States Have Used Intergovernmental Transfers to Facilitate Financing Schemes That Inappropriately Increase Federal Medicaid Reimbursements

For many years, states have used varied financing schemes, sometimes  involving IGTs, to inappropriately increase federal Medicaid  reimbursements. These transactions create the illusion of valid expenditures  for services delivered by local-government providers to Medicaid-eligible  individuals and enable states to claim large federal reimbursements. Table 2 describes some of the  states’ financing schemes over the years and how Congress and CMS have  responded to them. Although states are allowed, under law and CMS policy, to  claim federal reimbursements for supplemental payments they make to  providers up to the UPL ceilings, we have reported earlier that payments  in excess of the provider’s costs that are not retained by the provider as  reimbursement for services actually provided are inconsistent with  Medicaid’s federal-state partnership and fiscal integrity. We previously  estimated that one state effectively increased the federal share of its total  Medicaid expenditures from 59 percent to 68 percent in state fiscal year  2001, by obtaining excessive federal funds and using these as the state’s  share of other Medicaid expenditures. Our work in this area has  addressed claims for Medicaid school-based health services and  administration. We further found that, in some states, funding arrangements  among schools, states, and private consulting firms created adverse  incentives for program oversight and caused schools to receive a small  portion—as little as $7.50 for every $100 in Medicaid claims—of Medicaid  reimbursement for school-based administrative and service claims. According to a state official and documents provided by the state,  the state retained $3.9 million, or 16 percent, of federal reimbursements  that were claimed on behalf of the school districts for state fiscal year  2003, most of which was used to pay its contingency-fee consultant and  about $1 million of which was used to cover the salaries and  administrative costs of the five state employees who administered school- based claims in Georgia. States’ Use of Contingency-Fee Consultants to Maximize Federal Reimbursements Highlights Need for Improved Federal Oversight

A growing number of states are using consultants on a contingency-fee  basis to maximize federal Medicaid reimbursements. CMS reported that,  according to a survey it conducted in 2004, 34 states had used consultants  on a contingency-fee basis for this purpose, an increase from 10 states  reported to have such arrangements in 2002. We identified claims from contingency-fee consultant  projects that appear to be inconsistent with current CMS policy and claims  that are inconsistent with federal law; we also identified claims from  projects that undermine Medicaid’s fiscal integrity. First, many projects were in categories of Medicaid  claims where federal requirements for the services have been  inconsistently applied, are evolving, or were not specific. Some Contingency-Fee Projects in Georgia and Massachusetts Resulted in Problematic Federal Reimbursements

For the five categories of claims we reviewed where states frequently used  contingency-fee consultants to maximize their federal Medicaid  reimbursements, we identified problematic claims in each category in  either Georgia or Massachusetts or in both states. As of May 2005, however, this guidance had not been issued. CMS has undertaken important steps to improve its financial management  of the Medicaid program. GAO-05-748.
Why GAO Did This Study

Medicaid--the federal-state health care financing program covering almost 54 million low-income people at a cost of $276 billion in fiscal year 2003--is by its size and structure at significant risk of waste and exploitation. Because of challenges inherent in overseeing the program, which is administered federally by the Centers for Medicare & Medicaid Services (CMS), GAO added Medicaid to its list of high-risk federal programs in 2003. Over the years, states have found various ways to maximize federal Medicaid reimbursements, sometimes using consultants paid a contingency fee to help them do so. From earlier work and a report issued today (GAO-05-748), GAO's testimony addresses (1) how some states have inappropriately increased federal reimbursements; (2) some ways states have increased federal reimbursements for school-based Medicaid services and administrative costs; and (3) how states are using contingency-fee consultants to maximize federal Medicaid reimbursements and how CMS is overseeing states' efforts.

What GAO Found

For many years, GAO has reported on varied financing schemes and questionable methods used by states to increase the federal reimbursements they receive for operating their state Medicaid programs. These schemes and methods can undermine Medicaid's federal-state partnership and threaten its fiscal integrity. For example, some states make large supplemental payments to government-owned or government-operated entities for delivery of Medicaid services while requiring these entities to return the payments to the state. This process creates the illusion of valid expenditures in order to obtain federal reimbursement, effectively shifting a portion of the state's share of program expenditures to the federal government and increasing the federal share beyond that established by formula under law. Medicaid funding is available for local school districts for certain health services for eligible children and for administrative costs. To claim increased federal Medicaid reimbursement, however, some states and school districts have used methods lacking sufficient controls to ensure that claims were legitimate. GAO also found funding arrangements among schools, states, and private consulting firms where some states retained up to 85 percent of reimbursements for administrative costs. In some cases, school districts paid contingency fees to consultants. A growing number of states are using consultants on a contingency-fee basis to maximize federal Medicaid reimbursements. As of 2004, 34 states--up from 10 states in 2002--used contingency-fee consultants for this purpose. GAO identified claims in each of five categories of claims from contingency-fee projects that appeared to be inconsistent with current CMS policy, inconsistent with federal law, or that undermined the fiscal integrity of the Medicaid program. Problematic projects often were in categories where federal requirements were inconsistently applied, evolving, or not specific. CMS has taken steps to improve its fiscal management of Medicaid, but a lack of oversight and clear guidance from CMS has allowed states to develop new financing methods or continue existing ones that take advantage of ambiguity and generate considerable additional federal costs.