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 Servicesï¿½ (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 CMSï¿½s 
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. CMSï¿½s 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 surveyedï¿½California, Massachusetts, Michigan, New 
York, and Texasï¿½reported 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 statesï¿½ 
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 CMSï¿½s 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 statesï¿½ Medicaid plans and review those 
programs that have not been subject to review under CMSï¿½s 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 
[email protected]. 

[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, ï¿½ 404, 120 Stat. 2922, 2995-6 (2006) (codified, as amended, at 42 
U.S.C. ï¿½ 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, ï¿½ 204, 121 Stat. 2492, 2513-2514 (2007) (codified, as amended, at 
42 U.S.C. ï¿½ 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, ï¿½ 404, 120 Stat. 2922, 2995-6 (2006) 
(codified, as amended, at 42 U.S.C. ï¿½ 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, ï¿½ 204, 121 Stat. 2492, 2513-2514 
(2007) (codified, as amended, at 42 U.S.C. ï¿½ 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/outpatientï¿½federal share: 44% ($7.59); 
Inpatient/outpatientï¿½state share: 34% ($5.89); 
Mental healthï¿½federal share: 12% ($2.05); 
Mental healthï¿½state 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 [email protected]. 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, ï¿½ 404, 120 Stat. 2922, 2995-6 (2006) (codified, as amended, at 42 
U.S.C. ï¿½ 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, ï¿½ 204, 121 Stat. 2492, 2513-2514 (2007) (codified, as amended, at 
42 U.S.C. ï¿½ 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 [email protected]: 

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. ï¿½ï¿½ 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. ï¿½ï¿½ 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. ï¿½ï¿½ 
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. ï¿½ 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. ï¿½ 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. ï¿½ï¿½ 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. ï¿½ï¿½ 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. ï¿½ï¿½ 1396b(a), 1396d(b). 

[22] See 42 U.S.C. ï¿½ 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. ï¿½ 1396b(w)(6). 

[25] See Medicaid Voluntary Contribution and Provider-Specific Tax 
Amendments of 1991, Pub. L. No. 102-234, ï¿½ 3, 105 Stat. 1793, 1799-1804 
(1991) (codified, as amended, at 42 U.S.C. ï¿½ 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. ï¿½ 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. ï¿½ï¿½ 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, ï¿½ 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. ï¿½ï¿½ 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, ï¿½ 4721(c), 11 Stat. 251, 514 (1997) (codified, as amended, 
at 42 U.S.C. ï¿½ 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, ï¿½ 
101(d), 117 Stat. 2066, 2430-2431 (2003) (codified, as amended, at 42 
U.S.C. ï¿½ 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. ï¿½ 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. ï¿½ï¿½ 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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Washington, D.C. 20548: 

Public Affairs: 

Chuck Young, Managing Director, [email protected]: 
(202) 512-4800: 
U.S. Government Accountability Office: 
441 G Street NW, Room 7149: 
Washington, D.C. 20548: 

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