Medicaid Demonstrations:

Approval Criteria and Documentation Need to Show How Spending Furthers Medicaid Objectives

GAO-15-239: Published: Apr 13, 2015. Publicly Released: May 13, 2015.

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What GAO Found

Under Medicaid section 1115 demonstrations, the Department of Health and Human Services (HHS) authorized expenditures not otherwise allowed under Medicaid for a range of coverage-related purposes. HHS approved expenditure authorities to expand coverage to previously uncovered populations in most of the 25 states' demonstrations that GAO reviewed; however, it also modified existing expenditure authorities to end or limit coverage under states' demonstrations as new coverage became available in 2014 under the Patient Protection and Affordable Care Act (PPACA).

In the 25 reviewed states, HHS approved expenditure authorities for a broad range of purposes beyond Medicaid coverage. Two types of noncoverage-related expenditure authorities were significant in terms of approved spending amounts. In 5 states, HHS approved expenditure authorities allowing the states to spend $9.5 billion in Medicaid funding during their current demonstration approval periods (about 2 to 5 years) to support about 150 state programs that would not otherwise have been eligible for federal Medicaid funding. The state programs included those providing health services, insurance subsidies, and workforce training. They were operated or funded by a wide range of state agencies, such as state departments of mental health, aging, and developmental disabilities that may be receiving non-Medicaid federal grants and funds. HHS also approved expenditure authorities in 8 states allowing states to spend more than $26 billion during their current demonstration approval periods (about 15 months to over 5 years) for new types of supplemental payments to hospitals and other providers through capped funding pools for a range of purposes, which included payments to incentivize delivery system or infrastructure improvements.

Although section 1115 of the Social Security Act provides HHS with broad authority to approve expenditure authorities that, in the Secretary's judgment, are likely to promote Medicaid objectives, HHS has not issued specific criteria for making these determinations. Further, HHS's approval documents are not always clear as to what, precisely, approved expenditures are for and how they will promote Medicaid objectives. For example, HHS's approvals in three states authorizing the use of federal Medicaid funds for more than half of the state programs GAO reviewed lacked clear information on how the programs would promote Medicaid objectives, such as how they would benefit low-income populations. In addition, HHS's approvals authorizing funding pools for incentive payments did not always provide clear explanations of how payments to hospitals would promote Medicaid objectives. Finally, approval documentation for some but not all approvals provided assurances that Medicaid funds would not be used for purposes addressed by other federal funding streams. Without clear criteria for assessing how proposed expenditure authorities states are seeking will promote Medicaid objectives, and without clear documentation of the application of those criteria, the bases for HHS's decisions involving tens of billions of Medicaid dollars are not transparent to Congress, states, or the public.

In commenting on a draft of this report, HHS partially concurred with the recommendation on issuing criteria, listing the general criteria it uses. But GAO maintains that more-specific, written guidance is needed. HHS concurred with the recommendation on documentation.

Why GAO Did This Study

Medicaid, an over $500 billion joint federal-state program, provides health care coverage to low-income individuals. Section 1115 of the Social Security Act authorizes the Secretary of HHS to waive certain Medicaid requirements and authorize expenditures not otherwise allowed for demonstration projects likely to promote Medicaid objectives. HHS has approved expenditure authorities to allow states to expand Medicaid coverage to populations not otherwise eligible, as well as for other purposes, such as funding for state programs.

GAO was asked to review approved expenditure authorities in recent section 1115 demonstrations. This report examines (1) expenditure authorities approved for purposes of Medicaid coverage, (2) expenditure authorities approved for purposes other than Medicaid coverage, and (3) the criteria HHS uses to determine whether expenditure authorities for purposes other than Medicaid coverage are likely to promote Medicaid's objectives and the documentation of the basis for its approvals. GAO reviewed approval documents for new, extended, or amended section 1115 demonstrations approved by HHS in all 25 states with approvals between June 2012 and October 2013, and interviewed HHS officials.

What GAO Recommends

GAO recommends that HHS issue criteria for assessing whether expenditure authorities are likely to promote Medicaid objectives and document the use of these criteria in HHS's approvals of demonstrations.

For more information, contact Katherine Iritani at (202) 512-7114 or iritanik@gao.gov.

Recommendations for Executive Action

  1. Status: Open

    Comments: The Department of Health and Human Services (HHS) partially concurred with this recommendation and took some steps to issue the recommended criteria; however, the criteria did not resolve the problems GAO identified. Specifically, HHS issued general criteria for assessing whether Medicaid section 1115 demonstration expenditure authorities are likely to promote Medicaid objectives and posted the criteria to its website in August 2015. GAO found that the general criteria were not sufficiently specific to allow a clear understanding of what HHS considers to be approvable for Medicaid purposes. HHS later removed these criteria from its website. As of December 2018, the agency's website lists six broad areas, that according to agency officials, indicate the types of reforms that HHS encourages states to consider. For example, these reforms include advancing innovative delivery system and payment models and promoting efficiencies. However, according to agency officials, the areas cited are not criteria for what the agency would have approved under demonstrations and therefore do not implement GAO's recommendation. GAO maintains that states and other stakeholders need specific criteria regarding what the agency considers to be likely to promote Medicaid objectives. Until such criteria are issued, the rationale for the agency's approvals of expenditure authorities, which can amount to billions of dollars in federal spending, will not be transparent. We will continue to monitor HHS's actions in this area.

    Recommendation: To improve the transparency and accountability of HHS's section 1115 Medicaid demonstration approval process, and to ensure that federal Medicaid funds for the demonstrations do not duplicate other federal funds, the Secretary of Health and Human Services should issue criteria for assessing whether section 1115 expenditure authorities are likely to promote Medicaid objectives.

    Agency Affected: Department of Health and Human Services

  2. Status: Open

    Comments: HHS agreed with this recommendation and, as of November 2018, had taken some steps to ensure that the bases for its approval decisions are documented in all approvals of section 1115 demonstrations. In December 2017, HHS's Centers for Medicare & Medicaid Services (CMS) issued a letter to state Medicaid officials, stating it had begun requesting additional documentation of the demonstration purposes being served by certain types of previously approved funding in demonstration proposals. Additionally, the agency noted it was taking certain steps to ensure that only allowable costs were matched by federal Medicaid funds. In April 2018, CMS officials stated that the agency had begun addressing in approval documents how each intervention proposed by the state was determined to be likely to promote Medicaid objectives. In November 2018, officials reported that this step would be included in formal written protocols that outline the agency's procedures for application review and preparation of approval documents for section 1115 demonstrations. Once CMS completes and implements the written protocols, GAO will be able to update the status of this recommendation and stakeholders should be able to more easily and consistently assess the agency's decisions. We will continue to monitor CMS's efforts in this area.

    Recommendation: To improve the transparency and accountability of HHS's section 1115 Medicaid demonstration approval process, and to ensure that federal Medicaid funds for the demonstrations do not duplicate other federal funds, the Secretary of Health and Human Services should ensure the application of these criteria is documented in all HHS's approvals of section 1115 demonstrations, including those approving new or extending or modifying existing expenditure authorities, to inform internal and external stakeholders, including states, the public, and Congress, of the basis for the agency's determinations that approved expenditure authorities are likely to promote Medicaid objectives.

    Agency Affected: Department of Health and Human Services

  3. Status: Closed - Implemented

    Comments: The Department of Health and Human Services (HHS) has taken action to ensure that Medicaid demonstration approvals provide assurances that states will avoid duplicating federal funds. In a review of approvals, issued on or after July 1, 2015 and posted on HHS's website as of August 12, 2016, we found that all approvals with expenditure authorities for designated state health programs required claiming protocols or otherwise included assurances that duplication of federal funds would be avoided. We also found that nearly all approvals for uncompensated care payments pools required claiming protocols or similar attachments that provided assurances that funding would not exceed the provider's actual uncompensated care costs or that funding would be reported as offsetting revenue with regard to determining Medicaid Disproportionate Share Hospital payments. Similarly, nearly all approvals for delivery system reform incentive payment pools included instructions for states to avoid duplication of federal funds. These actions provide some assurance that federal demonstration expenditures will be coordinated with other federal funding for the purposes of avoiding duplication.

    Recommendation: To improve the transparency and accountability of HHS's section 1115 Medicaid demonstration approval process, and to ensure that federal Medicaid funds for the demonstrations do not duplicate other federal funds, the Secretary of Health and Human Services should take steps to ensure that Medicaid demonstration approval documentation consistently provides assurances--such as through claiming protocols or the application template--that states will avoid duplicative spending by offsetting as appropriate all other federal revenues received when claiming federal Medicaid matching funds.

    Agency Affected: Department of Health and Human Services

 

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