Medicaid Program

Why It's High Risk

GAO designated Medicaid as a high-risk program in part due to concerns about the adequacy of fiscal oversight, which is necessary to prevent inappropriate program spending. Medicaid, the federal-state program that covered acute health care, long-term care and other services for over 65 million low-income people in fiscal year 2009, consists of more than 50 distinct state-based programs that cost the federal government and states an estimated $381 billion that year. The program accounts for more than 20 percent of states' expenditures and exerts continuing pressure on state budgets. The federal government matches state expenditures for most Medicaid services using the Federal Medical Assistance Percentage, a statutory formula based on each state's per capita income. The Centers for Medicare & Medicaid Services (CMS) in the Department of Health and Human Services (HHS) is responsible for overseeing the program at the federal level, while the states administer their respective programs' day-to-day operations.

^ Back to topWhat We Found

Improvements to the oversight of Medicaid have been made; however, oversight of the state-administered Medicaid program remains insufficient given its size, growth, and diversity. Congress, the Administration, and CMS have taken steps to improve the fiscal and management oversight of Medicaid. Positive steps toward improving the transparency over and reducing improper payments have included issuance of Presidential Memoranda and Executive Order 13520, Reducing Improper Payments (2009), along with the enactment of the Improper Payments Elimination and Recovery Act of 2010 (IPERA). Also, under the Patient Protection and Affordable Care Act (PPACA), Congress required that states establish a Recovery Audit Contractor Program (RAC) for the purpose of identifying underpayments and overpayments and recouping overpayments within Medicaid. CMS has also taken steps to address improper payments. In 2010, CMS issued preliminary guidance to states for the Medicaid RAC program, and issued proposed regulations to implement PPACA provisions to promote greater transparency in the review and approval of demonstrations approved under section 1115 of the Social Security Act relating to Medicaid and the Children's Health Insurance Program (CHIP). However, it is too soon to assess the effectiveness of these Presidential, congressional and agency actions. Further, strong federal oversight of Medicaid is warranted as the program continues to grow in size and cost to states and the federal government. For example, under PPACA, the cost of the expansion of state Medicaid programs is estimated to exceed $430 billion over the next 10 years, with the federal government responsible for paying over 90 percent of these increased costs. CMS will need new tools and resources, including more reliable data for assessing expenditures and measuring performance, as the law is implemented.

Oversight areas of ongoing concern include the following:

• Improper payments to providers that submit inappropriate claims can result in substantial financial losses to states and the federal government. In its 2010 agency financial report, HHS estimated—on the basis of individual state error rates from a sample of 17 states reviewed on a rotating basis each year—a national improper payment rate for Medicaid of 9.4 percent (with the federal share estimated at $22.5 billion) for fiscal year 2010. Certain services may be more susceptible to improper payments. For example, in 2009 GAO found that Medicaid beneficiaries and providers were involved in potentially wasteful or abusive purchases of controlled substances in five selected states.
  Highlights of GAO-09-957 (PDF)
• CMS has not implemented a review and approval process that ensures that approved demonstrations do not increase the federal government's potential financial liability, despite a long-standing policy that demonstrations should be budget neutral to the federal government. GAO in 2008 reported that HHS had approved two states' Medicaid demonstrations that could increase the federal financial liability substantially.
  Highlights of GAO-08-87 (PDF)
• Medicaid supplemental payments remain a high-risk payment area. Although CMS's oversight of Medicaid supplemental payment arrangements has improved since the agency took steps to closely review states' payment arrangements starting in 2003, the agency has not reviewed all payment arrangements, and some reviewed states had made payments in excess of certain payment limits to hospitals. CMS reports show expenditures of more than $31 billion in Medicaid supplemental payments in fiscal year 2010, an increase in reported payments from the $23 billion in fiscal year 2006.
  Highlights of GAO-08-614 (PDF);   Highlights of GAO-10-69 (PDF)
• GAO found that CMS has not consistently ensured that states comply with actuarial soundness requirements when setting managed care rates, which are key safeguards to ensure that federal spending is appropriate.
  Highlights of GAO-10-810 (PDF)

^ Back to topWhat Needs to Be Done

Although CMS has implemented certain GAO recommendations, additional steps are needed to improve the fiscal integrity and program oversight of Medicaid, such as tracking state compliance with actuarial requirements when setting managed care rates, improving oversight of states' spending for pharmaceuticals by issuing guidance to states, and ensuring all supplemental payment programs are subject to CMS review and are not excessive. For key recommendations related to improving Medicaid program oversight, see Enhancing Medicaid Oversight.

^ Back to topKey Reports

Medicaid

Medicaid Managed Care

Medicaid

Medicaid Financing

Medicaid Demonstration Waivers

Medicaid

Improper Payments

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