Medicaid Financing:
States' Use of Contingency-Fee Consultants to Maximize Federal Reimbursements Highlights Need for Improved Federal Oversight
GAO-05-748, Jun 28, 2005
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Medicaid--the federal-state health care financing program covering nearly 54 million low-income people at a cost of $276 billion in fiscal year 2003--is by its size and structure at risk of waste and exploitation. Because of challenges inherent in overseeing the program, administered federally by the Centers for Medicare & Medicaid Services (CMS), GAO in 2003 added Medicaid to its list of high-risk federal programs. To help administer the program, states may employ consultants in a number of roles, sometimes under contracts whereby payment is contingent upon the consultant's performance. GAO was asked to report on states' use of contingency-fee consultants. GAO examined the extent to which (1) states are using contingency-fee consultants for projects to maximize federal Medicaid reimbursements, (2) claims from contingency-fee projects in selected states are consistent with federal law and policy, and (3) states and CMS are overseeing claims from such projects.
As of 2004, 34 states--up from 10 states in 2002--used contingency-fee consultants to implement projects to maximize federal Medicaid reimbursements. Projects varied widely, and because of certain risk factors--including a nationwide growth in dollars--GAO focused on claims in five categories. Contingency-fee consultants in the 2 states GAO reviewed, Georgia and Massachusetts, have developed projects in all five categories. From these and other projects, for state fiscal years 2000 through 2004, Georgia obtained an estimated $1.5 billion in additional federal reimbursements and Massachusetts obtained an estimated $570 million. These states paid contingency fees of more than $90 million. In Georgia, Massachusetts, or both states, GAO identified claims from contingency-fee projects in the five categories reviewed that were problematic because they appeared to be inconsistent with current policy or were inconsistent with federal law; others undermined Medicaid's fiscal integrity. For example, for services provided to children in state custody residing in private facilities, a Georgia project claimed increased federal Medicaid reimbursements on the basis of the facilities' estimated costs, which were often higher than the state's actual payments to the facilities. Problematic projects often involved categories of claims where federal law and policy were inconsistently applied, evolving, or not specific. Problematic projects also involved Medicaid payments to government entities, which can facilitate the inappropriate shifting of state costs to the federal government. The states and CMS have provided limited oversight of claims associated with contingency-fee projects. CMS has not routinely collected information enabling it to identify claims or projects developed by contingency-fee consultants to maximize federal reimbursements, despite long-standing recognition that such claims are at risk of being inconsistent with federal requirements. Problems GAO identified illustrate the urgent need to address broader issues in oversight and financial management. CMS has taken steps to strengthen its financial oversight of Medicaid, but the agency can do more to reduce the risk of current and emerging financing schemes, including responding to prior GAO recommendations.
Status Legend:
- Review Pending
- Open
- Closed - implemented
- Closed - not implemented
Recommendations for Executive Action
Recommendation: To improve CMS's oversight of projects involving contingency-fee consultants and any associated claims for federal Medicaid reimbursements, the Administrator of CMS should routinely request that states disclose their use of contingency-fee consultants when submitting state Medicaid documents, such as state plan amendment proposals.
Agency Affected: Department of Health and Human Services: Centers for Medicare and Medicaid Services
Status: Open
Comments: In 2011, CMS officials said that nothing new had been implemented to monitor states' contingency fee-consultant developed projects.
Recommendation: To improve CMS's oversight of projects involving contingency-fee consultants and any associated claims for federal Medicaid reimbursements, the Administrator of CMS should routinely request that states disclose their use of contingency-fee consultants when submitting state Medicaid documents, such as cost allocation proposals.
Agency Affected: Department of Health and Human Services: Centers for Medicare and Medicaid Services
Status: Open
Comments: In 2011, CMS officials said nothing new is being done in terms of focusing on contingency fee-consultant developed projects.
Recommendation: To improve CMS's oversight of projects involving contingency-fee consultants and any associated claims for federal Medicaid reimbursements, the Administrator of CMS should routinely request that states disclose their use of contingency-fee consultants when submitting state Medicaid documents, such as expenditure reports.
Agency Affected: Department of Health and Human Services: Centers for Medicare and Medicaid Services
Status: Closed - Implemented
Comments: In 2011, CMS officials the agency conducts necessary reviews of all documents submitted by states, and continues to consider the presence of contingency-fee consultants as one of the risk factors when planning regional office reviews. In October 2010, as part of internal guidance for reviewing state expenditure reports, CMS regional offices were directed to inquire about the existence of any revenue maximization contracts. The reminder appears in the section of the guidance regarding review of Administrative claims when conducting onsite audits at the state.
Recommendation: To improve CMS's oversight of projects involving contingency-fee consultants and any associated claims for federal Medicaid reimbursements, the Administrator of CMS should routinely request that states disclose their use of contingency-fee consultants when submitting state Medicaid documents and in the event that states do not voluntarily provide this information, seek legislative authority to require disclosure.
Agency Affected: Department of Health and Human Services: Centers for Medicare and Medicaid Services
Status: Open
Comments: In 2011, CMS officials CMS officials said the agency conducts necessary reviews of all documents submitted by states, including those resulting from state contracts with contingency-fee consultants. Officials said they continue to consider the presence of contingency-fee consultants as one of the risk factors when planning regional office reviews. CMS has previously stated that it does not have the authority to require states to disclose their use of contingency-fee consultants, and that such authority was sought in the Deficit Reduction Act of 2005 but was not enacted. In 2011, CMS officials stated that no plans exist to seek authority to require states to disclose the use of contingency-fee consultants.
Recommendation: To strengthen CMS's overall financial management of state Medicaid activities, the Administrator of CMS should enhance CMS review of states' Medicaid documents, such as state plan amendments, specifically reviewing payments states make to units of government, including the methodology behind payment rates to government units and the basis for any related claims, and take appropriate action to prevent or recover unallowable claims.
Agency Affected: Department of Health and Human Services: Centers for Medicare and Medicaid Services
Status: Closed - Implemented
Comments: CMS has implemented a initiative to enhance the agency's review of state plan amendments dealing with state changes to state Medicaid payments. The initiative specifically requires states to identify whether payments are made to government providers, how the non-federal share of the payments are funded, the extent payments will exceed provider costs, and requires that providers retain all payments received.
Recommendation: To strengthen CMS's overall financial management of state Medicaid activities, the Administrator of CMS should enhance CMS review of states' Medicaid documents, such as such as cost allocation plans, specifically reviewing payments states make to units of government, including the methodology behind payment rates to government units and the basis for any related claims, and take appropriate action to prevent or recover unallowable claims.
Agency Affected: Department of Health and Human Services: Centers for Medicare and Medicaid Services
Status: Closed - Not Implemented
Comments: CMS has not significantly changed the process for reviewing cost allocation plans, but the cost allocation process by definition deals with the allocation of costs of other state and government programs to Medicaid.
Recommendation: To strengthen CMS's overall financial management of state Medicaid activities, the Administrator of CMS should enhance CMS review of states' Medicaid documents, such as expenditure reports, specifically reviewing payments states make to units of government, including the methodology behind payment rates to government units and the basis for any related claims, and take appropriate action to prevent or recover unallowable claims.
Agency Affected: Department of Health and Human Services: Centers for Medicare and Medicaid Services
Status: Open
Comments: In July 2011, CMS officials said they were in the process of reviewing the new state reporting of non-DSH supplemental payments in aggregate by ownership category that began in 2010. This reporting includes separate categories for supplemental payments to local government providers and state government providers. The reporting does not require facility specific reporting and it is unclear whether this review will entail looking at the payments made to individual facilities or the calculation of payments for government providers.
Recommendation: To strengthen CMS's overall financial management of state Medicaid activities, the Administrator of CMS should establish or clarify and then communicate CMS policies on TCM and ensure that the policies are applied consistently across all states.
Agency Affected: Department of Health and Human Services: Centers for Medicare and Medicaid Services
Status: Closed - Implemented
Comments: Closed as implemented in 2007. This recommendation until 2009 was merged with a broader recommendation with several components which remain open.
Recommendation: To strengthen CMS's overall financial management of state Medicaid activities, the Administrator of CMS should establish or clarify and then communicate CMS policies on supplemental payment arrangements and ensure that the policies are applied consistently across all states.
Agency Affected: Department of Health and Human Services: Centers for Medicare and Medicaid Services
Status: Open
Comments: In July 2011, CMS officials stated that they still plan to issue guidance clarifying agency policy related to state financing issues, including guidance on allowable sources and methods of funding the non-federal share and requirements for provider retention of the payments they receive. Officials said CMS may issue 1-page technical guidance documents, rather than publishing a State Medicaid Directors Letter. No specific time frame was provided for issuing guidance. Officials said developing such guidance documents has a lower priority than agency responsibilities related to reviewing DSH audits and DSH annual reports, reviewing new supplemental payment reporting, and implementation of health care reform.
Recommendation: To strengthen CMS's overall financial management of state Medicaid activities, the Administrator of CMS should establish or clarify and then communicate CMS policies on rehabilitation services and ensure that the policies are applied consistently across all states.
Agency Affected: Department of Health and Human Services: Centers for Medicare and Medicaid Services
Status: Open
Comments: In July 2011, CMS officials said that guidance on the rehabilitation claiming is still something the agency plans to develop.
Recommendation: To strengthen CMS's overall financial management of state Medicaid activities, the Administrator of CMS should establish or clarify and then communicate CMS policies on Medicaid administrative costs and ensure that the policies are applied consistently across all states.
Agency Affected: Department of Health and Human Services: Centers for Medicare and Medicaid Services
Status: Open
Comments: In July 2011, CMS officials said that guidance on the administrative claiming policies is still being developed but has a lower priority than responsibilities related to reviews of DSH audits and DSH annual reports, review of new supplemental payment reporting, and implementation of health care reform.
Recommendation: To strengthen CMS's overall financial management of state Medicaid activities, the Administrator of CMS should require that states identify--in Medicaid-related documents such as state plan amendments arrangements that involve payments to units of state or local government, such as state- and local-government-owned or -operated facilities.
Agency Affected: Department of Health and Human Services: Centers for Medicare and Medicaid Services
Status: Closed - Implemented
Comments: As part of an oversight initiative to enhance the review of all state plan amendments involving changes to state Medicaid payment policies, CMS now asks all states a standard set of question and does not approve a state plan amendment until a response is provided. Included in the standard questions is information on the extent that payments are made to government providers.
Recommendation: To strengthen CMS's overall financial management of state Medicaid activities, the Administrator of CMS should require that states identify--in Medicaid-related documents such as expenditure reports-- claims for payments to units of state or local government, such as state- and local-government-owned or -operated facilities.
Agency Affected: Department of Health and Human Services: Centers for Medicare and Medicaid Services
Status: Open
Comments: In July 2011, CMS officials said they were in the process of reviewing the new state reporting of non-DSH supplemental payments in aggregate by ownership category that began in 2010. This reporting includes separate categories for supplemental payments to local government providers and state government providers. The reporting does not require facility specific reporting and it is unclear whether this review will entail looking at the payments made to individual facilities or the calculation of payments for government providers.
Recommendation: To improve CMS's oversight of projects involving contingency-fee consultants and any associated claims for federal Medicaid reimbursements, the Administrator of CMS should enhance CMS review of state Medicaid documents for which states have used a contingency-fee consultant and take appropriate action to prevent or recover federal reimbursements associated with unallowable claims.
Agency Affected: Department of Health and Human Services: Centers for Medicare and Medicaid Services
Status: Open
Comments: In 2011, CMS officials said nothing new is being done in terms of focusing on contingency fee-consultant developed projects.
Recommendation: To strengthen CMS's overall financial management of state Medicaid activities, the Administrator of CMS should ensure that states submit cost allocation plans as required and establish a procedure for their prompt review.
Agency Affected: Department of Health and Human Services: Centers for Medicare and Medicaid Services
Status: Closed - Not Implemented
Comments: CMS reiterates its initial position that each regional office has review authority and has staff committed to the review of cost allocation plans. Further, each regional office consults with the central office components on cost allocation plans. In CMS officials said they continue to work closely with the HHS department with primary responsibility for review and approval of cost allocation plans, but do not track the cost allocation plans reviews that are completed.
Recommendation: To strengthen CMS's overall financial management of state Medicaid activities, the Administrator of CMS should, on the basis of the findings of this report regarding specific projects and billing practices, follow up with states' associated claims and recover federal reimbursements of unallowable claims as appropriate in Georgia and Massachusetts.
Agency Affected: Department of Health and Human Services: Centers for Medicare and Medicaid Services
Status: Open
Comments: In regards to recovering federal reimbursements of unallowable claims in Georgia, the agency conducted a follow-up review of the rehabilitative care claiming in Georgia and required the state to end inappropriate payment practices and make changes to their state plan. It is unclear whether a follow-up review was conducted on the issues we reported on regarding TCM claims submitted by three different state agencies in Massachusetts. GAO will close this recommendation once it has obtained information on the status of Massachusetts.