Impediments to State Cost Saving Initiatives Under Medicaid

HRD-81-121: Published: Jul 29, 1981. Publicly Released: Jul 29, 1981.

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In response to a congressional request, GAO studied the administration's proposal to limit Federal financial participation in the State-operated Medicaid programs and to modify Federal requirements to give the States more flexibility in managing their programs and thus to contain their costs.

Over the past 7 or 8 years, States have attempted to introduce cost saving initiatives to their programs, but in some instances those efforts have been found by the Federal courts to be inconsistent with Federal law or regulations. To a large extent, challenges in the Federal courts have involved, at least in part, procedural due process issues under the Constitution, which are not susceptible to waiver. Therefore, if the States are to be given greater flexibility in managing their Medicaid programs to minimize control costs, considerable care would be required in implementing State initiatives to avoid situations where such action could be successfully challenged on due process grounds. The fact that the Department of Health and Human Services has approved a State's plan as required by law does not necessarily preclude the State's action from being blocked by the courts. The complexity of Medicaid's eligibility requirements makes State rules and practices particularly vulnerable to challenges in Federal courts. Current Medicaid requirements require States to seek waivers to implement a variety of cost saving changes, obtaining waivers is not always assured or timely. Nevertheless, a number of States are attempting to demonstrate that they can better contain costs by deviating from various Federal requirements for the Medicaid program.

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