States are required to  make DSH payments to hospitals that treat a disproportionate share of  low-income and Medicaid patients. 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. 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. 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. 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. 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  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. 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. Thus, not all  state supplemental payment programs have been reviewed under CMS’s  2003 initiative. 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. Some providers received substantial payments  from more than one supplemental payment program. 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. The five states each reported making more than $1.6 billion in  estimated Medicaid supplemental payments in 2005. 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. Medicaid: Improved Federal Oversight of State Financing Schemes Is  Needed. GAO-04-228.
Why GAO Did This Study

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

What GAO Found

CMS Medicaid expenditure reports show that states made at least $23 billion in supplemental payments in fiscal year 2006, with the federal share of these payments totaling over $13 billion. States made $17.1 billion in payments through Disproportionate Share Hospital (DSH) programs, which under federal law provide additional reimbursement, up to a cap, to hospitals that serve large numbers of low-income individuals. In addition, states made at least $6.3 billion in non-DSH supplemental payments, including payments through Upper Payment Limit (UPL) programs, under which states make payments to providers up to the upper limit for obtaining federal matching funds. However, information on non-DSH supplemental payments was incomplete. The exact amount and distribution of fiscal year 2006 non-DSH payments to states are unknown because states did not report all their payments to CMS. CMS officials said that they were updating reporting requirements to collect better information on supplemental payments, including finalizing a rule proposed in 2005 responding to federal law that required states to report more detailed information on DSH payments and seeking improved UPL payment information. As of April 2008, specific implementation dates for these actions were not known. CMS's plans did not include a requirement that states report all UPL payments on a facility-specific basis, as GAO recommended in 2004 (See Medicaid: Improved Federal Oversight of State Financing Schemes Is Needed, GAO-04-228). GAO believes this 2004 recommendation remains valid. The five states GAO surveyed--California, Massachusetts, Michigan, New York, and Texas--reported making $12.3 billion in Medicaid supplemental payments in federal fiscal year 2006 through programs with broadly stated purposes, with half of these payments made to local government hospitals. Collectively, the five states reported making payments through 48 supplemental payment programs, with each state operating from 3 to 15 different programs that paid hospitals, nursing facilities, or other providers. The five states reported purposes for their programs that often focused on various categories of eligible providers serving individuals on Medicaid, with low incomes, or without insurance. The state Medicaid plan sections establishing the states' supplemental payments did not always clearly identify how the payments would be calculated. CMS officials said that as part of an oversight initiative started in 2003, CMS ensures that state plans demonstrate a link between the distribution of supplemental payments and Medicaid purposes. However, not all state supplemental payment programs have been reviewed under CMS's initiative. In each of the five states, supplemental payments were concentrated on a small proportion of providers: the 5 percent of providers receiving the largest amount of supplemental payments in individual states received from 53 percent to 71 percent of all supplemental payments. Some providers received substantial payments from more than one supplemental payment program.