Health Centers And Rural Clinics:

State and Federal Implementation Issues for Medicaid's New Payment System

GAO-05-452: Published: Jun 17, 2005. Publicly Released: Jun 17, 2005.

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The Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 (BIPA) established a prospective payment system (PPS) for Medicaid payments to Federally Qualified Health Centers (FQHC) and Rural Health Clinics (RHC), giving providers a financial incentive to operate efficiently. BIPA requires that BIPA PPS rates be adjusted for inflation and changes in scope of services. States also may use an alternative methodology if it pays no less than the BIPA PPS rate. In response to a BIPA mandate, GAO reviewed states' implementation of the new payment requirements, the need to rebase or refine the BIPA PPS, and the Centers for Medicare & Medicaid Services' (CMS) oversight of states' implementation. GAO surveyed the states about their payment methodologies, did a targeted review in four states, and reviewed indexes used to reflect medical care inflation.

GAO's review of states' implementation of Medicaid's new payment system--the BIPA PPS and alternative methodologies--for FQHCs and RHCs identified certain issues regarding the appropriateness of some states' methodologies. Most states used the BIPA PPS and about half of states used an alternative methodology--generally cost-based reimbursement or a PPS with features slightly different from those required for the BIPA PPS--to pay at least some of their FQHCs, RHCs, or both. States took an average of slightly more than a year from the legislation's January 1, 2001, effective date to implement their BIPA PPS, and a few states had not completed implementation as of June 1, 2004. GAO identified three significant issues with states' new Medicaid payment systems. First, some states' BIPA PPS payment rates may be inappropriate because they did not include all Medicaid-covered FQHC and RHC services in the rates as required by law. Second, as of June 1, 2004, over half the states using the BIPA PPS had not determined how they would make the required adjustment to BIPA PPS rates for a change in scope of services. Third, some states did not ensure that their alternative methodologies resulted in payments no lower than what the FQHCs and RHCs would have received under the BIPA PPS. Evidence to date is insufficient to determine the need to rebase or refine the BIPA PPS. Concerns exist that the statutorily specified annual inflation index used to adjust the BIPA PPS is inappropriate because it not only increases more slowly than do many FQHCs' and RHCs' costs but also does not reflect the services these providers deliver. Other indexes GAO reviewed had a similar shortcoming. GAO's analysis determined that no inflation index has been developed that reflects the services typically provided by FQHCs and RHCs. Because many states no longer require FQHCs and RHCs to submit cost reports, comprehensive and current Medicaid cost data are no longer available to help inform an evaluation of the need to rebase or refine the BIPA PPS. Although GAO's comparison of cost-based and BIPA PPS rates from four states showed that cost-based rates generally exceeded BIPA PPS rates, not all factors contributing to the higher rates are known. Differences between cost-based and BIPA PPS rates varied widely within and among the states reviewed, which also limited the ability to draw conclusions about the need to rebase or refine rates. CMS guidance and oversight regarding the new BIPA payment requirements were inadequate to ensure consistent state compliance with the law. CMS guidance did not fully address certain requirements, and as states developed their new payment systems, they lacked important information clarifying the new requirements. As a result, uncertainties exist regarding how states were to implement some BIPA requirements, such as how to adjust BIPA PPS rates to account for a change in scope of services. CMS has conducted limited oversight of states' implementation and therefore was unaware of compliance issues with some states' payment systems.

Matter for Congressional Consideration

  1. Status: Closed - Not Implemented

    Comments: No action has been taken on this recommendation.

    Matter: Congress may wish to consider directing CMS to explore the development of an inflation index that better captures the cost of services provided by or price of resources used by FQHCs and RHCs or develop a strategy to periodically assess the adequacy of the Medicare Economic Index as an inflation index for adjusting PPS rates for FQHCs and RHCs.

Recommendations for Executive Action

  1. Status: Closed - Not Implemented

    Comments: CMS has taken limited action on this recommendation but has not completely implemented it. Specifically, CMS has indicated that when a state submits an amendment to its Medicaid state plan related to FQHCs and RHCs, then CMS will require that the state plan describe the scope of services reimbursed through the prospective payment system. However, CMS officials indicated that they have not reviewed all states' Medicaid plans to ensure that they contain sufficient information. CMS considers their actions related to this recommendation to be completed and thus, we do not expect the agency to take additional action to fully implement the recommendation.

    Recommendation: To better ensure consistent state compliance with the BIPA-mandated Medicaid payment requirements for FQHCs and RHCs, the Administrator of CMS should ensure that states' FQHC and RHC BIPA PPS payment rates do not inappropriately exclude the costs of Medicaid-covered services.

    Agency Affected: Department of Health and Human Services: Centers for Medicare and Medicaid Services

  2. Status: Closed - Not Implemented

    Comments: On July 30, 2007, CMS indicated that it still believes that its existing guidance on change in scope of services is sufficient to allow states to develop procedures/guidelines. As such, CMS has not taken any action in response to this recommendation. On July 17, 2008, CMS stated: "CMS continues to believe that the guidance issued in September 2001, is sufficient to allow States to develop their own State specific procedures/guidelines for changes in scope of services." On July 2, 2009, CMS reiterated the same sentiment and indicated that it has not taken any action on this recommendation.

    Recommendation: To better ensure consistent state compliance with the BIPA-mandated Medicaid payment requirements for FQHCs and RHCs, the Administrator of CMS should develop guidance for states describing what constitutes a change in scope of services provided by FQHCs and RHCs, including the definition of the specific elements that affect such a change.

    Agency Affected: Department of Health and Human Services: Centers for Medicare and Medicaid Services

  3. Status: Closed - Not Implemented

    Comments: CMS has taken limited action on this recommendation but has not completely implemented it. Specifically, CMS has indicated that when a state submits an amendment to its Medicaid state plan related to FQHCs and RHCs, then CMS will require that the state plan contain a narrative description of the alternative payment methodology, if used, or an indication that the state is using the BIPA PPS. However, CMS officials indicated that they have not reviewed all states' Medicaid plans to ensure that they contain sufficient information. CMS considers their actions related to this recommendation to be completed and thus, we do not expect the agency to take additional action to fully implement the recommendation.

    Recommendation: To better ensure consistent state compliance with the BIPA-mandated Medicaid payment requirements for FQHCs and RHCs, the Administrator of CMS should ensure that states' Medicaid plans provide sufficient information describing their methodologies for paying FQHCs and RHCs for Medicaid services, including, at a minimum, whether the state is using the BIPA PPS or an alternative methodology.

    Agency Affected: Department of Health and Human Services: Centers for Medicare and Medicaid Services

  4. Status: Closed - Not Implemented

    Comments: CMS has not taken any action on this recommendation. On July 30, 2007, CMS indicated that it believed that there was no evidence or data to reflect that a need for a revised inflation factor was warranted. Furthermore, on July 17, 2008, CMS stated that it "...does not believe it is necessary to revise the inflation factor at this time. CMS will take no action." In 2009, after a change in agency administration, CMS indicated plans to discuss the recommendation further with new policy officials. However, as of July 2011, the agency had still not taken action related to this recommendation.

    Recommendation: To provide for a more appropriate basis for adjusting BIPA PPS payment rates for FQHCs and RHCs, the Administrator of CMS should explore the development of an inflation index that better captures the cost of services provided by or price of resources used by FQHCs and RHCs and propose to Congress, as appropriate, any needed revisions to the statute.

    Agency Affected: Department of Health and Human Services: Centers for Medicare and Medicaid Services

  5. Status: Closed - Not Implemented

    Comments: CMS has taken limited action on this recommendation but has not completely implemented it. Specifically, CMS has indicated that when a state submits an amendment to its Medicaid state plan related to FQHCs and RHCs, then CMS will ask the state to describe its process for ensuring that its alternative payment methodology is paying at least as much as what would be paid under the BIPA PPS. However, CMS does not ask states for numerical evidence and has not reviewed all states' Medicaid plans to ensure that their alternative payment methodologies are paying a sufficient amount. CMS officials did indicate that regional offices may undertake targeted reviews if concerns are raised by providers or constituents. CMS considers their actions related to this recommendation to be completed and thus, we do not expect the agency to take additional action to fully implement the recommendation.

    Recommendation: To better ensure consistent state compliance with the BIPA-mandated Medicaid payment requirements for FQHCs and RHCs, the Administrator of CMS should ensure that states' alternative payment methodologies are paying FQHCs and RHCs at least as much as what would be paid under the BIPA PPS, including any needed adjustments due to a change in scope of services.

    Agency Affected: Department of Health and Human Services: Centers for Medicare and Medicaid Services

 

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