the joint federal-state financing of the $299
    billion program.[Footnote 2] As pressures on state and federal budgets
    have increased, states have sought to maximize the federal funds they
    receive through their Medicaid programs, while at the same time the
    federal government has sought to control inappropriate Medicaid
    spending. Under federal Medicaid law, the federal government reimburses
    states for its share of allowable expenditures.[Footnote 3] States pay
    qualified health care providers for covered services, then seek
    reimbursement for the federal share of the payments.[Footnote 4] In
    addition to the standard payments they make for Medicaid services, most
    state Medicaid programs make supplemental payments--payments separate
    from and in addition to those made at a state's standard Medicaid
    payment rates--to certain providers. For years, we and others have
    raised concerns regarding states' inappropriate use of supplemental
    payment arrangements to leverage billions of dollars in federal
    Medicaid matching funds without a commensurate increase in state
    Medicaid expenditures. These inappropriate arrangements involved large
    supplemental payments to government providers such as state-or county-
    owned hospitals or nursing homes. We have made numerous recommendations
    since 1994 to improve oversight of these Medicaid payments, including
    recommending improved monitoring and reporting of them.[Footnote 5] A
    variety of legislative, regulatory, and federal oversight actions have
    helped to curb these inappropriate Medicaid supplemental payment
    arrangements, including a federal oversight initiative begun in 2003
    that closely reviewed states' supplemental payments.[Footnote 6] There
    is continued congressional interest in understanding state supplemental
    payment programs, including the amount of payments made and the
    characteristics of the Medicaid providers receiving the payments.
    [Footnote 7]

    States have established a variety of programs to administer
    supplemental payments; for the purpose of this report, we classify
    these programs into two types.[Footnote 8] Under federal law, states
    are required to make Disproportionate Share Hospital (DSH) payments to
    hospitals that treat large numbers of low-income and Medicaid
    patients.[Footnote 9] States' DSH programs are subject to annual caps
    on the amount of DSH payments a state may make as well as on the DSH
    payments individual hospitals may receive. States also make non-DSH
    supplemental payments. For example, over the years, many states have
    used the flexibility under Medicaid's Upper Payment Limit (UPL)
    provisions--which define the upper limit on payments for which states
    can receive federal matching funds--to make supplemental payments.
    [Footnote 10] States establish Medicaid provider payment rates, and in
    practice, states' standard Medicaid payments are often less than the
    UPL. Because of this gap, states have established programs to make
    supplemental payments to certain providers above standard Medicaid
    payment rates but within the UPL. Unlike DSH payments, UPL payments are
    not specifically required to be established under federal law. UPL
    payments interact with DSH payments in that any Medicaid payments made
    to a hospital count toward the hospital's DSH cap, reducing the total
    DSH payments the hospital may receive. In recent years, some states
    have also been allowed to make supplemental payments under Medicaid
    demonstrations authorized under section 1115 of the Social Security
    Act.[Footnote 11] In this report, we use the term non-DSH payments
    [Footnote 12] to include both UPL payments and supplemental payments
    made under Medicaid demonstrations.

    The federal Centers for Medicare & Medicaid Services (CMS), an agency
    of the U.S. Department of Health & Human Services (HHS), oversees state
    Medicaid programs, including supplemental payment programs, by
    approving covered populations, services, and payment methods in each
    state's Medicaid plan.[Footnote 13] States receive federal
    reimbursement for Medicaid expenditures by submitting quarterly
    expenditure reports. In response to your request for information about
    the amount of states' Medicaid supplemental payments and the types of
    providers receiving supplemental payments, this report addresses the
    following questions:

    1. What information do CMS Medicaid expenditure reports provide
    regarding Medicaid supplemental payments?

    2. In selected states, how much was distributed as Medicaid
    supplemental payments, to what types of providers, and for what
    purposes?

    To determine what information CMS Medicaid expenditure reports provide
    regarding the amount and distribution of Medicaid supplemental
    payments, we analyzed Medicaid expenditure data reported to CMS by
    states on a standardized form, the CMS-64, for the most recent year
    available, fiscal year 2006.[Footnote 14] We compiled the amount of DSH
    and non-DSH payments reported by individual states and analyzed their
    distribution by category of service (such as inpatient hospital, mental
    health facility, or nursing facility) and provider category (that
    states report as either state government, local government, or private
    [Footnote 15]), where those data were available. To understand CMS
    expenditure reports, Medicaid reporting requirements, and DSH and non-
    DSH supplemental payments, we conducted interviews with CMS officials
    and reviewed relevant federal laws, regulations, and guidance. To
    assess the reliability of states' CMS-64 submissions, we reviewed the
    steps CMS takes to ensure the accuracy of expenditure data submitted by
    states. We determined that the data were reliable for use in this
    report, and include any limitations identified. A discussion of our
    methodology and data reliability assessment can be found in appendix I.
    Finally, we discussed planned changes to CMS's Medicaid supplemental
    payment reporting requirements with CMS officials.

    To examine how Medicaid supplemental payments are distributed to
    providers and for what purposes, we surveyed a nongeneralizable sample
    of five states: California, Massachusetts, Michigan, New York, and
    Texas. We selected these states on the basis of the significance of
    their supplemental payments: specifically, we reviewed DSH payment
    information reported to CMS and the most complete information available
    on non-DSH supplemental payments, which was reported by states to the
    Urban Institute, a nonpartisan economic and social policy research
    organization, for fiscal year 2005.[Footnote 16] Based on these
    sources, the five states we selected spent the largest amount on
    Medicaid supplemental payments in 2005, with each state making
    estimated payments of more than $1.6 billion that year. Two of the five
    states, California and Massachusetts, operated Medicaid demonstrations
    during fiscal year 2006 that changed certain characteristics of their
    supplemental payment programs. We obtained detailed information from
    each of the five states on the supplemental payment programs they had
    in place in fiscal year 2006. The data we collected included the amount
    of each payment to a provider, the name of the provider that received
    the payment, the provider's type (such as hospital, psychiatric
    hospital, or nursing facility), and the provider's ownership category.
    [Footnote 17] We analyzed the state-reported data to identify how DSH
    and non-DSH supplemental payments were distributed among different
    types of programs, across provider ownership categories, and across
    provider types. To determine the purpose for payments, we asked states
    to provide a description of each supplemental payment program they
    operated and reviewed the state Medicaid plan provisions that described
    the methods and standards used to calculate payments made from these
    programs.[Footnote 18] To assess the reliability of states' reported
    payment amounts, we compared states' reported payment information to
    CMS's expenditure reports, and where we found major differences, we
    reported them. We determined that the data were reliable for the
    purposes of this report. A discussion of our methodology and data
    reliability assessment can be found in appendix I. The findings from
    the five reviewed states cannot be used to make inferences about
    supplemental payments in other states. We conducted our work from
    October 2007 through May 2008 in accordance with generally accepted
    government auditing standards.

    Results in Brief:

    CMS reports show that at least $23 billion was spent on Medicaid
    supplemental payments in fiscal year 2006, with the federal share of
    these payments totaling over $13 billion, but information on payments
    was incomplete. For DSH payments, CMS's expenditure reports show states
    and the federal government spent $17.1 billion that year, and
    individual states' total DSH payments ranged from less than $1 million
    to over $3 billion and represented from less than 1 percent to over 16
    percent of state Medicaid payments. For non-DSH payments, the total
    amount and distribution of payments made in fiscal year 2006 is
    unknown, because states did not separately report all their payments to
    CMS. Since 2001, CMS has required states to report certain supplemental
    payments on a separate informational section of their expenditure
    reports, but states do not receive federal reimbursement based on this
    section of the expenditure reports. CMS officials said that they were
    updating reporting requirements to obtain better information on
    supplemental payments. The agency's plans include requiring separate
    reporting of UPL payments by category of service as a condition of
    receiving federal matching funds for them and finalizing a rule
    proposed in 2005 responding to a federal law requiring states to
    provide more detailed information on DSH payments. As of April 2008,
    specific implementation dates for these actions had not been
    established. CMS officials indicated that their planned actions did not
    include requiring states to report UPL payments on a facility-specific
    basis, as we had recommended to CMS in 2004. Facility-specific
    reporting, we found in 2004, was important to CMS's ability to monitor
    payment arrangements. CMS agreed with the 2004 recommendation, but had
    not implemented it as of May 2008.

    The five states we surveyed--California, Massachusetts, Michigan, New
    York, and Texas--reported making $12.3 billion in Medicaid supplemental
    payments in fiscal year 2006 through programs with broadly stated
    purposes, with half of these payments made to local government
    hospitals. Collectively, the five states reported making payments
    through 15 DSH and 33 non-DSH programs, with each state operating from
    3 to 15 different programs. The five states reported purposes for their
    programs that often focused on various categories of eligible providers
    serving individuals on Medicaid, with low incomes, or without
    insurance. For example, one state had three DSH programs, including two
    for public hospitals serving a disproportionate number of Medicaid,
    indigent, and uninsured patients, and nine non-DSH programs for
    purposes such as uncompensated hospital and clinic costs associated
    with health care for the uninsured, nursing facility services for
    Medicaid individuals, and construction renovation reimbursement for
    local government hospitals serving Medicaid individuals. The state
    Medicaid plan sections establishing the states' supplemental payments
    did not always clearly identify how the payments would be calculated.
    CMS officials said that as part of the agency's oversight initiative
    started in 2003, CMS ensures that state plans demonstrate a link
    between the distribution of supplemental payments and Medicaid
    purposes. However, not all state supplemental payment programs have
    been reviewed under CMS's 2003 initiative. In each of the five states,
    supplemental payments were concentrated on a small proportion of
    providers: the 5 percent of providers receiving the largest amount of
    supplemental payments in individual states received between 53 percent
    and 71 percent of all state Medicaid supplemental payments. Some
    providers received substantial payments from more than one supplemental
    payment program.

    If CMS obtained better information on states' Medicaid supplemental
    payments it would be in a better position to review payments and ensure
    that they are appropriately spent for Medicaid purposes. Because CMS
    needs improved state reporting on the amount and distribution of
    Medicaid supplemental payments to adequately oversee and monitor
    states' payments, we believe our 2004 recommendation to improve
    reporting on UPL payments, including obtaining facility-specific
    payment information, remains valid. In addition, we are recommending
    that the Administrator of CMS expedite issuance of a final rule
    implementing additional DSH reporting requirements and develop a
    strategy to identify all of the supplemental payment programs
    established in states' Medicaid plans and to review those that have not
    been subject to review under CMS's August 2003 initiative.

    In commenting on a draft of this report, HHS stated that CMS generally
    agreed with our recommendations and identified a means by which it
    could implement our 2004 recommendation to request facility-specific
    information on UPL payments. HHS also commented that a 2007 GAO report
    [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-214] had
    officially validated that a May 2007 final rule would address concerns
    related to the supplemental payment programs in this report. Certain
    elements of the May 2007 rule relate to concerns our past work has
    raised. However, we have not assessed or reported on this final rule,
    and the extent to which the rule would address our past concerns
    related to supplemental payment programs will depend on how it is
    implemented. In addition to HHS's comments, we obtained technical
    comments from the five states we surveyed, which we incorporated as
    appropriate.

    Background:

    Medicaid--a federal-state partnership that finances health care for low-
    income individuals, including children, families, the aged, and the
    disabled--provided health coverage for over 60 million individuals in
    2007. Title XIX of the Social Security Act established Medicaid as a
    joint federal-state program.[Footnote 19] States operate their Medicaid
    programs by paying qualified health care providers for a range of
    covered services provided to eligible beneficiaries and then seeking
    reimbursement for the federal share of those payments. Within broad
    federal requirements, each state administers and operates its Medicaid
    program in accordance with a state Medicaid plan, which must be
    approved by CMS. A state Medicaid plan details the populations a
    state's program serves, the services the program covers (such as
    physician services, nursing facility care, and inpatient hospital care)
    and the methods for calculating payments to providers. The state
    Medicaid plan also describes the supplemental payment programs
    administered by the state.[Footnote 20]

    Medicaid is an open-ended entitlement program, under which the federal
    government is obligated to pay its share of expenditures for covered
    services provided to eligible individuals under a state's federally
    approved Medicaid plan.[Footnote 21] A state may collect up to 60
    percent of its Medicaid share from local governments as long as the
    state government itself contributes at least 40 percent.[Footnote 22]
    Local governments and local government providers can contribute to the
    state share[Footnote 23] of Medicaid payments in certain ways, for
    example, through intergovernmental fund transfers.[Footnote 24]

    DSH payments supplement standard Medicaid payment rates to help offset
    certain hospitals' unreimbursed costs. Under federal Medicaid law, each
    state receives an annual DSH allotment. DSH allotments are the maximum
    amounts of federal matching funds each state is permitted to claim for
    DSH payments. States' DSH allotments were first established in 1991
    based on each state's historical DSH spending.[Footnote 25] States are
    required to make DSH payments to hospitals that treat a
    disproportionate share of low-income and Medicaid patients. Federal
    Medicaid law caps the amount of DSH funding a state may pay to an
    individual hospital each fiscal year: DSH payments cannot exceed the
    unreimbursed cost of furnishing hospital services to Medicaid
    beneficiaries and the uninsured.[Footnote 26] In determining a
    hospital's unreimbursed costs, states must offset costs with all
    Medicaid payments received by the hospital, including any UPL payments.
    In other words, UPL payments count against a hospital's DSH cap. A
    state may establish one or more DSH programs to make DSH payments,
    subject to these limits, and each program must be documented by the
    state and approved by CMS in the state's Medicaid plan. As with other
    Medicaid program changes, to change or initiate a new DSH program, a
    state must submit a state plan amendment to CMS for review and approval
    prior to implementation.

    In contrast to DSH payments, states are not required to establish non-
    DSH supplemental payments for providers. Federal Medicaid regulations
    establish the UPL as an upper limit on federal reimbursement for
    Medicaid payments.[Footnote 27] UPL payments are a product of the gap
    between standard Medicaid payment rates and the UPL: in practice,
    states' standard Medicaid payments are often less than the UPL, so
    states have established supplemental payment programs to make
    supplemental payments above standard Medicaid rates but within the UPL.
    UPL payments are approved by CMS in states' Medicaid plans. For
    example, a state might establish a UPL program to provide additional
    payments to certain nursing facilities that serve low-income
    populations to fill the gap between what standard Medicaid rates pay
    toward the cost of services and higher payments permitted through the
    UPL. Some states, including California and Massachusetts, have also in
    recent years been allowed to make supplemental payments under Medicaid
    demonstrations.[Footnote 28]

    To obtain the federal matching funds for Medicaid payments made to
    providers, each state files a quarterly expenditure report to CMS. This
    expenditure report, known as Form CMS-64, compiles state payments in
    over 20 categories of medical services, such as inpatient hospital
    services, outpatient hospital services, mental health services, nursing
    facility services, and physician services. The CMS-64 expenditure
    report captures some information on supplemental payments. For example,
    states are required to report their total DSH payments to hospitals and
    mental health facilities separately from other Medicaid payments in
    order to receive federal reimbursement for them. States are not,
    however, required to report disaggregated information on DSH payments
    made to individual providers in order to obtain federal matching funds.
    Instead, states are required to maintain supporting documentation for
    DSH programs, including the amount of DSH payments made to each
    hospital, and to make this information available to CMS upon request.
    UPL payments are not reported separately from other payments for the
    purpose of obtaining federal matching funds. Reporting of supplemental
    payments under Medicaid demonstrations can vary by demonstration.

    Much attention has been focused on Medicaid supplemental payments, in
    part because of concerns that we and others have raised about
    inappropriate Medicaid supplemental payment arrangements between states
    and certain providers. From 1994 through 2007, we issued reports on
    various arrangements whereby states received federal matching funds by
    making large supplemental payments to certain government providers,
    such as county-owned nursing facilities, in amounts that greatly
    exceeded standard Medicaid rates.[Footnote 29] The payments were often
    temporary, since some states required government providers to return
    all or most of the money to the state government. States used the
    federal matching funds received for these payments at their own
    discretion, in some cases to finance or pay for the state's share of
    the Medicaid program. Since the late 1980s, a variety of regulatory or
    legislative actions have been taken at the federal level to curb
    inappropriate Medicaid financing arrangements involving excessive
    supplemental payments. (See table 1.)

    Table 1: Medicaid Arrangements Using Supplemental Payments to
    Inappropriately Generate Federal Payments and Federal Actions to
    Address Them, 1987 through 2002:

    Payment arrangement: Excessive payments to state health facilities;
    Description: States made excessive Medicaid payments to state-owned
    health facilities, which subsequently returned these funds to the state
    treasuries;
    Action taken: In 1987, the Health Care Financing Administration[A]
    (HCFA) issued regulations that established payment limits specifically
    for inpatient and institutional facilities operated by states.

    Payment arrangement: Provider taxes and donations;
    Description: Revenues from provider-specific taxes on hospitals and
    other providers and from provider "donations" were matched with federal
    funds and paid to the providers. These providers would then return most
    of the federal payment to the states;
    Action taken: The Medicaid Voluntary Contribution and Provider-Specific
    Tax Amendments of 1991 imposed restrictions on provider donations and
    provider taxes.

    Payment arrangement: Excessive disproportionate share hospital (DSH)
    payments;
    Description: DSH payments are meant to compensate hospitals that care
    for a disproportionate number of low-income patients. Unusually large
    DSH payments were made to certain hospitals, which then returned the
    bulk of the state and federal funds to the state;
    Action taken: The Omnibus Budget Reconciliation Act of 1993 placed
    limits on which hospitals could receive DSH payments and capped the
    amount of DSH payments individual hospitals could receive.

    Payment arrangement: Excessive DSH payments to state mental hospitals;
    Description: A large share of DSH payments were paid to state-operated
    psychiatric hospitals, where they were used to pay for services not
    covered by Medicaid or were returned to the state treasuries;
    Action taken: The Balanced Budget Act of 1997 limited the proportion of
    a state's DSH payments that can be paid to institutions of mental
    disease and other mental health facilities.

    Payment arrangement: Excessive upper payment limit (UPL) payments to
    certain local government health facilities;
    Description: The UPL is a ceiling on federal matching of Medicaid
    expenditures based on what Medicare would pay for comparable services.
    The UPL applied to payments aggregated across classes of facilities. As
    a result of this aggregate upper limit, states were able to make large
    supplemental payments to a few individual government health facilities,
    such as county hospitals and nursing facilities. The facilities then
    returned the bulk of the state and federal payments to the states;
    Action taken: The Medicare, Medicaid, and SCHIP Benefits Improvement
    and Protection Act of 2000 required HCFA[A] to issue a final regulation
    that established a separate aggregate payment limit for each of several
    types of services provided by local government health facilities. HCFAa
    issued its final regulation on January 12, 2001. In 2002, CMS issued a
    regulation that further lowered the payment limit for local public
    hospitals.

    Source: GAO.

    Note: See GAO, Medicaid: Intergovernmental Transfers Have Facilitated
    State Financing Schemes, GAO-04-574T (Washington, D.C.: Mar. 18, 2004).

    [A] Before June 2001, CMS was known as the Health Care Financing
    Administration (HCFA).

    [End of table]

    In addition to the regulatory and legislative actions referenced in
    table 1, CMS has taken additional steps to improve Medicaid's financial
    management and its oversight of states' supplemental payment programs.
    These include making internal organizational changes that centralize
    the review of state plan amendments, hiring additional staff to analyze
    each state's Medicaid program, and increasing the scrutiny of states'
    Medicaid supplemental payment programs and the programs' financing
    methods. In August 2003, CMS launched an oversight initiative to review
    and evaluate the appropriateness of states' Medicaid payments as part
    of its efforts to strengthen financial oversight and the fiscal
    integrity of the Medicaid program. Under the initiative, a state's
    submission of a proposal to change provider payments in its state plan
    triggers CMS scrutiny of the appropriateness of any related payment
    arrangement. Through this initiative CMS had identified, as of August
    2006, 55 supplemental payment programs in 29 states using financing
    arrangements in which government providers did not retain all the
    supplemental payments made to them and had taken actions to end these
    arrangements.[Footnote 30]

    In May 2007, CMS published a final rule in part to address concerns
    related to states' inappropriate financing arrangements involving
    supplemental payments.[Footnote 31] Among other things, the rule, if
    implemented, would limit Medicaid reimbursement to certain providers
    operated by units of government to an amount that does not exceed the
    provider's costs of providing Medicaid-covered services.[Footnote 32],
    [Footnote 33] Concerns were raised that the rule would harm certain
    providers. Congress placed a moratorium on this rule until May 25,
    2008.[Footnote 34]

    CMS Reports Show $23 Billion Spent on Medicaid DSH and Non-DSH
    Supplemental Payments in Fiscal Year 2006, but This Amount Is Likely
    Understated as Information on Non-DSH Payments Is Incomplete:

    CMS expenditure reports show that states and the federal government
    spent at least $23.48 billion on DSH and non-DSH supplemental payments
    in fiscal year 2006, with the federal share of these payments totaling
    at least $13.37 billion, but states did not provide complete
    information on non-DSH payments. States reported more than $17 billion
    in DSH payments and $6 billion in non-DSH supplemental payments in
    fiscal year 2006, but the non-DSH payment information was not complete
    as states did not report all of their payments. Since 2001, CMS has
    required states to report certain supplemental payments on a separate
    informational section of their expenditure reports, but states do not
    receive federal reimbursement based on this section of the expenditure
    reports. CMS officials said that they were updating reporting
    requirements to obtain better information on states' supplemental
    payments. As of April 2008, specific implementation dates for these
    actions had not been established. CMS's planned changes did not include
    requiring states to report facility-specific UPL payments, a gap we had
    identified in 2004 and recommended that CMS address.

    CMS Expenditure Reports Show More Than $17 Billion in DSH Payments Made
    in Fiscal Year 2006:

    CMS expenditure reports show that states made $17.15 billion in DSH
    payments in fiscal year 2006, with the federal government reimbursing
    states $9.65 billion for its share of these payments. As illustrated in
    figure 1, 48 states and the District of Columbia reported making DSH
    payments, with total payments ranging from less than $1 million in
    Wyoming to over $3 billion in New York. The 10 states with the largest
    total DSH payments in fiscal year 2006 accounted for over 72 percent of
    the $17.15 billion nationwide total, and the five states with the
    largest total DSH payments--California, New Jersey, New York,
    Pennsylvania, and Texas--accounted for more than half of the nationwide
    total.

    Figure 1: State DSH Supplemental Payments in Fiscal Year 2006:

    [See PDF for image]

    This figure is a map of the United States depicting state DSH
    Supplemental Payments in fiscal year 2006 in five categories, as
    follows:

    State DSH Supplemental Payments more than $1 billion:
    California;
    New Jersey;
    New York;
    Pennsylvania;
    Texas.

    State DSH Supplemental Payments from $400 million to $1 billion:
    Alabama;
    Georgia;
    Louisiana;
    Missouri;
    North Carolina;
    Ohio;
    South Carolina.

    State DSH Supplemental Payments from $100 million to $400 million:
    Arizona;
    Colorado;
    Connecticut;
    District of Columbia;
    Florida;
    Illinois;
    Indiana;
    Kentucky;
    Maryland;
    Massachusetts;
    Michigan;
    Mississippi;
    New Hampshire;
    Rhode Island;
    Virginia;
    Washington.

    State DSH Supplemental Payments up to $100 million:
    Alaska;
    Arkansas;
    Delaware;
    Idaho;
    Iowa;
    Kansas;
    Maine;
    Minnesota;
    Montana;
    Nebraska;
    Nevada;
    New Mexico;
    North Dakota;
    Oklahoma;
    Oregon;
    South Dakota;
    Utah;
    Vermont;
    West Virginia;
    Wisconsin;
    Wyoming.

    No payments reported:
    Hawaii;
    Tennessee.

    Source: GAO analysis of CMS-64 expenditure data, Map Resources (map).

    Notes: Puerto Rico and the U.S. territories that operate Medicaid
    programs are not included on this map because they did not make DSH
    payments in fiscal year 2006.

    Tennessee and Hawaii did not make DSH payments directly to hospitals in
    fiscal year 2006; both states operated Medicaid demonstrations under
    which DSH funding is incorporated into payments made to managed care
    organizations that provide health coverage to Medicaid beneficiaries.
    However, the Tax Relief and Health Care Act of 2006, Pub. L. No. 109-
    432, � 404, 120 Stat. 2922, 2995-6 (2006) (codified, as amended, at 42
    U.S.C. � 1396r-4(f)(6)), established DSH allotments for both states and
    allowed the states to submit changes to their state plan, which, if
    approved, would authorize both states to make DSH payments and to
    receive federal reimbursement for these payments in fiscal year 2007.
    The Medicare, Medicaid, SCHIP Extension Act of 2007, Pub. L. No. 110-
    173, � 204, 121 Stat. 2492, 2513-2514 (2007) (codified, as amended, at
    42 U.S.C. � 1396r-4(f)(6)) extended the states' authority to make DSH
    payments through June 2008.

    Massachusetts officials noted that the $346 million Massachusetts
    reported as DSH payments on its 2006 expenditure report were actually
    non-DSH payments made under a Medicaid demonstration.

    [End of figure]

    CMS expenditure reports also showed that DSH payments as a percentage
    of states' Medicaid payments varied.[Footnote 35] As illustrated in
    figure 2, DSH payments ranged from less than 1 percent to over 16
    percent of state Medicaid payments.

    Figure 2: State DSH Supplemental Payments as a Percentage of States'
    Medicaid Payments in Fiscal Year 2006:

    [See PDF for image]

    This figure is a map of the United States depicting State DSH
    Supplemental Payments as a percentage of States' Medicaid payments in
    fiscal year 2006 in five categories, as follows:

    More than 10 percent:
    Alabama;
    Louisiana;
    Missouri;
    New Hampshire;
    New Jersey;
    South Carolina.

    From 5 percent to 10 percent:
    California;
    Colorado;
    Connecticut;
    Georgia;
    Mississippi;
    Nevada;
    New York;
    North Carolina;
    Ohio;
    Pennsylvania;
    Rhode Island;
    Texas;
    Washington.

    From 1 percent to 5 percent:
    Arizona;
    Arkansas;
    District of Columbia;
    Florida;
    Idaho;
    Illinois;
    Indiana;
    Iowa;
    Kansas;
    Kentucky;
    Maine;
    Maryland;
    Massachusetts;
    Michigan;
    Montana;
    Nebraska;
    Oklahoma;
    Oregon;
    Utah;
    Vermont;
    Virginia;
    West Virginia;
    Wisconsin.

    Up to 1 percent:
    Alaska;
    Delaware;
    Minnesota;
    New Mexico;
    North Dakota;
    South Dakota;
    Wyoming.

    No payments reported:
    Hawaii;
    Tennessee.

    Notes: Here, the term Medicaid payments refers to a state's medical
    assistance payments, which are the total Medicaid payments made by a
    state for services, including supplemental payments but not including
    administrative costs.

    Puerto Rico and the U.S. territories that operate Medicaid programs are
    not included on this map because they did not make DSH payments in
    fiscal year 2006.

    Tennessee and Hawaii did not make separate DSH payments directly to
    hospitals in fiscal year 2006; both states operated Medicaid
    demonstrations under which DSH funding is incorporated into payments
    made to managed care organizations that provide health coverage to
    Medicaid beneficiaries. However, the Tax Relief and Health Care Act of
    2006, Pub. L. No. 109-432, � 404, 120 Stat. 2922, 2995-6 (2006)
    (codified, as amended, at 42 U.S.C. � 1396r-4(f)(6)), established DSH
    allotments for both states and allowed the states to submit changes to
    their state plan, which, if approved, would authorize both states to
    make DSH payments and to receive federal reimbursement for these
    payments in fiscal year 2007. The Medicare, Medicaid, SCHIP Extension
    Act of 2007, Pub. L. No. 110-173, � 204, 121 Stat. 2492, 2513-2514
    (2007) (codified, as amended, at 42 U.S.C. � 1396r-4(f)(6)) extended
    the states' authority to make DSH payments through June 2008.

    [End of figure]

    Appendix II lists each state's total DSH payments in fiscal year 2006
    and each state's total as a proportion of the state's Medicaid payments
    and of total nationwide DSH payments.

    CMS expenditure reports divide DSH payments into two categories of
    service: traditional inpatient and outpatient services, and inpatient
    and outpatient mental health services. The 2006 CMS expenditure reports
    indicate that states made about 80 percent of the total nationwide DSH
    payments ($13.48 billion) to hospitals for traditional inpatient and
    outpatient services, and about 20 percent of the payments ($3.66
    billion) to hospitals for mental health services. (See fig. 3.)

    Figure 3: Proportion of Total DSH Payments Made by States, by Category
    of Service:

    [See PDF for image]

    This figure is a pie-chart depicting the following data:

    Total 2006 DSH payments by type and share (dollars in billions):

    Inpatient/outpatient�federal share: 44% ($7.59);
    Inpatient/outpatient�state share: 34% ($5.89);
    Mental health�federal share: 12% ($2.05);
    Mental health�state share: 9% ($1.61).

    Source: GAO analysis of CMS-64 expenditure data.

    Note: Percentages do not sum to 100 percent because of rounding.

    [End of figure]

    CMS Expenditure Reports Show More Than $6 Billion in Non-DSH Payments
    Made in Fiscal Year 2006, but States Did Not Provide Complete
    Information on Non-DSH Payments:

    On 2006 CMS expenditure reports, states reported making $6.33 billion
    in non-DSH payments, mainly to hospitals and nursing facilities. The
    federal share of these payments was $3.73 billion. States are required
    to separately report expenditure data on non-DSH payments made under
    the UPL to CMS on an informational section of the CMS-64 expenditure
    report called the CMS 64.9I form, but not as a condition of receiving
    federal matching funds.[Footnote 36]

    On CMS expenditure reports, 28 states reported making non-DSH payments
    in fiscal year 2006 with total payments ranging from less than $10
    million in Washington to over $1 billion in California. On the CMS
    64.9I form, states report payments by category of service for state
    government, local government, or private providers.[Footnote 37] As
    illustrated in figure 4, the payments states made in fiscal year 2006
    covered a range of medical services. Payments made for inpatient
    hospital services accounted for 74 percent of the non-DSH payments made
    by the states, with payments totaling $4.71 billion (including a
    federal share of $2.74 billion). Local government providers received
    the largest amount of the non-DSH payments, accounting for 59 percent
    of total payments.

    Figure 4: Distribution of Non-DSH Payments Reported by 28 States on CMS
    Expenditure Reports in Fiscal Year 2006, by Category of Service and by
    Category of Provider:

    [See PDF for image]

    This figure contains two pie-charts depicting the following data:

    Payments by category of service (dollars in millions):
    Inpatient hospital: 74% ($4,711);
    Outpatient hospital: 16% ($1,003);
    Nursing homes: 7% ($469);
    Physician group: 1% ($66);
    Mental health: less than 1% ($27);
    Other services: less than 1% ($57).

    Payments by category of provider (dollars in millions):
    Local government: 59% ($3,754);
    Private: 33% ($2,105);
    State government: 7% ($473).

    Source: GAO analysis of CMS-64.9I forms.

    Notes: GAO analyzed data from CMS 64.9I forms from 28 states'
    expenditure reports to develop this figure. Percentages do not sum to
    100 percent because of rounding.

    [End of figure]

    See appendix II for more information on the non-DSH supplemental
    payments states reported to CMS.

    CMS expenditure reports do not capture all of the non-DSH payments made
    by states. The Urban Institute, a nonpartisan economic and social
    policy research organization, administered a survey of states' 2005
    supplemental payments.[Footnote 38] Of the 35 states responding to the
    survey, 29 reported that they had made non-DSH supplemental payments
    that year. Five states responding to the Urban Institute reported
    making non-DSH payments totaling over $1.5 billion in 2005, but did not
    report any non-DSH payments on their 2005 CMS 64.9I forms. Twenty-three
    states reported to both the Urban Institute and CMS that they made non-
    DSH payments, but the amounts reported were different. For example, 4
    states reported non-DSH payments to the Urban Institute that were at
    least $100 million more than those they reported to CMS; in one case,
    the amount reported to Urban Institute was almost $879 million more
    than the amount reported to CMS. In addition, in our surveys of 5
    states about their supplemental payments, the states reported more to
    us in non-DSH payments than they reported on their CMS 64.9I forms,
    including more than $2 billion in supplemental payments made under
    Medicaid demonstrations.[Footnote 39] Although some differences could
    be attributed to differences in how states interpreted the reporting
    requirements in each case,[Footnote 40] including whether they included
    supplemental payments made under Medicaid demonstrations, these
    discrepancies illustrate that the CMS 64.9I forms did not fully capture
    non-DSH supplemental payments made by states in fiscal years 2005 and
    2006. Although states have been required to complete the CMS 64.9I form
    since 2001, states do not receive federal reimbursement based on this
    reported information.[Footnote 41]

    CMS Plans to Address Many, but Not All, Gaps in State Reporting of
    Supplemental Payment Information:

    In February 2008, CMS officials told us the agency had planned two
    actions to improve reporting on Medicaid supplemental payments. As of
    April 2008, specific implementation dates for these actions had not
    been established.

    * First, officials said that they were redesigning CMS expenditure
    reports, in part to improve reporting of supplemental payments, and
    were expecting to implement the new report format in summer 2009. CMS
    officials told us that in the redesigned report, states would be
    required to separately report UPL payments; that is, UPL payments would
    no longer be combined with standard Medicaid payments on the section of
    the expenditure report that states complete to receive federal
    reimbursement. CMS officials said that the redesigned report would
    provide a more accurate and complete source of information on states'
    Medicaid supplemental payments. According to CMS officials, tentative
    plans for the redesigned report included requirements for states to
    report information on the distribution of supplemental payments by
    category of service.

    * Second, officials said that a final rule implementing certain
    congressional mandates to establish new DSH reporting requirements is
    expected to be issued in 2008. Currently, states must apply a cap on
    DSH payments to individual hospitals under federal law, but states'
    expenditure reports do not enumerate payments to individual DSH
    hospitals. In 2003, however, a law was enacted requiring states to
    report additional and more detailed information for each hospital
    receiving a DSH payment.[Footnote 42] In response, CMS issued a
    proposed rule in 2005. The proposed rule, if finalized, would require
    states to separately report detailed information on payment and costs-
    -including standard Medicaid payments, DSH payments, UPL payments, and
    uncompensated care costs--for each hospital receiving a DSH payment.
    [Footnote 43] These reports would be separate from and in addition to
    states' expenditure reports.

    CMS's planned actions to improve reporting on supplemental payments
    will not address all gaps in state reporting of supplemental payments.
    The proposed rule, if finalized, would require states to report
    facility-specific UPL payments to DSH hospitals. However, states would
    not be required to report facility-specific payments made to hospitals
    that do not receive DSH payments or payments made to other types of
    providers. Further, while CMS officials told us they plan to redesign
    the expenditure report to require states to report information on UPL
    payments, they were not planning to require facility-specific
    reporting. CMS officials expressed concerns that this level of
    information could be burdensome to collect and unnecessary and said
    that CMS can request this level of reporting detail from states when
    they submit state plan amendments to CMS for review. In a 2004 report,
    we identified concerns with CMS's lack of comprehensive information on
    states' UPL payments--information that we believed was necessary to
    adequately oversee the payments, including monitoring for dramatic
    changes in payments, conducting timely reviews of states' payments, and
    taking timely oversight actions. We recommended in that report that CMS
    improve state reporting by requiring all states to report UPL payments
    made to all providers and to report these payments on a facility-
    specific basis.[Footnote 44] CMS agreed with this recommendation but
    had not acted on it as of May 2008.

    Five Surveyed States Reported Distributing $12.3 Billion in
    Supplemental Payments in Fiscal Year 2006 for Broadly Stated Purposes,
    Often to Local Government Hospitals:

    The five states we surveyed--California, Massachusetts, Michigan, New
    York, and Texas--reported making supplemental payments totaling $12.3
    billion in fiscal year 2006 through 15 DSH and 33 non-DSH programs,
    with about half of these payments made to hospitals classified as local
    government by the states. The five states reported broadly stated
    purposes for their programs that often focused on various categories of
    eligible providers serving individuals on Medicaid, with low incomes,
    or without insurance. About $7.4 billion in DSH payments and $4.9
    billion in non-DSH supplemental payments were made to more than 1,500
    providers, mainly to hospitals. In each state, supplemental payments
    were concentrated on a small proportion of providers, and some
    providers received payments through multiple programs.

    Information from Five Surveyed States Shows Medicaid Supplemental
    Payments Were Distributed through Multiple Programs for Broadly Stated
    Purposes:

    The five surveyed states reported making payments to 1,531 providers
    through a total of 48 supplemental programs in fiscal year 2006,
    including 15 DSH programs and 33 non-DSH programs.[Footnote 45] Four of
    the five states administered both DSH and non-DSH programs; one state,
    Massachusetts, reported having no DSH programs (see table 2). About
    $7.4 billion in DSH payments were made to 695 hospitals, or 50 percent
    of all hospitals in the four states, and $4.3 billion of the $4.9
    billion in non-DSH payments were made to 1,069 nursing facilities and
    hospitals, or 13 percent of the nursing facilities and 39 percent of
    the hospitals in the five states.

    Table 2: Number of Medicaid DSH and Non-DSH Supplemental Payment
    Programs, Number of Providers Receiving Payments, and Total Payment
    Amounts Made in Fiscal Year 2006, as Reported by the Five Surveyed
    States in January 2008 (Dollars in millions):

    State: California;
    Type of program: DSH;
    Number of programs[A]: 3;
    Number of providers receiving payments[B]: 159;
    Total payments[C]: $2,347.

    State: California;
    Type of program: Non-DSH[D];
    Number of programs[A]: 9;
    Number of providers receiving payments[B]: 261;
    Total payments[C]: $1,554.

    State: California;
    Type of program: Total;
    Number of programs[A]: 12;
    Number of providers receiving payments[B]: 272;
    Total payments[C]: $3,900.

    State: Massachusetts;
    Type of program: DSH;
    Number of programs[A]: 0;
    Number of providers receiving payments[B]: 0;
    Total payments[C]: 0.

    State: Massachusetts;
    Type of program: Non-DSH[E];
    Number of programs[A]: 15;
    Number of providers receiving payments[B]: 82;
    Total payments[C]: $1,634.

    State: Massachusetts;
    Type of program: Total;
    Number of programs[A]: 15;
    Number of providers receiving payments[B]: 82;
    Total payments[C]: $1,634.

    State: Michigan;
    Type of program: DSH;
    Number of programs[A]: 6;
    Number of providers receiving payments[B]: 127;
    Total payments[C]: $427.

    State: Michigan;
    Type of program: Non-DSH;
    Number of programs[A]: 5;
    Number of providers receiving payments[B]: 647;
    Total payments[C]: $766.

    State: Michigan;
    Type of program: Total;
    Number of programs[A]: 11;
    Number of providers receiving payments[B]: 660;
    Total payments[C]: $1,193.

    State: New York;
    Type of program: DSH;
    Number of programs[A]: 5;
    Number of providers receiving payments[B]: 222;
    Total payments[C]: $3,028.

    State: New York;
    Type of program: Non-DSH;
    Number of programs[A]: 2;
    Number of providers receiving payments[B]: 48;
    Total payments[C]: $421.

    State: New York;
    Type of program: Total;
    Number of programs[A]: 7;
    Number of providers receiving payments[B]: 270;
    Total payments[C]: $3,449.

    State: Texas;
    Type of program: DSH;
    Number of programs[A]: 1;
    Number of providers receiving payments[B]: 187;
    Total payments[C]: $1,549.

    State: Texas;
    Type of program: Non-DSH;
    Number of programs[A]: 2;
    Number of providers receiving payments[B]: 122;
    Total payments[C]: $530.

    State: Texas;
    Type of program: Total;
    Number of programs[A]: 3;
    Number of providers receiving payments[B]: 247;
    Total payments[C]: $2,079.

    State: All five states;
    Type of program: DSH;
    Number of programs[A]: 15;
    Number of providers receiving payments[B]: 695;
    Total payments[C]: $7,351.

    State: All five states;
    Type of program: Non-DSH;
    Number of programs[A]: 33;
    Number of providers receiving payments[B]: 1,160;
    Total payments[C]: $4,905.

    State: All five states;
    Type of program: Grand total;
    Number of programs[A]: 48;
    Number of providers receiving payments[B]: 1,531;
    Total payments[C]: $12,255.

    Source: GAO analysis of data from a GAO survey of five states.

    [A] The number of programs listed is the number of programs from which
    the states made supplemental payments in 2006.

    [B] Some providers received payments from multiple programs; totals
    represent numbers of unique providers that received payments.

    [C] Payment amounts may not sum to totals because of rounding.

    [D] Includes payments that California reported of $912 million made
    under three supplemental payment programs authorized by Medicaid
    demonstrations.

    [E] Includes payments that Massachusetts reported of $1,187 million
    under 10 supplemental payment programs authorized by Medicaid
    demonstrations.

    [End of table]

    The five states' supplemental programs were configured in various ways.
    One state, Texas, reported making all of its supplemental payments
    through three programs--one DSH program and two non-DSH programs, one
    directed toward large urban public hospitals and another for rural
    hospitals. California made supplemental payments through three DSH
    programs and nine non-DSH programs, often targeted to specific provider
    types (see table 3).[Footnote 46] Massachusetts reported that it did
    not administer a DSH program, but the state administered 15 non-DSH
    programs, which were also often targeted to specific provider types,
    such as one program titled "Safety Net Care Payments for Pediatric
    Specialty Hospitals and Hospitals with Pediatric Specialty Units."
    [Footnote 47] See appendix III for a list of all supplemental payment
    programs through which the five states made payments in fiscal year
    2006.

    Table 3: California's Supplemental Payment Programs and Numbers of
    Providers Receiving Payments in Fiscal Year 2006, as Reported by the
    State in January 2008 (Dollars in millions):

    Type of program: DSH;
    Program name: DSH Program for Designated Public Hospitals;
    Number of providers receiving payments in FY 2006: 23;
    Payment amount[A]: $2,051.

    Type of program: DSH;
    Program name: DSH Program for Non-Designated Public Hospitals;
    Number of providers receiving payments in FY 2006: 30;
    Payment amount[A]: $11.

    Type of program: DSH;
    Program name: DSH Payments Made Under Former Methodology;
    Number of providers receiving payments in FY 2006: 155;
    Payment amount[A]: $285.

    Type of program: DSH;
    Program name: DSH total;
    Number of providers receiving payments in FY 2006: 159[B];
    Payment amount[A]: $2,347.

    Type of program: Non-DSH;
    Program name: Safety Net Care Pool[C];
    Number of providers receiving payments in FY 2006: 22;
    Payment amount[A]: $801.

    Type of program: Non-DSH;
    Dollars in millions: Program name: Dollars in millions: DSH Replacement
    Payments for Private Hospitals[D]; Number of providers receiving
    payments in FY 2006: Dollars in millions: 99; Payment amount[A]:
    Dollars in millions: $363.

    Type of program: Non-DSH;
    Program name: Public Hospital Outpatient Supplemental Reimbursement
    Program;
    Number of providers receiving payments in FY 2006: 70;
    Payment amount[A]: $209.

    Type of program: Non-DSH;
    Program name: Construction Renovation Reimbursement Program[C];
    Number of providers receiving payments in FY 2006: 15;
    Payment amount[A]: $87.

    Type of program: Non-DSH;
    Program name: Enhanced Payments to Private Trauma Hospitals;
    Number of providers receiving payments in FY 2006: 11;
    Payment amount[A]: $39.

    Type of program: Non-DSH;
    Program name: Distressed Hospital Fund[C];
    Number of providers receiving payments in FY 2006: 11;
    Payment amount[A]: $24.

    Type of program: Non-DSH;
    Program name: Distinct Part/Nursing Facility Supplemental Payment
    Program;
    Number of providers receiving payments in FY 2006: 19;
    Payment amount[A]: $12.

    Type of program: Non-DSH;
    Program name: Outpatient DSH Payment Program[D];
    Number of providers receiving payments in FY 2006: 111;
    Payment amount[A]: $10.

    Type of program: Non-DSH;
    Program name: Small and Rural Hospital Payment Program;
    Number of providers receiving payments in FY 2006: 71;
    Payment amount[A]: $8.

    Type of program: Non-DSH;
    Program name: Non-DSH total;
    Number of providers receiving payments in FY 2006: 261[B];
    Payment amount[A]: $1,554.

    Type of program: DSH and non-DSH total;
    Number of providers receiving payments in FY 2006: 272[B];
    Payment amount[A]: $3,900.

    Source: GAO analysis of survey responses from California.

    [A] Payment amounts may not sum to totals because of rounding.

    [B] Some providers received payments from multiple programs; totals
    represent numbers of unique providers that received payments.

    [C] Program was authorized under a Medicaid demonstration.

    [D] Although the name of this program contains the term DSH, we
    considered it to be a non-DSH program because payments were not counted
    against the state's DSH allotment.

    [End of table]

    The five states broadly described each program's purpose in our survey.
    The purpose of DSH payments is well established under federal law and
    regulation: DSH payments provide compensation to hospitals for
    uncompensated care provided to Medicaid and uninsured individuals.
    [Footnote 48] States' descriptions of their programs provided some
    details on the categories of hospitals that would receive DSH payments
    from each program. The purposes for DSH programs, as reported by the
    five states, included the following:

    * providing supplemental reimbursement to public hospitals that serve a
    disproportionate number of Medicaid, indigent, and uninsured patients;

    * providing health care services to low-income patients with special
    needs who are not covered under other public or private health care
    programs;

    * providing additional DSH funding for hospitals and hospital systems
    that received less than a specified amount from one of the state's
    other DSH pools; and:

    * ensuring access to services for indigent persons with serious mental
    illness requiring inpatient treatment.

    In contrast to DSH payments, non-DSH supplemental payments do not have
    a specific statutory or regulatory purpose. In some cases, the states'
    reported purposes for their non-DSH programs were similar to those of
    the DSH programs in that they provided supplemental payments to
    hospitals serving Medicaid, indigent, or uninsured individuals, or a
    combination of these groups. The purposes of the non-DSH programs for
    hospitals and other providers, as reported by the five states, included
    the following:

    * providing supplemental payments to most of the largest Medicaid
    hospital providers in the state;

    * supplementing Medicaid payments to certain types of hospitals, such
    as rural hospitals, pediatric specialty hospitals, and hospitals
    operated by the state Department of Mental Health;

    * ensuring access by Medicaid beneficiaries to high-quality hospital or
    nursing home care;

    * reimbursing public health clinics for their cost of providing
    services to Medicaid beneficiaries;

    * providing enhanced Medicaid payments for outpatient hospital trauma
    and emergency services to private hospitals meeting certain criteria;

    * reimbursing public dental clinics for their cost of providing
    services to Medicaid beneficiaries;

    * providing partial reimbursement of the debt service incurred on
    revenue bonds for the construction, renovation, replacement, or
    retrofitting of eligible hospitals; and:

    * encouraging providers to make available to Medicaid recipients the
    most advanced forms of medical diagnostic and treatment services
    available through university-based medical service systems.

    According to CMS officials, state Medicaid plans should specify the
    method by which payment amounts are calculated and how they are
    correlated with services provided to Medicaid beneficiaries or, in the
    case of DSH programs, to Medicaid beneficiaries or uninsured
    individuals. In some cases, we found that the state Medicaid plan
    sections establishing the states' supplemental payments did not clearly
    identify how the payments would be calculated. CMS officials said that
    as part of its oversight initiative started in August 2003, CMS ensures
    during its state plan amendment review process that states demonstrate
    a link between the distribution of supplemental payments and Medicaid
    purposes, which would include uncompensated care in the case of DSH
    payments. Such vetting only occurs, however, as states establish new
    supplemental payment programs or make changes to established programs.
    Thus, not all state supplemental payment programs have been reviewed
    under CMS's 2003 initiative. In the case of the 35 supplemental payment
    programs operated by the five states we surveyed that were approved
    under the states' Medicaid plans,[Footnote 49] 6 programs (17 percent)
    had not been reviewed and approved by CMS through the state plan
    amendment process since the beginning of the oversight initiative that
    started in August 2003.[Footnote 50] State officials told us that these
    6 programs had not been changed since CMS's 2003 initiative or subject
    to review under the initiative. We were unable to determine from
    states' documentation when 5 additional supplemental payment programs
    were most recently reviewed and approved by CMS.

    Surveyed States Reported Paying the Largest Portion of Medicaid
    Supplemental Payments to Local Government Hospitals:

    Of the $12.3 billion in total supplemental payments reported by the
    five states, $11.3 billion, or 92 percent, was made to hospitals and
    the remainder went to other types of providers, specifically nursing
    facilities, clinics, physician groups, and, in one state, managed care
    organizations.[Footnote 51] The states reported that local government
    providers received the majority (57 percent) of supplemental payments.
    Local government hospitals, in particular, received 51 percent of
    supplemental payments reported by the five states.

    Distribution of Supplemental Payments by Provider Type:

    In each of the five states, hospitals received a majority of the
    state's total supplemental payments. (See fig. 5.) The five states
    reported making $7.4 billion in DSH payments and $3.9 billion in non-
    DSH payments (80 percent of all non-DSH payments) to hospitals,
    including psychiatric hospitals, in fiscal year 2006.

    Figure 5: Distribution of Supplemental Payments Made in Fiscal Year
    2006 across Different Types of Providers, as Reported by the Five
    Surveyed States in January 2008:

    [See PDF for image]

    This figure is a stacked vertical bar graph depicting the following
    data:

    Percentage of state supplemental payments (by dollars paid to provider
    type):

    State: California;
    Hospitals: 99.7%;
    Managed care: 0;
    Psychiatric hospitals: 0;
    Nursing facilities: 0.3%;
    Clinics: 0;
    Physician groups: 0.

    State: Massachusetts;
    Hospitals: 57.1%;
    Managed care: 35.3%;
    Psychiatric hospitals: 6.4%;
    Nursing facilities: 0;
    Clinics: 0;
    Physician groups: 1.2%.

    State: Michigan;
    Hospitals: 60.1%;
    Managed care: 0;
    Psychiatric hospitals: 11.9%;
    Nursing facilities: 23.6%;
    Clinics: 1.6%;
    Physician groups: 2.8%.

    State: New York;
    Hospitals: 81.4%;
    Managed care: 0;
    Psychiatric hospitals: 17.5%;
    Nursing facilities: 1%;
    Clinics: 0;
    Physician groups: 0.

    State: Texas;
    Hospitals: 100%;
    Managed care: 0;
    Psychiatric hospitals: 0;
    Nursing facilities: 0;
    Clinics: 0;
    Physician groups: 0.

    State: All 5 states;
    Hospitals: 85.1%;
    Managed care: 4.7%;
    Psychiatric hospitals: 6.9%;
    Nursing facilities: 2.7%;
    Clinics: 0.2%;
    Physician groups: 0.4%.

    Source: GAO analysis of data from a GAO survey of five states.

    [End of figure]

    Four of the five states reported making non-DSH payments to types of
    providers other than hospitals, such as managed care organizations,
    nursing facilities, clinics, and physician groups. Payments to these
    other types of facilities and providers totaled nearly $1 billion,
    including the following:

    * $577 million paid to managed care organizations,

    * $329 million paid to nursing facilities,

    * $53 million paid to physician groups, and:

    * $19 million paid to clinics.

    See appendix IV for details on the distribution of each state's DSH and
    non-DSH payments by provider type.

    Distribution of Supplemental Payments by Ownership Category:

    All five states reported distributing supplemental payments to
    providers in each of three categories: state government, local
    government, and private providers. Overall, $6.9 billion, or 57
    percent, of the total supplemental payments made by the five states in
    fiscal year 2006 were paid to local government providers. (See fig. 6.)
    At the individual state level, the distribution across categories
    varied. The proportion of payments made to local government providers,
    for example, ranged from a low of 20 percent in Michigan to a high of
    73 percent in California. In California, Massachusetts, New York, and
    Texas, local government providers received the largest proportion of
    the state's supplemental payments. Michigan reported that private
    providers received the largest portion (68 percent) of the state's
    supplemental payments.

    Figure 6: Distribution of Supplemental Payments Made in Fiscal Year
    2006 by Provider Ownership Category, as Reported by the Five Surveyed
    States in January 2008:

    [See PDF for image]

    This figure is a stacked vertical bar graph depicting the following
    data:

    Percentage of state supplemental payments (by dollars paid to provider
    ownership class):

    State: California;
    Local government: 72.9%;
    State government: 13.8%;
    Private: 13.4%.

    State: Massachusetts;
    Local government: 49.1%;
    State government: 8.2%;
    Private: 42.7%.

    State: Michigan;
    Local government: 20.1%;
    State government: 11.9%;
    Private: 68%.

    State: New York;
    Local government: 53.4%;
    State government: 24.1%;
    Private: 22.5%.

    State: Texas;
    Local government: 58.1%;
    State government: 21.8%;
    Private: 20.1%.

    State: All 5 states;
    Local government: 56.5%;
    State government: 17.1%;
    Private: 26.3%.

    Source: GAO analysis of data from a GAO survey of five states.

    [End of figure]

    See appendix IV for details on the distribution of each state's DSH and
    non-DSH payments by ownership category.

    Distribution of Supplemental Payments by Provider Type and Ownership
    Category Combined:

    Of the total supplemental payments made by the five states in fiscal
    year 2006, states reported that $6.2 billion, or 51 percent, were made
    to local government hospitals, as illustrated in table 4. The
    distribution of payments by both provider type and ownership category
    differed from state to state. In three states--California, Texas, and
    New York--the majority of payments were made to local government
    hospitals. In Michigan, the largest portion of the state's total
    supplemental payments--$572 million, or 48 percent of payments--was
    paid to private hospitals, and the second largest portion of the
    state's supplemental payments--$238 million, or 20 percent of payments-
    -was paid to private nursing facilities. In Massachusetts, the largest
    portion of the state's supplemental payments--$679 million, or 42
    percent of payments--was paid to private hospitals, and the second
    largest portion--$577 million, or 35 percent of payments--was paid to
    local government managed care organizations.[Footnote 52]

    Table 4: Supplemental Payments Made in Fiscal Year 2006, Grouped by
    Provider Type and Category of Ownership and Ranked by Total Payment
    Amount, as Reported by the Five Surveyed States in January 2008
    (Dollars in millions):

    Total reported payments: $12.3 billion.

    Rank: 1;
    Provider type: Hospital;
    Category of ownership[A]: Local government;
    Number of states making payments: 5;
    Payment amount: $6,212;
    Payments as percentage of total supplemental payments[B]: 51%.

    Rank: 2;
    Provider type: Hospital;
    Category of ownership[A]: Private;
    Number of states making payments: 5;
    Payment amount: $2,965;
    Payments as percentage of total supplemental payments[B]: 24%.

    Rank: 3;
    Provider type: Hospital;
    Category of ownership[A]: State government;
    Number of states making payments: 4;
    Payment amount: $1,248;
    Payments as percentage of total supplemental payments[B]: 10%.

    Rank: 4;
    Provider type: Psychiatric hospital;
    Category of ownership[A]: State government;
    Number of states making payments: 3;
    Payment amount: $852;
    Payments as percentage of total supplemental payments[B]: 7%.

    Rank: 5;
    Provider type: Managed care organization;
    Category of ownership[A]: Local government;
    Number of states making payments: 1;
    Payment amount: $577;
    Payments as percentage of total supplemental payments[B]: 5%.

    Rank: 6;
    Provider type: Nursing facility;
    Category of ownership[A]: Private;
    Number of states making payments: 1;
    Payment amount: $238;
    Payments as percentage of total supplemental payments[B]: 2%.

    Rank: 7;
    Provider type: Nursing facility;
    Category of ownership[A]: Local government;
    Number of states making payments: 3;
    Payment amount: $91;
    Payments as percentage of total supplemental payments[B]: 1%.

    Rank: 8;
    Provider type: Physicians group;
    Category of ownership[A]: Local government;
    Number of states making payments: 1;
    Payment amount: $34;
    Payments as percentage of total supplemental payments[B]: 0%.

    Rank: 9;
    Provider type: Clinic;
    Category of ownership[A]: Local government;
    Number of states making payments: 1;
    Payment amount: $19;
    Payments as percentage of total supplemental payments[B]: 0%.

    Rank: 10;
    Provider type: Physicians group;
    Category of ownership[A]: Private;
    Number of states making payments: 1;
    Payment amount: $19;
    Payments as percentage of total supplemental payments[B]: 0%.

    Total:
    Payment amount: $12,255;
    Payments as percentage of total supplemental payments[B]: 100%.

    Source: GAO analysis of data from a GAO survey of five states.

    [A] Category of ownership is as reported by states. State-reported
    ownership category was not always the same as the type of the
    organization that operated the facility as recorded in a database of
    providers maintained by CMS. See app. IV for more information.

    [B] Percentages less than 0.5 percent were rounded to zero.

    [End of table]

    A Small Proportion of Providers Received Over Half of the Supplemental
    Payments, and Some Providers Received Payments from Multiple Programs:

    Information from the five states shows that a small proportion of
    providers received a large proportion of each state's supplemental
    payments. Specifically, the 5 percent of providers receiving the
    largest supplemental payments in individual states received between 53
    percent and 71 percent of all Medicaid supplemental payments. (See fig.
    7.) In two states, non-DSH supplemental payments were particularly
    concentrated: in New York, the top 5 percent of providers receiving non-
    DSH payments accounted for 91 percent of the total non-DSH payments,
    and in Texas, the top 5 percent of providers accounted for 76 percent
    of the total non-DSH payments.

    Figure 7: Proportion of Fiscal Year 2006 Supplemental Payments Made to
    Top 5 Percent of Providers, by Payment Type, in Each of the Five
    Surveyed States, as Reported by States in January 2008:

    [See PDF for image]

    This figure is a multiple vertical bar graph depicting the following
    data:

    Percentage of supplemental payments paid to top 5 percent of providers:

    State: California;
    DSH: 58.7%;
    Non-DSH: 53.9%;
    All payments: 70.9%.

    State: Massachusetts;
    DSH: 0;
    Non-DSH: 63.1%;
    All payments: 63.1%.

    State: Michigan;
    DSH: 53.7%;
    Non-DSH: 43.6%;
    All payments: 57.5%.

    State: New York;
    DSH: 45%;
    Non-DSH: 91.4%;
    All payments: 52.9%.

    State: Texas;
    DSH: 48.8%;
    Non-DSH: 76.2%;
    All payments: 62.8%.

    State: All 5 states;
    DSH: 50.7%;
    Non-DSH: 61%;
    All payments: 62.1%.

    Source: GAO analysis of data from a GAO survey of five states.

    Note: For each state, we identified the percentage of payments made to
    the 5 percent of providers receiving the largest amount of DSH
    payments, the 5 percent of providers receiving the largest amount of
    non-DSH payments, and the 5 percent of providers receiving the largest
    combined amount of DSH and non-DSH payments. For all five states
    combined, we calculated the percentages by adding the payments made to
    the 5 percent of providers receiving the largest amount of payments in
    each state and dividing this number by the total payments made by all
    five states.

    [End of figure]

    See appendix V for additional information on the concentration of
    supplemental payments reported by the five states.

    In the five surveyed states, 30 percent of the 1,531 providers
    receiving supplemental payments received payments from multiple
    programs, accounting for 69 percent of their supplemental payments.
    [Footnote 53] The percentage of providers receiving payments from
    multiple programs in each state ranged from a low of 17 percent in
    Massachusetts to a high of 65 percent in California. Some providers
    received substantial payments from more than one supplemental payment
    program. For example, in one state one hospital received $420 million
    in DSH payments and $154 million in non-DSH supplemental payments in
    fiscal year 2006. In another state one hospital received $173 million
    in DSH payments and $73 million in non-DSH supplemental payments that
    year.

    Appendix V provides additional information on the extent to which
    providers in five states received supplemental payments from multiple
    programs.

    Conclusions:

    Pressures on federal and state budgets have focused attention both on
    the importance of the Medicaid program and on its high costs. As a
    source of health care for the nation's most vulnerable populations,
    Medicaid's long-term sustainability is critical to millions of people.
    However, sustaining the $299 billion program will require ensuring that
    expenditures are appropriately limited to Medicaid purposes.
    Supplemental payment programs have historically been susceptible to
    abuse, particularly programs involving large payments to government
    providers that allowed states to inappropriately leverage federal
    Medicaid matching funds. Legislative, regulatory, and other agency
    actions have addressed some of these concerns.

    States made supplemental payments totaling at least $23 billion in
    fiscal year 2006, and the federal government spent over $13 billion in
    matching funds for these payments. Despite the significance of
    supplemental payments, CMS lacks complete information on states'
    payments and has not reviewed all supplemental payment programs under
    its 2003 initiative. To provide effective oversight, federal officials
    need reliable and complete information, including information on all
    programs administered by states as well as information on the providers
    that receive payments from these programs. Complete information about
    the distribution of Medicaid supplemental payments, however, is still
    lacking at the federal level. For example, complete data on non-DSH
    payments and data on DSH and non-DSH supplemental payments made to
    individual providers are not available from CMS expenditure reports.
    Congress has long sought better information on DSH payments, including
    information on payments to individual providers, and we have expressed
    similar concerns over the lack of information related to non-DSH
    payments. CMS is planning to take action in 2008 to finalize a rule
    proposed in 2005 that would implement detailed DSH reporting in
    response to federal statutory requirements and also plans to make
    improvements to its expenditure reports to collect data on some non-DSH
    payments. These planned actions address many of the gaps in state
    reporting of supplemental payments and should be put into effect as
    soon as possible. Even when they are implemented, however, states will
    not be required to report all of the supplemental payments that they
    make to individual providers.

    We believe that a recommendation from our prior work that CMS improve
    state reporting of UPL payments, including collecting information on
    payments by facility, remains valid. Such an improvement could be
    achieved by establishing reporting requirements for non-DSH
    supplemental payments, such as collecting payment information on a
    facility-specific basis, comparable to those proposed for DSH payments.
    In 2004, CMS agreed with the recommendation that it improve its UPL
    reporting requirements and collect facility-specific payment
    information, but as of May 2008, had not implemented it. Furthermore,
    not all supplemental payment programs have been subject to CMS review
    through the oversight initiative that CMS began in 2003 to assess and
    ensure the appropriateness of state supplemental payments. Until
    reliable and complete information on states' supplemental payments is
    available, federal officials overseeing the program and others will
    lack information they need to review payments and ensure that they are
    appropriately spent for Medicaid purposes.

    Recommendations for Executive Action:

    To improve the oversight of states' Medicaid supplemental payments, we
    recommend that the Administrator of CMS take the following two actions:

    * expedite issuance of the final rule implementing additional DSH
    reporting requirements, and:

    * develop a strategy to identify all of the supplemental payment
    programs established in states' Medicaid plans and to review those
    programs that have not been subject to review under CMS's August 2003
    initiative.

    Agency Comments and Our Evaluation:

    We provided a draft of this report to HHS for comment. In its response,
    HHS stated that CMS generally agreed with our recommendations to
    expedite issuance of the final DSH rule and to develop a strategy to
    review all state supplemental payment programs to ensure they are
    consistent with Medicaid requirements. HHS also identified a means by
    which it could implement our 2004 recommendation to request facility-
    specific information on UPL payments.

    HHS provided additional comments that it believed were critically
    important to the final report. HHS stated that the final rule
    implementing DSH payment reporting requirements will only collect
    facility-specific supplemental payment information for hospitals that
    qualify for DSH payments, and that hospitals that do not receive DSH
    payments and non-hospital Medicaid providers are not subject to the
    rule. We note that our draft report contained this information.
    Further, because of these and other data reporting limitations, we
    determined our 2004 recommendation that CMS improve its requirements
    for states for reporting UPL payments, such as requiring states to
    report payments on a facility-specific basis, was still valid. HHS said
    the volume of information that would be collected under this
    recommendation could not feasibly be transmitted through the Medicaid
    Budget and Expenditure System, a system states use to submit Medicaid
    expenditure data to CMS. We note that we have not specified the system
    by which improved UPL information should be collected. HHS also
    provided an example of one means it could use to obtain facility-
    specific information through its review of states' Medicaid expenditure
    reports. In our view, the billions of dollars paid annually in non-DSH
    supplemental payments warrants improved reporting of information on
    payments comparable to planned DSH reporting requirements, including
    reporting of facility-specific payment information.

    HHS also noted that states are entitled each year to expend their
    entire allotment and that therefore, the $17 billion DSH spending
    referenced in the draft report will largely remain unchanged after
    issuance of the final DSH rule. Although improved reporting may not
    result in DSH savings, we maintain that having improved and audited
    data on DSH and other supplemental payments at the facility level is
    important to ensuring that facility-specific DSH limits are not
    exceeded and that payments are appropriate.

    In its general comments, HHS asserted that GAO had officially validated
    that a May 2007 final rule would address concerns related to the
    supplemental payment programs in this report. Some aspects of the May
    2007 rule relate to concerns about supplemental payment programs raised
    in our past work. However, we have not assessed or reported on this
    final rule, and the extent to which the rule would address our past
    concerns will depend on how it is implemented.

    We also obtained technical comments from California, Massachusetts,
    Michigan, New York, and Texas, which we considered and incorporated as
    appropriate.

    As arranged with your office, unless you publicly announce the contents
    of this report earlier, we plan no further distribution until 30 days
    after its issuance 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 [hyperlink, http://www.gao.gov].

    If you or your staff members have any questions, please contact me at
    (202) 512-7114 or cosgrovej@gao.gov. Contact points for our Offices of
    Congressional Relations and Public Affairs may be found on the last
    page of this report. Major contributors to this report are listed in
    appendix VII.

    Sincerely yours,

    Signed by:

    James C. Cosgrove:
    Director, Health Care Issues:

    [End of section]

    Appendix I: Scope and Methodology:

    This appendix describes in detail how we did our work for our review of
    states' Medicaid supplemental payments to hospitals through states'
    Disproportionate Share Hospital (DSH) programs and to providers through
    states' other supplemental payment programs, permitted under Medicaid's
    Upper Payment Limit (UPL) provisions or under Medicaid demonstration
    authority, which in this report we refer to as non-DSH programs.
    [Footnote 54] We reviewed states' supplemental payments nationwide by
    examining Medicaid expenditures reported by states to the Centers for
    Medicare & Medicaid Services (CMS) on Form CMS-64. We also selected a
    nongeneralizable sample of five states and collected information about
    the supplemental payments made to providers from each of their
    supplemental payment programs.

    Analysis of CMS Expenditure Reports:

    To determine what CMS Medicaid expenditure reports show regarding the
    amount and distribution of DSH and non-DSH payments, we examined the
    standardized expenditure reports states submit to CMS on a quarterly
    basis, Form CMS-64. States submit CMS-64 expenditure data
    electronically to the Medicaid Budget and Expenditure System and must
    certify that the data are correct to the best of their knowledge. We
    reviewed expenditure data provided to CMS from all states for fiscal
    year 2006, the most recent year for which complete data were available.
    [Footnote 55] We obtained fiscal year 2006 DSH payments from CMS's
    Financial Management Report (FMR). The FMR summarizes each state's
    quarterly expenditures reports as a fiscal year total. The FMR
    incorporates payment adjustments reported by the states. For non-DSH
    supplemental payments, we extracted expenditure data reported on the
    CMS 64.9I form, a section of the CMS expenditure report on which states
    are required to report non-DSH supplemental payments made under the UPL
    for informational purposes. CMS allows states to make adjustments to
    their prior CMS-64 submissions for up to 2 years. For DSH payments, the
    FMR for 2006 incorporated payment adjustments that had been reported
    through the end of fiscal year 2006. For non-DSH payments we
    incorporated payment adjustments to the CMS 64.9I forms submitted by
    the states through October 5, 2007.

    We compiled the amount of DSH and non-DSH payments reported by
    individual states and analyzed their distribution by category of
    service (such as inpatient hospital, mental health facility, or nursing
    facility) and by provider category (that states report as either state
    government, local government, or private[Footnote 56]), where those
    data were available.

    To assess the reliability of states' CMS-64 submissions, we reviewed
    the steps CMS takes to ensure the accuracy of expenditure data
    submitted to the Medicaid Budget and Expenditure System. We also
    compared these expenditure data to data the five selected states
    submitted to us and compared the non-DSH expenditure data to similar
    data published by the Urban Institute. To understand CMS expenditure
    reports, Medicaid reporting requirements, and DSH and non-DSH
    supplemental payments, we conducted interviews with CMS officials and
    reviewed relevant laws, regulations, and guidance. We concluded that
    states' reported DSH payments in fiscal year 2006 were sufficiently
    reliable for use in this report because CMS reimburses states based on
    these data and because CMS also reports these data publicly on its Web
    site. However, we determined that states' reported data on non-DSH
    payments in fiscal year 2006 were less reliable than data on DSH
    payments. States are required to submit non-DSH payment information
    separately from, and in addition to, their base expenditures. CMS does
    not reimburse states on the basis of these data.[Footnote 57] We did
    not examine reporting requirements under specific states' Medicaid
    demonstrations.[Footnote 58] We concluded that states' reported fiscal
    year 2006 non-DSH payments were suitable for limited, descriptive
    purposes, and we noted the limitations of these expenditure data in the
    report. We also compared information on Medicaid supplemental payments
    provided to us by the five selected states (based on the selection
    criteria described below) with the information the states reported on
    CMS expenditure reports. Where we found major discrepancies, we noted
    them in the report and included state officials' explanations for some
    of the differences.

    See appendix II for results of our analysis of CMS expenditure reports.

    Analysis of the Distribution of Supplemental Payments in Five Selected
    States:

    To examine how Medicaid supplemental payments are distributed to
    providers and for what purposes, we surveyed a nongeneralizable sample
    of five states--California, Massachusetts, Michigan, New York, and
    Texas. We selected these states because they reported spending the
    largest amount on Medicaid supplemental payments in fiscal year 2005
    based on the combined total of their DSH payments (as reported to CMS)
    and estimated non-DSH payments (imputed from data published by the
    Urban Institute).[Footnote 59] The five states each reported making
    more than $1.6 billion in estimated Medicaid supplemental payments in
    2005. The estimated combined total of these states' Medicaid
    supplemental payments accounted for more than 40 percent of the
    estimated fiscal year 2005 Medicaid supplemental payments for all
    states. Two of the five states,

    California and Massachusetts, operated Medicaid demonstrations that
    changed certain characteristics of their supplemental payment programs.
    [Footnote 60]

    In January 2008, we obtained information from each state about fiscal
    year 2006 DSH and non-DSH payments, including the amount of each
    payment, the name of the provider that received the payment, the
    provider's type (such as hospital, nursing facility, or clinic), and
    the provider's ownership category (state government, local government,
    or private).[Footnote 61] We also interviewed state officials about
    their Medicaid supplemental payments. To determine the purpose for
    programs, we asked states to provide a description of each supplemental
    payment program they operated, and assessed the state Medicaid plan
    provisions that describe the methods and standards used to calculate
    payments made from these programs.[Footnote 62] To assess the
    reliability of states' reported payment amounts, we compared states'
    reported payment information to CMS's expenditure reports, and where we
    found major differences, we reported them. For other provider data
    reported by states, specifically, information on provider ownership
    category, we compared states' data with provider data in CMS's On-Line
    Survey, Certification, and Reporting system that contains information
    on the type of organization that operates the facilities.[Footnote 63]
    We provide examples of differences we found in states' information as
    compared to CMS's. Although the scope of this review did not include
    identifying the reasons for them, differences in payment amounts may be
    due to payment adjustments made after we extracted CMS data and states
    not reporting supplemental payments made under Medicaid demonstrations
    on the CMS 64.9I form. We have reported the information as reported to
    us by states. The findings from our nongeneralizable sample of five
    states cannot be used to make inferences about supplemental payment
    programs in other states. See appendixes III through V for the results
    of our analysis of the state-reported data.

    We conducted our work from October 2007 through May 2008 in accordance
    with generally accepted government auditing standards.

    [End of section]

    Appendix II: Information on Medicaid Supplemental Payments in the
    States and the District of Columbia, as Reported by States:

    This appendix provides payment information, by state, compiled from
    fiscal year 2006 CMS-64 expenditure reports. Table 5 provides the
    amount of DSH payments by state and also identifies for each state (1)
    the proportion of the state's total Medicaid payments accounted for by
    DSH payments and (2) the proportion of nationwide DSH payments
    accounted for by the state's DSH payments. Table 6 provides similar
    information, by state, for the non-DSH payments that 28 states reported
    to CMS for informational purposes on the CMS 64.9I form.

    Table 5: State DSH Payments Made in Fiscal Year 2006 as a Percentage of
    Total State Medicaid Payments and Total National DSH Payments, by State
    (Dollars in millions):

    State: Alabama;
    State DSH payments: Total state Medicaid payments[A]: $3,860;
    State DSH payments: Total: $417;
    State DSH payments: Federal share: $290;
    Total state DSH payments as percentage of total state Medicaid
    payments: 10.80%;
    Total state DSH payments as percentage of total national DSH payments:
    2.43%.

    State: Alaska;
    State DSH payments: Total state Medicaid payments[A]: $945;
    State DSH payments: Total: $7;
    State DSH payments: Federal share: $4;
    Total state DSH payments as percentage of total state Medicaid
    payments: 0.74%;
    Total state DSH payments as percentage of total national DSH payments:
    0.04%.

    State: Arizona;
    State DSH payments: Total state Medicaid payments[A]: $6,189;
    State DSH payments: Total: $138;
    State DSH payments: Federal share: $93;
    Total state DSH payments as percentage of total state Medicaid
    payments: 2.24%;
    Total state DSH payments as percentage of total national DSH payments:
    0.81%.

    State: Arkansas;
    State DSH payments: Total state Medicaid payments[A]: $2,854;
    State DSH payments: Total: $39;
    State DSH payments: Federal share: $29;
    Total state DSH payments as percentage of total state Medicaid
    payments: 1.37%;
    Total state DSH payments as percentage of total national DSH payments:
    0.23%.

    State: California;
    State DSH payments: Total state Medicaid payments[A]: $33,840;
    State DSH payments: Total: $2,339;
    State DSH payments: Federal share: $1,169;
    Total state DSH payments as percentage of total state Medicaid
    payments: 6.91%;
    Total state DSH payments as percentage of total national DSH payments:
    13.64%.

    State: Colorado;
    State DSH payments: Total state Medicaid payments[A]: $2,850;
    State DSH payments: Total: $174;
    State DSH payments: Federal share: $87;
    Total state DSH payments as percentage of total state Medicaid
    payments: 6.11%;
    Total state DSH payments as percentage of total national DSH payments:
    1.02%.

    State: Connecticut;
    State DSH payments: Total state Medicaid payments[A]: $4,068;
    State DSH payments: Total: $269;
    State DSH payments: Federal share: $134;
    Total state DSH payments as percentage of total state Medicaid
    payments: 6.61%;
    Total state DSH payments as percentage of total national DSH payments:
    1.57%.

    State: Delaware;
    State DSH payments: Total state Medicaid payments[A]: $946;
    State DSH payments: Total: $4;
    State DSH payments: Federal share: $2;
    Total state DSH payments as percentage of total state Medicaid
    payments: 0.44%;
    Total state DSH payments as percentage of total national DSH payments:
    0.02%.

    State: District of Columbia;
    State DSH payments: Total state Medicaid payments[A]: $1,285;
    State DSH payments: Total: $45;
    State DSH payments: Federal share: $31;
    Total state DSH payments as percentage of total state Medicaid
    payments: 3.48%;
    Total state DSH payments as percentage of total national DSH payments:
    0.26%.

    State: Florida;
    State DSH payments: Total state Medicaid payments[A]: $12,621;
    State DSH payments: Total: $320;
    State DSH payments: Federal share: $188;
    Total state DSH payments as percentage of total state Medicaid
    payments: 2.53%;
    Total state DSH payments as percentage of total national DSH payments:
    1.86%.

    State: Georgia;
    State DSH payments: Total state Medicaid payments[A]: $6,480;
    State DSH payments: Total: $425;
    State DSH payments: Federal share: $257;
    Total state DSH payments as percentage of total state Medicaid
    payments: 6.55%;
    Total state DSH payments as percentage of total national DSH payments:
    2.48%.

    State: Hawaii[B];
    State DSH payments: Total state Medicaid payments[A]: $1,091;
    State DSH payments: Total: $0;
    State DSH payments: Federal share: $0;
    Total state DSH payments as percentage of total state Medicaid
    payments: 0.00%;
    Total state DSH payments as percentage of total national DSH payments:
    0.00%.

    State: Idaho;
    State DSH payments: Total state Medicaid payments[A]: $1,027;
    State DSH payments: Total: $16;
    State DSH payments: Federal share: $12;
    Total state DSH payments as percentage of total state Medicaid
    payments: 1.60%;
    Total state DSH payments as percentage of total national DSH payments:
    0.10%.

    State: Illinois;
    State DSH payments: Total state Medicaid payments[A]: $9,967;
    State DSH payments: Total: $209;
    State DSH payments: Federal share: $105;
    Total state DSH payments as percentage of total state Medicaid
    payments: 2.10%;
    Total state DSH payments as percentage of total national DSH payments:
    1.22%.

    State: Indiana;
    State DSH payments: Total state Medicaid payments[A]: $5,637;
    State DSH payments: Total: $161;
    State DSH payments: Federal share: $101;
    Total state DSH payments as percentage of total state Medicaid
    payments: 2.86%;
    Total state DSH payments as percentage of total national DSH payments:
    0.94%.

    State: Iowa;
    State DSH payments: Total state Medicaid payments[A]: $2,539;
    State DSH payments: Total: $27;
    State DSH payments: Federal share: $17;
    Total state DSH payments as percentage of total state Medicaid
    payments: 1.07%;
    Total state DSH payments as percentage of total national DSH payments:
    0.16%.

    State: Kansas;
    State DSH payments: Total state Medicaid payments[A]: $2,057;
    State DSH payments: Total: $58;
    State DSH payments: Federal share: $35;
    Total state DSH payments as percentage of total state Medicaid
    payments: 2.82%;
    Total state DSH payments as percentage of total national DSH payments:
    0.34%.

    State: Kentucky;
    State DSH payments: Total state Medicaid payments[A]: $4,329;
    State DSH payments: Total: $197;
    State DSH payments: Federal share: $137;
    Total state DSH payments as percentage of total state Medicaid
    payments: 4.56%;
    Total state DSH payments as percentage of total national DSH payments:
    1.15%.

    State: Louisiana;
    State DSH payments: Total state Medicaid payments[A]: $4,688;
    State DSH payments: Total: $740;
    State DSH payments: Federal share: $516;
    Total state DSH payments as percentage of total state Medicaid
    payments: 15.78%;
    Total state DSH payments as percentage of total national DSH payments:
    4.31%.

    State: Maine;
    State DSH payments: Total state Medicaid payments[A]: $1,897;
    State DSH payments: Total: $48;
    State DSH payments: Federal share: $30;
    Total state DSH payments as percentage of total state Medicaid
    payments: 2.51%;
    Total state DSH payments as percentage of total national DSH payments:
    0.28%.

    State: Maryland;
    State DSH payments: Total state Medicaid payments[A]: $4,916;
    State DSH payments: Total: $122;
    State DSH payments: Federal share: $61;
    Total state DSH payments as percentage of total state Medicaid
    payments: 2.47%;
    Total state DSH payments as percentage of total national DSH payments:
    0.71%.

    State: Massachusetts;
    State DSH payments: Total state Medicaid payments[A]: $9,561;
    State DSH payments: Total: $346[C];
    State DSH payments: Federal share: $173;
    Total state DSH payments as percentage of total state Medicaid
    payments: 3.62%;
    Total state DSH payments as percentage of total national DSH payments:
    2.02%.

    State: Michigan;
    State DSH payments: Total state Medicaid payments[A]: $8,237;
    State DSH payments: Total: $384;
    State DSH payments: Federal share: $217;
    Total state DSH payments as percentage of total state Medicaid
    payments: 4.66%;
    Total state DSH payments as percentage of total national DSH payments:
    2.24%.

    State: Minnesota;
    State DSH payments: Total state Medicaid payments[A]: $5,367;
    State DSH payments: Total: $38;
    State DSH payments: Federal share: $19;
    Total state DSH payments as percentage of total state Medicaid
    payments: 0.71%;
    Total state DSH payments as percentage of total national DSH payments:
    0.22%.

    State: Mississippi;
    State DSH payments: Total state Medicaid payments[A]: $3,240;
    State DSH payments: Total: $171;
    State DSH payments: Federal share: $130;
    Total state DSH payments as percentage of total state Medicaid
    payments: 5.28%;
    Total state DSH payments as percentage of total national DSH payments:
    1.00%.

    State: Missouri;
    State DSH payments: Total state Medicaid payments[A]: $6,382;
    State DSH payments: Total: $740;
    State DSH payments: Federal share: $458;
    Total state DSH payments as percentage of total state Medicaid
    payments: 11.59%;
    Total state DSH payments as percentage of total national DSH payments:
    4.31%.

    State: Montana;
    State DSH payments: Total state Medicaid payments[A]: $720;
    State DSH payments: Total: $11;
    State DSH payments: Federal share: $8;
    Total state DSH payments as percentage of total state Medicaid
    payments: 1.56%;
    Total state DSH payments as percentage of total national DSH payments:
    0.07%.

    State: Nebraska;
    State DSH payments: Total state Medicaid payments[A]: $1,499;
    State DSH payments: Total: $23;
    State DSH payments: Federal share: $14;
    Total state DSH payments as percentage of total state Medicaid
    payments: 1.54%;
    Total state DSH payments as percentage of total national DSH payments:
    0.13%.

    State: Nevada;
    State DSH payments: Total state Medicaid payments[A]: $1,175;
    State DSH payments: Total: $80;
    State DSH payments: Federal share: $44;
    Total state DSH payments as percentage of total state Medicaid
    payments: 6.77%;
    Total state DSH payments as percentage of total national DSH payments:
    0.46%.

    State: New Hampshire;
    State DSH payments: Total state Medicaid payments[A]: $1,086;
    State DSH payments: Total: $182;
    State DSH payments: Federal share: $91;
    Total state DSH payments as percentage of total state Medicaid
    payments: 16.71%;
    Total state DSH payments as percentage of total national DSH payments:
    1.06%.

    State: New Jersey;
    State DSH payments: Total state Medicaid payments[A]: $9,109;
    State DSH payments: Total: $1,288;
    State DSH payments: Federal share: $644;
    Total state DSH payments as percentage of total state Medicaid
    payments: 14.14%;
    Total state DSH payments as percentage of total national DSH payments:
    7.51%.

    State: New Mexico;
    State DSH payments: Total state Medicaid payments[A]: $2,444;
    State DSH payments: Total: $19;
    State DSH payments: Federal share: $13;
    Total state DSH payments as percentage of total state Medicaid
    payments: 0.77%;
    Total state DSH payments as percentage of total national DSH payments:
    0.11%.

    State: New York;
    State DSH payments: Total state Medicaid payments[A]: $43,554;
    State DSH payments: Total: $3,068;
    State DSH payments: Federal share: $1,534;
    Total state DSH payments as percentage of total state Medicaid
    payments: 7.04%;
    Total state DSH payments as percentage of total national DSH payments:
    17.89%.

    State: North Carolina;
    State DSH payments: Total state Medicaid payments[A]: $8,720;
    State DSH payments: Total: $461;
    State DSH payments: Federal share: $293;
    Total state DSH payments as percentage of total state Medicaid
    payments: 5.29%;
    Total state DSH payments as percentage of total national DSH payments:
    2.69%.

    State: North Dakota;
    State DSH payments: Total state Medicaid payments[A]: $499;
    State DSH payments: Total: $2;
    State DSH payments: Federal share: less than $2;
    Total state DSH payments as percentage of total state Medicaid
    payments: 0.46%;
    Total state DSH payments as percentage of total national DSH payments:
    0.01%.

    State: Ohio;
    State DSH payments: Total state Medicaid payments[A]: $11,768;
    State DSH payments: Total: $735;
    State DSH payments: Federal share: $439;
    Total state DSH payments as percentage of total state Medicaid
    payments: 6.24%;
    Total state DSH payments as percentage of total national DSH payments:
    4.28%.

    State: Oklahoma;
    State DSH payments: Total state Medicaid payments[A]: $2,871;
    State DSH payments: Total: $39;
    State DSH payments: Federal share: $27;
    Total state DSH payments as percentage of total state Medicaid
    payments: 1.37%;
    Total state DSH payments as percentage of total national DSH payments:
    0.23%.

    State: Oregon;
    State DSH payments: Total state Medicaid payments[A]: $2,900;
    State DSH payments: Total: $44;
    State DSH payments: Federal share: $27;
    Total state DSH payments as percentage of total state Medicaid
    payments: 1.52%;
    Total state DSH payments as percentage of total national DSH payments:
    0.26%.

    State: Pennsylvania;
    State DSH payments: Total state Medicaid payments[A]: $15,402;
    State DSH payments: Total: $1,019;
    State DSH payments: Federal share: $560;
    Total state DSH payments as percentage of total state Medicaid
    payments: 6.61%;
    Total state DSH payments as percentage of total national DSH payments:
    5.94%.

    State: Rhode Island;
    State DSH payments: Total state Medicaid payments[A]: $1,674;
    State DSH payments: Total: $112;
    State DSH payments: Federal share: $61;
    Total state DSH payments as percentage of total state Medicaid
    payments: 6.72%;
    Total state DSH payments as percentage of total national DSH payments:
    0.66%.

    State: South Carolina;
    State DSH payments: Total state Medicaid payments[A]: $3,934;
    State DSH payments: Total: $445;
    State DSH payments: Federal share: $308;
    Total state DSH payments as percentage of total state Medicaid
    payments: 11.31%;
    Total state DSH payments as percentage of total national DSH payments:
    2.59%.

    State: South Dakota;
    State DSH payments: Total state Medicaid payments[A]: $602;
    State DSH payments: Total: $1;
    State DSH payments: Federal share: less than $1;
    Total state DSH payments as percentage of total state Medicaid
    payments: 0.18%;
    Total state DSH payments as percentage of total national DSH payments:
    0.01%.

    State: Tennessee[B];
    State DSH payments: Total state Medicaid payments[A]: $6,014;
    State DSH payments: Total: $0;
    State DSH payments: Federal share: $0;
    Total state DSH payments as percentage of total state Medicaid
    payments: 0.00%;
    Total state DSH payments as percentage of total national DSH payments:
    0.00%.

    State: Texas;
    State DSH payments: Total state Medicaid payments[A]: $17,684;
    State DSH payments: Total: $1,543;
    State DSH payments: Federal share: $936;
    Total state DSH payments as percentage of total state Medicaid
    payments: 8.72%;
    Total state DSH payments as percentage of total national DSH payments:
    9.00%.

    State: Utah;
    State DSH payments: Total state Medicaid payments[A]: $1,450;
    State DSH payments: Total: $19;
    State DSH payments: Federal share: $14;
    Total state DSH payments as percentage of total state Medicaid
    payments: 1.34%;
    Total state DSH payments as percentage of total national DSH payments:
    0.11%.

    State: Vermont;
    State DSH payments: Total state Medicaid payments[A]: $947;
    State DSH payments: Total: $24;
    State DSH payments: Federal share: $14;
    Total state DSH payments as percentage of total state Medicaid
    payments: 2.59%;
    Total state DSH payments as percentage of total national DSH payments:
    0.14%.

    State: Virginia;
    State DSH payments: Total state Medicaid payments[A]: $4,608;
    State DSH payments: Total: $157;
    State DSH payments: Federal share: $78;
    Total state DSH payments as percentage of total state Medicaid
    payments: 3.40%;
    Total state DSH payments as percentage of total national DSH payments:
    0.91%.

    State: Washington;
    State DSH payments: Total state Medicaid payments[A]: $5,524;
    State DSH payments: Total: $304;
    State DSH payments: Federal share: $152;
    Total state DSH payments as percentage of total state Medicaid
    payments: 5.51%;
    Total state DSH payments as percentage of total national DSH payments:
    1.77%.

    State: West Virginia;
    State DSH payments: Total state Medicaid payments[A]: $2,076;
    State DSH payments: Total: $74;
    State DSH payments: Federal share: $54;
    Total state DSH payments as percentage of total state Medicaid
    payments: 3.58%;
    Total state DSH payments as percentage of total national DSH payments:
    0.43%.

    State: Wisconsin;
    State DSH payments: Total state Medicaid payments[A]: $4,583;
    State DSH payments: Total: $63;
    State DSH payments: Federal share: $36;
    Total state DSH payments as percentage of total state Medicaid
    payments: 1.37%;
    Total state DSH payments as percentage of total national DSH payments:
    0.37%.

    State: Wyoming;
    State DSH payments: Total state Medicaid payments[A]: $418;
    State DSH payments: Total: less than $1;
    State DSH payments: Federal share: less than $1;
    Total state DSH payments as percentage of total state Medicaid
    payments: 0.12%;
    Total state DSH payments as percentage of total national DSH payments:
    less than 0.01%.

    State: Total;
    State DSH payments: Total state Medicaid payments[A]: $299,022[D];
    State DSH payments: Total: $17,149[E];
    State DSH payments: Federal share: $9,646[E];
    Total state DSH payments as percentage of total state Medicaid
    payments: 5.74%;
    Total state DSH payments as percentage of total national DSH payments:
    [Empty].

    Source: GAO analysis of CMS-64 data as of the end of fiscal year 2006.

    Note: Total DSH payments represent payments made in fiscal year 2006
    and may include payments that apply to prior fiscal years.

    [A] Total state Medicaid payments represents both the state and federal
    share and includes all payments made by the states to providers,
    including DSH and non-DSH payments. It does not include expenditures
    for program administration.

    [B] Hawaii and Tennessee did not have any DSH allotments in fiscal year
    2006. Both states operated Medicaid demonstrations under which DSH
    funding is incorporated into payments made to managed care
    organizations that provide health coverage to Medicaid individuals.
    However, the Tax Relief and Health Care Act of 2006, Pub. L. No. 109-
    432, � 404, 120 Stat. 2922, 2995-6 (2006) (codified, as amended, at 42
    U.S.C. � 1396r-4(f)(6)), established DSH allotments for both states and
    allowed the states to submit changes to their state plans, which, if
    approved, would authorize both states to make DSH payments and to
    receive federal reimbursement for these payments in fiscal year 2007.
    The Medicare, Medicaid, SCHIP Extension Act of 2007, Pub. L. No. 110-
    173, � 204, 121 Stat. 2492, 2513-2514 (2007) (codified, as amended, at
    42 U.S.C. � 1396r-4(f)(6)) extended the states' authority to make DSH
    payments through June 2008.

    [C] According to state officials, the $346 million Massachusetts
    reported as DSH payments on its 2006 expenditure report were actually
    non-DSH payments made under a Medicaid demonstration. Massachusetts
    officials stated that these non-DSH payments were reported as DSH
    payments because a form for reporting these payments had not been
    created at the time the state was seeking reimbursement for them.

    [D] This total includes $889 million in Medicaid payments made by
    Puerto Rico and four U.S. territories. Puerto Rico and the four U.S.
    territories did not make any DSH payments in 2006.

    [E] Payment amounts may not add to total because of rounding.

    [End of table]

    Table 6: State Non-DSH Payments Made in Fiscal Year 2006 as a
    Percentage of Total State Medicaid Payments, Ranked Alphabetically by
    State (Dollars in millions):

    State: Alabama;
    Total state Medicaid payments[A]: $3,860;
    State non-DSH supplemental payments: Total: $275;
    State non-DSH supplemental payments: Federal share: $191;
    Total state non-DSH payments as percentage of total state Medicaid
    payments: 7.12%.

    State: Alaska;
    Total state Medicaid payments[A]: $945;
    State non-DSH supplemental payments: Total: $30;
    State non-DSH supplemental payments: Federal share: $18;
    Total state non-DSH payments as percentage of total state Medicaid
    payments: 3.22.

    State: Arizona;
    Total state Medicaid payments[A]: $6,189;
    State non-DSH supplemental payments: Total: [Empty];
    State non-DSH supplemental payments: Federal share: [Empty];
    Total state non-DSH payments as percentage of total state Medicaid
    payments: [Empty].

    State: Arkansas;
    Total state Medicaid payments[A]: $2,854;
    State non-DSH supplemental payments: Total: $63;
    State non-DSH supplemental payments: Federal share: $47;
    Total state non-DSH payments as percentage of total state Medicaid
    payments: 2.22.

    State: California;
    Total state Medicaid payments[A]: $33,840;
    State non-DSH supplemental payments: Total: $1,024;
    State non-DSH supplemental payments: Federal share: $512;
    Total state non-DSH payments as percentage of total state Medicaid
    payments: 3.02.

    State: Colorado;
    Total state Medicaid payments[A]: $2,850;
    State non-DSH supplemental payments: Total: $140;
    State non-DSH supplemental payments: Federal share: $70;
    Total state non-DSH payments as percentage of total state Medicaid
    payments: 4.90.

    State: Connecticut;
    Total state Medicaid payments[A]: $4,068;
    State non-DSH supplemental payments: Total: [Empty];
    State non-DSH supplemental payments: Federal share: [Empty];
    Total state non-DSH payments as percentage of total state Medicaid
    payments: [Empty].

    State: Delaware;
    Total state Medicaid payments[A]: $946;
    State non-DSH supplemental payments: Total: [Empty];
    State non-DSH supplemental payments: Federal share: [Empty];
    Total state non-DSH payments as percentage of total state Medicaid
    payments: [Empty].

    State: District of Columbia;
    Total state Medicaid payments[A]: $1,285;
    State non-DSH supplemental payments: Total: [Empty];
    State non-DSH supplemental payments: Federal share: [Empty];
    Total state non-DSH payments as percentage of total state Medicaid
    payments: [Empty].

    State: Florida;
    Total state Medicaid payments[A]: $12,621;
    State non-DSH supplemental payments: Total: $681;
    State non-DSH supplemental payments: Federal share: $401;
    Total state non-DSH payments as percentage of total state Medicaid
    payments: 5.39.

    State: Georgia;
    Total state Medicaid payments[A]: $6,480;
    State non-DSH supplemental payments: Total: $332;
    State non-DSH supplemental payments: Federal share: $201;
    Total state non-DSH payments as percentage of total state Medicaid
    payments: 5.13.

    State: Hawaii;
    Total state Medicaid payments[A]: $1,091;
    State non-DSH supplemental payments: Total: $18;
    State non-DSH supplemental payments: Federal share: $11;
    Total state non-DSH payments as percentage of total state Medicaid
    payments: 1.69.

    State: Idaho;
    Total state Medicaid payments[A]: $1,027;
    State non-DSH supplemental payments: Total: [Empty];
    State non-DSH supplemental payments: Federal share: [Empty];
    Total state non-DSH payments as percentage of total state Medicaid
    payments: [Empty].

    State: Illinois;
    Total state Medicaid payments[A]: $9,967;
    State non-DSH supplemental payments: Total: $631;
    State non-DSH supplemental payments: Federal share: $317;
    Total state non-DSH payments as percentage of total state Medicaid
    payments: 6.33.

    State: Indiana;
    Total state Medicaid payments[A]: $5,637;
    State non-DSH supplemental payments: Total: [Empty];
    State non-DSH supplemental payments: Federal share: [Empty];
    Total state non-DSH payments as percentage of total state Medicaid
    payments: [Empty].

    State: Iowa;
    Total state Medicaid payments[A]: $2,539;
    State non-DSH supplemental payments: Total: [Empty];
    State non-DSH supplemental payments: Federal share: [Empty];
    Total state non-DSH payments as percentage of total state Medicaid
    payments: [Empty].

    State: Kansas;
    Total state Medicaid payments[A]: $2,057;
    State non-DSH supplemental payments: Total: [Empty];
    State non-DSH supplemental payments: Federal share: [Empty];
    Total state non-DSH payments as percentage of total state Medicaid
    payments: [Empty].

    State: Kentucky;
    Total state Medicaid payments[A]: $4,329;
    State non-DSH supplemental payments: Total: [Empty];
    State non-DSH supplemental payments: Federal share: [Empty];
    Total state non-DSH payments as percentage of total state Medicaid
    payments: [Empty].

    State: Louisiana;
    Total state Medicaid payments[A]: $4,688;
    State non-DSH supplemental payments: Total: $31;
    State non-DSH supplemental payments: Federal share: $22;
    Total state non-DSH payments as percentage of total state Medicaid
    payments: 0.67.

    State: Maine;
    Total state Medicaid payments[A]: $1,897;
    State non-DSH supplemental payments: Total: [Empty];
    State non-DSH supplemental payments: Federal share: [Empty];
    Total state non-DSH payments as percentage of total state Medicaid
    payments: [Empty].

    State: Maryland;
    Total state Medicaid payments[A]: $4,916;
    State non-DSH supplemental payments: Total: [Empty];
    State non-DSH supplemental payments: Federal share: [Empty];
    Total state non-DSH payments as percentage of total state Medicaid
    payments: [Empty].

    State: Massachusetts;
    Total state Medicaid payments[A]: $9,561;
    State non-DSH supplemental payments: Total: [Empty];
    State non-DSH supplemental payments: Federal share: [Empty];
    Total state non-DSH payments as percentage of total state Medicaid
    payments: [Empty].

    State: Michigan;
    Total state Medicaid payments[A]: $8,237;
    State non-DSH supplemental payments: Total: $13;
    State non-DSH supplemental payments: Federal share: $7;
    Total state non-DSH payments as percentage of total state Medicaid
    payments: 0.16.

    State: Minnesota;
    Total state Medicaid payments[A]: $5,367;
    State non-DSH supplemental payments: Total: [Empty];
    State non-DSH supplemental payments: Federal share: [Empty];
    Total state non-DSH payments as percentage of total state Medicaid
    payments: [Empty].

    State: Mississippi;
    Total state Medicaid payments[A]: $3,240;
    State non-DSH supplemental payments: Total: $175;
    State non-DSH supplemental payments: Federal share: $133;
    Total state non-DSH payments as percentage of total state Medicaid
    payments: 5.39.

    State: Missouri;
    Total state Medicaid payments[A]: $6,382;
    State non-DSH supplemental payments: Total: $116;
    State non-DSH supplemental payments: Federal share: $72;
    Total state non-DSH payments as percentage of total state Medicaid
    payments: 1.83.

    State: Montana;
    Total state Medicaid payments[A]: $720;
    State non-DSH supplemental payments: Total: $33;
    State non-DSH supplemental payments: Federal share: $24;
    Total state non-DSH payments as percentage of total state Medicaid
    payments: 4.65.

    State: Nebraska;
    Total state Medicaid payments[A]: $1,499;
    State non-DSH supplemental payments: Total: $48;
    State non-DSH supplemental payments: Federal share: $29;
    Total state non-DSH payments as percentage of total state Medicaid
    payments: 3.20.

    State: Nevada;
    Total state Medicaid payments[A]: $1,175;
    State non-DSH supplemental payments: Total: [Empty];
    State non-DSH supplemental payments: Federal share: [Empty];
    Total state non-DSH payments as percentage of total state Medicaid
    payments: [Empty].

    State: New Hampshire;
    Total state Medicaid payments[A]: $1,086;
    State non-DSH supplemental payments: Total: $19;
    State non-DSH supplemental payments: Federal share: $10;
    Total state non-DSH payments as percentage of total state Medicaid
    payments: 1.76.

    State: New Jersey;
    Total state Medicaid payments[A]: $9,109;
    State non-DSH supplemental payments: Total: [Empty];
    State non-DSH supplemental payments: Federal share: [Empty];
    Total state non-DSH payments as percentage of total state Medicaid
    payments: [Empty].

    State: New Mexico;
    Total state Medicaid payments[A]: $2,444;
    State non-DSH supplemental payments: Total: $49;
    State non-DSH supplemental payments: Federal share: $35;
    Total state non-DSH payments as percentage of total state Medicaid
    payments: 2.01.

    State: New York;
    Total state Medicaid payments[A]: $43,554;
    State non-DSH supplemental payments: Total: $385;
    State non-DSH supplemental payments: Federal share: $192;
    Total state non-DSH payments as percentage of total state Medicaid
    payments: 0.88.

    State: North Carolina;
    Total state Medicaid payments[A]: $8,720;
    State non-DSH supplemental payments: Total: $825;
    State non-DSH supplemental payments: Federal share: $524;
    Total state non-DSH payments as percentage of total state Medicaid
    payments: 9.46.

    State: North Dakota;
    Total state Medicaid payments[A]: $499;
    State non-DSH supplemental payments: Total: [Empty];
    State non-DSH supplemental payments: Federal share: [Empty];
    Total state non-DSH payments as percentage of total state Medicaid
    payments: [Empty].

    State: Ohio;
    Total state Medicaid payments[A]: $11,768;
    State non-DSH supplemental payments: Total: $46;
    State non-DSH supplemental payments: Federal share: $27;
    Total state non-DSH payments as percentage of total state Medicaid
    payments: 0.39.

    State: Oklahoma;
    Total state Medicaid payments[A]: $2,871;
    State non-DSH supplemental payments: Total: $28;
    State non-DSH supplemental payments: Federal share: $19;
    Total state non-DSH payments as percentage of total state Medicaid
    payments: 0.99.

    State: Oregon;
    Total state Medicaid payments[A]: $2,900;
    State non-DSH supplemental payments: Total: $15;
    State non-DSH supplemental payments: Federal share: $9;
    Total state non-DSH payments as percentage of total state Medicaid
    payments: 0.51.

    State: Pennsylvania;
    Total state Medicaid payments[A]: $15,402;
    State non-DSH supplemental payments: Total: [Empty];
    State non-DSH supplemental payments: Federal share: [Empty];
    Total state non-DSH payments as percentage of total state Medicaid
    payments: [Empty].

    State: Rhode Island;
    Total state Medicaid payments[A]: $1,674;
    State non-DSH supplemental payments: Total: [Empty];
    State non-DSH supplemental payments: Federal share: [Empty];
    Total state non-DSH payments as percentage of total state Medicaid
    payments: [Empty].

    State: South Carolina;
    Total state Medicaid payments[A]: $3,934;
    State non-DSH supplemental payments: Total: $335;
    State non-DSH supplemental payments: Federal share: $232;
    Total state non-DSH payments as percentage of total state Medicaid
    payments: 8.51.

    State: South Dakota;
    Total state Medicaid payments[A]: $602;
    State non-DSH supplemental payments: Total: [Empty];
    State non-DSH supplemental payments: Federal share: [Empty];
    Total state non-DSH payments as percentage of total state Medicaid
    payments: [Empty]-.

    State: Tennessee;
    Total state Medicaid payments[A]: $6,014;
    State non-DSH supplemental payments: Total: $127;
    State non-DSH supplemental payments: Federal share: $81;
    Total state non-DSH payments as percentage of total state Medicaid
    payments: 2.10.

    State: Texas;
    Total state Medicaid payments[A]: $17,684;
    State non-DSH supplemental payments: Total: $818;
    State non-DSH supplemental payments: Federal share: $496;
    Total state non-DSH payments as percentage of total state Medicaid
    payments: 4.63.

    State: Utah;
    Total state Medicaid payments[A]: $1,450;
    State non-DSH supplemental payments: Total: [Empty];
    State non-DSH supplemental payments: Federal share: [Empty];
    Total state non-DSH payments as percentage of total state Medicaid
    payments: [Empty].

    State: Vermont;
    Total state Medicaid payments[A]: $947;
    State non-DSH supplemental payments: Total: [Empty];
    State non-DSH supplemental payments: Federal share: [Empty];
    Total state non-DSH payments as percentage of total state Medicaid
    payments: [Empty].

    State: Virginia;
    Total state Medicaid payments[A]: $4,608;
    State non-DSH supplemental payments: Total: [Empty];
    State non-DSH supplemental payments: Federal share: [Empty];
    Total state non-DSH payments as percentage of total state Medicaid
    payments: [Empty].

    State: Washington;
    Total state Medicaid payments[A]: $5,524;
    State non-DSH supplemental payments: Total: $9;
    State non-DSH supplemental payments: Federal share: $5;
    Total state non-DSH payments as percentage of total state Medicaid
    payments: 0.17.

    State: West Virginia;
    Total state Medicaid payments[A]: $2,076;
    State non-DSH supplemental payments: Total: $36;
    State non-DSH supplemental payments: Federal share: $26;
    Total state non-DSH payments as percentage of total state Medicaid
    payments: 1.72.

    State: Wisconsin;
    Total state Medicaid payments[A]: $4,583;
    State non-DSH supplemental payments: Total:$29;
    State non-DSH supplemental payments: Federal share: $16;
    Total state non-DSH payments as percentage of total state Medicaid
    payments: 0.62.

    State: Wyoming;
    Total state Medicaid payments[A]: $418;
    State non-DSH supplemental payments: Total: [Empty];
    State non-DSH supplemental payments: Federal share: [Empty];
    Total state non-DSH payments as percentage of total state Medicaid
    payments: [Empty].

    State: Total;
    Total state Medicaid payments[A]: $299,022[B];
    State non-DSH supplemental payments: Total: $6,332[C];
    State non-DSH supplemental payments: Federal share: $3,725[C];
    Total state non-DSH payments as percentage of total state Medicaid
    payments: 2.12%.

    Source: GAO analysis of CMS 64.9I forms.

    Notes: This table includes data from CMS 64.9I forms as adjusted as of
    October 5, 2007.

    A dash in a cell indicates that we were unable to distinguish whether
    the state did not submit information on the CMS 64.9I form, which is
    part of the CMS-64 expenditure report, or did submit the CMS 64.9I form
    but reported that the state made no non-DSH payments in 2006.

    We found evidence that CMS 64.9I forms do not fully capture the non-DSH
    payments made by states. The CMS 64.9I form is an informational form
    and is not used for reimbursement purposes.

    [A] Total state Medicaid payments represents both the state and federal
    share and includes all payments made by the states to providers,
    including DSH and non-DSH payments. It does not include expenditures
    for program administration.

    [B] This total includes $889 million in Medicaid payments made by
    Puerto Rico and four U.S. territories.

    [C] Payment amounts may not add to total because of rounding.

    [End of table]

    [End of section]

    Appendix III: Summary of Medicaid Supplemental Payment Programs in Five
    Surveyed States:

    We obtained information from each of the five states we surveyed on the
    supplemental payment programs they had in place in fiscal year 2006. We
    asked the states to provide information about each supplemental payment
    program they operated, including:

    * the program's purpose;

    * the providers that received payments and the amount of payment they
    received; and:

    * whether payments were made as lump-sum payments (for example, as a
    quarterly or annual payment made to a provider) or as an enhanced
    payment rate (an additional amount that is added to the individual
    payments made to providers for specific services).

    The five states reported making all payments in fiscal year 2006 as
    periodic lump sums. The purpose, number of providers receiving
    payments, and total payments made for each program are summarized in
    tables 7 through 11.

    California's Fiscal Year 2006 Supplemental Payment Programs:

    California officials reported that in fiscal year 2006 the state paid
    nearly $4 billion in Medicaid supplemental payments through three DSH
    and nine non-DSH supplemental payment programs. Supplemental payments
    were made to hospitals and nursing facilities. Total payments through
    the programs ranged from $11 million to over $2 billion for DSH
    programs and from $8 million to over $1 billion for non-DSH programs.
    See table 7 for a description of each supplemental payment program
    administered by California.

    Table 7: California Supplemental Payment Programs from Which Payments
    Were Made in Fiscal Year 2006, as Reported to GAO by the State in

    January 2008 (Dollars in millions):

    Program type: DSH;
    Program name: DSH Program for Designated Public Hospitals;
    Program purpose as reported by the state: Provides supplemental
    reimbursement to Designated Public Hospitals that serve a
    disproportionate number of MediCal (Medicaid), indigent, and uninsured
    patients. The primary goal of the supplemental payments is to maintain
    access to health care for this population;
    Number of providers receiving payments in FY 2006: 23;
    Payment amount[A]: $2,051.

    Program type: DSH;
    Program name: DSH Program for Non-Designated Public Hospitals;
    Program purpose as reported by the state: Provides supplemental
    reimbursement to Non-Designated Public Hospitals that serve a
    disproportionate number of MediCal, indigent, and uninsured patients.
    The primary goal of the supplemental payments is to maintain access to
    health care for this population;
    Number of providers receiving payments in FY 2006: 30;
    Payment amount[A]: $11.

    Program type: DSH;
    Program name: DSH Payments Made Under Former Methodology;
    Program purpose as reported by the state: This program provides
    supplemental reimbursement to Public and Private hospitals that serve a
    disproportionate number of MediCal, indigent and uninsured patients.
    Primary goal of the supplemental payments is to maintain access to
    health care for this population;
    Number of providers receiving payments in FY 2006: 155;
    Payment amount[A]: $285.

    Program type: DSH;
    Program name: Total DSH;
    Number of providers receiving payments in FY 2006: 159[B];
    Payment amount[A]: $2,347.

    Program type: Non-DSH;
    Program name: Safety Net Care Pool[C];
    Program purpose as reported by the state: Provides supplemental
    reimbursement to Designated Public Hospitals for uncompensated hospital
    and clinic costs associated with health care services provided to the
    uninsured;
    Number of providers receiving payments in FY 2006: 22;
    Payment amount[A]: $801.

    Program type: Non-DSH;
    Program name: DSH Replacement Payments for Private Hospitals[D];
    Program purpose as reported by the state: Provides supplemental
    reimbursement to private hospitals that serve a disproportionate number
    of MediCal, indigent, and uninsured patients. Primary goal of the
    supplemental payments is to maintain access to health care for this
    population;
    Number of providers receiving payments in FY 2006: 99;
    Payment amount[A]: $363.

    Program type: Non-DSH;
    Program name: Public Hospital Outpatient Supplemental Reimbursement
    Program;
    Program purpose as reported by the state: Provides supplemental
    reimbursement for an outpatient department of a general acute care
    hospital that is owned by a city, county, city and county, the
    University of California, or health care district that meets specified
    requirements and provides hospital services to MediCal beneficiaries;
    Number of providers receiving payments in FY 2006: 70;
    Payment amount[A]: $209.

    Program type: Non-DSH;
    Program name: Construction Renovation Reimbursement Program[C];
    Program purpose as reported by the state: Provides partial
    reimbursement of the debt service incurred on revenue bonds for the
    construction, renovation, replacement, or retrofitting of eligible
    hospitals and/or their ancillary or fixed equipment used to provide
    services to MediCal beneficiaries;
    Number of providers receiving payments in FY 2006: 15;
    Payment amount[A]: $87.

    Program type: Non-DSH;
    Program name: Enhanced Payments to Private Trauma Hospitals;
    Program purpose as reported by the state: Provides enhanced MediCal
    payments for outpatient hospital trauma and emergency services to
    private hospitals within Los Angeles County and Alameda County that
    have demonstrated a need for assistance in ensuring the availability of
    essential trauma services for MediCal beneficiaries;
    Number of providers receiving payments in FY 2006: 11;
    Payment amount[A]: $39.

    Program type: Non-DSH;
    Program name: Distressed Hospital Fund[C];
    Program purpose as reported by the state: Provides supplemental
    payments to hospitals participating in the Selective Provider
    Contracting Program. Contract hospitals that meet the requirements as
    determined by California Medical Assistance Commission are invited
    annually to submit proposals for disbursements from the Distressed
    Hospital Fund per Welfare and Institutions Code, Section 14166, et seq;
    Number of providers receiving payments in FY 2006: 11;
    Payment amount[A]: $24.

    Program type: Non-DSH;
    Program name: Distinct Part/Nursing Facility Supplemental Payment
    Program;
    Program purpose as reported by the state: Provides supplemental
    reimbursement for a Distinct Part/Nursing Facility of a general acute
    care hospital that is owned or operated by a city, county, city and
    county, or health care district; to provide services to MediCal
    (Medicaid) beneficiaries;
    Number of providers receiving payments in FY 2006: 19;
    Payment amount[A]: $12.

    Program type: Non-DSH;
    Program name: Outpatient DSH Payment Program[D];
    Program purpose as reported by the state: Dollars in millions: Provides
    enhanced reimbursement to eligible acute care hospitals for outpatient
    services that serve a disproportionate number of MediCal (Medicaid),
    indigent, and uninsured patients. The primary goal of the supplemental
    payments is to maintain outpatient access to health care for this
    population;
    Number of providers receiving payments in FY 2006: 111;
    Payment amount[A]: 10.

    Program type: Non-DSH;
    Program name: Small and Rural Hospital Payment Program;
    Program purpose as reported by the state: Dollars in millions: Provides
    an increase to the reimbursements for outpatient services rendered to a
    disproportionate number of MediCal (Medicaid), indigent, and uninsured
    patients by small and rural hospitals;
    Number of providers receiving payments in FY 2006: 71;
    Payment amount[A]: $8.

    Program type: Non-DSH;
    Program name: Total non-DSH;
    Number of providers receiving payments in FY 2006: 261[B];
    Payment amount[A]: $1,554.

    Total supplemental:
    Number of providers receiving payments in FY 2006: 272[B];
    Payment amount[A]: $3,900.

    Source: GAO analysis of survey responses from California.

    [A] Payment amounts may not sum to totals because of rounding.

    [B] Some providers received payments from multiple programs; totals
    represent numbers of unique providers that received payments.

    [C] Program was authorized under a Medicaid demonstration.

    [D] Although the name of this program contains the term DSH, we
    considered it to be a non-DSH program because payments were not counted
    against the state's DSH allotment.

    [End of table]

    Massachusetts's Fiscal Year 2006 Supplemental Payment Programs:

    Massachusetts officials reported that in fiscal year 2006 the state
    paid over $1.6 billion in Medicaid supplemental payments through 15 non-
    DSH supplemental payment programs. Supplemental payments were made to
    hospitals, including psychiatric hospitals; managed care organizations;
    and a physician group. Four programs were in operation for only part of
    2006: two of these programs were terminated at the end of the third
    quarter of fiscal year 2006 and two began at the start of the fourth
    quarter. On January 26, 2005, CMS approved a 3-year extension to the
    Medicaid demonstration in Massachusetts, the MassHealth demonstration.
    The demonstration, which was in effect during fiscal year 2006, created
    a Safety Net Care Pool, which represents the combined total of what
    Massachusetts had previously spent on DSH programs and supplemental
    payments to Medicaid managed care organizations. The state funded 10
    non-DSH supplemental payment programs through the Safety Net Care Pool,
    some of which had been DSH programs prior to their inclusion in the
    demonstration. In addition to supplemental payments, Massachusetts
    funded its Commonwealth Care Health Insurance Program through the Pool.
    Under Commonwealth Care, the state provides premium assistance
    subsidies to private managed care organizations for providing sliding
    scale health insurance to previously uninsured people with low incomes
    and is part of the state's transition from supplemental payments to
    providers to expanding coverage of individuals. See table 8 for a
    description of each supplemental payment program administered by
    Massachusetts.

    Table 8: Massachusetts Supplemental Payment Programs from Which
    Payments Were Made in Fiscal Year 2006, as Reported to GAO by the State
    in January 2008 (Dollars in millions):

    Program type: DSH;
    Program name: None reported;
    Program purpose as reported by the state: NA;
    Number of providers receiving payments in FY 2006: [Empty];
    Payment amount[A]: [Empty].

    Total DSH:
    Number of providers receiving payments in FY 2006: 0;
    Payment amount[A]: $0.

    Program type: Non-DSH;
    Program name: Supplemental Payments for Managed Care Organizations
    (ended on June 30, 2006)[B];
    Program purpose as reported by the state: To support the transition of
    safety net health systems from providing unmanaged services to the
    uninsured to providing managed care services to individuals newly
    eligible for Medicaid as a result of an expansion of Massachusetts's
    Medicaid program under the authority of a Medicaid demonstration;
    Number of providers receiving payments in FY 2006: 2;
    Payment amount[A]: $577.

    Program type: Non-DSH;
    Program name: Uncompensated Care Safety Net Care Payment[B];
    Program purpose as reported by the state: For acute hospitals that
    incur uncompensated costs for services to low-income patients;
    Number of providers receiving payments in FY 2006: 57;
    Payment amount[A]: $225.

    Program type: Non-DSH;
    Program name: Essential MassHealth Hospital rate payment;
    Program purpose as reported by the state: For hospitals that are deemed
    to be essential to the MassHealth program in that they are
    legislatively mandated to have a public mission;
    Number of providers receiving payments in FY 2006: 6;
    Payment amount[A]: $209.

    Program type: Non-DSH;
    Program name: Public Service Hospital Safety Net Care Payment[B];
    Program purpose as reported by the state: For safety net acute
    hospitals that have significant free care charges and a
    disproportionately public payer mix;
    Number of providers receiving payments in FY 2006: 2;
    Payment amount[A]: $177.

    Program type: Non-DSH;
    Program name: Public Service Hospital rate payment;
    Program purpose as reported by the state: For safety net acute
    hospitals that have significant free care charges and a
    disproportionately public payer mix;
    Number of providers receiving payments in FY 2006: 1;
    Payment amount[A]: $124.

    Program type: Non-DSH;
    Program name: Safety Net Care Payments for State-Owned Non-Acute
    Hospitals Operated by the Department of Mental Health[B];
    Program purpose as reported by the state: For unreimbursed nonacute
    hospital services provided by hospitals operated by the Massachusetts
    Department of Mental Health;
    Number of providers receiving payments in FY 2006: 8;
    Payment amount[A]: $105.

    Program type: Non-DSH;
    Program name: Acute Hospitals with High Medicaid Discharges;
    Program purpose as reported by the state: For acute hospitals that
    serve a substantial share of the Medicaid population;
    Number of providers receiving payments in FY 2006: 9;
    Payment amount[A]: $88.

    Program type: Non-DSH;
    Program name: Section 122 of Chapter 58 Safety Net Health System
    payments (began on July 1, 2006)[B];
    Program purpose as reported by the state: For unreimbursed free care
    and Medicaid services, including Medicaid managed care services and
    Commonwealth Care, and the operation of the safety net health systems
    at the two publicly operated or public-service state-defined
    disproportionate share hospitals with the highest relative volume of
    uncompensated care costs in hospital fiscal year 2007;
    Number of providers receiving payments in FY 2006: 2;
    Payment amount[A]: $50.

    Program type: Non-DSH;
    Program name: Safety Net Care Payments for Special Population State-
    Owned Non-Acute Hospitals Operated by the Department of Public
    Health[B];
    Program purpose as reported by the state: For unreimbursed nonacute
    hospital services provided by hospitals operated by the Massachusetts
    Department of Public Health;
    Number of providers receiving payments in FY 2006: 4;
    Payment amount[A]: $30.

    Program type: Non-DSH;
    Program name: Physician Supplemental Payment;
    Program purpose as reported by the state: For the physician group that
    exists to support the mission of the teaching hospital affiliated with
    the Commonwealth-owned medical school;
    Number of providers receiving payments in FY 2006: 1;
    Payment amount[A]: $19.

    Program type: Non-DSH;
    Program name: Safety Net Care Payments for Pediatric Specialty
    Hospitals and Hospitals with Pediatric Specialty Units[B];
    Program purpose as reported by the state: Recognizes the unique
    population and/or the acute severity of illness within the case mix
    seen by pediatric specialty hospitals and hospitals with pediatric
    specialty units;
    Number of providers receiving payments in FY 2006: 4;
    Payment amount[A]: $12.

    Program type: Non-DSH;
    Program name: High Public Payer Hospital Safety Net Care Payment[B];
    Program purpose as reported by the state: For acute hospitals that have
    the highest percentages of revenue from Medicare, Medicaid, other
    government payers, and free care, relative to total revenue;
    Number of providers receiving payments in FY 2006: 6;
    Payment amount[A]: $12.

    Program type: Non-DSH;
    Program name: Supplemental Medicaid Rate for Pediatric Specialty
    Hospitals;
    Program purpose as reported by the state: For the unique population and
    the acute severity of illness within the case mix seen by pediatric
    specialty hospitals;
    Number of providers receiving payments in FY 2006: 1;
    Payment amount[A]: $6.

    Program type: Non-DSH;
    Program name: Safety Net Care Payments for Pediatric Non-Acute
    Hospitals (began on July 1, 2006)[B];
    Program purpose as reported by the state: For the unique population and
    the acute severity of illness within the case mix seen by pediatric
    nonacute hospitals;
    Number of providers receiving payments in FY 2006: 1;
    Payment amount[A]: $1.

    Program type: Non-DSH;
    Program name: Basic Safety Net Care Payment (ended on June 30,
    2006)[B];
    Program purpose as reported by the state: For acute hospitals that have
    a disproportionate amount of inpatient Medicaid days or low-income
    utilization;
    Number of providers receiving payments in FY 2006: 6;
    Payment amount[A]: $0.

    Total non-DSH:
    Number of providers receiving payments in FY 2006: 82[C];
    Payment amount[A]: $1,634.

    Total supplemental:
    Number of providers receiving payments in FY 2006: 82;
    Payment amount[A]: $1,634.

    Source: GAO analysis of survey responses from Massachusetts.

    Note: NA = not applicable.

    [A] Payment amounts may not sum to totals because of rounding; dollar
    amounts less than $500,000 were rounded to zero.

    [B] Program was authorized under a Medicaid demonstration.

    [C] Some providers received payments from multiple programs; totals
    represent numbers of unique providers that received payments.

    [End of table]

    Michigan's Fiscal Year 2006 Supplemental Payment Programs:

    Michigan officials reported that in fiscal year 2006 the state paid
    over $1 billion in Medicaid supplemental payments through six DSH and
    five non-DSH supplemental payment programs. The state made supplemental
    payments to hospitals, including psychiatric hospitals; nursing
    facilities; clinics; and physician groups. See table 9 for a
    description of each supplemental payment program administered by
    Michigan.

    Table 9: Michigan Supplemental Payment Programs from Which Payments
    Were Made in Fiscal Year 2006, as Reported to GAO by the State in
    January 2008 (Dollars in millions):

    Program type: DSH;
    Program name: Indigent Care Agreements DSH Pool;
    Program purpose as reported by the state: To provide health care
    services to low-income patients with special needs who are not covered
    under other public or private health care programs;
    Number of providers receiving payments in FY 2006: 51;
    Payment amount[A]: $158.

    Program type: DSH;
    Program name: Institute for Mental Disease DSH Pool;
    Program purpose as reported by the state: Dollars in millions: To
    ensure access to services for indigent persons with serious mental
    illness requiring inpatient treatment;
    Number of providers receiving payments in FY 2006: 5;
    Payment amount[A]: $142.

    Program type: DSH;
    Program name: Government Provider DSH Pool;
    Program purpose as reported by the state: To ensure funding for costs
    incurred by public facilities providing inpatient hospital services
    that serve a disproportionate number of low-income patients with
    special needs;
    Number of providers receiving payments in FY 2006: 18;
    Payment amount[A]: $74.

    Program type: DSH;
    Program name: $45 Million DSH Pool;
    Program purpose as reported by the state: To provide health care
    services to low-income patients with special needs who are not covered
    under other public or private health care programs. Payments are
    distributed to hospitals with a high proportion of indigent care based
    on their percentage of inpatient indigent charges to their total
    inpatient charges;
    Number of providers receiving payments in FY 2006: 57;
    Payment amount[A]: $45.

    Program type: DSH;
    Program name: $5 Million Small Hospital DSH Pool;
    Program purpose as reported by the state: To ensure DSH funding for
    hospitals and hospital systems that received less than $900,000 in
    state fiscal year 2004 from the $45 million DSH pool;
    Number of providers receiving payments in FY 2006: 106;
    Payment amount[A]: $5.

    Program type: DSH;
    Program name: University with College of Allopathic and Osteopathic
    Medicine DSH Pool;
    Program purpose as reported by the state: To ensure continued access to
    medical care for indigents and to increase the efficiency and
    effectiveness of medical practitioners providing services to Medicaid
    beneficiaries under managed care;
    Number of providers receiving payments in FY 2006: 1;
    Payment amount[A]: $3.

    Total DSH:
    Number of providers receiving payments in FY 2006: 127[B];
    Payment amount[A]: $427.

    Program type: Non-DSH;
    Program name: Hospital UPL;
    Program purpose as reported by the state: To ensure continued access by
    Medicaid beneficiaries to high-quality hospital care;
    Number of providers receiving payments in FY 2006: 145;
    Payment amount[A]: $432.

    Program type: Non-DSH;
    Program name: Nursing Home UPL;
    Program purpose as reported by the state:
    To ensure continued access by Medicaid beneficiaries to high-quality
    nursing home care;
    Number of providers receiving payments in FY 2006: 415;
    Payment amount[A]: $281.

    Program type: Non-DSH;
    Program name: Public Physician UPL;
    Program purpose as reported by the state: To encourage providers to
    make available to Medicaid recipients the most advanced forms of
    medical diagnostic and treatment services that are uniquely available
    through the technological and research capabilities of university-based
    medical service systems;
    Number of providers receiving payments in FY 2006: 49;
    Payment amount[A]: $34.

    Program type: Non-DSH;
    Program name: Public Health Clinic Reimbursement;
    Program purpose as reported by the state: To reimburse public health
    clinics for their cost of providing services to Medicaid beneficiaries;
    Number of providers receiving payments in FY 2006: 40;
    Payment amount[A]: $14.

    Program type: Non-DSH;
    Program name: Public Dental Clinic Reimbursement;
    Program purpose as reported by the state: To reimburse public dental
    clinics for their cost of providing services to Medicaid beneficiaries;
    Number of providers receiving payments in FY 2006: 4;
    Payment amount[A]: $5.

    Total non-DSH:
    Number of providers receiving payments in FY 2006: 647[B];
    Payment amount[A]: $766.

    Total supplemental:
    Number of providers receiving payments in FY 2006: 660[B];
    Payment amount[A]: $1,193.

    Source: GAO analysis of survey responses from Michigan.

    [A] Payment amounts may not sum to totals because of rounding.

    [B] Some providers received payments from multiple programs; totals
    represent numbers of unique providers that received payments.

    [End of table]

    New York's Fiscal Year 2006 Supplemental Payment Programs:

    New York officials reported that in fiscal year 2006 the state paid
    over $3 billion in Medicaid supplemental payments through five DSH and
    two non-DSH supplemental payment programs. Supplemental payments were
    made to hospitals, including psychiatric hospitals, and nursing
    facilities. See table 10 for a description of each supplemental payment
    program administered by New York.

    Table 10: New York Supplemental Payment Programs from Which Payments
    Were Made in Fiscal Year 2006, as Reported to GAO by the State in
    January 2008 (Dollars in millions):

    Program type: DSH;
    Program name: DSH Public Hospital DSH Cap Subsidy;
    Program purpose as reported by the state: Payments provide subsidies to
    hospitals for indigent care costs;
    Number of providers receiving payments in FY 2006: 18;
    Payment amount[A]: $1,026.

    Program type: DSH;
    Program name: DSH Indigent Care High Need Pool;
    Program purpose as reported by the state: Payments provide subsidies to
    hospitals for indigent care costs;
    Number of providers receiving payments in FY 2006: 194;
    Payment amount[A]: $848.

    Program type: DSH;
    Program name: DSH Office of Mental Health Subsidy;
    Program purpose as reported by the state: Payments provide subsidies to
    hospitals for indigent care costs;
    Number of providers receiving payments in FY 2006: 25;
    Payment amount[A]: $605.

    Program type: DSH;
    Program name: DSH Indigent Care Adjustment;
    Program purpose as reported by the state:
    Payments provide subsidies to hospitals for indigent care costs;
    Number of providers receiving payments in FY 2006: 15;
    Payment amount[A]: $489.

    Program type: DSH;
    Program name: DSH Office of Mental Health/Office of Alcoholism and
    Substance Abuse Services Subsidies;
    Program purpose as reported by the state: Payments provide subsidies to
    hospitals for indigent care costs;
    Number of providers receiving payments in FY 2006: 61;
    Payment amount[A]: $61.

    Total DSH:
    Number of providers receiving payments in FY 2006: 222[B];
    Payment amount[A]: $3,028.

    Program type: Non-DSH;
    Program name: Inpatient Hospital UPL;
    Program purpose as reported by the state: Payments provide additional
    revenue to critical safety net hospitals;
    Number of providers receiving payments in FY 2006: 2;
    Payment amount[A]: $385.

    Program type: Non-DSH;
    Program name: Nursing Home UPL;
    Program purpose as reported by the state: Payments provide additional
    revenue to critical safety net nursing facilities;
    Number of providers receiving payments in FY 2006: 46;
    Payment amount[A]: $36.

    Total non-DSH:
    Number of providers receiving payments in FY 2006: 48;
    Payment amount[A]: $421.

    Total supplemental:
    Number of providers receiving payments in FY 2006: 270;
    Payment amount[A]: $3,449.

    Source: GAO analysis of survey responses from New York.

    [A] Payment amounts may not sum to totals because of rounding.

    [B] Some providers received payments from multiple programs; totals
    represent numbers of unique providers that received payments.

    [End of table]

    Texas's Fiscal Year 2006 Supplemental Payment Programs:

    Texas officials reported that in fiscal year 2006 the state paid over
    $2 billion in Medicaid supplemental payments through one DSH and two
    non-DSH supplemental payment programs. Supplemental payments were made
    only to hospitals. See table 11 for a description of each supplemental
    payment program administered by Texas.

    Table 11: Texas Supplemental Payment Programs from Which Payments were
    Made in Fiscal Year 2006, as Reported to GAO by the State in January
    2008 (Dollars in millions):

    Program type: DSH;
    Program name: Disproportionate Share Hospital;
    Program purpose as reported by the state: Reimburses hospitals that
    provide a disproportionate amount of inpatient care to indigent
    patients;
    Number of providers receiving payments in FY 2006: 187;
    Total payments[A]: $1,549.

    Total DSH:
    Number of providers receiving payments in FY 2006: 187;
    Total payments[A]: $1,549.

    Program type: Non-DSH;
    Program name: Large Urban Public Hospital;
    Program purpose as reported by the state: To make supplemental payments
    to most of the largest Medicaid hospital providers in Texas;
    Number of providers receiving payments in FY 2006: 11;
    Total payments[A]: $474.

    Program type: Non-DSH;
    Program name: Rural Hospital;
    Program purpose as reported by the state:
    To make supplemental Medicaid payments to rural hospitals in Texas;
    Number of providers receiving payments in FY 2006: 111;
    Total payments[A]: $56.

    Total non-DSH:
    Number of providers receiving payments in FY 2006: 122;
    Total payments[A]: $530.

    Total supplemental:
    Number of providers receiving payments in FY 2006: 247[B];
    Total payments[A]: $2,079.

    Source: GAO analysis of survey responses from Texas.

    [A] Payment amounts may not sum to totals because of rounding.

    [B] Some providers receive payments from multiple programs; totals
    represent numbers of unique providers receiving payments.

    [End of table]

    [End of section]

    Appendix IV: Distribution of Medicaid Supplemental Payments, by
    Provider Type and Ownership, in Five Surveyed States:

    Officials from the five surveyed states reported making DSH and non-DSH
    supplemental payments in fiscal year 2006 to a variety of provider
    types (such as hospitals, nursing facilities, or physician groups) and
    provider ownership categories (state government, local government, or
    private). In fiscal year 2006, in total, the five states reported
    making $10.4 billion in payments to hospitals (85 percent of total
    payments), $852 million to psychiatric hospitals (7 percent), $577
    million to managed care organizations (5 percent), $329 million to
    nursing facilities (3 percent), $53 million to physician groups (less
    than 1 percent), and $19 million to clinics (less than 1 percent). The
    five states made most payments (57 percent) to local government
    providers; payments to providers they categorized as owned by state
    governments accounted for 17 percent of the total supplemental payments
    made by the five states, and payments to private providers accounted
    for 26 percent of payments. Tables 12 and 13 show the distribution of
    each state's fiscal year 2006 supplemental payments, by provider type
    and provider ownership category, respectively.

    Table 12: Supplemental Payments Made in Fiscal Year 2006 by Provider
    Type in Five States, as Reported to GAO by the States in January 2008
    (Dollars in millions):

    State: California: DSH payments;
    Payment amount (percentage of total[A]): Hospital: $2,347 (100%);
    Payment amount (percentage of total[A]): Psychiatric hospital: [Empty];
    Payment amount (percentage of total[A]): Nursing facility: [Empty];
    Payment amount (percentage of total[A]): Physician group: [Empty];
    Payment amount (percentage of total[A]): Clinic: [Empty];
    Payment amount (percentage of total[A]): Managed care organization:
    [Empty];
    Total: $2,347 (100%).

    State: California: Non-DSH payments;
    Payment amount (percentage of total[A]): Hospital: $1,542 (99);
    Payment amount (percentage of total[A]): Psychiatric hospital: [Empty];
    Payment amount (percentage of total[A]): Nursing facility: $12 (1);
    Payment amount (percentage of total[A]): Physician group: [Empty];
    Payment amount (percentage of total[A]): Clinic: [Empty];
    Payment amount (percentage of total[A]): Managed care organization:
    [Empty];
    Total: $1,554 (100).

    State: California: Total payments;
    Payment amount (percentage of total[A]): Hospital: $3,888 (100);
    Payment amount (percentage of total[A]): Psychiatric hospital: [Empty];
    Payment amount (percentage of total[A]): Nursing facility: $12 (0);
    Payment amount (percentage of total[A]): Physician group: [Empty];
    Payment amount (percentage of total[A]): Clinic: [Empty];
    Payment amount (percentage of total[A]): Managed care organization:
    [Empty];
    Total: $3,900 (100).

    State: Massachusetts: DSH payments;
    Payment amount (percentage of total[A]): Hospital: [Empty];
    Payment amount (percentage of total[A]): Psychiatric hospital: [Empty];
    Payment amount (percentage of total[A]): Nursing facility: [Empty];
    Payment amount (percentage of total[A]): Physician group: [Empty];
    Payment amount (percentage of total[A]): Clinic: [Empty];
    Payment amount (percentage of total[A]): Managed care organization:
    [Empty];
    Total: [Empty].

    State: Massachusetts: Non-DSH payments;
    Payment amount (percentage of total[A]): Hospital: $933 (57);
    Payment amount (percentage of total[A]): Psychiatric hospital: $105
    (6);
    Payment amount (percentage of total[A]): Nursing facility: [Empty];
    Payment amount (percentage of total[A]): Physician group: $19 (1);
    Payment amount (percentage of total[A]): Clinic: [Empty];
    Payment amount (percentage of total[A]): Managed care organization:
    $577 (35);
    Total: $1,634 (100).

    State: Massachusetts: Total payments;
    Payment amount (percentage of total[A]): Hospital: $933 (57);
    Payment amount (percentage of total[A]): Psychiatric hospital: $105
    (6);
    Payment amount (percentage of total[A]): Nursing facility: [Empty];
    Payment amount (percentage of total[A]): Physician group: $19 (1);
    Payment amount (percentage of total[A]): Clinic: [Empty];
    Payment amount (percentage of total[A]): Managed care organization:
    $577 (35);
    Total: $1,634 (100).

    State: Michigan: DSH payments;
    Payment amount (percentage of total[A]): Hospital: $285 (67);
    Payment amount (percentage of total[A]): Psychiatric hospital: $142
    (33);
    Payment amount (percentage of total[A]): Nursing facility: [Empty];
    Payment amount (percentage of total[A]): Physician group: [Empty];
    Payment amount (percentage of total[A]): Clinic: [Empty];
    Payment amount (percentage of total[A]): Managed care organization:
    [Empty];
    Total: $427 (100).

    State: Michigan: Non-DSH payments;
    Payment amount (percentage of total[A]): Hospital: $432 (56);
    Payment amount (percentage of total[A]): Psychiatric hospital: [Empty];
    Payment amount (percentage of total[A]): Nursing facility: $281 (37);
    Payment amount (percentage of total[A]): Physician group: $34 (4);
    Payment amount (percentage of total[A]): Clinic: $19 (3);
    Payment amount (percentage of total[A] ): Managed care organization:
    [Empty];
    Total: $767 (100).

    State: Michigan: Total payments;
    Payment amount (percentage of total[A]): Hospital: $717 (60);
    Payment amount (percentage of total[A]): Psychiatric hospital: $142
    (12);
    Payment amount (percentage of total[A]): Nursing facility: $281 (24);
    Payment amount (percentage of total[A]): Physician group: $34 (3);
    Payment amount (percentage of total[A]): Clinic: $19 (2);
    Payment amount (percentage of total[A] ): Managed care organization:
    [Empty];
    Total: $1,193 (100).

    State: New York: DSH payments;
    Payment amount (percentage of total[A]): Hospital: $2,423 (80);
    Payment amount (percentage of total[A]): Psychiatric hospital: $605
    (20);
    Payment amount (percentage of total[A]): Nursing facility: [Empty];
    Payment amount (percentage of total[A]): Physician group: [Empty];
    Payment amount (percentage of total[A]): Clinic: [Empty];
    Payment amount (percentage of total[A]): Managed care organization:
    [Empty]; Total: $3,028 (100).

    State: New York: Non-DSH payments;
    Payment amount (percentage of total[A]): Hospital: $385 (91);
    Payment amount (percentage of total[A]): Psychiatric hospital: [Empty];
    Payment amount (percentage of total[A]): Nursing facility: $36 (9);
    Payment amount (percentage of total[A]): Physician group: [Empty];
    Payment amount (percentage of total[A]): Clinic: [Empty];
    Payment amount (percentage of total[A]): Managed care organization:
    [Empty];
    Total: $421 (100).

    State: New York: Total payments;
    Payment amount (percentage of total[A]): Hospital: $2,808 (81);
    Payment amount (percentage of total[A]): Psychiatric hospital: $605
    (18);
    Payment amount (percentage of total[A]): Nursing facility: $36 (1);
    Payment amount (percentage of total[A]): Physician group: [Empty];
    Payment amount (percentage of total[A]): Clinic: [Empty];
    Payment amount (percentage of total[A]): Managed care organization:
    [Empty];
    Total: $3,449 (100).

    State: Texas: DSH payments;
    Payment amount (percentage of total[A]): Hospital: $1,549 (100);
    Payment amount (percentage of total[A]): Psychiatric hospital: [Empty];
    Payment amount (percentage of total[A]): Nursing facility: [Empty];
    Payment amount (percentage of total[A]): Physician group: [Empty];
    Payment amount (percentage of total[A]): Clinic: [Empty];
    Payment amount (percentage of total[A]): Managed care organization:
    [Empty];
    Total: $1,549 (100).

    State: Texas: Non-DSH payments;
    Payment amount (percentage of total[A]): Hospital: $530 (100);
    Payment amount (percentage of total[A]): Psychiatric hospital: [Empty];
    Payment amount (percentage of total[A]): Nursing facility: [Empty];
    Payment amount (percentage of total[A]): Physician group: [Empty];
    Payment amount (percentage of total[A]): Clinic: [Empty];
    Payment amount (percentage of total[A]): Managed care organization:
    [Empty];
    Total: $530 (100).

    State: Texas: Total payments;
    Payment amount (percentage of total[A]): Hospital: $2,079 (100);
    Payment amount (percentage of total[A]): Psychiatric hospital: [Empty];
    Payment amount (percentage of total[A]): Nursing facility: [Empty];
    Payment amount (percentage of total[A]): Physician group: [Empty];
    Payment amount (percentage of total[A]): Clinic: [Empty];
    Payment amount (percentage of total[A]): Managed care organization:
    [Empty];
    Total: $2,079 (100).

    Total: DSH payments;
    Payment amount (percentage of total[A]): Hospital: $6,604 (90);
    Payment amount (percentage of total[A]): Psychiatric hospital: $747
    (10);
    Payment amount (percentage of total[A]): Nursing facility: [Empty];
    Payment amount (percentage of total[A]): Physician group: [Empty];
    Payment amount (percentage of total[A]): Clinic: [Empty];
    Payment amount (percentage of total[A]): Managed care organization:
    [Empty];
    Total: $7,351 (100).

    Total: Non-DSH payments;
    Payment amount (percentage of total[A]): Hospital: $3,822 (78);
    Payment amount (percentage of total[A]): Psychiatric hospital: $105
    (2);
    Payment amount (percentage of total[A]): Nursing facility: $329 (7);
    Payment amount (percentage of total[A]): Physician group: $53 (1);
    Payment amount (percentage of total[A]): Clinic: $19 (0);
    Payment amount (percentage of total[A]): Managed care organization:
    $577 (12);
    Total: $4,905 (100).

    Total: Grand total payments;
    Payment amount (percentage of total[A]): Hospital: $10,425 (85%);
    Payment amount (percentage of total[A]): Psychiatric hospital: $852
    (7%);
    Payment amount (percentage of total[A]): Nursing facility: $329 (3%);
    Payment amount (percentage of total[A]): Physician group: $53 (0%);
    Payment amount (percentage of total[A]): Clinic: $19 (0%);
    Payment amount (percentage of total[A]): Managed care organization:
    $577 (5%);
    Total: $12,255 (100%).

    Source: GAO analysis of data from a GAO survey of five states.

    [A] Percentages less than 0.5 percent were rounded to zero; percentages
    may not add to 100 because of rounding.

    [End of table]

    Table 13: Supplemental Payments Made in Fiscal Year 2006 by Provider
    Ownership Category in Five States as Reported to GAO by the States in
    January 2008 (Dollars in millions):

    State: California: DSH payments;
    Payment amount (percentage of total[A]): State government: $346 (15%);
    Payment amount (percentage of total[A]): Local government: $1,934
    (82%);
    Payment amount (percentage of total[A]): Private: $67 (3%);
    Payment amount (percentage of total[A]): All ownership categories:
    $2,347 (100%).

    State: California: Non-DSH payments;
    Payment amount (percentage of total[A]): State government: $192 (12);
    Payment amount (percentage of total[A]): Local government: $908 (58);
    Payment amount (percentage of total[A]): Private: $453 (29);
    Payment amount (percentage of total[A]): All ownership categories:
    $1,554 (100).

    State: California: Total payments;
    Payment amount (percentage of total[A]): State government: $537 (14);
    Payment amount (percentage of total[A]): Local government: $2,842 (73);
    Payment amount (percentage of total[A]): Private: $521 (13);
    Payment amount (percentage of total[A]): All ownership categories:
    $3,900 (100).

    State: Massachusetts: DSH payments;
    Payment amount (percentage of total[A]): State government: [Empty];
    Payment amount (percentage of total[A]): Local government: [Empty];
    Payment amount (percentage of total[A]): Private: [Empty];
    Payment amount (percentage of total[A]): All ownership categories:
    [Empty].

    State: Massachusetts: Non-DSH payments;
    Payment amount (percentage of total[A]): State government: $134 (8);
    Payment amount (percentage of total[A]): Local government: $802 (49);
    Payment amount (percentage of total[A]): Private: $698 (43);
    Payment amount (percentage of total[A]): All ownership categories:
    $1,634 (100).

    State: Massachusetts: Total payments;
    Payment amount (percentage of total[A]): State government: $134 (8);
    Payment amount (percentage of total[A]): Local government: $802 (49);
    Payment amount (percentage of total[A]): Private: $698 (43);
    Payment amount (percentage of total[A]): All ownership categories:
    $1,634 (100).

    State: Michigan: DSH payments;
    Payment amount (percentage of total[A]): State government: $142 (33);
    Payment amount (percentage of total[A]): Local government: $82 (19);
    Payment amount (percentage of total[A]): Private: $203 (48);
    Payment amount (percentage of total[A]): All ownership categories: $427
    (100).

    State: Michigan: Non-DSH payments;
    Payment amount (percentage of total[A]): State government: [Empty];
    Payment amount (percentage of total[A]): Local government: $158 (21);
    Payment amount (percentage of total[A]): Private: $608 (79);
    Payment amount (percentage of total[A]): All ownership categories: $766
    (100).

    State: Michigan: Total payments;
    Payment amount (percentage of total[A]): State government: $142 (12);
    Payment amount (percentage of total[A]): Local government: $240 (20);
    Payment amount (percentage of total[A]): Private: $811 (68);
    Payment amount (percentage of total[A]): All ownership categories:
    $1,193 (100).

    State: New York: DSH payments;
    Payment amount (percentage of total[A]): State government: $833 (28);
    Payment amount (percentage of total[A]): Local government: $1,420 (47);
    Payment amount (percentage of total[A]): Private: $775 (26);
    Payment amount (percentage of total[A]): All ownership categories:
    $3,028 (100).

    State: New York: Non-DSH payments;
    Payment amount (percentage of total[A]): State government: [Empty];
    Payment amount (percentage of total[A]): Local government: $421 (100);
    Payment amount (percentage of total[A]): Private: [Empty];
    Payment amount (percentage of total[A]): All ownership categories: $421
    (100).

    State: New York: Total payments;
    Payment amount (percentage of total[A]): State government: $833 (24);
    Payment amount (percentage of total[A]): Local government: $1,841 (53);
    Payment amount (percentage of total[A]): Private: $775 (23);
    Payment amount (percentage of total[A]): All ownership categories:
    $3,449 (100).

    State: Texas: DSH payments;
    Payment amount (percentage of total[A]): State government: $453 (29);
    Payment amount (percentage of total[A]): Local government: $687 (44);
    Payment amount (percentage of total[A]): Private: $408 (26);
    Payment amount (percentage of total[A]): All ownership categories:
    $1,549 (100).

    State: Texas: Non-DSH payments;
    Payment amount (percentage of total[A]): State government: [Empty];
    Payment amount (percentage of total[A]): Local government: $520 (98);
    Payment amount (percentage of total[A]): Private: $10 (2);
    Payment amount (percentage of total[A]): All ownership categories: $530
    (100).

    State: Texas: Total payments;
    Payment amount (percentage of total[A]): State government: $453 (22);
    Payment amount (percentage of total[A]): Local government: $1,208 (58);
    Payment amount (percentage of total[A]): Private: $418 (20);
    Payment amount (percentage of total[A]): All ownership categories:
    $2,079 (100).

    Total DSH payments:
    Payment amount (percentage of total[A]): State government: $1,774 (24);
    Payment amount (percentage of total[A]): Local government: $4,123 (56);
    Payment amount (percentage of total[A]): Private: $1,454 (20);
    Payment amount (percentage of total[A]): All ownership categories:
    $7,351 (100).

    Total non-DSH payments:
    Payment amount (percentage of total[A]): State government: $326 (7);
    Payment amount (percentage of total[A]): Local government: $2,810 (57);
    Payment amount (percentage of total[A]): Private: $1,769 (36);
    Payment amount (percentage of total[A]): All ownership categories:
    $4,905 (100).

    Grand total payments:
    Payment amount (percentage of total[A]): State government: $2,099
    (17%);
    Payment amount (percentage of total[A]): Local government: $6,933
    (57%);
    Payment amount (percentage of total[A]): Private: $3,223 (26%);
    Payment amount (percentage of total[A]): All ownership categories:
    $12,255 (100%).

    Source: GAO analysis of data from in a GAO survey of five states.

    Note: States reported ownership by the three broad ownership
    categories, however, we also compared the reported ownership category
    of hospitals and nursing facilities to a database of providers
    maintained by CMS that contains provider reported information on the
    type of organization that operates the facilities. For the hospitals
    and nursing facilities identified by the states that we were able to
    match in CMS's database (796 of 961 hospitals; 351 of 479 nursing
    facilities), our comparison identified discrepancies that may be due in
    part to how the terms are defined. Of the 205 hospitals we identified
    in CMS's database that states classified as local government, 15
    percent were listed as non-profit and 3 percent were listed as
    proprietary. Of the 17 hospitals we identified in CMS's database that
    states classified as state government, 12 percent were listed as
    nonprofit. Similarly, of the 93 nursing facilities we identified in
    CMS's database that states classified as local government, 7 percent
    were listed as private, either nonprofit (4 percent) or proprietary (3
    percent).

    [A] Percentages less than 0.5 percent were rounded to zero; percentages
    may not add to 100 because of rounding.

    [End of table]

    [End of section]

    Appendix V: Extent That Supplemental Payments Were Concentrated and
    Providers Received Multiple Payments:

    Data from the five surveyed states showed that the states concentrated
    a large proportion of their DSH and non-DSH payments on a small
    percentage of providers and that over one-quarter of providers received
    payments from more than one supplemental payment program. In fiscal
    year 2006, the states reported making total supplemental payments of
    nearly $8 billion (63 percent of all supplemental payments) to 77
    providers, which represented 5 percent of the providers receiving
    supplemental payments in the five states. Officials also reported that
    452 providers--representing 30 percent of all providers receiving a
    supplemental payment in the five states--received payments from
    multiple programs. Seventy-one providers received payments from at
    least four programs, with payments exceeding $2.7 billion or 22 percent
    of the total reported supplemental payments in the five surveyed
    states. Table 14 shows the amount of each state's fiscal year 2006
    supplemental payments that were paid to the 5 percent of providers
    receiving the largest payments, and the remaining 95 percent of
    providers. Table 15 shows the number of providers that received
    payments from multiple supplemental payment programs and the amount of
    payment received.

    Table 14: Concentration of Supplemental Payments to Top 5 and Remaining
    95 Percent of Providers Receiving Payments in Fiscal Year 2006 in Five
    States, as Reported to GAO by the States in January 2008 (Dollars in
    millions):

    State: California: Number of providers receiving payment;
    Top 5 percent of providers[A]: 14;
    Remaining 95 percent of providers: 258;
    Total, all providers: 272.

    State: California: Payment amount;
    Top 5 percent of providers[A]: $2,767;
    Remaining 95 percent of providers: $1,133;
    Total, all providers: $3,900.

    State: California: Percentage of total payments;
    Top 5 percent of providers[A]: 71%;
    Remaining 95 percent of providers: 29%;
    Total, all providers: 100%.

    State: Massachusetts: Number of providers receiving payment;
    Top 5 percent of providers[A]: 4;
    Remaining 95 percent of providers: 78;
    Total, all providers: 82.

    State: Massachusetts: Payment amount;
    Top 5 percent of providers[A]: $1,031;
    Remaining 95 percent of providers: $603;
    Total, all providers: $1,634.

    State: Massachusetts: Percentage of total payments;
    Top 5 percent of providers[A]: 63%;
    Remaining 95 percent of providers: 37%;
    Total, all providers: 100%.

    State: Michigan: Number of providers receiving payment;
    Top 5 percent of providers[A]: 33;
    Remaining 95 percent of providers: 627;
    Total, all providers: 660.

    State: Michigan: Payment amount;
    Top 5 percent of providers[A]: $685;
    Remaining 95 percent of providers: $507;
    Total, all providers: $1,193.

    State: Michigan: Percentage of total payments;
    Top 5 percent of providers[A]: 57%;
    Remaining 95 percent of providers: 43%;
    Total, all providers: 100%.

    State: New York: Number of providers receiving payment;
    Top 5 percent of providers[A]: 14;
    Remaining 95 percent of providers: 256;
    Total, all providers: 270.

    State: New York: Payment amount;
    Top 5 percent of providers[A]: $1,826;
    Remaining 95 percent of providers: $1,624;
    Total, all providers: $3,449.

    State: New York: Percentage of total payments;
    Top 5 percent of providers[A]: 53%;
    Remaining 95 percent of providers: 47%;
    Total, all providers: 100%.

    State: Texas: Number of providers receiving payment;
    Top 5 percent of providers[A]: 12;
    Remaining 95 percent of providers: 235;
    Total, all providers: 247.

    State: Texas: Payment amount;
    Top 5 percent of providers[A]: $1,306;
    Remaining 95 percent of providers: $773;
    Total, all providers: $2,079.

    State: Texas: Percentage of total payments;
    Top 5 percent of providers[A]: 63%;
    Remaining 95 percent of providers: 37%;
    Total, all providers: 100%.

    State: Total: Number of providers receiving payment;
    Top 5 percent of providers[A]: 77;
    Remaining 95 percent of providers: 1454;
    Total, all providers: 1531.

    State: Total: Payment amount;
    Top 5 percent of providers[A]: $7,615;
    Remaining 95 percent of providers: $4,640;
    Total, all providers: $12,255.

    State: Total: Percentage of total payments;
    Top 5 percent of providers[A]: 62%;
    Remaining 95 percent of providers: 38%;
    Total, all providers: 100%.

    Source: GAO analysis of data from a GAO survey of five states.

    Note: For each state we identified the percentage of payments made to
    the 5 percent of providers receiving the largest amount of supplemental
    payments. For all five states combined, this percentage was calculated
    by adding the payments made to the 5 percent of providers receiving the
    largest amount of payments in each state and dividing this number by
    the total payments made by all five states.

    [A] When calculating the number of providers representing 5 percent, we
    rounded to the nearest whole number.

    [End of table]

    Table 15: Number of Providers Receiving Payments from Multiple
    Supplemental Payment Programs in Five States for Fiscal Year 2006, as
    Reported to GAO by the States in January 2008 (Dollars in millions):

    State: California: Number of providers receiving payment;
    1: 96;
    2: 68;
    3: 65;
    4: 17;
    5: 16;
    6: 9;
    7: [Empty];
    8: 1;
    Total: 272.

    State: California: Payment amount;
    1: $81;
    2: $186;
    3: $1,647;
    4: $238;
    5: $436;
    6: $1,179;
    7: [Empty];
    8: $133;
    Total: $3,900.

    State: California: Percentage of total payments;
    1: 2%;
    2: 5%;
    3: 42%;
    4: 6%;
    5: 11%;
    6: 30%;
    7: [Empty];
    8: 3%;
    Total: 100%.

    State: Massachusetts:
    Number of providers receiving payment;
    1: 68;
    2: 7;
    3: 4;
    4: 1;
    5: [Empty];
    6: 2;
    7: [Empty];
    8: [Empty];
    Total: 82.

    State: Massachusetts: Payment amount;
    1: $1,044;
    2: $87;
    3: $32;
    4: $18;
    5: [Empty];
    6: $453;
    7: [Empty];
    8: [Empty];
    Total: $1,634.

    State: Massachusetts: Percentage of total payments;
    1: 64%;
    2: 5%;
    3: 2%;
    4: 1%;
    5: [Empty];
    6: 28%;
    7: [Empty];
    8: [Empty];
    Total: 100%.

    State: Michigan: Number of providers receiving payment;
    1: 536;
    2: 44;
    3: 55;
    4: 23;
    5: 2;
    6: [Empty];
    7: [Empty];
    8: [Empty];
    Total: 660.

    State: Michigan: Payment amount;
    1: $481;
    2: $120;
    3: $350;
    4: $152;
    5: $89;
    6: [Empty];
    7: [Empty];
    8: [Empty];
    Total: $1,193.

    State: Michigan: Percentage of total payments;
    1: 40%;
    2: 10%;
    3: 29%;
    4: 13%;
    5: 8%;
    6: [Empty];
    7: [Empty];
    8: [Empty];
    Total: 100%.

    State: New York: Number of providers receiving payment;
    1: 194;
    2: 61;
    3: 15;
    4: [Empty];
    5: [Empty];
    6: [Empty];
    7: [Empty];
    8: [Empty];
    Total: 270.

    State: New York: Payment amount;
    1: $1,268;
    2: $675;
    3: 1,507;
    4: [Empty];
    5: [Empty];
    6: [Empty];
    7: [Empty];
    8: [Empty];
    Total: $3,449.

    State: New York: Percentage of total payments;
    1: 37%;
    2: 20%;
    3: 44%;
    4: [Empty];
    5: [Empty];
    6: [Empty];
    7: [Empty];
    8: [Empty];
    Total: 100%.

    State: Texas: Number of providers receiving payment;
    1: 185;
    2: 62;
    3: [Empty];
    4: [Empty];
    5: [Empty];
    6: [Empty];
    7: [Empty];
    8: [Empty];
    Total: 247.

    State: Texas: Payment amount;
    1: $867;
    2: $1,212;
    3: [Empty];
    4: [Empty];
    5: [Empty];
    6: [Empty];
    7: [Empty];
    8: [Empty];
    Total: $2,079.

    State: Texas: Percentage of total payments;
    1: 42%;
    2: 58%;
    3: [Empty];
    4: [Empty];
    5: [Empty];
    6: [Empty];
    7: [Empty];
    8: [Empty];
    Total: 100%.

    Total: Number of providers receiving payment;
    1: 1,079;
    2: 242;
    3: 139;
    4: 41;
    5: 18;
    6: 11;
    7: [Empty];
    8: 1;
    Total: 1,531.

    Total: Payment amount;
    1: $3,740;
    2: $2,280;
    3: $3,536;
    4: $408;
    5: $525;
    6: $1,632;
    7: [Empty];
    8: $133;
    Total: $12,255.

    Total: Percentage of total payments;
    1: 31%;
    2: 19%;
    3: 29%;
    4: 3%;
    5: 4%;
    6: 13%;
    7: [Empty];
    8: 1%;
    Total: 100%.

    Source: GAO analysis of data from a GAO survey of five states.

    [End of table]

    [End of section]

    Appendix VI: Comments from the Department of Health & Human Services:

    Department Of Health & Human Services:
    Office of the Assistant Secretary for Legislation:
    Washington, DC 20201:

    May 15, 2008:

    James Cosgrove:
    Director, Health Care:
    Government Accountability Office:
    441 G Street NW:
    Washington, DC 20548:

    Dear Mr. Cosgrove:

    Enclosed are the Department's comments on the Government Accountability
    Office's (GAO) draft report, entitled: "MEDICAID: CMS Needs More
    Information on the Billions of Dollars Spent on Supplemental Payments"
    (GAO-08-614).

    The Department appreciates the opportunity to review and comment on
    this report before its publication.

    Sincerely,

    Signed by:

    Jennifer P. Luong, for:
    Vincent Ventimiglia, Jr.
    Assistant Secretary for Legislation:

    Attachment:

    General Comments Of The Department Of Health And Human Services (HHS)
    On The U.S. Government Accountability Office's (GAO) Draft Report
    Entitled: Medicaid: CMS Needs More Information On The Billions Of
    Dollars Spent On Supplemental Payments (GAO 08-614):

    The draft report is in response to your review of the Medicaid
    supplemental payments reported by States to the Centers for Medicare &
    Medicaid Services (CMS) and your review of selected States to determine
    the amount of supplemental payments made by five States, the types of
    providers to whom such payments were made by the five States, and the
    purposes of such payments. The draft report highlights that a
    significant portion of the Medicaid payments subject to this review are
    made by States to local government providers and are often concentrated
    on a small proportion of providers. In addition, the draft report
    recognizes the inconsistent and incomplete reporting by States of
    Medicaid supplemental and upper payment limit (UPL) payments. The draft
    report concludes that CMS lacks complete information on States'
    Medicaid payments and that CMS has not reviewed all Medicaid
    supplemental payment programs under the CMS financing initiative, which
    began in August of 2003.

    The draft report makes casual reference to the final rule published in
    May of 2007, which in part, would limit Medicaid reimbursements to
    certain providers operated by units of government to an amount that
    does not exceed the provider's cost of providing Medicaid covered
    services. However, in its 2007 Report, "Medicaid Financing: Federal
    Oversight Initiative is Consistent With Medicaid Payment Principles but
    Needs Greater Transparency" (GAO-07-214), the GAO recommended that CMS
    issue guidance to clarify allowable financing arrangements, consistent
    with Medicaid payment principles and further stated in its report that
    the recommendation would remain open until such time that the May 2007
    rule was finalized. Thus, the GAO has already officially validated that
    the May 2007 rule would have addressed the concerns related to a
    significant portion of the Medicaid supplemental payments referenced in
    this draft report. First, the draft report highlights that a large
    portion of the Medicaid supplemental and/or UPL payments are paid to
    government (State and local) providers, which under the May 2007 rule
    would no longer qualify for Medicaid supplemental and/or UPL payments
    in excess of the cost of providing services to Medicaid individuals.
    Second, the May 2007 rule codified Medicaid financing rules requiring
    that providers retain their Medicaid payments, which would have
    addressed financing concerns referenced in this report for those State
    Medicaid supplemental and/or UPL payments programs that CMS has not
    reviewed under its August 2003 financing initiative. The draft report
    accurately identifies a Congressional moratorium placed on this rule
    until May 25, 2008.

    GAO Recommendations:

    1. Expedite issuance of the final rule implementing additional
    disproportionate share hospital (DSH) reporting requirements; and,

    2. Develop a strategy to identify all of the supplemental payment
    programs established in States' Medicaid plans and to review those that
    have not been subject to review under CMS's August 2003 initiative.

    HHS Response:

    The CMS is generally in agreement with the draft recommendations and it
    is consistent with ongoing efforts by the agency; however, we believe
    the following considerations are critically important to the GAO's
    development of the final report, as well as to ensure that the GAO and
    CMS are in agreement with regard to the steps necessary to fulfill any
    recommendations included in the final report:

    Recommendation 1- While CMS intends to issue the final rule on DSH
    auditing and reporting requirements, we are not clear why the issuance
    of that regulation would be a primary recommendation for a report that
    is more directly focused on State reporting of Medicaid supplemental
    and UPL payments. We agree that the hospital-specific auditing and
    reporting of DSH payments would necessarily include the reporting of
    all Medicaid revenues received by an eligible DSH hospital in order to
    ensure compliance with the hospital-specific DSH limits, including
    Medicaid supplemental and/or UPL revenue. These auditing and reporting
    requirements, however, are exclusive to only those hospitals that
    qualify for DSH payments.

    States with eligible uncompensated care costs in excess of their DSH
    allotment often utilize Medicaid supplemental and/or UPL payments to
    help hospitals subsidize such uncompensated care costs. Thus, hospitals
    that receive Medicaid supplemental and/or UPL payments but that do not
    receive DSH payments are not subject to the final rule on DSH auditing
    and reporting requirements. Similarly, no information on Medicaid
    supplemental and/or UPL payments is required under the DSH auditing and
    reporting final rule for non-hospital providers receiving Medicaid
    supplemental and/or UPL payments, including nursing facilities and
    physicians. The law enacting the DSH auditing and reporting
    requirements provided no authority for CMS to request such information.

    In sum, by itself. the final rule on DSH auditing and reporting
    requirements will not nearly capture the universe of health care
    providers receiving Medicaid supplemental and/or UPL payments.
    Moreover, the DSH program is a Congressionally instructed allotment
    program, to which States are entitled each year to expend their entire
    allotment.

    Therefore, the S17 billion spending referenced in the draft report will
    largely remain unchanged after the issuance of the final DSH auditing
    and reporting rule. To the extent the auditing and reporting
    requirements identify DSH overpayments to particular hospitals; States
    may redistribute their DSH allotment spending in future years to other
    qualified DSH hospitals, up to their hospital-specific DSH limit.

    Recommendation 2 - Medicaid "supplemental payments" and "UPL payments"
    are basically synonymous terms. In general, both of these are a type of
    payment program that enhances regular Medicaid payment rates for
    services provided to Medicaid beneficiaries. It is important to note
    that both Medicaid supplemental and UPL payments are limited by the UPL
    test and often States make payment up to the UPL, irrespective of
    whether they refer to such Medicaid payments as supplemental, UPL, or
    even enhanced payments.

    Your report recognizes that local government providers are the
    recipients of a significant portion of the Medicaid supplemental and/or
    the UPL payments (and DSH). During the August 2003 financing
    initiative, CMS addressed numerous financing arrangements associated
    with Medicaid supplemental and/or UPL payments made by States to local
    government providers to ensure such financing was consistent with
    Federal requirements. As your report properly highlights, CMS took
    action to end at least 68 supplemental payment programs in 30 States
    that were inconsistent with the Federal requirements, many of which
    involved local government providers.

    We are enhancing our financing initiative strategy through the
    modifications to the Medicaid expenditure reports in order to segregate
    types of service to which the Medicaid supplemental payment applies.
    This will allow CMS to better identify individual Medicaid payment
    programs and will allow CMS to continue to ensure proper State
    financing for any payment program that has yet to be reviewed under the
    CMS financing initiative that began in August 2003. As noted in the
    draft report, CMS anticipates the implementation of these changes to
    the Medicaid expenditure reports by fiscal year 2009.

    Finally, we do not believe facility-specific reporting of Medicaid
    supplemental and/or UPL payments on the Medicaid expenditure reports is
    feasible due to the volume of information that would be necessary to
    transmit through the Medicaid Budget and Expenditure System. However,
    CMS could request facility-specific information as hack-up
    documentation to support the line-item expenditures during our review
    of States' Medicaid expenditure reports. To the extent States do not
    provide this information, CMS could withhold Federal funding associated
    with the Medicaid supplemental and/or UPL payments for which CMS
    requested such back-up documentation.

    We thank the GAO staff for their work in this important area of
    Medicaid supplemental payments reported by States to CMS.

    [End of section]

    Appendix VII: GAO Contact and Staff Acknowledgments:

    GAO Contact:

    James C. Cosgrove, (202) 512-7114 or Cosgrovej@gao.gov:

    Acknowledgments:

    In addition to the contact named above, Katherine M. Iritani, Assistant
    Director; Susannah Bloch; Ted Burik; Tim Bushfield; Helen Desaulniers;
    Elizabeth T. Morrison; Tom Moscovitch; Perry Parsons; and Hemi Tewarson
    made key contributions to this report.

    [End of section]

    Related GAO Products:

    Medicaid Financing: Long-Standing Concerns about Inappropriate State
    Arrangements Support Need for Improved Federal Oversight. [hyperlink,
    http://www.gao.gov/cgi-bin/getrpt?GAO-08-650T]. Washington D.C.: April
    3, 2008.

    Medicaid Financing: Long-Standing Concerns about Inappropriate State
    Arrangements Support Need for Improved Federal Oversight. [hyperlink,
    http://www.gao.gov/cgi-bin/getrpt?GAO-08-255T]. Washington D.C.:
    November 1, 2007.

    Medicaid Financing: Federal Oversight Initiative is Consistent with
    Medicaid Payment Principles but Needs Greater Transparency. [hyperlink,
    http://www.gao.gov/cgi-bin/getrpt?GAO-07-214]. Washington D.C.: March
    30, 2007.

    High-Risk Series: An Update. [hyperlink, http://www.gao.gov/cgi-
    bin/getrpt?GAO-07-310]. Washington, D.C.: January 2007.

    Medicaid Financial Management: Steps Taken to Improve Federal Oversight
    but Other Actions Needed to Sustain Efforts. [hyperlink,
    http://www.gao.gov/cgi-bin/getrpt?GAO-06-705]. Washington D.C.: June
    22, 2006.

    Medicaid: States' Efforts to Maximize Federal Reimbursements Highlight
    Need for Improved Federal Oversight. [hyperlink, http://www.gao.gov/cgi-
    bin/getrpt?GAO-05-836T]. Washington D.C.: June 28, 2005.

    Medicaid Financing: States' Use of Contingency-Fee Consultants to
    Maximize Federal Reimbursements Highlights Need for Improved Federal
    Oversight. [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-05-748].
    Washington D.C.: June 28, 2005.

    Medicaid: Intergovernmental Transfers Have Facilitated State Financing
    Schemes. [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-04-574T].
    Washington D.C.: March 18, 2004.

    Medicaid: Improved Federal Oversight of State Financing Schemes Is
    Needed. [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-04-228].
    Washington D.C.: February 13, 2004.

    Major Management Challenges and Program Risks: Department of Health and
    Human Services. [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-
    101]. Washington D.C.: January 2003.

    Medicaid: HCFA Reversed Its Position and Approved Additional State
    Financing Schemes. [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-
    147]. Washington D.C.: October 30, 2001.

    Medicaid: State Financing Schemes Again Drive Up Federal Payments.
    [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-HEHS-00-193].
    Washington D.C.: September 6, 2000.

    Medicaid: States Use Illusory Approaches to Shift Program Costs to
    Federal Government. [hyperlink, http://www.gao.gov/cgi-
    bin/getrpt?GAO/HEHS-94-133]. Washington D.C.: August 1, 1994.

    [End of section]

    Footnotes:

    [1] GAO, High-Risk Series: An Update, [hyperlink,
    http://www.gao.gov/cgi-bin/getrpt?GAO-07-310] (Washington, D.C.:
    January 2007).

    [2] This figure represents combined federal and state Medicaid
    expenditures for provider services in fiscal year 2006, the latest year
    for which data were available. For the purpose of this report,
    expenditures for administration are not included.

    [3] Under a statutory formula, the federal government may reimburse
    from 50 to 83 percent of a state's Medicaid expenditures for services.
    States with lower per capita incomes receive higher federal matching
    rates. 42 U.S.C. �� 1396b(a), 1396d(b).

    [4] Medicaid programs are administered by the 50 states, the District
    of Columbia, Puerto Rico, and 4 U.S. territories.

    [5] For example, in a 2004 report, we found that states were continuing
    to claim excessive federal matching funds through supplemental payment
    arrangements. Among other recommendations, we recommended that Congress
    consider a recommendation that remained unimplemented from a 1994
    report that would prohibit Medicaid payments to government facilities
    that exceeded their costs. See GAO, Medicaid: States Use Illusory
    Approaches to Shift Program Costs to Federal Government, [hyperlink,
    http://www.gao.gov/cgi-bin/getrpt?GAO/HEHS-94-133] (Washington, D.C.:
    Aug. 1, 1994). We also recommended that CMS improve its oversight of
    states' Medicaid supplemental payments by improving state reporting on
    upper payment limit arrangements, including requiring reporting on
    facility-specific payments. See Medicaid: Improved Federal Oversight of
    State Financing Schemes Is Needed, [hyperlink, http://www.gao.gov/cgi-
    bin/getrpt?GAO-04-228] (Washington, D.C.: Feb. 13, 2004).

    [6] This federal initiative was launched in August 2003 by the Centers
    for Medicare & Medicaid Services (CMS), the federal agency that
    oversees states' Medicaid programs, to review and evaluate the
    appropriateness of states' Medicaid payments by assessing whether
    states had inappropriate financing arrangements that required providers
    to return payments to the states. In a 2007 report, we reviewed this
    initiative and found that more transparency was needed regarding the
    way in which CMS was implementing its initiative and the review
    standards it was using to end certain arrangements. See Medicaid
    Financing: Federal Oversight Initiative is Consistent with Medicaid
    Payment Principles but Needs Greater Transparency, [hyperlink,
    http://www.gao.gov/cgi-bin/getrpt?GAO-07-214] (Washington, D.C.: Mar.
    30, 2007).

    [7] In May 2007, CMS issued a final rule that, if implemented, would
    impose additional limits and requirements for states when seeking
    federal reimbursement for supplemental payments made to providers.
    Congress placed a moratorium on this rule until May 25, 2008.

    [8] In this report, we use the term program to refer to an individual
    supplemental payment arrangement to make payments to certain providers.

    [9] See 42 U.S.C. �� 1396a(13)(A), 1396r-4.

    [10] Federal regulations applicable during the course of our review
    defined UPLs for services provided by hospitals, nursing facilities,
    intermediate care facilities for the mentally retarded, and clinics.
    These UPLs are based on an estimate of the amount that Medicare, the
    federal health program that covers seniors aged 65 and older and some
    disabled persons, pays for comparable services. See 42 C.F.R. ��
    447.272, 447.321 (2006).

    [11] Section 1115 of the Social Security Act authorizes the Secretary
    of Health and Human Services to waive compliance with certain federal
    Medicaid requirements, as well as to authorize Medicaid expenditures
    that would not otherwise be allowable, for demonstration projects that
    are likely to promote Medicaid objectives. See 42 U.S.C. � 1315.
    Throughout this report, we refer to section 1115 demonstrations as
    Medicaid demonstrations.

    [12] In this report, we use the terms non-DSH payments and non-DSH
    supplemental payments interchangeably.

    [13] Specifically, 42 C.F.R. � 447.201 requires that state Medicaid
    plans describe the policy and the methods to be used in setting payment
    rates for each type of service included in the state's Medicaid
    program. Supplemental payments administered under Medicaid
    demonstrations generally are governed by the terms and conditions
    approved by CMS for each demonstration, which are not part of the state
    plan.

    [14] Throughout this report, the term fiscal year refers to the federal
    fiscal year. States can make adjustments to their CMS-64 submissions
    for up to 2 years. Our analysis of CMS fiscal year 2006 expenditure
    data incorporated adjustments to expenditures that had been submitted
    by states through the end of fiscal year 2006 for DSH payments, and as
    of October 5, 2007, for non-DSH supplemental payments (see app. I).

    [15] Federal regulations applicable during the time of our review apply
    UPLs for certain services on an aggregate basis to three categories of
    facilities: state-government-owned or -operated facilities, nonstate-
    government-owned or -operated facilities, and privately owned and
    operated facilities. See 42 C.F.R. �� 447.272, 447.321 (2006). CMS
    requires states to report on expenditure reports non-DSH supplemental
    payments made under the UPL separately by these three categories. In
    this report, we use the term local government to describe the nonstate
    government category.

    [16] T.A. Coughlin, S. Zuckerman, and J. McFeeters, "Restoring Fiscal
    Integrity to Medicaid Financing? Some progress has been made in
    reforming Medicaid financing, yet problems persist," Health Affairs,
    vol. 26, no. 5 (2007).

    [17] For each provider, our survey asked states to list its type of
    ownership: state government, nonstate government, or private. We have
    reported the provider ownership category as reported by the states in
    response to our survey.

    [18] We did not include programs authorized under a Medicaid
    demonstration in this analysis since they are administered under the
    terms and conditions of Medicaid demonstrations, rather than under
    states' Medicaid plans.

    [19] 42 U.S.C. �� 1396a, et seq.

    [20] In addition, states may also receive approval from CMS for a
    Medicaid demonstration. Under these demonstrations, states may cover
    populations, cover services, or establish payment methodologies
    differently from the state Medicaid plan.

    [21] 42 U.S.C. �� 1396b(a), 1396d(b).

    [22] See 42 U.S.C. � 1396a(a)(2).

    [23] In this report, we use the term state share to refer to the
    nonfederal share of Medicaid payments.

    [24] Local governments and local government providers can contribute to
    the state share of Medicaid payments through mechanisms known as
    intergovernmental transfers and certified public expenditures.
    Intergovernmental transfers are a mechanism in state finance that
    enables state and local governments to carry out their shared
    functions, for example, through the transfer of revenues between
    government entities. When certified public expenditures are used to
    fund the state share, a government provider certifies to the state its
    Medicaid expenditures. The state then claims federal reimbursement for
    the federal share of that amount. See 42 U.S.C. � 1396b(w)(6).

    [25] See Medicaid Voluntary Contribution and Provider-Specific Tax
    Amendments of 1991, Pub. L. No. 102-234, � 3, 105 Stat. 1793, 1799-1804
    (1991) (codified, as amended, at 42 U.S.C. � 1396r-4(f)). Congress has
    amended requirements for calculating these DSH allotments since their
    establishment. Currently, CMS calculates each state's fiscal year DSH
    allotment using a statutorily defined formula.

    [26] See 42 U.S.C. � 1396r-4(g).

    [27] Federal regulations applicable during the course of our review
    define certain UPLs based on a reasonable estimate of what Medicare--
    the federal heath care program for seniors aged 65 and older and some
    disabled individuals--pays for comparable services. Separate UPLs exist
    for inpatient services provided by hospitals, nursing facilities, and
    intermediate care facilities for the mentally retarded, and outpatient
    services provided by hospitals and clinics. These UPLs are applied on
    an aggregate basis to three categories of providers: local (nonstate)
    government-owned or -operated facilities, state-government-owned or -
    operated facilities, and privately owned and operated facilities. See
    42 C.F.R. �� 447.272, 447.321 (2006).

    [28] Supplemental payments administered under Medicaid demonstrations
    generally are governed by terms and conditions approved by CMS for each
    demonstration, which are not part of the state plan.

    [29] A list of related GAO products can be found at the end of this
    report.

    [30] See [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-214].

    [31] 72 Fed. Reg. 29,748 (May 29, 2007).

    [32] We have recommended that Congress prohibit Medicaid payments to
    government providers that exceed their costs. See GAO, Medicaid: States
    Use Illusory Approaches to Shift Program Costs to Federal Government,
    [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/HEHS-94-133]
    (Washington, D.C.: Aug. 1, 1994).

    [33] Medicaid DSH payments would not be included under this regulatory
    limit. DSH payments, however, are already subject to defined limits
    under federal Medicaid law. The final rule, if implemented, also would,
    among other things, (1) provide criteria that states must apply in
    determining whether a provider or other entity is a unit of government
    for the purposes of financing the state share of Medicaid payments, (2)
    require states to allow providers to retain all of the Medicaid
    payments made to them, and (3) require governmental providers to submit
    cost reports to states when claims for federal reimbursement are based
    on certified public expenditures.

    [34] U.S. Troop Readiness, Veterans Care, Katrina Recovery, and Iraq
    Accountability Appropriations Act, Pub. L. No. 110-28, � 7002, 121
    Stat. 112, 187 (2007). In addition, on March 11, 2008, a suit was filed
    against HHS and CMS, under which plaintiffs are requesting that a court
    prohibit the federal government from implementing this final rule.
    Plaintiffs allege that HHS and CMS exceeded their authority under
    federal law in publishing this final rule with respect to the
    following: (i) requiring states to impose certain criteria when
    determining the governmental status of entities eligible to finance the
    state share of Medicaid expenditures, (ii) limiting Medicaid
    reimbursement for certain governmental providers to the cost of
    Medicaid services and (iii) publishing a final rule despite a
    Congressional moratorium prohibiting such action. On May 23, 2008, the
    Court determined that HHS and CMS violated the congressional moratorium
    and ordered that the rule be vacated and returned to CMS. Thus, the
    rule did not go into effect on May 25, 2008. See Alameda County Medical
    Center, et al. v. Leavitt, et al., no. 1:08-00422 (D.D.C. filed Mar.
    11, 2008).

    [35] Here, the term Medicaid payments refers to a state's medical
    assistance payments, which are the total Medicaid payments made by a
    state for services, including supplemental payments but not including
    administrative costs.

    [36] For the purpose of receiving federal matching funds, states
    include non-DSH payments on other sections of the CMS expenditure
    report.

    [37] For non-DSH payments made under the UPL, the CMS 64.9I forms do
    separately identify payments to these categories of providers. These
    categories correlate with UPLs for certain services, which are applied
    to three separate categories as defined under federal regulations
    applicable during the time of our review: state-government-owned or -
    operated facilities, local-government-owned or -operated facilities,
    and privately owned and operated facilities. See 42 C.F.R. �� 447.272,
    447.321(2006). CMS expenditure reports currently do not separately
    identify DSH payments made to state government, local government, and
    private providers.

    [38] Coughlin, Zuckerman, and McFeeters, "Restoring Fiscal Integrity To
    Medicaid Financing? Some progress has been made in reforming Medicaid
    financing, yet problems persist."

    [39] California reported about $530 million more in non-DSH payments to
    us than they reported to CMS, and Massachusetts reported over $1.6
    billion in non-DSH payments to us, but did not report these payments to
    CMS. Officials from these two states attributed the differences to
    supplemental payments made under Medicaid demonstrations that the
    states did not report on their CMS 64.9I forms, a section of the CMS
    expenditure report for reporting non-DSH supplemental payments made
    under the UPL. The instructions for completing the CMS 64.9I form do
    not specify whether supplemental payments under Medicaid demonstrations
    should be included. In addition, Michigan reported about $753 million
    more to us in non-DSH payments than the state reported to CMS on its
    CMS 64.9I form.

    [40] The Urban Institute defined Medicaid supplemental payments as
    enhanced payments made to providers over and above regular Medicaid
    payment. CMS's 64.9I form defines supplemental payments as additional
    payments to providers to supplement or enhance the regular Medicaid
    payment. Neither the Urban Institute survey instructions nor the
    instructions for the CMS 64.9I form specified whether states should
    report supplemental payments under Medicaid demonstrations. We did not
    reconcile the differences we identified.

    [41] States receive federal matching funds for non-DSH payments based
    on the information they provide on other sections of the CMS-64 report.
    Reimbursement for UPL payments is based on the CMS 64.9 base form,
    where UPL payments are combined and reported with other standard
    Medicaid payments. Reimbursement for supplemental payments made under
    Medicaid demonstrations is based on CMS 64.9 waiver forms, and
    reporting requirements can vary by demonstration.

    [42] Congress mandated improvements to DSH reporting in 1997 and 2003,
    including requiring states to report provider-level information on each
    DSH program they administer. The Balanced Budget Act of 1997, Pub. L.
    No. 105-33, � 4721(c), 11 Stat. 251, 514 (1997) (codified, as amended,
    at 42 U.S.C. � 1396r-4(a)(2)) required states to provide an annual
    report to the Secretary of Health and Human Services describing DSH
    payments made to each hospital. The Medicare Prescription Drug,
    Improvement, and Modernization Act of 2003, Pub. L. No. 108-173, �
    101(d), 117 Stat. 2066, 2430-2431 (2003) (codified, as amended, at 42
    U.S.C. � 1396r-4(j)) mandated that beginning in fiscal year 2004, HHS
    require states to submit to HHS an annual report identifying DSH
    payments and the hospitals receiving these payments and to submit an
    annual independently certified audit that verifies states' compliance
    with certain federal requirements for DSH payments.

    [43] The proposed DSH reporting rule, if finalized, would also require
    that states report other information about each DSH hospital, including
    whether the hospital is state government, local government, or private,
    the unduplicated number of Medicaid-eligible and uninsured individuals
    who received hospital services, and the amount of funds transferred by
    the hospital to a state or local government as a condition of receiving
    Medicaid payments, if any. States would also be required to submit an
    annual independently certified audit that verifies states' compliance
    with federal requirements for DSH payments. See 70 Fed. Reg. 50,262
    (Aug. 26, 2005).

    [44] As part of our review we assessed the sufficiency of CMS's
    oversight of state UPL payment arrangements to ensure that claims
    submitted by states are calculated appropriately and are eligible for
    federal Medicaid reimbursement. We found that CMS had taken a number of
    steps to strengthen its oversight, but also found that the agency did
    not have a process to identify supplemental payments made to specific
    facilities. To further strengthen CMS oversight, we recommended that
    the agency require states to report UPL payments made to individual
    providers. See [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-04-
    228].

    [45] The five states reported administering a total of 52 supplemental
    payment programs in fiscal year 2006, but reported making no payments
    from 4 programs.

    [46] On August 24, 2005, CMS approved a Medicaid demonstration in
    California, the California MediCal Hospital Uninsured Care
    Demonstration. This demonstration was in effect during fiscal year
    2006. The demonstration created a non-DSH program, the Safety Net Care
    Pool, for designated governmental providers. Through this program, the
    state can use funds from the pool to stabilize the government hospital
    system and expand healthcare coverage to the uninsured. Safety Net Care
    Pool funds may be accessed only by the state, counties, or cities and
    designated providers for uncompensated costs of medical services
    provided to uninsured individuals, as agreed upon by CMS and the state.

    [47] On January 26, 2005, CMS approved a 3-year extension to the
    Medicaid demonstration in Massachusetts, the MassHealth Medicaid
    demonstration. The demonstration, which was in effect during fiscal
    year 2006, created a Safety Net Care Pool, which represents the
    combined total of what Massachusetts had previously spent on DSH
    programs and non-DSH payments to Medicaid managed care organizations.
    In fiscal year 2006, the state funded 10 non-DSH programs through the
    Safety Net Care Pool, some of which had been DSH programs prior to
    their inclusion in the demonstration.

    [48] The scope of this report did not include an assessment of whether
    states' DSH or non-DSH programs were consistent with federal
    requirements.

    [49] Thirteen supplemental payment programs that made payments in
    fiscal year 2006 operated under Medicaid demonstrations rather than
    state Medicaid plans. We did not include these programs in this
    analysis since they were administered under the terms and conditions of
    a Medicaid demonstration.

    [50] Of the six programs approved prior to CMS's 2003 initiative, three
    are DSH programs and three are non-DSH programs. The three DSH programs
    had fiscal year 2006 payments totaling $1.2 billion (16 percent of the
    total DSH payments made under the five states' Medicaid plans). The
    three non-DSH programs had fiscal year 2006 payments totaling $30
    million (1 percent of the total non-DSH payments made under the five
    states' Medicaid plans).

    [51] One state, Massachusetts, reported making supplemental payments to
    Medicaid managed care organizations under a Medicaid demonstration.
    This program ended on June 30, 2006. See app. III for additional
    details.

    [52] The state's supplemental payments to managed care organizations
    ended on June 30, 2006.

    [53] In general, providers receiving larger payments also received
    payments from more programs: the 5 percent of providers receiving the
    largest total payments received payments, on average, from about 3.1
    programs each, while the remaining 95 percent of providers received
    payments, on average, from about 1.4 programs each.

    [54] Section 1115 of the Social Security Act authorizes the Secretary
    of Health and Human Services to waive compliance with certain federal
    Medicaid requirements as well as to authorize Medicaid expenditures
    that would not otherwise be allowable for demonstration projects that
    are likely to promote Medicaid objectives. See 42 U.S.C. � 1315.
    Throughout this report, we refer to section 1115 demonstrations as
    Medicaid demonstrations. Supplemental payments administered under
    Medicaid demonstrations are generally governed by terms and conditions
    approved by CMS established for each demonstration. In this report, we
    use the terms non-DSH payments and non-DSH supplemental payments
    interchangeably to include both UPL payments and supplemental payments
    made under Medicaid demonstrations.

    [55] Throughout this report, the term fiscal year refers to the federal
    fiscal year.

    [56] Federal regulations applicable during the time of our review apply
    UPLs for certain services on an aggregate basis to three categories of
    facilities: state-government-owned or -operated facilities, non-state-
    government-owned or -operated facilities, and privately owned and
    operated facilities. See 42 C.F.R. �� 447.272, 447.321 (2006). The CMS-
    64 requires states to separate non-DSH payment information by these
    categories.

    [57] States receive federal matching funds for non-DSH payments based
    on the information they provide on other sections of the CMS-64 report.
    Reimbursement for UPL payments is based on the CMS 64.9 base form,
    where UPL payments are combined and reported with other standard
    Medicaid payments. Reimbursement for supplemental payments made under
    Medicaid demonstrations is based on CMS 64.9 waiver forms, and
    reporting requirements can vary by demonstration.

    [58] Reporting of supplemental payments under Medicaid demonstrations
    can vary by demonstration. The instructions for completing the CMS
    64.9I form do not specify whether supplemental payments under Medicaid
    demonstrations should be included.

    [59] In a 2007 report, the Urban Institute reported for 35 states
    fiscal year 2005 UPL payments as a percentage of these states' total
    Medicaid spending (see T.A. Coughlin, S. Zuckerman, and J. McFeeters,
    "Restoring Fiscal Integrity to Medicaid Financing? Some progress has
    been made in reforming Medicaid financing, yet problems persist,"
    Health Affairs, vol. 26, no. 5 (2007)). We imputed the dollar amount of
    these states' UPL payments by multiplying the percentages reported by
    the Urban Institute by each state's fiscal year 2005 total Medicaid
    spending, as reported to CMS.

    [60] On August 24, 2005, CMS approved a Medicaid demonstration in
    California, the California MediCal Hospital Uninsured Care
    Demonstration. The demonstration created a supplemental payment
    program, the Safety Net Care Pool, for designated governmental
    providers. Through this program, the state can use funds from the pool
    to stabilize the government hospital system and expand health care
    coverage to the uninsured. Safety Net Care Pool funds may be accessed
    only by the state, counties, or cities and designated providers for
    uncompensated costs of medical services provided to uninsured
    individuals, as agreed upon by CMS and the state. On January 26, 2005,
    CMS approved a 3-year extension to the Medicaid demonstration in
    Massachusetts, the MassHealth Medicaid demonstration. The
    demonstration, which was in effect during fiscal year 2006, created a
    Safety Net Care Pool of $1.34 billion per year, which represents the
    combined total of what Massachusetts had previously spent on DSH
    programs and supplemental payments to Medicaid managed care
    organizations. The state funded 10 non-DSH supplemental payment
    programs through the Safety Net Care Pool, some of which had been DSH
    programs prior to their inclusion in the demonstration.

    [61] For each provider, our survey asked states to list its type of
    ownership: state government, nonstate government, or private. We have
    reported provider ownership category as reported by the states in
    response to our survey.

    [62] We did not include programs authorized under a Medicaid
    demonstration in this analysis since they are administered under the
    terms and conditions of the demonstrations, rather than under the
    states' Medicaid plans.

    [63] CMS maintains a database called the On-Line Survey, Certification,
    and Reporting system that contains information on all health care
    providers participating in Medicare and Medicaid. This system is used
    to monitor health care facilities' compliance with federal health and
    safety standards. The On-Line Survey, Certification, and Reporting
    system contains provider-reported information on the type of
    organization that operates each facility, for example, whether the
    facility is state government, local government, nonprofit, or
    proprietary.

    [End of section]

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