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Medicaid: Improved Federal Oversight of State Financing Schemes Is Needed

GAO-04-228 Published: Feb 13, 2004. Publicly Released: Mar 16, 2004.
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Highlights

For years, some states have taken advantage of a loophole in Medicaid law that allows them to claim billions of dollars in excessive federal matching funds by exploiting the "upper payment limit" (UPL), which is intended to be a ceiling on federal cost sharing. Congress and the Centers for Medicare & Medicaid Services (CMS) acted to curtail UPL financing schemes through law in 2000 and regulation in 2001. CMS recognized that some states had developed a long-standing reliance on UPL funds. The law and regulation authorized transition periods of up to 8 years for states to phase out excessive UPL claims. GAO was asked to examine CMS's oversight of nursing home UPL arrangements, including the status of and the basis for transition period decisions.

Recommendations

Matter for Congressional Consideration

Matter Status Comments
Congress may wish to continue its efforts to close the UPL loophole and prevent further claims from arrangements that undermine the fiscal integrity of the Medicaid program. In addition to reiterating our previous recommendation to Congress to limit Medicaid payments to providers' costs, we believe action is required to address the impact of CMS's transition policy and decisions on program integrity. Congress may wish to consider ending the 8-year transition periods for states with excessive nursing home UPL arrangements, with a consideration for any state that has demonstrated a long-standing budgetary reliance on the federal funds.
Closed – Not Implemented
Transition periods have ended.

Recommendations for Executive Action

Agency Affected Recommendation Status
Centers for Medicare & Medicaid Services To protect the fiscal integrity of the Medicaid program, the Administrator of CMS should establish criteria for making transition period decisions that are consistent with the objectives described in CMS's January 2001 UPL regulation.
Closed – Not Implemented
Agency disagrees with the recommendation. Most transition periods have ended.
Centers for Medicare & Medicaid Services To protect the fiscal integrity of the Medicaid program, the Administrator of CMS should reconsider the agency's initial decisions to grant Nebraska and Wisconsin 8-year transition periods.
Closed – Not Implemented
Agency disagrees with the recommendation. Most transition periods have ended as of August 2007.
Centers for Medicare & Medicaid Services To further improve UPL oversight, the Administrator of CMS should establish uniform guidance for states, which would set forth acceptable methods to calculate UPLs.
Closed – Implemented
In March 2013, CMS issued a State Medicaid Director letter which included guidance materials and instructions for states on calculating the upper payment limit (UPL) and reporting UPL information. The State Medicaid Director letter requires states to annually report facility-specific information on UPL demonstrations beginning in 2013 for inpatient hospital services, outpatient hospital services, and nursing facilities and beginning in 2014 for these services and for clinics, physician services (for states that reimburse targeted physician supplemental payments), intermediate care facilities for the developmentally disabled, private residential treatment facilities, and institutes for mental disease.
Centers for Medicare & Medicaid Services To further improve UPL oversight, the Administrator of CMS should expedite the financial management reviews of states with UPL arrangements, assigning high priority to reviews of states with 5- and 8- year transition periods, including those we identified as having methodological problems.
Closed – Implemented
In August 2003, CMS began an oversight initiative to review in detail state Medicaid plan amendments involving provider payments. Through this effort CMS has reviewed the appropriateness of UPL payments in most states, including all of the state nursing home UPL payments with 5 and 8 year transition periods that were listed in our report.
Centers for Medicare & Medicaid Services To further improve UPL oversight, the Administrator of CMS should improve state reporting on UPL arrangements, such as implementing the current requirement for states with transition periods to report payments on a facility-specific basis, and requiring such reports for all states with a UPL arrangement.
Closed – Implemented
In March 2013, CMS issued a State Medicaid Director letter requiring states to annually report facility-specific information on UPL demonstrations beginning in 2013 for inpatient hospital services, outpatient hospital services, and nursing facilities and beginning in 2014 for these services and for clinics, physician services (for states that reimburse targeted physician supplemental payments), intermediate care facilities for the developmentally disabled, private residential treatment facilities, and institutes for mental disease.

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Topics

Cost sharing (finance)state relationsHealth care programsMedicaidIntergovernmental fiscal relationsMedical expense claimsMonitoringNursing homesOverpaymentsProgram abusesQuestionable paymentsState-administered programs