Federal matching funds are available to states for different types of  payments that states make. Many states also make other supplemental payments that  are not required under federal law. 1.) 2.) In two states with reliable data, Illinois and New York,  our estimates of average daily payments made to government and private  hospitals showed inconclusive trends, but also identified that a small  number of government hospitals were receiving high payments that  warrant oversight. For example, some selected hospitals in each of these  states received Medicaid payments in excess of total operating costs. A Comprehensive Assessment of Medicaid Payments to Individual Hospitals in Selected States Was Precluded by Inaccurate and Incomplete Data

Our assessment of Medicaid payments to individual hospitals in three  selected states—California, Illinois, and New York—was hampered by  inaccurate and incomplete state data on Medicaid payments and CMS  claims data on Medicaid payments and days of service. States must  capture and report payment data to CMS, but the data needed to  compare payments by individual provider and provider ownership are not  specifically required. Illinois Government and Private Hospitals’ Average Daily Inpatient Medicaid Payments Were Comparable in 2011, but Individual Hospitals’ Daily Payments Varied Widely, and One Government Hospital Received Payments That Exceeded Its Total Operating Costs

For inpatient services provided by 193 hospitals in Illinois in state fiscal  year 2011, government hospitals’ and private hospitals’ average daily  payments were comparable. When comparing the Medicaid inpatient payments—regular and UPL  supplemental payments—to the costs of providing those services,  estimated using cost reports prepared by hospitals, for hospitals with the  highest daily payments, we found that six of the seven selected hospitals  had total Medicaid inpatient payments that exceeded those hospitals’ total   The three local government hospitals  costs of providing these services.and three private hospitals had Medicaid inpatient hospital payments that  exceeded costs, ranging from about $273,000 to about $18 million over  costs. In addition, for the selected hospitals in Illinois, we also compared  Medicaid payments and other supplemental payments to the hospitals’  total operating costs for all services and all patients and found that one of  the local government hospitals received Medicaid payments that  exceeded the hospital’s total operating costs. For example, the local government hospitals’  daily payments ranged from $198 to $9,176, compared to $144 to $3,413  for private hospitals.difficult to draw conclusions about payment differences by hospital  ownership, but helped in identifying individual hospitals with significantly  higher daily payments compared to other hospitals. The agency does not collect provider- specific payment and ownership information and lacks a policy and  standard process for determining whether Medicaid payments to  individual providers are economical and efficient. As a result, excessive  state payments to individual providers may not be identified or examined  by CMS. Information Needed to Oversee Medicaid Payments to Government and Private Providers Is Lacking

CMS does not collect sufficient information on payments to enable it to  assess payments for individual providers, which would allow the agency  to ensure that payments are appropriately spent for Medicaid purposes. CMS’s Oversight of Medicaid Payments to Individual Providers Is Limited Because CMS Lacks a Policy and Process for Assessing Whether Payments to Individual Providers Are Economical and Efficient

CMS cannot ensure that Medicaid payments to individual providers are  economical and efficient because the agency does not have a standard  policy delineating criteria for when payments made to individual providers  are economical or efficient, nor does it have a process to identify  payments to individual providers that appear questionable. Further, our analysis showing the wide ranges in hospitals’  average daily payments, and high payments over costs to certain  government and private hospitals, raises further questions about federal  oversight of states’ payments to individual institutional providers, both  government and private. To ensure the appropriateness of Medicaid payments to providers in New  York, we recommend that the Administrator of CMS take the following  fourth action: expedite the formal determination of the appropriateness of New  York’s payment arrangements and ensure future payments to local  government hospitals are consistent with all Medicaid requirements. Methodology for Comparing Medicaid Payments by Provider Ownership in Selected States

To determine how, in selected states, state Medicaid payments to  government hospitals compare to state Medicaid payments to private  hospitals, we selected a nongeneralizable sample of three states— California, Illinois, and New York. GAO-11-318SP. GAO-10-69.
Why GAO Did This Study

Under Medicaid, a joint federal-state program, states pay health care providers and receive federal matching funds for their payments. States may have incentives to make excessive Medicaid payments to certain institutional providers such as hospitals operated by local governments. Medicaid payments are not limited to providers' costs, but federal law requires they be economical and efficient. Large payments that exceed costs raise questions as to whether the payments are for Medicaid purposes.
GAO was asked to review state Medicaid payments to government providers compared to private, that is, for-profit and non-profit providers. GAO examined (1) in selected states, how state Medicaid payments to government hospitals compare to those made to private hospitals, and, for selected hospitals, to their Medicaid costs and total hospital operating costs; and (2) CMS oversight. GAO assessed hospital payments by ownership for three states selected in part based on size and geographic diversity, reviewed laws, regulations, guidance, and other documents, and interviewed CMS and state officials.

What GAO Found

GAO's assessment of Medicaid payments to government and private hospitals in three selected states was hampered by inaccurate and incomplete data on payments. States must capture but are not required to report all payments they make to individual institutional providers, nor are states required to report ownership information. For example, large supplemental payments states often make to hospitals are not reported by hospital. GAO assessed data for hospitals in two of three selected states, Illinois and New York; the third state, California, did not have accurate or complete payment data that would allow an assessment of total payments made to individual hospitals. In the two states, GAO's estimates of average daily payments—total payments adjusted for differences in patient health, divided by patient days—made to government and private hospitals showed inconclusive trends, but also identified that a small number of government hospitals were receiving high payments that warrant oversight.
In Illinois, average daily payments for inpatient services were comparable for government and private hospitals, but these averages masked wide variations in daily payments for both types of hospitals. Daily payments ranged from less than $600 to almost $10,000 for local government hospitals and from $750 to over $11,000 for private hospitals. For seven hospitals with high daily payments, GAO examined how payments compared to each hospital's costs of providing Medicaid services as reported by the hospital in cost reports and found that six of the seven hospitals' Medicaid payments exceeded their Medicaid costs.
In New York, average daily payments were higher for government hospitals than private hospitals, but as with Illinois these averages masked wide variations, with daily payments ranging from about $200 to over $9,000 for local government hospitals and from less than $200 to $3,400 for private hospitals. Four of nine selected government and private hospitals with high daily payments had Medicaid payments that exceeded Medicaid costs: two were local government hospitals that, all together, received payments exceeding their costs by nearly $400 million.
One selected hospital in Illinois and two in New York had Medicaid payments that exceeded the local government hospitals' total operating costs, including costs associated with all services provided to all patients they served.
Oversight of Medicaid payments to individual hospitals and other institutional providers, which is the responsibility of the Department of Health and Human Services' (HHS) Centers for Medicare & Medicaid Services (CMS), is limited in part by insufficient information on payments and also by the lack of a policy and process for assessing payments to individual providers. CMS does not collect provider-specific payment and ownership information. CMS also lacks a policy and standard process for determining whether Medicaid payments to individual providers are economical and efficient. Excessive state payments to individual providers may not be identified or examined by CMS. For example, CMS's oversight mechanisms did not identify large overpayments to two New York hospitals until they were identified by GAO. CMS began reviewing the appropriateness of these payments during the course of GAO's review.

What GAO Recommends

GAO recommends that CMS take steps to ensure states report provider-specific payment data, establish criteria for assessing payments to individual providers, develop a process to identify and review payments to individual providers, and expedite its review of the appropriateness of New York's hospital payments. HHS concurred with the recommendations.