States may, subject to certain requirements, also  receive funds to finance Medicaid payments from health care providers,  for example, through provider taxes—taxes levied on providers such as  hospitals or nursing facilities. We have previously made  recommendations to CMS—including recommendations to require states  to report the amounts of UPL supplemental payments that they make to  individual providers—to review all state supplemental payment programs, and enhance the oversight of payments made to government providers.CMS has not implemented all of these recommendations. CMS also tracks and reviews states’ total Medicaid expenditures on a  quarterly basis. States’ Reliance on Funds from Providers and Local Governments to Finance Medicaid Has Increased in Recent Years, with Implications for Federal Costs

		States Used Funds from Providers and Local Governments to Finance over $46 Billion, or 26 Percent, of the Nonfederal Share of Payments in 2012, an Increase from 2008

In the report that is being released today, we found that states used funds  from health care providers and local governments to finance 26 percent,  or over $46 billion, of the $180 billion in the total nonfederal share of  Medicaid payments—both regular and supplemental—in state fiscal year  2012. States’ reliance on funds from health care providers and local  governments to finance the nonfederal share of Medicaid payments  increased by over 21 percent from state fiscal years 2008 through 2012,  in large part due to increases in revenues from health care provider taxes. Changes in Financing Arrangements in Selected States Illustrate How the Arrangements Can Shift Medicaid Costs to the Federal Government

In the report being released today, we present information on recent  changes in financing arrangements involving funds from providers and  local governments in three selected states that illustrates how such  changes can shift Medicaid costs from the state to the federal  government. And from the providers’ perspective,  the use of funds from providers to finance an increase in Medicaid  payments results in a net payment to the provider that is less than the  amount used for purposes of claiming federal funds. For these arrangements, we estimated the  effect on the federal and state shares of new payments the state was  making. For example, one state increased regular  Medicaid payments for nursing facilities in May 2011, and financed these  payments with a provider tax on nursing facilities. Preliminary Results Suggest That Data Needed to Oversee Medicaid Payments to Government and Private Providers Are Lacking

Our ongoing work has identified two major gaps in federal data necessary  for overseeing Medicaid payments. At the state level, our ongoing work has found that the state payment data  needed to understand provider-specific payments can be challenging to  obtain and assess, and are not always reliable. In one state for which we have determined that data were sufficiently  reliable to report today, our preliminary analysis of the state’s payments  for inpatient hospitals in state fiscal year 2011 suggests the need for and  value of having complete data to analyze Medicaid payments by provider  ownership. When the state’s supplemental payments were factored in, local  government hospitals replaced state government hospitals as  receiving the highest average, and the gap between the local  government hospitals’ and private hospitals’ averages increased  further. According to the state’s  Medicaid officials, these hospitals served higher needs patients. The state’s estimate of  what Medicare would have paid the hospitals for the Medicaid  services provided was about $100 million, compared to the   $416 million those two facilities received. In reviewing information on the state’s payments to the two hospitals, our  preliminary analysis found that the state did not contribute any state  general funds to finance the nonfederal share of the two hospitals’  supplemental payments, as the nonfederal share of the payments was  financed by a local government that operated the two hospitals. We will continue to  complete our ongoing work and will issue a final report later this year  including any suggested actions needed by CMS, as appropriate. We believe even more can be  done to improve the transparency of Medicaid financing and payments,  including previous recommendations that have not been implemented,  such as facility specific reporting of supplemental payments and review of  all state supplemental payment programs, and the recommendation from  the report we are issuing today that CMS take steps to ensure states  report accurate and complete data on all sources of funds to finance the  nonfederal share. Appendix I: Abbreviations

Related GAO Products

Medicaid Financing: States’ Increased Reliance on Funds from Health  Care Providers and Local Governments Warrants Improved CMS Data  Collection. GAO-14-627. Medicaid Financing: States’ Use of Contingency-Fee Consultants to  Maximize Federal Reimbursements Highlights Need for Improved Federal  Oversight. Medicaid: Improved Federal Oversight of State Financing Schemes Is  Needed.
Why GAO Did This Study

Medicaid is a joint federal and state program for which the federal government matches state Medicaid expenditures. Total program costs were about $432 billion in federal fiscal year 2012. States use various sources of funds to finance the nonfederal share, such as state funds and funds from health care providers and local governments. Medicaid has been on GAO's list of high-risk programs since 2003, in part, because of concerns about federal oversight of complex state Medicaid financing arrangements where states seek funds from the providers for the nonfederal share of the payments, and oversight of large supplemental payments that states often make to government providers. States may have incentives to overpay providers that help finance the nonfederal share to maximize federal matching funds.
This statement highlights (1) findings from GAO's report being issued today on how states' reliance on health care providers and local governments to finance Medicaid changed from state fiscal years 2008 through 2012, and implications of these changes; and (2) preliminary results from GAO's ongoing work on what is known about data to oversee state Medicaid payments to government and private providers. For this work, GAO surveyed states, interviewed CMS and state officials, and reviewed information in three states selected, in part, on the basis of size, Medicaid payments, and geographic diversity. GAO shared information on its preliminary observations with CMS and incorporated comments as appropriate.

What GAO Found

In its report being issued today ( GAO-14-627 ), GAO found that states' reliance on funds from health care providers and local governments to finance Medicaid has increased in recent years, with implications for federal costs. In state fiscal year 2012, while most of the nonfederal share was from state general funds, states used funds from health care providers and local governments to finance 26 percent, or over $46 billion, of the total nonfederal share of Medicaid payments. States' reliance on funds from health care providers and local governments to finance the nonfederal share increased by over 21 percent from state fiscal years 2008 through 2012. States' increasing use of funds generated from health care provider taxes was one main contributing factor to this increase. States' increasing reliance on providers and local governments to finance Medicaid can effectively shift costs from the state to the federal government, as illustrated by GAO's work in three selected states. For example, in one state, a $220 million payment increase for private nursing facilities funded by a tax on private nursing facilities resulted in an estimated $110 million increase in federal matching funds and no increase in state general funds, and a net payment increase to the facilities, after paying the taxes, of $105 million.
GAO's preliminary results from ongoing work related to state Medicaid payments to government providers shows that data needed for overseeing Medicaid payments are lacking. Federal payment data do not capture on a provider-specific basis certain large supplemental payments states often make and generally lack information on provider ownership. At the state level, preliminary results in three selected states suggest that payment data primarily maintained by states are not always reliable and can be challenging to obtain and assess. GAO's preliminary analysis of Medicaid payments to government hospitals in one state suggests the need for and value of better data for oversight. GAO estimates that on an average per day basis, the state's 2011 inpatient hospital payments were higher for local government hospitals than for private hospitals. For local government hospitals, the higher average payment was largely due to supplemental Medicaid payments the state made to two local government hospitals. State officials said these hospitals served patients with greater needs. However, the state's own estimate of what Medicare would have paid these hospitals for similar services was $100 million, much less than the $416 million in supplemental Medicaid payments and $70 million in regular payments that the hospitals received. Documentation from the Centers for Medicare & Medicaid Services' (CMS) payment review process did not identify the actual supplemental payments these hospitals received. GAO plans to issue its final report later this year.
In GAO's past reports and the report being released today ( GAO-14-627 ), GAO has made recommendations to CMS to improve Medicaid payment oversight and develop a data collection strategy to improve the transparency of state financing methods. CMS has taken steps to improve the transparency and oversight of Medicaid financing and payments but has not implemented all of GAO's prior recommendations, and has generally disagreed with GAO's new recommendation. CMS believes that additional action is not needed. As discussed in the statement, GAO continues to believe that provider-specific information on state Medicaid financing and payments is needed.