HHS' process for approval of Medicaid waivers lacks clear standards and transparency, and as a result, federal spending for demonstrations exceeds the limits of budget neutrality, perpetuates questionable spending practices and allows the use of federal Medicaid funds for state purposes not limited to Medicaid beneficiaries, according to a recent report of the Government Accountability Office (GAO).
GAO examined demonstration waivers granted between July 2004 and December 2006 that affected a broad range of services for Medicaid populations statewide and accounted for more than 50 percent of a state's Medicaid spending. Waivers meeting these criteria had been granted to Florida and Vermont. GAO compared the spending for the first year of each demonstration with the states' estimates of the amounts that would have been spent on Medicaid without the demonstration, using the national and state-specific projections of cost-per-beneficiary and enrollment growth.
GAO found that HHS had approved spending limits for both states that exceeded either set of estimates. When GAO asked for and questioned HHS about the basis for approval of the higher limits, it found that HHS could support only part of the difference with documentation. According to GAO, HHS approved a $52.6 billion spending limit for the five-year Florida demonstration — $6.9 billion more than the documentation supported. GAO also found that HHS had approved $279 million more for Vermont's demonstration than was actually documented.
Questioned practices
Generally, the estimated spending for the five years of a demonstration is based upon a five-year period before the application. HHS permitted Florida to use only the most recent three years and eight months, however. The base period also included supplemental payments (payments exceeding actual costs) to government-owned providers that had previously been identified as problematic. In addition, HHS allowed Florida to assume enrollment growth of 8 percent each for the two categories of low-income families with children and aged, blind and disabled (ABD) individuals. The allowable percentages, however, were 4.8 for the ABD group and 3.11 for families with children, using the national and state benchmarks. HHS' documentation supported assumptions of only 6.45 percent growth in the ABD group and 3.77 percent for families with children.
The Vermont demonstration involved a managed care organization (MCO) run by an arm of the Medicaid agency. The agency will pay the MCO compensation 9 percent for administration, a rate comparable to that paid to commercial MCOs, but significantly higher than both the rate usually paid to state agencies and the rate Vermont had paid before the demonstration. The state will be allowed to retain any revenue exceeding its costs and to use it for programs that benefit individuals who are not eligible for Medicaid, such as the uninsured and underinsured. These programs previously had been paid for solely with state funds.
GAO's recommendations
Based on its findings, GAO made recommendations both to the agency and to Congress. The recommendations to HHS included: (1) recalculating Florida's expenses excluding the questioned supplemental payments; (2) establishing standards for demonstration program waivers; (3) documenting completely and publicly the basis for any deviations from the benchmarks established by previous HHS policy; (4) setting uniform standards for the calculation of supplemental payments; and (5) scrutinizing the Vermont demonstration to be sure that federal Medicaid funds are used only for Medicaid-eligible expenses and seeking statutory authority for expenditures that benefit individuals not eligible for Medicaid. Congress was advised to consider imposing specific requirements on the Secretary to clarify criteria for reviewing and approving states’ proposed spending limits, ensure that valid methods are used to demonstrate budget neutrality, and make publicly available the documented bases for approvals. In addition, GAO suggested that Congress consider specifically whether Vermont's state-operated MCO and the retention of excess revenue to supplant state funding for non-Medicaid programs violate federal law.
Source: GAO Report No. 08-87, "Medicaid Demonstration Waivers," Jan. 30, 2008.
For more information on this and related topics, consult the CCH® Medicare and Medicaid Guide.
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