States Use Illusory Approaches to Shift Program Costs to Federal Government

HEHS-94-133: Published: Aug 1, 1994. Publicly Released: Sep 20, 1994.

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William J. Scanlon
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Pursuant to a congressional request, GAO reviewed certain states' Medicaid program records, focusing on: (1) whether states are using financial arrangements that inflate the federal share of Medicaid program expenditures; (2) various techniques that states use to obtain federal funds for their basic Medicaid and disproportionate share hospital (DSH) programs; and (3) whether states are using their federal matching funds to provide medical services to Medicaid patients.

GAO found that: (1) states have used various financial arrangements to obtain federal Medicaid funds without committing their share of matching funds and to increase the federal share of Medicaid expenditures; (2) some states have used federal funds to finance their Medicaid programs, while other states have redirected their funds into their state treasuries; (3) although recently enacted legislation focuses on limiting states' improper use of federal Medicaid funds, Michigan has taken action to ensure its federal Medicaid funding level in 1995; and (4) the Medicaid program should prohibit states from using illusory financial arrangements so that federal funds can be diverted to those medical facilities providing care.

Matter for Congressional Consideration

  1. Status: Closed - Not Implemented

    Comments: Congress is considering major changes to the Medicaid program that would increase states' flexibility in managing their Medicaid programs. The reforms being considered do not directly address this issue.

    Matter: Congress should enact legislation to minimize the likelihood that states can develop illusory financing mechanisms whereby providers return Medicaid payments to the states, thus effectively reducing the states' share of Medicaid funding. This legislation should prohibit Medicaid payments that exceed costs to any government-owned facility.


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