While HHS did approve some expenditure authorities  that extended coverage to new populations or for new benefits, HHS also  modified existing expenditure authorities in several states to end or limit  coverage of low-income adults or premium assistance payments under  states’ demonstrations, as new coverage options became available under  PPACA. Through expenditure  authorities approved in their 1115 demonstrations, the 8 states were  allowed to extend full Medicaid coverage to these populations. These five  states were collectively approved to spend $9.5 billion in Medicaid funds  for these programs during their current demonstration approval periods,   Expenditure authorities for some of  which ranged from 2.5 to 5 years.these state programs were in place for longer periods, as demonstrations  were extended or amended. These state programs include those providing  outreach and treatment services for specific health conditions, insurance  subsidy programs, and workforce development programs, and were  operated or funded by a wide range of different state agencies, such as  state departments of mental health, public health, corrections, youth  services, developmental disabilities, aging, and state educational  institutions. The expenditure authorities approved by HHS during our review period  supported a broad range of state program costs that would not otherwise  have been eligible for federal Medicaid funding. Workforce training. HHS Approved New or Modified Existing Expenditure Authorities for More Than $26 Billion in New Types of Supplemental Payments to Hospitals through Funding Pools for Uncompensated Care and Incentive Payments for Delivery System Improvements

Another major type of noncoverage-related expenditure authority  approved by HHS in eight states during our review period was that which  allowed states to make new kinds of supplemental payments—that is,  payments in addition to base payments for covered services—to hospitals  and other providers. During our review period, HHS approved expenditure  authorities for pools of dedicated funds—called funding pools—amounting  to more than $26 billion over the course of the current approvals, which  ranged from 15 months to over 5 years. HHS’s Criteria and Approval Documents Were Not Always Clear as to How Approved Expenditures Would Further Medicaid Objectives

Although section 1115 of the Social Security Act provides HHS with broad  authority to approve expenditure authorities that, in the Secretary’s  judgment, are likely to promote Medicaid objectives, HHS has not issued  specific criteria for making these determinations. In the  absence of clear criteria for approving expenditure authorities and clear  documentation of the application of those criteria, the bases for HHS’s  decisions—involving tens of billions of Medicaid dollars—are not  transparent to Congress, states, or the public. HHS Has Not Issued Specific Criteria for Assessing Whether Expenditure Authorities for State Programs and Funding Pools Promote Medicaid Objectives

While section 1115 of the Social Security Act provides HHS with broad  authority in approving expenditure authorities for demonstrations that, in  the Secretary’s judgment, are likely to promote Medicaid objectives, HHS  officials said the agency has not issued explicit criteria explaining how it  assesses whether demonstration expenditures meet this broad statutory  requirement. Approval Documents Did Not Always Specify What Expenditures Were for and How They Would Promote Medicaid Objectives

Demonstration approval documents in the states we reviewed with  expenditure authorities for state programs or funding pools did not  consistently include information indicating what, specifically, the approved  expenditures were for and, therefore, how they would likely promote  Medicaid objectives. The approvals for the other three states (Massachusetts, New York, and  Vermont), authorizing nearly half of the state programs in our review, did  not include claiming protocols for most state programs and otherwise  lacked clear information on how the state programs would promote  Medicaid objectives, such as how they would benefit low-income  populations. 2. Ensure the application of these criteria is documented in all HHS’s  approvals of section 1115 demonstrations, including those approving  new or extending or modifying existing expenditure authorities, to  inform internal and external stakeholders, including states, the public,  and Congress, of the basis for the agency’s determinations that  approved expenditure authorities are likely to promote Medicaid  objectives. 3. Agency Comments and Our Evaluation

We received written comments on a draft of this report from HHS, which  are reprinted in appendix VI. In its response, HHS partially concurred with  one of the recommendations and concurred with the other two  recommendations. In responding to our recommendation that HHS issue criteria for  assessing whether section 1115 expenditure authorities are likely to  promote Medicaid objectives, HHS said that it partially concurred. Further, we  maintain that the general criteria are not sufficiently specific to allow a  clear understanding of what HHS considers to be approvable Medicaid  purposes. Appendix III: Other Expenditure Authorities Approved for Managed Care Organizations and Various State Activities

In addition to expenditure authorities for state programs and funding pool  payments, the Department of Health and Human Services (HHS)  approved expenditure authorities under section 1115 of the Social  Security Act that provided federal Medicaid funds for a variety of other  non-coverage-related purposes.
Why GAO Did This Study

Medicaid, an over $500 billion joint federal-state program, provides health care coverage to low-income individuals. Section 1115 of the Social Security Act authorizes the Secretary of HHS to waive certain Medicaid requirements and authorize expenditures not otherwise allowed for demonstration projects likely to promote Medicaid objectives. HHS has approved expenditure authorities to allow states to expand Medicaid coverage to populations not otherwise eligible, as well as for other purposes, such as funding for state programs.
GAO was asked to review approved expenditure authorities in recent section 1115 demonstrations. This report examines (1) expenditure authorities approved for purposes of Medicaid coverage, (2) expenditure authorities approved for purposes other than Medicaid coverage, and (3) the criteria HHS uses to determine whether expenditure authorities for purposes other than Medicaid coverage are likely to promote Medicaid's objectives and the documentation of the basis for its approvals. GAO reviewed approval documents for new, extended, or amended section 1115 demonstrations approved by HHS in all 25 states with approvals between June 2012 and October 2013, and interviewed HHS officials.

What GAO Found

Under Medicaid section 1115 demonstrations, the Department of Health and Human Services (HHS) authorized expenditures not otherwise allowed under Medicaid for a range of coverage-related purposes. HHS approved expenditure authorities to expand coverage to previously uncovered populations in most of the 25 states' demonstrations that GAO reviewed; however, it also modified existing expenditure authorities to end or limit coverage under states' demonstrations as new coverage became available in 2014 under the Patient Protection and Affordable Care Act (PPACA).
In the 25 reviewed states, HHS approved expenditure authorities for a broad range of purposes beyond Medicaid coverage. Two types of noncoverage-related expenditure authorities were significant in terms of approved spending amounts. In 5 states, HHS approved expenditure authorities allowing the states to spend $9.5 billion in Medicaid funding during their current demonstration approval periods (about 2 to 5 years) to support about 150 state programs that would not otherwise have been eligible for federal Medicaid funding. The state programs included those providing health services, insurance subsidies, and workforce training. They were operated or funded by a wide range of state agencies, such as state departments of mental health, aging, and developmental disabilities that may be receiving non-Medicaid federal grants and funds. HHS also approved expenditure authorities in 8 states allowing states to spend more than $26 billion during their current demonstration approval periods (about 15 months to over 5 years) for new types of supplemental payments to hospitals and other providers through capped funding pools for a range of purposes, which included payments to incentivize delivery system or infrastructure improvements.
Although section 1115 of the Social Security Act provides HHS with broad authority to approve expenditure authorities that, in the Secretary's judgment, are likely to promote Medicaid objectives, HHS has not issued specific criteria for making these determinations. Further, HHS's approval documents are not always clear as to what, precisely, approved expenditures are for and how they will promote Medicaid objectives. For example, HHS's approvals in three states authorizing the use of federal Medicaid funds for more than half of the state programs GAO reviewed lacked clear information on how the programs would promote Medicaid objectives, such as how they would benefit low-income populations. In addition, HHS's approvals authorizing funding pools for incentive payments did not always provide clear explanations of how payments to hospitals would promote Medicaid objectives. Finally, approval documentation for some but not all approvals provided assurances that Medicaid funds would not be used for purposes addressed by other federal funding streams. Without clear criteria for assessing how proposed expenditure authorities states are seeking will promote Medicaid objectives, and without clear documentation of the application of those criteria, the bases for HHS's decisions involving tens of billions of Medicaid dollars are not transparent to Congress, states, or the public.
In commenting on a draft of this report, HHS partially concurred with the recommendation on issuing criteria, listing the general criteria it uses. But GAO maintains that more-specific, written guidance is needed. HHS concurred with the recommendation on documentation.

What GAO Recommends

GAO recommends that HHS issue criteria for assessing whether expenditure authorities are likely to promote Medicaid objectives and document the use of these criteria in HHS's approvals of demonstrations.