GAO: CMS Oversight, Data Needed on State Medicaid Payment Arrangements

December 29, 2020 - States are increasingly relying on provider taxes and local government funds for their share of federal Medicaid payments according to a new Government Accountability Office (GAO) report. Officials are also calling for CMS to improve oversight by collecting data on state Medicaid payment arrangements.

The report is based on CMS data and interviews with CMS officials and Medicaid officials in 11 states, as well as a questionnaire distributed to all state Medicaid agencies. The states were selected partially based on Medicaid spending and geographic diversity.

According to the report,  28 percent of states’ shares of Medicaid payments for fiscal year 2018, or $63 billion, came from provider taxes and local government funds, a 7 percent jump from fiscal year 2008.

“Although such financing arrangements are allowed under certain conditions, they can also result in increasing the share of net costs paid by the federal government and decreasing reliance on state general funds,” GAO officials explained.

Overall, GAO estimated that states’ reliance on provider taxes and local government funds consequently increased the federal share of net-Medicaid payments by 5 percent in states’ fiscal year 2018.

These state Medicaid payment arrangements also resulted in smaller payments to some providers after government funds and taxes were considered.

However, though state net payments lessened from these arrangements, the federal government’s contribution did not change, resulting in a shift of responsibility of a greater portion of Medicaid payments to the federal government.

And while CMS collects information on states’ sources of payments, the data is often not continuous, complete, or sufficiently documented.

For example, states are not required by CMS to report on the source of their non-federal share for all payments. This hinders the agency’s oversight over Medicaid funds, which totaled $668 billion in fiscal year 2019.

Without adequate information on non-federal Medicaid payments, CMS can’t effectively determine whether payments are consistent with legal requirements for efficiency and economics, nor whether payments are consistent with permissible financing, such as the categories of services for which provider taxes may be directed.

In the report, GAO recommended the CMS Administrator collect and document complete and consistent provider-specific information about the sources of funding for the non-federal share of all Medicaid payments to providers, including new state-directed managed care payments.

CMS neither agreed nor disagreed with GAO’s recommendation, but acknowledged the need for additional financing and payment data for Medicaid oversight.

CMS currently keeps tabs on state Medicaid financing through a set of five standard funding questions. However, according to CMS officials, the agency does not collect or document information associated with state plan amendments through a centralized location.

“ CMS understands the need for available, timely, and adequate state Medicaid payment and financing data to enable the most effective oversight of the Medicaid program,” said the Department of Health and Human Services officials in the GAO report.

“CMS has already begun taking action to improve oversight of Medicaid supplemental payment programs and, in November 2019, issued the proposed Medicaid Fiscal Accountability Rule (CMS-2393-P) in order to strengthen the fiscal integrity of the Medicaid program,” HHS officials continued.

The proposed rule also included a revised form for state-managed care payments, which  would provide more complete state-based financing and payment data.

However, as of December 2020, the rule has not been finalized. As a result, the potential benefits that could be achieved through consistent state Medicare payment data collection has been stalled.