Oversight and Government Reform CommiteeWasteful State Medicaid Financing SchemesJuly 29, 2014

Testmonies: John Hagg, Director of Medicaid audits, Ofce of the Inspector General; Katherine Iritani, Health Care Director, Government Accountability Ofce; Cindy Mann, Director of the Center forMedicaid Services and CHIP Programs

IntroductonThe Oversight and Government Reform Commitee used data from Medicaid overspending in New Yorkas a microcosm for the need for Medicaid enforcement reform in all states. Quotng the ACA, Chair James Lankford, R-Okla., said Medicaid payments must be “efcient and economical.” However, therehas been $1.3 billion in federal overpayments to New York alone. Medicaid has been on the Government Accountability Ofce’s (GAO) high-risk programs since 2003 in part because of federaloversight gaps. New York, as does each of the other states, needs to work with the federal government to improve enforcement of providers and remedy these errors, John Hagg, Director of Medicaid audits for the Ofce of the Inspector General, said.

State Loophole MethodsStates have adopted practces and loopholes to increase the federal share of a state’s Medicaidexpenditures. Two main methods are charging local governments and taxing providers, which allow states to lower their own Medicaid costs without reducing the amount of federal assistance. State reliance on local governments and providers increased 21% from 2008-2012, further transferring health care burdens to the federal government, according to Katherine Iritani of the GAO. Overpayments are especially frequent in dental, home health and traumatc brain injury care. Another example is when states categorize fee-for-service payments diferently from care that qualifes under Medicaid managed care plans, which results in a duplicate federal payment. Also, in New York, actuarial calculatons have greatly exceeded actual costs. The gap between reimbursement rates and actual costs has steadily increased over tme. Proper setng of New York state-run health care rates would have cost $1.4 billion less and saved the federal government more than $700 million. In additon to New York, 38 other states have made supplemental payments to hospitals exceeding hospital total costs by $2.7 billion. It is the responsibility of state agencies, the federal government and CMS to stop states when they claim reimbursement for payments they are not enttled to receive, Hagg wrote in his testmony.

Solutons to Federal OverspendingIn order to combat federal overspending, Hagg wrote, the federal government must improveenforcement of state practces, and state governments must improve enforcement of provider actons. The federal government needs to force states to refund overpayments. In additon, states must workwith CMS to set payment rates that meet federal requirements. To improve provider integrity, states must provide support to providers on to help them cooperate with state and federal requirements. Iritani added CMS needs to improve obstacles to fnding provider identfcaton discrepancies that canlead to additonal or duplicate payments.

Chair Lankford said block grants should be a viable consideraton to overspending. Because states wouldreceive a set amount of money to handle all of the claims, they would not be able to exploit the system. It would solve the problems with gathering oversight informaton from states because it would givethem the responsibility to administer the program. Ranking Member Jackie Speier, D-Calif., said restrictons on state funding will only burden providers and ultmately lower the level of care provided to low-income benefciaries. CMS’s mandated state quarterly report form (CMS-64) and its growth in audits have already hadnotceable success on the program. Total Medicaid expenses increased only .8% in 2012, the second-lowest growth rate in history. Enrollment in Medicaid has grown and cost per enrollee has decreased as a result of the recent measures, Cindy Mann, director of the Center for Medicaid and CHIP Services, reported. Mann said the program has begun to address Hagg’s and the GAO’s recommendatons. She does not think block grants will have positve efects on the growth of the program and the quality of care benefciaries will receive.