Waiver of Medicaid Freedom-of-Choice Requirement:

Potential Savings and Practical Problems

HRD-82-90: Published: Jul 20, 1982. Publicly Released: Jul 20, 1982.

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GAO reviewed the Medicaid freedom-of-choice requirement to determine whether savings can be achieved and to identify the practical problems that may be encountered if freedom of choice were eliminated and the services were furnished by lower cost providers.

GAO found that the amount of savings that could be realized depends on the extent of physician and hospital acceptance. In the two States that were used as test areas, GAO identified similar potential savings and circumstances. Both areas were concerned about physician participation in the program, primarily because of low Medicaid reimbursement rates. To implement the waiver of the freedom-of-choice provision, States are required to document cost effectiveness, the effect on recipients' access to care, and the projected impact of the program; the States under review identified several related issues on which GAO feels guidance would be beneficial in designing waiver requests. Restricting a recipient's freedom of choice for nonemergency hospital services could potentially result in significant Medicaid savings. However, practical problems associated with implementing such restrictions could substantially erode savings or have other undesirable impacts on the program. Restricting freedom of choice for other types of services could have similar problems. Current regulations contain little guidance on the standards the Department of Health and Human Services will apply in evaluating whether States' requests for waivers of recipients' freedom of choice meet the requirements contained in the law. Further guidance on this should assist States in planning for and preparing waiver requests and help ensure that the requirements of the law permitting such waivers are met.

Recommendation for Executive Action

  1. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Secretary of Health and Human Services should provide additional guidance to the States on the information necessary to show compliance with the law for waivers to limit freedom of choice of Medicaid recipients.

    Agency Affected: Department of Health and Human Services


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