This is the accessible text file for GAO report number GAO-05-452 
entitled 'Health Centers and Rural Clinics: State and Federal 
Implementation Issues for Medicaid's New Payment System' which was 
released on June 17, 2005. 

This text file was formatted by the U.S. Government Accountability 
Office (GAO) to be accessible to users with visual impairments, as part 
of a longer term project to improve GAO products' accessibility. Every 
attempt has been made to maintain the structural and data integrity of 
the original printed product. Accessibility features, such as text 
descriptions of tables, consecutively numbered footnotes placed at the 
end of the file, and the text of agency comment letters, are provided 
but may not exactly duplicate the presentation or format of the printed 
version. The portable document format (PDF) file is an exact electronic 
replica of the printed version. We welcome your feedback. Please E-mail 
your comments regarding the contents or accessibility features of this 
document to Webmaster@gao.gov. 

This is a work of the U.S. government and is not subject to copyright 
protection in the United States. It may be reproduced and distributed 
in its entirety without further permission from GAO. Because this work 
may contain copyrighted images or other material, permission from the 
copyright holder may be necessary if you wish to reproduce this 
material separately. 

Report to Congressional Committees: 

United States Government Accountability Office: 

GAO: 

June 2005: 

Health Centers and Rural Clinics: 

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

GAO-05-452: 

GAO Highlights: 

Highlights of GAO-05-452, a report to congressional committees: 

Why GAO Did This Study: 

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. 

What GAO Found: 

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. 

What GAO Recommends: 

GAO recommends that CMS explore the development of a more appropriate 
inflation index for the BIPA PPS and improve its guidance for states 
and its oversight of states’ payment methodologies. CMS said it will 
take steps related to its oversight but disagreed on the need to issue 
additional guidance. CMS also disagreed on the need to develop an 
inflation index; GAO maintained the recommendation and also elevated 
the issue to a matter for congressional consideration. 

www.gao.gov/cgi-bin/getrpt?GAO-05-452. 

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact Kathryn G. Allen at (202) 
512-7118. 

[End of section]

Contents: 

Letter: 

Results in Brief: 

Background: 

States' Implementation of BIPA PPS and Alternative Methodologies Raises 
Certain Issues: 

Evidence to Date Is Insufficient about the Need to Rebase or Refine the 
BIPA PPS: 

CMS Guidance and Oversight Did Not Ensure Consistent State Compliance 
with BIPA: 

Conclusions: 

Matter for Congressional Consideration: 

Recommendations for Executive Action: 

Agency and State Comments and Our Evaluation: 

Appendix I: Methodology for Review of Selected States Using Cost-Based 
Reimbursement: 

Appendix II: Overview of Prospective Payment Systems: 

Appendix III: Medicaid Payment Methodologies for FQHCs and RHCs, by 
State, as of June 1, 2004: 

Appendix IV: Comments from the Centers for Medicare & Medicaid 
Services: 

Appendix V: GAO Contact and Staff Acknowledgments: 

Tables: 

Table 1: States' Use of the BIPA PPS to Make Payments to FQHCs, as of 
June 1, 2004: 

Table 2: Timetable for States' Application of the MEI Inflation Index 
to FQHCs' BIPA PPS Rates: 

Table 3: States' Use of the BIPA PPS to Make Payments to RHCs, as of 
June 1, 2004: 

Table 4: Timetable for States' Application of the MEI Inflation Index 
to RHCs' BIPA PPS Rates: 

Table 5: Alternative Payment Methodologies for FQHCs, as of June 1, 
2004: 

Table 6: States That Used Limits in Determining Reasonable Costs for 
FQHCs under Cost-Based Reimbursement Alternative Methodologies, by Type 
of Limit, as of June 1, 2004: 

Table 7: Characteristics of Alternative PPSs for FQHCs, by State, as of 
June 1, 2004: 

Table 8: Alternative Payment Methodologies for RHCs, as of June 1, 
2004: 

Table 9: States That Used Limits in Determining Reasonable Costs for 
RHCs under Cost-Based Reimbursement Alternative Methodologies, by Type 
of Limit, as of June 1, 2004: 

Table 10: Characteristics of Alternative PPSs for RHCs, by State, as of 
June 1, 2004: 

Table 11: Percentage Increase of the MEI Compared to Increases for 
Other Indexes Commonly Used to Adjust for Medical Care Inflation (2001 
to 2003): 

Table 12: States' Cost Reporting Requirements for FQHCs and RHCs, as of 
June 2004: 

Table 13: Comparison of Key Features of BIPA PPS to Selected Other 
PPSs: 

Figures: 

Figure 1: States' Implementation of the BIPA PPS for FQHCs, as of June 
1, 2004: 

Figure 2: States' Implementation of the BIPA PPS for RHCs, as of June 
1, 2004: 

Figure 3: Percentage Difference in Cost-Based and BIPA PPS Rates, by 
State and Provider Type, 2001 through 2003: 

Figure 4: Timeline Showing CMS's Issuance of Guidance and Approval of 
States' Plans to Implement BIPA's Medicaid Payment Provisions: 

Abbreviations: 

BIPA: Medicare, Medicaid, and SCHIP Benefits Improvement and Protection 
Act of 2000: 
CMS: Centers for Medicare & Medicaid Services: 
CPI: Consumer Price Index: 
FQHC; Federally Qualified Health Center: 
HHS: Department of Health and Human Services: 
HRSA: Health Resources and Services Administration: 
MEI: Medicare Economic Index: 
PPI: Producer Price Index: 
PPS: prospective payment system: 
RHC: Rural Health Clinic: 
SPA: state plan amendment: 
UDS: Uniform Data System: 

[End of section]

United States Government Accountability Office: 

Washington, DC 20548: 

June 17, 2005: 

The Honorable Charles E. Grassley: 
Chairman: 
The Honorable Max Baucus: 
Ranking Minority Member: 
Committee on Finance: 
United States Senate: 

The Honorable Joe Barton: 
Chairman: 
The Honorable John D. Dingell: 
Ranking Minority Member: 
Committee on Energy and Commerce: 
House of Representatives: 

To increase the accessibility of primary and preventive health services 
for low-income people living in medically underserved areas, Congress 
made Federally Qualified Health Centers (FQHC) and Rural Health Clinics 
(RHC) eligible for payments from Medicaid, a joint federal-state 
program that finances health insurance for certain low-income adults 
and children.[Footnote 1] FQHCs are urban or rural centers that provide 
comprehensive community-based primary care services to individuals 
regardless of their ability to pay. In 2003, there were approximately 
900 FQHCs. The nation's approximately 3,600 RHCs provide similar 
primary care services in underserved rural areas, but unlike FQHCs, 
RHCs are not required to provide services to all individuals, such as 
those who are uninsured.[Footnote 2] Medicaid is a significant revenue 
source for FQHCs and RHCs; according to the most recent data available, 
it accounted for about 35 percent of total revenues for FQHCs and 24 
percent for RHCs.[Footnote 3] In fiscal year 2003, Medicaid payments to 
FQHCs and RHCs were almost $1.5 billion. 

Historically, federal law required state Medicaid programs to reimburse 
FQHCs and RHCs on the basis of reasonable costs--that is, costs that 
are not excessive for a type of service provided to Medicaid 
beneficiaries. While this basis for reimbursement may have ensured that 
service providers were paid for necessary costs, it was also regarded 
as potentially inflationary because providers may have increased their 
payments by raising their costs. The Medicare, Medicaid, and SCHIP 
Benefits Improvement and Protection Act of 2000 (BIPA) changed Medicaid 
payment requirements by establishing a new prospective payment system 
(PPS) effective for services provided by FQHCs and RHCs on or after 
January 1, 2001.[Footnote 4] Unlike cost-based reimbursement, a PPS 
creates financial incentives for providers to operate more efficiently. 
Providers that keep their costs below their payment amount profit; 
conversely, providers lose money if their service costs exceed the 
payment amount. 

Although not typical of other PPSs, the BIPA PPS established a provider-
specific rate for the first year's payment rate (2001). Specifically, 
states were to set the base rate at the average of each FQHC's or RHC's 
fiscal year 1999 and fiscal year 2000 reasonable costs per visit. In 
subsequent years, states were to use the Medicare Economic Index (MEI) 
to increase payment rates annually for inflation and were to adjust 
rates when necessary to reflect a change in scope of services. States 
may use an alternative methodology to reimburse some or all of their 
FQHCs and RHCs if they can demonstrate that the alternative payment 
methodology would result in payments no lower than under the BIPA PPS 
payment rate and if the FQHC or RHC agrees to its use. 

BIPA required that we study the need for, and how to, rebase and refine 
costs for making Medicaid payments to FQHCs and RHCs.[Footnote 5] We 
(1) reviewed states' implementation of the Medicaid payment system 
under BIPA for FQHCs and RHCs, (2) evaluated the need for rebasing or 
refining costs for making payment under the BIPA PPS, and (3) reviewed 
the Centers for Medicare & Medicaid Services' (CMS) oversight of 
states' Medicaid payment systems for FQHCs and RHCs. 

To examine these issues, we surveyed Medicaid officials in the 50 
states and the District of Columbia regarding their FQHC and RHC 
reimbursement policies and practices as of June 1, 2004.[Footnote 6] 
States also submitted documentation describing their methodologies, 
which we reviewed to corroborate their survey responses. In addition to 
conducting the survey, we reviewed the MEI, the index required by 
statute to annually adjust BIPA PPS rates for inflation, as well as 
other indexes often used to reflect changes in medical care inflation. 
To identify these other indexes, we reviewed literature on medical care 
indexes and information from organizations typically involved in 
developing and updating these indexes. We also conducted a targeted 
review of FQHC and RHC payment rates in four states--Iowa, Vermont, 
Virginia, and Wisconsin--that used cost-based reimbursement as an 
alternative methodology. (See app. I for details about the methodology 
of our targeted review.) We interviewed officials from CMS and its 
regional offices; CMS is the agency within the Department of Health and 
Human Services (HHS) that oversees states' Medicaid programs. We also 
interviewed officials from HHS's Health Resources and Services 
Administration (HRSA), which is responsible for reviewing FQHC grant 
applications and disbursing federal public health grant funds to FQHCs. 
To provide contextual information, we interviewed various stakeholders. 
Specifically, we interviewed officials from the National Association of 
Community Health Centers (an organization representing FQHCs), the 
National Association of Rural Health Clinics, George Washington 
University's Center for Health Services and Policy (an organization 
that has conducted research on FQHCs), and a judgmentally selected 
sample of eight FQHCs and eight RHCs. We performed our work from July 
2004 through May 2005 in accordance with generally accepted government 
auditing standards. 

Results in Brief: 

Our analysis of states' implementation of Medicaid's new payment 
system--the BIPA PPS and alternative methodologies--to pay FQHCs and 
RHCs identified certain issues about the appropriateness of some 
states' methodologies. Most states implemented the BIPA PPS and just 
under half of states used an alternative methodology--generally cost- 
based reimbursement or a PPS with features differing slightly from the 
BIPA PPS--to pay at least a portion of their FQHCs or RHCs; and some 
states used more than one methodology. States took an average of 
slightly more than a year to implement their BIPA PPS, and a few states 
had not completed implementation as of June 1, 2004. We noted three 
significant issues regarding states' payment methodologies--two related 
to the BIPA PPS and one related to alternative methodologies. First, 
some states' BIPA PPS payment rates may be inappropriate because the 
states did not include all Medicaid-covered FQHC and RHC services in 
determining the rates. Second, over half of states using the BIPA PPS 
had not determined how they would address the requirement to adjust 
their BIPA PPS rates for a change in scope of services. Third, not all 
states with alternative methodologies ensured that they resulted in 
payment at least equal to what FQHCs and RHCs would have received under 
the BIPA PPS, as required by statute. 

Evidence to date is insufficient to determine the need to rebase or 
refine the BIPA PPS. Concerns exist about the appropriateness of the 
MEI, the index required by statute to annually adjust BIPA PPS rates 
for inflation. For example, the MEI was designed to measure the 
changing costs for the average physician, which may be different from 
the costs of FQHCs and RHCs. FQHCs often provide additional services, 
such as translation, and a significant portion of RHC services may be 
provided by nonphysician practitioners. Other indexes often used to 
reflect medical care inflation have a similar shortcoming as they also 
do not reflect the services typically provided by FQHCs and RHCs. 
Although the MEI may not be an appropriate index, we determined that no 
inflation index is currently available that reflects these services. 
Determining the need for rebasing or refining is further complicated by 
the increasing lack of comprehensive and current cost data because many 
states no longer require all FQHCs and RHCs to submit cost reports. Our 
comparison of cost-based and BIPA PPS rates from four states that used 
cost-based reimbursement as an alternative payment methodology did not 
provide conclusive evidence on the need to rebase or refine the BIPA 
PPS. Specifically, cost-based rates for these states generally were 
higher than the BIPA PPS rates for most providers, but it is unclear if 
this is because providers lacked the incentive to deliver services 
efficiently or because they were operating efficiently but their costs 
were higher than what the BIPA PPS would pay. 

CMS guidance for and oversight of states' implementation of the new 
BIPA-mandated payment requirements for FQHCs and RHCs were inadequate 
to consistently ensure states' compliance with the law. Although CMS 
issued guidance, it did not address how states were to implement some 
BIPA requirements, such as how to adjust BIPA PPS rates to account for 
a provider's change in scope of services and the relevance of this 
requirement to states using alternative payment methodologies. 
Moreover, CMS has conducted limited oversight of states' implementation 
of the new payment system for FQHCs and RHCs. Instead, CMS has relied 
on states' assurances that they were in compliance with BIPA and 
investigated payment issues only in response to complaints, which CMS 
said were rare, or when payment issues were raised during a CMS review 
conducted for other purposes. As a result of its limited oversight, CMS 
was unaware of certain compliance issues with states' payment 
methodologies for FQHCs and RHCs, such as that some states' alternative 
methodologies did not comply with BIPA's requirement that these 
methodologies result in payment no lower than what FQHCs and RHCs would 
have received under the BIPA PPS. 

This report includes a matter for congressional consideration and 
several recommendations to the Administrator of CMS. We suggest that 
Congress consider directing CMS to explore the development of a more 
appropriate inflation index or develop a strategy to periodically 
assess the adequacy of the MEI as an inflation index for adjusting BIPA 
PPS rates. We are recommending that the Administrator of CMS also 
explore the development of a more appropriate inflation index for the 
BIPA PPS, take various steps to improve CMS guidance for states, and 
provide more consistent oversight of states' payment methodologies for 
FQHCs and RHCs. In commenting on a draft of this report, CMS said it 
would take certain actions related to its oversight of states' payment 
methodologies for FQHCs and RHCs, but did not agree that development of 
another inflation index or issuance of additional guidance were 
necessary. We believe that the CMS response does not adequately address 
the issues raised in this report, as its proposed actions may not be 
sufficient to ensure states' compliance with BIPA. In addition, we 
continue to believe that CMS should explore developing an inflation 
index that more appropriately reflects the services provided by FQHCs 
and RHCs. We therefore maintained this recommendation and also elevated 
the issue to a matter for congressional consideration. 

Background: 

The FQHC and RHC programs were established to increase access to care 
for individuals in medically underserved areas. Medicaid, which 
finances health care for more than 50 million low-income Americans, is 
a significant revenue source for FQHCs and RHCs, providing, on average, 
one-quarter to over one-third of these providers' revenues. 

Characteristics of FQHCs and RHCs: 

To be designated an FQHC, a facility generally must meet the 
requirements of a grant recipient under section 330 of the Public 
Health Service Act; be a public or private nonprofit entity that 
provides a statutorily required set of primary care services to any 
individual, regardless of ability to pay; and serve the medically 
underserved.[Footnote 7] In fiscal year 2002, the President launched 
the Health Center Initiative with the goal of adding 1,200 new or 
expanded health center sites and increasing the number of patients 
served from about 10 million in fiscal year 2001 to 16 million by 2006. 
In 2003, the approximately 900 FQHCs provided services to over 12 
million people.[Footnote 8]

FQHCs include community health centers, migrant health centers, public 
housing and homeless programs, FQHC look-alikes, and certain facilities 
operated by tribes or tribal organizations.[Footnote 9] A 
distinguishing feature of FQHCs is that they provide enabling services 
such as outreach, translation, and transportation, which help patients 
gain access to health care. FQHCs vary considerably in their geographic 
location; their revenue mix; and the size of the uninsured and Medicaid 
populations and degree of managed care penetration in the surrounding 
area. For example, an FQHC may be located in an urban area with a large 
uninsured or Medicaid population and a high Medicaid managed care 
penetration, or in a rural area, where it serves as the only source of 
primary care for several communities. 

Unlike FQHCs, RHCs are not required to provide services to all 
individuals, such as those who are uninsured, but they are required to 
operate in rural areas that are designated as underserved.[Footnote 10] 
RHCs can operate either independently or as part of a larger 
organization, such as a hospital, skilled nursing facility, or home 
health agency. RHCs can be specialty clinics, focusing their services 
on particular populations or medical specialties such as pediatrics or 
obstetrics and gynecology. In addition to being located in a rural, 
underserved area, to be certified by CMS as an RHC, a provider must 
primarily offer outpatient primary medical care, employ at least one 
nonphysician practitioner at least half the time the clinic is open, 
and have a physician on-site at least once every 2 weeks.[Footnote 11] 
As of August 2004, approximately 3,600 RHCs operated in 44 
states.[Footnote 12]

In 2003, Medicaid reimbursement and HRSA grant funds were the two 
largest single sources of revenue for FQHCs and accounted for 35 
percent and 22 percent of these providers' total revenue, respectively. 
FQHCs also received revenues from state, local, and private grants as 
well as other insurance programs.[Footnote 13] In contrast, RHCs 
received a smaller proportion of their total revenues from Medicaid (24 
percent) but a higher proportion from Medicare, commercial insurance, 
and directly from patients (self-pay).[Footnote 14] Although Medicaid 
is a large revenue source for FQHCs and RHCs, payments to these 
providers represent a very small percentage of overall Medicaid 
expenditures. In fiscal year 2003, Medicaid payments to FQHCs and RHCs 
totaled almost $1.5 billion combined, which accounted for less than 1 
percent of Medicaid expenditures for medical care. 

Medicaid Reimbursement for FQHCs and RHCs: 

Prior to 2001, federal law required state Medicaid programs to pay 
FQHCs and RHCs using a cost-based reimbursement methodology. To 
determine cost-based payments, states required FQHCs and RHCs to submit 
cost reports, which states reviewed to determine which reported costs 
were allowable (related to providing services to Medicaid 
beneficiaries) and reasonable (not excessive for the type of service). 
The Medicaid statute directed states to follow the Medicare statute to 
reimburse FQHCs and RHCs. This meant that states were to reimburse 
FQHCs and RHCs according to CMS Medicare regulations, which provide 
guidance on the types of allowable costs, such as compensation for 
physicians and other staff, supplies, administrative overhead, and 
other items. The regulations allowed states to establish their own 
definition of what constituted "reasonable costs," which could include 
a ceiling on costs per service, such as a medical visit, or a limit on 
a type of cost, such as administrative costs. 

In December 2000, BIPA established a PPS to pay for Medicaid-covered 
services provided by FQHCs and RHCs. While BIPA did not specify when 
states had to implement the PPS, the statute required that the BIPA PPS 
be effective for services provided by FQHCs and RHCs on or after 
January 1, 2001. Unlike the prior cost-based reimbursement system, a 
PPS establishes payment rates in advance of service delivery and 
creates incentives for providers to operate more efficiently. 
Generally, the payment is not contingent on an individual provider's 
actual cost of delivering care. Providers that, on average, deliver 
care for less than the payment amount can retain the portion of the 
payment amount exceeding their costs; conversely, providers will lose 
money if their service costs are higher than the payment. (See app. II 
for additional general information on PPSs, including how the BIPA PPS 
compares with selected other PPSs.)

Under the PPS mandated by BIPA, the 2001 payment rate, called the base 
rate, was effective for services provided beginning January 1, 2001. 
The 2001 payment rate was to be the average of each FQHC's and RHC's 
fiscal year 1999 and fiscal year 2000 reasonable costs per visit, which 
states were allowed to determine using their prior definitions of 
reasonable costs. Beginning in fiscal year 2002, BIPA PPS payment rates 
were to be adjusted annually for inflation by the MEI. In addition, 
BIPA required that payments to FQHCs and RHCs be adjusted for increases 
or decreases in the scope of services provided. States also were 
required to make supplemental payments to FQHCs and RHCs that provide 
services to Medicaid patients enrolled in a capitated managed care 
plan.[Footnote 15] BIPA allowed states to use an alternative 
methodology to pay an FQHC or RHC as long as the FQHC or RHC agreed to 
the alternative methodology and the methodology resulted in payment to 
the FQHC or RHC of an amount that was no lower than the amount 
otherwise required under the BIPA PPS.[Footnote 16]

In June 2001, we reported that payments to FQHCs and RHCs under the new 
BIPA PPS would likely be constrained.[Footnote 17] The report noted 
that because states were allowed to continue to use their prior methods 
for determining reasonable costs in establishing the 2001 base payment 
rate under the BIPA PPS, the initial PPS rates for FQHCs and RHCs might 
be below their actual costs. Additionally, the 2001 base PPS rate could 
be lower than what an FQHC or RHC received in 2000 because the base 
rate was an average of fiscal years' 1999 and 2000 costs. Furthermore, 
BIPA did not specify that the initial 2001 payment rates be updated for 
inflation from 1999 through 2001. We also reported that the specific 
inflation index BIPA required states to use, the MEI, increased at a 
lower rate than other measures of inflation that some states had 
previously used to adjust FQHCs' payment rates. 

State Plan Approval Process: 

To comply with BIPA's January 1, 2001, effective date, states were 
required to submit a state plan amendment (SPA) for the new FQHC and 
RHC Medicaid payment requirements by the end of the first quarter of 
2001 (March 31, 2001).[Footnote 18] To aid states in meeting this 
deadline, CMS provided them with standard language that they could 
submit as a placeholder SPA that would allow them to comply technically 
with the submission deadline.[Footnote 19], [Footnote 20] According to 
CMS, states could subsequently update their SPAs with the specifics of 
their methodology before CMS review. 

Once CMS receives a SPA, it has 90 days to approve it, disapprove it, 
or request additional information from the state.[Footnote 21] Upon 
receipt of any additional state information requested, CMS has an 
additional 90 days to approve or disapprove the SPA.[Footnote 22] 
According to CMS, its regional offices have primary responsibility for 
review and approval of SPAs but coordinate with headquarters, which is 
responsible for making any final disapprovals. 

States' Implementation of BIPA PPS and Alternative Methodologies Raises 
Certain Issues: 

Our analysis of states' implementation of the BIPA PPS and alternative 
methodologies identified certain issues regarding the appropriateness 
of some states' Medicaid payment systems for FQHCs and RHCs. Most 
states (39) used the BIPA PPS and just under half of states (25) used 
the BIPA option of an alternative methodology to pay at least a portion 
of their FQHCs, RHCs, or both. (See app. III for the portion of FQHCs 
and RHCs, by state, paid under each methodology.) States took an 
average of slightly more than a year from the legislation's January 1, 
2001, effective date to complete implementation of their BIPA PPS, and 
a few states had not completed implementation as of June 1, 2004. We 
found two significant issues with states' implementation of the BIPA 
PPS. First, some states' BIPA PPS payment rates may be inappropriate 
because the states did not include all Medicaid-covered FQHC and RHC 
services in the rates. Second, as of June 1, 2004, over half of states 
using the BIPA PPS had not determined how they would meet the 
requirement to adjust their BIPA PPS rates for a change in scope of 
services. States implementing an alternative methodology generally used 
either cost-based reimbursement or a PPS with features that differed 
slightly from the BIPA PPS. We found one issue with states' 
implementation of alternative payment methodologies. In establishing 
their alternative payment methodologies, some states did not ensure 
that payments to FQHCs and RHCs were at least equal to what the BIPA 
PPS would pay, as required by law. 

BIPA PPS Implemented in Most States, but Issues Exist: 

The BIPA PPS was implemented in most states, but we noted issues with 
the appropriateness of some states' methodologies. Thirty-nine states 
used the BIPA PPS to pay at least a portion of their FQHCs, RHCs, or 
both--27 used it for both FQHCs and RHCs, 6 used it for FQHCs only, and 
6 for RHCs only. While a few states had yet to completely implement 
their BIPA PPS as of June 1, 2004, it took the remaining states an 
average of 15 to 16 months to complete implementation of their 
methodologies. We found two issues with some states' BIPA PPSs. Of the 
states using the BIPA PPS, more than a third reported that they did not 
include all Medicaid-covered FQHC and RHC services in their BIPA PPS 
payment rates and over half had either not defined procedures for 
adjusting FQHCs' and RHCs' BIPA PPS rates for a change in scope of 
services, an adjustment required by BIPA, or not specified what would 
constitute such a change. 

Implementation of BIPA PPS for FQHCs: 

Thirty-three of 51 states reported using the BIPA PPS to pay some 
portion of their FQHCs. The BIPA PPS was the only payment methodology 
used for FQHCs in 27 of the states, while in the remaining 6 states 
only a portion of FQHCs received Medicaid payments under the BIPA PPS 
(see table 1).[Footnote 23]

Table 1: States' Use of the BIPA PPS to Make Payments to FQHCs, as of 
June 1, 2004: 

Portion of FQHCs: All; 
Number of states: 27; 
States: Alabama, Connecticut, Delaware, District of Columbia, Florida, 
Georgia, Hawaii, Idaho, Illinois, Indiana, Kentucky, Louisiana, Maine, 
Maryland, Minnesota,[A] Mississippi, Montana, Nevada, Ohio, Oklahoma, 
Oregon, Pennsylvania, Rhode Island, South Dakota, Tennessee, 
Washington, and Wyoming. 

Portion of FQHCs: Most (50% to <100%); 
Number of states: 2; 
States: New York and North Dakota. 

Portion of FQHCs: Some (>0% to <50%); 
Number of states: 4; 
States: California, North Carolina, Utah, and Wisconsin. 

Source: GAO analysis of state survey responses. 

[A] Although the state intended to use the BIPA PPS to pay all FQHCs, 
it had not fully implemented its methodology. As a result, many FQHCs 
were being paid under an interim payment method. 

[End of table]

Thirty-two states reported they had completed implementation of their 
BIPA PPS for FQHCs as of June 1, 2004, while one had not fully 
implemented its methodology. On average, it took states 15 months from 
BIPA's effective date--January 1, 2001--to complete implementation of 
their BIPA PPS for FQHCs. Implementation time periods ranged from 3 
months to about 3 years (see fig. 1). Although Minnesota intended to 
implement the BIPA PPS for all of its FQHCs, as of June 1, 2004, the 
state had implemented this methodology for only 30 percent of its 
FQHCs. Minnesota was paying the remaining FQHCs an interim rate until 
the state determined these providers' BIPA PPS rates.[Footnote 24] 
Regardless of the actual implementation date, most states implementing 
a BIPA PPS (30 of 33 states) made the payment rates retroactive to 
January 1, 2001.[Footnote 25] The three remaining states had an 
alternative payment methodology initially but subsequently implemented 
the BIPA PPS.[Footnote 26]

Figure 1: States' Implementation of the BIPA PPS for FQHCs, as of June 
1, 2004: 

[See PDF for image]

Note: Thirty-three states paid at least some FQHCs using the BIPA PPS, 
but the figure does not include Minnesota, which had not completed 
implementation of its BIPA PPS as of June 1, 2004. 

[End of figure]

Although BIPA specified how states were to determine the base payment 
rate and which inflation index to use, states designed their systems 
differently within these parameters. For example, BIPA specified that 
beginning in fiscal year 2002, the BIPA PPS base rate was to be 
increased annually for inflation using the MEI, but the law did not 
define which 12-month period constituted the 2002 fiscal year.[Footnote 
27] States had the option of using the federal, state, or FQHC fiscal 
year and varied as to the month they first inflated the PPS rates. Most 
states first inflated their FQHCs' base payment rates in either October 
2001, which corresponds to the federal and one state's fiscal year, or 
January 2002, the beginning of the calendar year. A few states inflated 
FQHC payment rates earlier in 2001, and one state--Louisiana--did not 
inflate rates until July 2002. (See table 2.) States also varied in the 
number of PPS rates they established for each FQHC. Specifically, 10 
states decided to establish more than one PPS rate for each FQHC, 
depending on the type of service provided.[Footnote 28] For example, 
FQHCs in Maryland had two rates--one for medical services and one for 
dental services. In Ohio, FQHCs could have as many as nine PPS rates 
depending on the specific services provided.[Footnote 29]

Table 2: Timetable for States' Application of the MEI Inflation Index 
to FQHCs' BIPA PPS Rates: 

Date MEI first applied: January 2001; 
Number of states: 3; 
States: North Carolina,[A] Oregon, and Utah. 

Date MEI first applied: July 2001; 
Number of states: 2; 
States: Delaware and Oklahoma. 

Date MEI first applied: October 2001; 
Number of states: 13; 
States: Alabama, California, Connecticut, Florida, Georgia, Idaho, 
Maine, Nevada, New York, Ohio, Pennsylvania, Rhode Island, and 
Tennessee. 

Date MEI first applied: January 2002; 
Number of states: 14; 
States: District of Columbia, Hawaii, Illinois, Indiana, Kentucky, 
Maryland, Minnesota, Mississippi, Montana, North Dakota, South Dakota, 
Washington, Wisconsin, and Wyoming. 

Date MEI first applied: July 2002; 
Number of states: 1; 
States: Louisiana. 

Source: GAO analysis of state survey responses. 

[A] January 2001 was the first date that North Carolina may have 
applied the MEI to any FQHC's BIPA PPS rate. However, the actual date 
that the MEI was applied varied by FQHC because the state calculated 
BIPA PPS rates on the basis of each FQHC's cost reporting year. 

[End of table]

Implementation of BIPA PPS for RHCs: 

Of the 44 states with RHCs, 33 states reported using the BIPA PPS to 
pay some portion of their RHCs. Twenty-five states paid all RHCs and 8 
states paid a portion of RHCs under the BIPA PPS.[Footnote 30] (See 
table 3.)

Table 3: States' Use of the BIPA PPS to Make Payments to RHCs, as of 
June 1, 2004: 

Portion of RHCs: All; 
Number of states: 25; 
States: Alabama, Arkansas,[A] Florida, Hawaii, Idaho, Illinois, 
Indiana, Kentucky, Louisiana, Maine, Michigan, Minnesota[A], 
Mississippi, Montana, Nevada, New York, Ohio, Oklahoma, Oregon, 
Pennsylvania, South Dakota, Tennessee, Utah, Washington, and Wyoming. 

Portion of RHCs: Most (50% to <100%); 
Number of states: 2; 
States: Georgia and North Dakota. 

Portion of RHCs: Some (>0% to <50%); 
Number of states: 6; 
States: California, Iowa, Kansas,[B] North Carolina, Texas, and 
Virginia. 

Source: GAO analysis of state survey responses. 

[A] Although the state intended to use the BIPA PPS to pay all RHCs, it 
had not fully implemented its methodology. As a result, many RHCs were 
being paid under an interim payment method. 

[B] This state had not fully implemented its BIPA PPS; thus, some RHCs 
were being paid under an interim payment method. Other RHCs in this 
state opted to be paid under an alternative methodology. 

[End of table]

As of June 1, 2004, 30 of the 33 states using the BIPA PPS to pay some 
portion of their RHCs had completed implementing their payment 
methodologies, taking an average of 16 months. Implementation time 
periods ranged from 4 months to over 3 years (see fig. 2). The 
remaining 3 states were still in the process of implementing their BIPA 
PPS as of June 1, 2004: over 80 percent of Minnesota's RHCs, about 40 
percent of Arkansas's RHCs, and less than 10 percent of Kansas's RHCs 
did not have finalized BIPA PPS rates. Regardless of when the 
methodologies were implemented, the BIPA PPS rates were retroactive to 
January 1, 2001, in all states except Washington, where the rates 
became effective 1 year later, and Kentucky, where the rates became 
effective in July 2001.[Footnote 31]

Figure 2: States' Implementation of the BIPA PPS for RHCs, as of June 
1, 2004: 

[See PDF for image]

Note: Thirty-three states paid at least some RHCs using the BIPA PPS, 
but the figure does not include 3 states--Arkansas, Kansas, and 
Minnesota--which had not completed implementation of their BIPA PPS as 
of June 1, 2004. 

[End of figure]

As with FQHCs, states varied in their design of certain features of 
their BIPA PPS for RHCs. Specifically, because of differences in when 
fiscal years began, states varied as to when they first inflated their 
BIPA PPS base rates.[Footnote 32] Most states first inflated their 
RHCs' base payment rates in either October 2001 or January 2002. A few 
states inflated RHC payment rates earlier in 2001 and one state did not 
inflate rates until July 2002. (See table 4.) In addition, four states 
paid RHCs with multiple BIPA PPS payment rates that differed depending 
on the type of service provided.[Footnote 33] For example, Illinois 
RHCs received payment rates that differed depending on whether a visit 
was for medical, dental, or behavioral health services. 

Table 4: Timetable for States' Application of the MEI Inflation Index 
to RHCs' BIPA PPS Rates: 

Date MEI first applied: January 2001; 
Number of states: 3; 
States: North Carolina,[A] Oregon, and Utah. 

Date MEI first applied: July 2001; 
Number of states: 2; 
States: Arkansas and Oklahoma. 

Date MEI first applied: October 2001; 
Number of states: 15; 
States: Alabama, California, Florida, Georgia, Idaho, Kansas, Maine, 
Michigan, Nevada, New York, Ohio, Pennsylvania, Tennessee, Texas, and 
Virginia. 

Date MEI first applied: January 2002; 
Number of states: 12; 
States: Hawaii, Illinois, Indiana, Iowa, Kentucky, Minnesota, 
Mississippi, Montana, North Dakota, South Dakota, Washington, and 
Wyoming. 

Date MEI first applied: July 2002; 
Number of states: 1; 
States: Louisiana. 

Source: GAO analysis of state survey responses. 

[A] January 2001 was the first date that North Carolina may have 
applied the MEI to any RHC's BIPA PPS rate. However, the actual date 
that the MEI was applied varied by RHC because the state calculated 
BIPA PPS rates on the basis of each RHC's cost reporting year. 

[End of table]

Issues with States' Implementation of BIPA PPS: 

We identified two issues with states' implementation of the BIPA PPS 
for FQHCs and RHCs. First, BIPA PPS rates in more than one-third of 
states may be inappropriate--these states reported that their rates did 
not include all Medicaid-covered FQHC and RHC services. These states 
most commonly excluded laboratory, radiology, and dental services. 
These exclusions are inappropriate because, under BIPA and CMS 
guidance, the BIPA PPS must include all Medicaid-covered services-- 
specifically, outpatient services provided in an FQHC or RHC and 
included in the state's plan. Prescription drugs are the one service 
that states are allowed to exclude from the BIPA PPS rate, according to 
CMS.[Footnote 34] Thus, all other Medicaid-covered outpatient services 
provided by an FQHC or RHC must be paid for under the BIPA PPS. 

Second, as of June 1, 2004, over 3 years after the passage of BIPA, 
over half of states using the BIPA PPS had either not defined 
procedures for adjusting payment rates for a change in scope of 
services or not specified what would constitute such a change; states 
are required by BIPA to adjust BIPA PPS rates for a change in scope of 
services. Specifically, according to our survey results, 9 of the 39 
states that pay FQHCs, RHCs, or both using the BIPA PPS reported that 
they had not defined procedures for adjusting payment rates for a 
change in scope of services. In addition, according to our review of 
state documents, of the remaining 30 states that reported defining 
adjustment procedures for a change in scope of services, 12 did not 
specify what would constitute such a change. 

Many States Implemented Alternative Payment Methodologies, but Not All 
Met BIPA Requirements: 

Approximately half of the states chose the BIPA option to use an 
alternative methodology to pay at least some FQHCs, RHCs, or both, but 
not all states' methodologies met the BIPA requirements. Eighteen 
states used an alternative methodology for both FQHCs and RHCs, 6 
states used it for FQHCs only, and 1 state used it for RHCs only. 
States with alternative methodologies generally used either a cost- 
based reimbursement methodology, similar to that used to pay FQHCs and 
RHCs prior to BIPA, or implemented an alternative PPS methodology with 
features that differed slightly from the BIPA PPS. Some states' 
alternative methodologies, however, did not meet BIPA's requirement 
that alternative methodologies result in payments no lower than what 
would have been received under the BIPA PPS. 

Implementation of Alternative Methodologies for FQHCs: 

Twenty-four of 51 states opted to use one or more alternative payment 
methodologies to pay at least some of their FQHCs. The type of 
alternative methodology varied by state. Specifically, to pay at least 
a portion of their FQHCs, 15 states used a cost-based reimbursement 
methodology, 8 states used an alternative PPS methodology, and 3 states 
used an alternative methodology that was neither cost-based 
reimbursement nor a PPS; 2 of these states used multiple 
methods.[Footnote 35] (See table 5.)

Table 5: Alternative Payment Methodologies for FQHCs, as of June 1, 
2004: 

Alternative methodology: Cost-based reimbursement; 
Number of states: 15; 
States: Arkansas, California,[A] Colorado, Iowa, Kansas,[B] Missouri, 
Nebraska, New Hampshire, North Carolina, South Carolina, Utah, Vermont, 
Virginia, West Virginia, and Wisconsin[C]. 

Alternative methodology: PPS; 
Number of states: 8; 
States: Alaska, Arizona, California,[A] Michigan, New Jersey, New 
Mexico, North Dakota, and Texas. 

Alternative methodology: Other[D]; 
Number of states: 3; 
States: Massachusetts, New York, and Wisconsin[C]. 

Source: GAO analysis of state survey responses. 

[A] California had two alternative methodologies for paying FQHCs-- 
cost-based reimbursement (only for Los Angeles County FQHCs 
participating in the county's 1115 waiver program) and an alternative 
PPS. 

[B] State had not fully implemented this methodology. 

[C] Wisconsin had two alternative methodologies for paying FQHCs--cost- 
based reimbursement and another methodology. 

[D] Other methodologies were neither purely cost-based nor alternative 
PPSs. 

[End of table]

Fifteen states used a cost-based reimbursement methodology for at least 
some FQHCs. Under cost-based reimbursement, FQHCs were required to 
submit cost reports, which the states reviewed to determine whether 
reported costs were allowable and reasonable.[Footnote 36] States may 
set limits on the reasonableness of costs, and 11 of the 15 states 
reported setting limits for FQHCs.[Footnote 37] (Table 6 lists the 
states using limits, by type of limit.) Some states used more than one 
limit, as follows: 

* Overall caps. Six states reported setting limits on how much they 
would reimburse for a patient's visit, with most basing their limit on 
that employed by Medicare.[Footnote 38] For example, three states set 
their limits at the Medicare upper payment limit, while two states set 
their limits at 125 percent and 133 percent, respectively, of the 
Medicare payment limit. 

* Performance or productivity standards. Seven states limited 
reasonable costs by setting performance or productivity standards. 
These states stipulated the number of visits per year that a full-time- 
equivalent physician should provide; they used similar guidelines for 
other practitioners. Again, most of the states using performance or 
productivity standards relied on the guidelines specified by 
Medicare.[Footnote 39]

* Limits on administrative costs. Three states reported that they 
disallowed administrative costs exceeding 30 percent of total costs. 

Table 6: States That Used Limits in Determining Reasonable Costs for 
FQHCs under Cost-Based Reimbursement Alternative Methodologies, by Type 
of Limit, as of June 1, 2004: 

State[A]: Colorado[B]; 
Performance or productivity standard. 

State[A]: Iowa; 
Performance or productivity standard. 

State[A]: Kansas; 
Cap or upper payment limit; Performance or productivity standard. 

State[A]: Missouri; 
Limit on administrative costs. 

State[A]: New Hampshire; 
Cap or upper payment limit. 

State[A]: North Carolina; 
Cap or upper payment limit; Performance or productivity standard. 

State[A]: South Carolina; 
Performance or productivity standard; Limit on administrative costs. 

State[A]: Vermont; 
Cap or upper payment limit. 

State[A]: Virginia; 
Cap or upper payment limit; Performance or productivity standard. 

State[A]: West Virginia; 
Cap or upper payment limit; Performance or productivity standard. 

State[A]: Wisconsin; 
Limit on administrative costs. 

Total; 
Cap or upper payment limit: 6; 
Performance or productivity standard: 7; 
Limit on administrative costs: 3. 

Source: GAO analysis of state survey responses. 

[A] Four states--Arkansas, California, Nebraska, and Utah--did not 
report the use of any specific limits in determining reasonable costs. 

[B] Colorado pays an FQHC the lower of the FQHC's current year of costs 
or a 3-year average of costs. 

[End of table]

Eight states had an approved alternative PPS for reimbursing at least a 
portion of their FQHCs. Generally, these alternative PPSs differed from 
the BIPA PPS in that they used a different base payment rate, a 
different inflation factor, or both. For example, California set its 
alternative PPS base rate at an FQHC's 2000 reasonable costs, as 
opposed to an average of 1999 and 2000 reasonable costs, which is 
stipulated under the BIPA PPS; Alaska used an inflation index developed 
by Data Resources Incorporated instead of the MEI to adjust rates. 
Arizona plans to rebase its alternative PPS every 3 years, calculating 
the base rate as the average of costs from the 2 previous years. 
Arizona also inflated rates using the physician services component of 
the Consumer Price Index (CPI). Table 7 provides the characteristics of 
the eight states' alternative PPS methodologies for FQHCs. 

Table 7: Characteristics of Alternative PPSs for FQHCs, by State, as of 
June 1, 2004: 

State: Alaska; 
Base rate: The inflated average of fiscal years' 1999 and 2000 
reasonable costs (inflated to fiscal year 2002); 
Inflation factor: Inflation index developed by Data Resources 
Incorporated; 
Other components: Not applicable. 

State: Arizona; 
Base rate: The average of the 2 previous years' costs inflated to the 
current year; 
Inflation factor: Physician services component of the CPI; 
Other components: Rate is rebased every 3 years. 

State: California; 
Base rate: Fiscal year 2000 reasonable costs inflated to fiscal year 
2001 by the MEI; 
Inflation factor: MEI; 
Other components: Not applicable. 

State: Michigan; 
Base rate: Fiscal years' 1999 and 2000 costs, converted to calendar 
year, then averaged and inflated to the calendar year 2001 midpoint by 
the MEI and compared to the state's Medicaid payment limit (the 
Medicare per visit payment limit plus $17.41). If costs are greater 
than the Medicaid payment limit, then the base rate is the Medicaid 
payment limit plus 66.6 percent of costs above the Medicaid limit; 
Inflation factor: If the base rate is less than the Medicaid limit, 
then it is inflated by the MEI; if the base rate is greater than the 
Medicaid limit, then the rate is inflated by the MEI plus a sliding 
scale percentage of the difference between the limit and the FQHC's 
calendar year 2001 costs; 
Other components: Not applicable. 

State: New Jersey; 
Base rate: The greater of the fiscal year 1999 or 2000 final settled 
costs based on the FQHC's Medicaid cost report; 
Inflation factor: MEI; 
Other components: Not applicable. 

State: New Mexico; 
Base rate: The average of fiscal years' 1999 and 2000 reasonable costs; 
Inflation factor: State chooses between the MEI or the CPI for urban 
consumers, but adjustments can be no less than that provided by the 
MEI; 
Other components: Not applicable. 

State: North Dakota; 
Base rate: The lesser of the fiscal year 2000 reasonable costs or the 
maximum Medicare rate per visit for fiscal year 2000; 
Inflation factor: State-determined, but cannot exceed the MEI; 
Other components: Not applicable. 

State: Texas; 
Base rate: The average of fiscal years' 1999 and 2000 reasonable costs; 
Inflation factor: MEI + 1.5 percent; 
Other components: If an FQHC's costs increase more than the inflation 
factor, then it can request an adjustment equal to 100 percent of costs 
if the FQHC can show that it is operating in an efficient manner or 
that the increase is due to a change in scope of services. 

Source: GAO analysis of state survey responses. 

Note: For the purpose of comparison, the BIPA-specified PPS rate for 
each FQHC would (1) use the average of fiscal years' 1999 and 2000 
reasonable costs per visit as the base rate, (2) use the MEI as the 
annual inflation factor, and (3) be adjusted as necessary for a change 
in scope of services. 

[End of table]

Three states created alternative payment methodologies that were 
neither purely cost-based nor an alternative PPS. Specifically, 
Massachusetts paid most FQHCs the same rate, which was based on the 
1998 costs from a sample of FQHCs in the state.[Footnote 40] New York 
paid some FQHCs on the basis of diagnosis,[Footnote 41] and Wisconsin 
paid two of its FQHCs a flat rate set at the Medicare upper payment 
limit. 

Implementation of Alternative Methodologies for RHCs: 

Almost half of the states with RHCs (19 of 44 states) paid at least a 
portion of their RHCs using an alternative methodology. Twelve states 
paid at least a portion of their RHCs using a cost-based reimbursement 
methodology, 6 states created an alternative PPS methodology, and 3 
states paid at least some RHCs by an alternative methodology that was 
neither cost-based reimbursement nor a PPS. Two states--New Hampshire 
and Wisconsin--used both cost-based reimbursement and another payment 
methodology. (See table 8.)

Table 8: Alternative Payment Methodologies for RHCs, as of June 1, 
2004: 

Alternative methodology: Cost-based reimbursement; 
Number of states: 12; 
States: Georgia, Iowa, Kansas,[A] Missouri, Nebraska, New Hampshire[B], 
North Carolina, South Carolina, Vermont, Virginia, West Virginia, and 
Wisconsin[C]. 

Alternative methodology: PPS; 
Number of states: 6; 
States: Alaska, Arizona, California, New Mexico, North Dakota, and 
Texas. 

Alternative methodology: Other[D]; 
Number of states: 3; 
States: Colorado, New Hampshire,[B] and Wisconsin[C]. 

Source: GAO analysis of state survey responses. 

[A] The state had not fully implemented this methodology. 

[B] New Hampshire had two alternative methodologies for paying RHCs-- 
cost-based reimbursement and another methodology. 

[C] Wisconsin had two alternative methodologies for paying RHCs--cost- 
based reimbursement and another methodology. 

[D] Other methodologies were neither purely cost-based nor alternative 
PPSs. 

[End of table]

Twelve states used cost-based reimbursement to pay at least some RHCs 
and most applied limits when determining reasonable costs (see table 
9). 

* Overall caps. Ten states reported applying limits on how much they 
would reimburse for a patient's visit. All 10 states set their limit at 
the Medicare upper payment limit for RHCs, which was $68.65 in 
2004.[Footnote 42]

* Performance or productivity standards. Seven states limited 
reasonable costs by setting performance or productivity standards and 
all relied on the standards employed by Medicare. 

* Limits on administrative costs. No state reported setting limits on 
administrative costs. 

Table 9: States That Used Limits in Determining Reasonable Costs for 
RHCs under Cost-Based Reimbursement Alternative Methodologies, by Type 
of Limit, as of June 1, 2004: 

State[A]: Georgia; 
Cap or upper payment limit. 

State[A]: Iowa; 
Performance or productivity standard. 

State[A]: Kansas; 
Cap or upper payment limit; Performance or productivity standard. 

State[A]: Missouri; 
Cap or upper payment limit; Performance or productivity standard. 

State[A]: New Hampshire; 
Cap or upper payment limit. 

State[A]: North Carolina; 
Cap or upper payment limit; Performance or productivity standard. 

State[A]: South Carolina; 
Cap or upper payment limit; Performance or productivity standard. 

State[A]: Vermont; 
Cap or upper payment limit. 

State[A]: Virginia; 
Cap or upper payment limit; Performance or productivity standard. 

State[A]: West Virginia; 
Cap or upper payment limit; Performance or productivity standard. 

State[A]: Wisconsin; 
Cap or upper payment limit. 

Total; 
Cap or upper payment limit: 10; 
Performance or productivity standard: 7. 

Source: GAO analysis of state survey responses. 

Note: No state reported applying limits on administrative costs. 

[A] Nebraska did not report the use of any specific limits in 
determining reasonable costs. 

[End of table]

Six states had an approved alternative PPS for reimbursing at least a 
portion of their RHCs. One state used a base rate that was different 
from the BIPA PPS, two states either used or reserved the option to use 
an inflation index other than the MEI, and two states did both. For 
example, in Arizona, the state plans to rebase its alternative PPS 
every 3 years and inflate interim years' rates by a component of the 
CPI. The sixth state (Texas) used an alternative PPS that was virtually 
the same as the BIPA PPS except that RHCs did not have to return to the 
state any overpayments that might have occurred during the transition 
to the new payment system.[Footnote 43] See table 10 for details on the 
six states' alternative PPS for RHCs. 

Table 10: Characteristics of Alternative PPSs for RHCs, by State, as of 
June 1, 2004: 

State: Alaska; 
Base rate: The inflated average of fiscal years' 1999 and 2000 
reasonable costs (inflated to fiscal year 2002); 
Inflation factor: Inflation index developed by Data Resources 
Incorporated; 
Other components: Not applicable. 

State: Arizona; 
Base rate: The average of 2 previous years' costs inflated to the 
current year; 
Inflation factor: Physician services component of the CPI; 
Other components: Rate is rebased every 3 years. 

State: California; 
Base rate: Fiscal year 2000 reasonable costs inflated to fiscal year 
2001 by the MEI; 
Inflation factor: MEI; 
Other components: Not applicable. 

State: New Mexico; 
Base rate: The average of fiscal years' 1999 and 2000 reasonable costs; 
Inflation factor: State chooses between the MEI or the CPI for urban 
consumers, but adjustments can be no less than that provided by the 
MEI; 
Other components: Not applicable. 

State: North Dakota; 
Base rate: Provider-based RHCs: 100 percent of billed charges in fiscal 
year 2000; Independent RHCs: fiscal year 2001 Medicare upper payment 
limit; 
Inflation factor: State-determined factor not to exceed the MEI; 
Other components: Not applicable. 

State: Texas; 
Base rate: The average of fiscal years' 1999 and 2000 reasonable costs; 
Inflation factor: MEI; 
Other components: RHCs did not have to pay back any overpayments at 
settlement from old cost-based rate. 

Source: GAO analysis of state survey responses. 

Note: For the purpose of comparison, the BIPA-specified PPS rate for 
each RHC would (1) use the average of fiscal year's 1999 and 2000 
reasonable costs per visit as the base rate, (2) use the MEI as the 
annual inflation factor, and (3) be adjusted as necessary for a change 
in scope of services. 

[End of table]

Three states reported that their alternative payment methodologies were 
neither purely cost-based reimbursement nor an alternative PPS. 
Specifically, most RHCs in Wisconsin were paid the Medicare upper 
payment limit, and all RHCs in Colorado were paid the Medicare upper 
payment limit or their Medicare rate if the upper payment limit did not 
apply.[Footnote 44] In New Hampshire, hospital-based RHCs were paid 
approximately 92 percent of allowable charges, which were determined on 
the basis of the RHCs' Medicare cost reports. 

Issue with States' Implementation of Alternative Methodologies: 

Not all states ensured that their alternative methodologies resulted in 
payments that were at least equal to what FQHCs and RHCs would have 
received under the BIPA PPS, as required by statute. Under BIPA, states 
may use an alternative payment methodology only if the methodology 
results in payment to an FQHC or RHC that is at least equal to what the 
FQHC or RHC would have received under the BIPA PPS and if the FQHC or 
RHC agrees to its use. Of the 25 states with alternative methodologies 
for either FQHCs, RHCs, or both, 4 states (Missouri, New Hampshire, 
Vermont, and Wisconsin) paid at least some providers less than what 
they would have been paid under the BIPA PPS and it was unclear whether 
the alternative payment methodologies in 2 states (Nebraska and North 
Carolina) resulted in payments at least equal to what the FQHCs and 
RHCs would have received under the BIPA PPS.[Footnote 45]

Four states' alternative methodologies paid at least some FQHCs, RHCs, 
or both less than what they would have received under the BIPA PPS, but 
the states continued to pay the providers the lower rate under the 
alternative methodology. Missouri determined whether its alternative 
methodology paid at least as much as the BIPA PPS for only a portion of 
its FQHCs and RHCs and did so only for the first year of the 
methodology.[Footnote 46] On the basis of this assessment, Missouri 
found that over half of the FQHCs reviewed and about 40 percent of the 
RHCs reviewed would fare better under the BIPA PPS, yet the state 
continued to pay them under the alternative methodology.[Footnote 47] 
In 2001, the FQHCs and RHCs that would have fared better under the BIPA 
PPS would have received on average about $12 more and about $25 more 
per visit, respectively. New Hampshire compared only the fiscal year 
2001 BIPA PPS rates for its FQHCs and RHCs with the cost-based rates; 
although the state found that the BIPA PPS rates were higher for some 
RHCs, a state official told us in October 2004 that the state had not 
reimbursed these providers for the difference. Vermont only determined 
the 2001 BIPA PPS rates for its FQHCs and RHCs.[Footnote 48] On the 
basis of those rates, we estimated the 2002 and 2003 BIPA PPS rates for 
Vermont's FQHCs and RHCs and found that some RHCs would likely have 
fared better under the BIPA PPS.[Footnote 49] However, the state 
reported that all FQHCs and RHCs were paid under the alternative 
methodology. Wisconsin compared the fiscal year 2001, 2002, and 2003 
BIPA PPS rates for its FQHCs and RHCs with the cost-based rates used 
for those fiscal years and found that an RHC would have fared better 
under the BIPA PPS each year, yet Wisconsin continued to pay that RHC 
under the alternative methodology. Specifically, across the 3 years, 
the BIPA PPS rate would have paid that RHC, on average, about $20 more 
per visit compared with the state's alternative methodology. Since 
these states did not routinely inform all FQHCs and RHCs of what their 
BIPA PPS rates would have been, the FQHCs and RHCs may have been 
unaware that some providers, including themselves, may have fared 
better under the BIPA PPS. 

For the remaining two states, it was unclear whether their alternative 
payment methodologies complied with the requirement that alternative 
methodologies must result in payments at least equal to what the FQHCs 
and RHCs would have received under the BIPA PPS. Nebraska did not 
determine whether its alternative methodology paid at least as much as 
the BIPA PPS.[Footnote 50] North Carolina compared its payment rates 
under its alternative methodology with preliminary BIPA PPS rates only 
for the base year (fiscal year 2001) and not for any subsequent years. 
As of March 2005, the state had not finalized all FQHCs' and RHCs' 2001 
BIPA PPS rates, and it is therefore unclear whether the state's 
alternative methodology resulted in payment that was at least as much 
as the BIPA PPS would offer.[Footnote 51]

Evidence to Date Is Insufficient about the Need to Rebase or Refine the 
BIPA PPS: 

Sufficient evidence is not available to determine whether there is a 
need to rebase or refine the BIPA PPS. Concerns exist about the 
appropriateness of the MEI, which was specified in the statute as the 
index used to annually adjust BIPA PPS rates for inflation. For 
example, the MEI does not reflect the costs of the services typically 
provided by FQHCs and RHCs. Other indexes often used to reflect medical 
care inflation, however, have a similar shortcoming. Although the MEI 
may not be an appropriate index to adjust BIPA PPS rates, based on our 
research no inflation index is currently available that reflects FQHC 
and RHC services. The ability to determine the need for rebasing or 
refining is further complicated by an increasing lack of comprehensive 
and current cost data because many states no longer require all FQHCs 
and RHCs to submit Medicaid cost reports. Our analysis of cost-based 
and BIPA PPS rates from selected states that used cost-based 
reimbursement as an alternative payment methodology did not provide 
conclusive evidence on the need to rebase or refine the BIPA PPS. 

MEI May Not Be an Appropriate Index to Adjust BIPA PPS Rates for 
Inflation: 

Our prior work, discussions with stakeholders, and our analysis for 
this report raised questions about the appropriateness of the MEI as 
the index to annually adjust BIPA PPS rates for inflation. The MEI is 
designed to estimate the increase in the total costs for the average 
physician to operate a medical practice for the purpose of updating 
physician payment rates under Medicare.[Footnote 52] As such, the MEI 
is intended to be an equitable measure of cost changes associated with 
physician time and operating expenses. 

We reported in 2001 that the MEI increased at a lower rate than indexes 
some states had used previously to adjust payment rates for 
FQHCs.[Footnote 53] Since the MEI adjustment is the only automatic 
update of BIPA PPS rates,[Footnote 54] an FQHC's or RHC's ability to 
manage under the BIPA PPS depends on its initial payment rate as well 
as its ability to hold cost growth at or below the MEI. 

Some stakeholders we contacted expressed concern about the use of the 
MEI to update BIPA PPS payments to FQHCs and RHCs. Officials from the 
National Association of Community Health Centers told us that the MEI 
was not an adequate measure of FQHCs' increasing costs. These officials 
pointed to data from the Uniform Data System (UDS), a database of self- 
reported FQHC data, which suggested that the MEI increased at a lower 
rate than FQHCs' costs. Specifically, the data showed that FQHCs' total 
costs per patient encounter increased approximately 5 to 6 percent 
annually between 2001 and 2003, while the MEI increased about 2 to 3 
percent annually during the same time period.[Footnote 55] This concern 
was echoed by officials we spoke with from FQHCs and RHCs and by CMS 
officials from four regional offices. For example, an official from a 
Florida FQHC reported that his center's costs over the past 3 years had 
increased by 4.5 to 7 percent a year, while an official from a Florida 
RHC reported cost increases of over 10 percent annually. An important 
objective of a PPS, however, is to encourage efficiency, so equivalent 
increases in a provider's payment adjustments and its cost trends may 
not be desirable. 

The MEI may not be an ideal index to adjust FQHCs' and RHCs' payment 
rates for inflation, but other indexes often used to reflect medical 
care inflation also have a similar shortcoming. As mentioned earlier, 
the MEI was designed to measure the changing costs for the average 
physician. However, FQHCs' and RHCs' costs may not be comparable to 
those of the average physician. FQHCs provide additional services, 
including enabling services (such as outreach and translation), and a 
significant portion of RHC services may be provided by nonphysician 
practitioners. Like the MEI, four other indexes commonly used to 
reflect changes in medical care inflation do not reflect the services 
typically provided by FQHCs and RHCs. The 2001 to 2003 cumulative 
increase for the MEI was greater than the cumulative increases of the 
Producer Price Index (PPI) for Physician Offices and the CPI for Urban 
Consumers for the same period, although neither of the latter indexes 
reflect the same services provided by FQHCs and RHCs.[Footnote 56] The 
cumulative increase for the MEI was less than the cumulative increases 
for two other indexes--the PPI for General Medical and Surgical 
Hospitals and the CPI for Medical Care--but the latter two indexes 
included a set of hospital-related services that for the most part 
neither FQHCs nor RHCs provided. (See table 11 for a comparison of 
these indexes.)

Table 11: Percentage Increase of the MEI Compared to Increases for 
Other Indexes Commonly Used to Adjust for Medical Care Inflation (2001 
to 2003): 

Index: PPI for Physician Offices; 
Percentage increase: 2001: 2.85; 
Percentage increase: 2002: 0.00; 
Percentage increase: 2003: 1.51; 
Percentage increase: Cumulative increase: 4.36; 
Percentage increase: Average increase: 1.45. 

Index: CPI for Urban Consumers; 
Percentage increase: 2001: 2.85; 
Percentage increase: 2002: 1.58; 
Percentage increase: 2003: 2.28; 
Percentage increase: Cumulative increase: 6.71; 
Percentage increase: Average increase: 2.24. 

Index: MEI; 
Percentage increase: 2001: 2.10; 
Percentage increase: 2002: 2.60; 
Percentage increase: 2003: 3.00; 
Percentage increase: Cumulative increase: 7.70; 
Percentage increase: Average increase: 2.57. 

Index: PPI for General Medical and Surgical Hospitals; 
Percentage increase: 2001: 3.01; 
Percentage increase: 2002: 3.65; 
Percentage increase: 2003: 5.79; 
Percentage increase: Cumulative increase: 12.45; 
Percentage increase: Average increase: 4.15. 

Index: CPI for Medical Care; 
Percentage increase: 2001: 4.60; 
Percentage increase: 2002: 4.69; 
Percentage increase: 2003: 4.03; 
Percentage increase: Cumulative increase: 13.32; 
Percentage increase: Average increase: 4.44. 

Source: GAO analysis of Bureau of Labor Statistics and CMS data. 

[End of table]

On the basis of our review of literature on medical care indexes and 
information from organizations typically involved in developing and 
updating these indexes, we determined that no inflation index has been 
developed specifically to reflect FQHC and RHC services. Other PPSs, 
however, often incorporate an inflation index specifically designed to 
reflect changes in the cost of services provided by or the price of 
resources used by the providers paid under that PPS. For example, under 
the Medicare home health PPS, the payment rate is inflated using a home 
health market basket that measures the changes in the prices of goods 
and services bought by home health agencies. CMS has similarly 
developed update factors for Medicare payment rates for outpatient 
hospitals and skilled nursing facilities (see app. II). 

Lack of Cost-Reporting Requirement Hinders Ability to Determine the 
Need to Rebase or Refine the BIPA PPS: 

The lack of a Medicaid cost-reporting requirement for FQHCs and RHCs 
makes it difficult to determine the need to rebase or refine the BIPA 
PPS. Under BIPA, state Medicaid programs were no longer required to 
collect cost reports from FQHCs and RHCs, which was how states had 
previously collected cost data to help set Medicaid payment rates for 
these providers.[Footnote 57] The decision to collect Medicaid cost 
data via cost reports or other methods was therefore left to each 
individual state. In response to our survey, many states reported they 
did not require cost reports from all FQHCs and RHCs (see table 12). 
Twenty-one of 51 states (over 40 percent) reported not requiring cost 
reports from all FQHCs. Specifically, 2 states reported no longer 
requiring any cost reports and another 19 states reported requiring 
cost reports from some FQHCs, generally only from new FQHCs or those 
with a change in scope of services. Even fewer states reported 
requiring cost reports from RHCs. Of the 44 states with RHCs, 22 (50 
percent) reported not requiring cost reports from all RHCs--9 states 
did not require any RHCs to submit cost reports and 13 states only 
required cost reports from some. States that had implemented the BIPA 
PPS were especially likely to not have cost-reporting requirements: 20 
of the 33 states using the BIPA PPS for FQHCs (over 60 percent) 
reported not requiring cost reports from all FQHCs and 19 of the 33 
states using the BIPA PPS for RHCs (approximately 58 percent) reported 
not requiring cost reports from all RHCs. Without comprehensive and 
current cost data, determining whether there is a need to rebase or 
refine the BIPA PPS is difficult, if not impossible. 

Table 12: States' Cost Reporting Requirements for FQHCs and RHCs, as of 
June 2004: 

Type of provider: FQHCs; 
Required to submit cost reports: All; 
Number of states: 30; 
Number of states using the BIPA PPS[A]: 13. 

Type of provider: FQHCs; 
Required to submit cost reports: At least some, but not all; 
Number of states: 19; 
Number of states using the BIPA PPS[A]: 18. 

Type of provider: FQHCs; 
Required to submit cost reports: None; 
Number of states: 2; 
Number of states using the BIPA PPS[A]: 2. 

Total; 
Number of states: 51; 
Number of states using the BIPA PPS[A]: 33. 

Type of provider: RHCs; 
Required to submit cost reports: All; 
Number of states: 22; 
Number of states using the BIPA PPS[A]: 14. 

Type of provider: RHCs; 
Required to submit cost reports: At least some, but not all; 
Number of states: 13; 
Number of states using the BIPA PPS[A]: 12. 

Type of provider: RHCs; 
Required to submit cost reports: None; 
Number of states: 9; 
Number of states using the BIPA PPS[A]: 7. 

Total; 
Number of states: 44[B]; 
Number of states using the BIPA PPS[A]: 33. 

Source: GAO analysis of state survey responses. 

[A] The 33 states that used the BIPA PPS were not the same for both 
FQHCs and RHCs. 

[B] According to states' survey responses, there are no RHCs in 
Connecticut, Delaware, the District of Columbia, Maryland, 
Massachusetts, New Jersey, and Rhode Island. 

[End of table]

Analysis of Rates from Selected States Provided Inconclusive Evidence 
on the Need to Rebase or Refine the BIPA PPS: 

Our comparison of cost-based and BIPA PPS rates for FQHCs and RHCs from 
selected states provided inconclusive evidence concerning the need to 
rebase or refine the BIPA PPS. From 2001 through 2003, most FQHCs' and 
RHCs' cost-based rates exceeded their BIPA PPS rates in the four states 
we reviewed--Iowa, Vermont, Virginia, and Wisconsin.[Footnote 58] 
Within these four states, cost-based rates, on average, were greater 
than the BIPA PPS rates for 41 of the 45 FQHCs and 128 of the 163 RHCs 
included in the analysis. However, the extent of the difference between 
cost-based and PPS rates varied considerably both within and among the 
states reviewed (see fig. 3). For example, among the 15 Wisconsin FQHCs 
we analyzed, cost-based rates across the 3-year period ranged from 
approximately 30 percent less than to approximately 70 percent more 
than BIPA PPS rates.[Footnote 59] For the 104 Iowa RHCs we analyzed, 
cost-based rates ranged from approximately 35 percent less than to 
approximately 82 percent more than BIPA PPS rates.[Footnote 60] Because 
the FQHCs and RHCs included in our analysis were paid cost-based rates, 
they may have had less incentive to operate efficiently than if they 
had been paid under the BIPA PPS.[Footnote 61] However, it is unclear 
whether the difference between cost-based and PPS rates may be 
attributed to this possible lack of incentive or if these providers 
were operating efficiently but their costs remained higher than what 
the BIPA PPS would pay. Given these unknowns and the variability in the 
extent of rate differences, the fact that BIPA PPS rates were generally 
less than these providers' cost-based rates is not compelling evidence 
that BIPA PPS rates need to be rebased or refined at this time. 

Figure 3: Percentage Difference in Cost-Based and BIPA PPS Rates, by 
State and Provider Type, 2001 through 2003: 

[See PDF for image]

[A] The change in the organizational structure of one RHC in Wisconsin 
resulted in a large difference between its cost-based and BIPA PPS 
rates, which is reflected as the maximum percentage difference for RHCs 
in the state. 

[End of figure]

CMS Guidance and Oversight Did Not Ensure Consistent State Compliance 
with BIPA: 

CMS guidance to states and regional offices and its oversight of 
states' implementation of the new BIPA-mandated payment requirements 
for FQHCs and RHCs did not ensure consistent state compliance with the 
law. CMS guidance did not adequately address certain BIPA requirements 
and thus uncertainties exist about whether and how some requirements 
for BIPA compliance have been implemented, such as states' 
methodologies to adjust BIPA PPS rates to account for any change in 
scope of services. Since CMS initially approved states' plans to 
implement BIPA's Medicaid payment provisions for FQHCs and RHCs, its 
oversight of states' implementation has been limited. CMS has relied on 
states' assurances that they were in compliance with BIPA and 
investigated payment issues only in response to complaints, which CMS 
said were rare, or when concerns were identified during a CMS review 
conducted for other purposes. As a result, CMS was unaware of certain 
compliance issues, including that some states' BIPA PPS rates and 
alternative methodologies were inconsistent with the law. 

CMS Guidance Did Not Adequately Address Certain BIPA Requirements: 

CMS's guidance to its regional offices and the states did not 
adequately address certain BIPA requirements and thus did not ensure 
that states had enough information to develop payment systems that were 
consistent with BIPA. CMS provided its regional offices and states with 
preliminary information regarding the new payment requirements for 
FQHCs and RHCs within the first 3 months following the enactment of 
BIPA; however, the regional offices did not use all of this information 
consistently.[Footnote 62] (Fig. 4 provides the timeline of the 
issuance of CMS guidance.) On January 19, 2001, CMS issued a letter to 
state Medicaid directors summarizing BIPA's new FQHC and RHC payment 
provisions, but the letter provided no interpretation of the 
legislation or clarification as to how CMS expected states to implement 
the new payment provisions. The letter also instructed states to submit 
SPAs that conformed to the BIPA requirements before the end of the 
first calendar quarter of 2001 (March 31, 2001). To assist states in 
meeting this deadline, CMS provided regional offices with standard BIPA-
compliant SPA language on March 9, 2001. According to CMS, prior to 
approving the SPAs, the regional offices were to work with each state 
to ensure that the SPA reflected the specifics of the state's payment 
methodology. While most of CMS's 10 regions followed this protocol, 1 
region approved the SPAs for its six states even though most of these 
SPAs still contained only the standard language initially provided by 
CMS. These SPAs indicated that states intended to conform to BIPA, but 
most contained no details as to how each state planned to implement the 
new payment system. Although these states reported to us in response to 
our survey the details of how they were paying FQHCs and RHCs, CMS did 
not require these states to update their SPAs. As a result, CMS did not 
have an official record detailing how FQHCs and RHCs were paid in most 
of the states in this region. 

Figure 4: Timeline Showing CMS's Issuance of Guidance and Approval of 
States' Plans to Implement BIPA's Medicaid Payment Provisions: 

[See PDF for image]

[A] A state is included in the count if CMS approved the state plan 
amendment for both FQHC and RHC payment by the date noted. 

[End of figure]

While CMS later provided the states and regional offices with more 
detailed guidance, this guidance was issued after many states' SPAs 
were submitted and approved. On April 13, 2001, 2 weeks after the 
deadline for SPA submission, a CMS official provided regional office 
staff with suggested SPA review guidelines by e-mail. By the time this 
guidance was provided, all states had submitted their SPAs and CMS had 
approved 2 states' SPAs. The April 2001 guidance outlined key points 
that each SPA was to include to ensure compliance with BIPA. For 
example, the guidance recommended that each SPA explain the averaging 
methodology used to determine the base PPS rate.[Footnote 63] 
Additional guidance from CMS was not issued until 5 months later, by 
which time 57 percent of SPAs (SPAs for 29 of 51 states) had been 
approved. Specifically, on September 12, 2001, CMS sent a Question and 
Answer document to regional office administrators, who were instructed 
to provide the guidance to states. This document provided the most 
comprehensive guidance to date and answers to commonly asked questions 
about BIPA, including what services should be included in the BIPA PPS 
rate, ongoing requirements for the collection and review of cost 
reports, and the development of BIPA PPS rates for new centers and 
clinics. 

CMS guidance overall left some requirements for compliance with BIPA 
unclear, particularly with regard to the adjustment of BIPA PPS rates 
due to a change in scope of services. Although CMS has defined a change 
in scope of services as one that affects the type, intensity, duration, 
and amount of services, it has not clearly defined these elements or 
developed further guidance regarding how change in scope of service 
adjustments should be applied. As a result, at the time of our survey, 
over one-half of the 39 states using the BIPA PPS had either not 
defined procedures for adjusting FQHCs' and RHCs' BIPA PPS rates for a 
change in scope of services or not specified what would constitute such 
a change. Among states with defined procedures, definitions of what 
constituted a change in scope of services varied considerably and 
several included factors that are not directly related to the provision 
of services. For example, documentation from 5 of these states 
specified relocation, remodeling, the opening of a new site, or a 
combination of these as criteria to adjust the BIPA PPS rate under this 
provision. However, CMS told us that factors such as relocation do not 
constitute a change in scope of services unless there is a 
corresponding change in the type, intensity, duration, or amount of 
services. Furthermore, CMS has not offered guidance regarding the 
requirement for states to adjust base BIPA PPS rates of FQHCs and RHCs 
that are paid under an alternative payment methodology in the event of 
a change in scope of services. If BIPA PPS rates are not appropriately 
adjusted for a change in scope of services, states cannot accurately 
compare payments under those rates to payments under an alternative 
methodology to ensure payment that is at least equal to the payment 
under the BIPA PPS, as BIPA required. 

CMS Oversight Has Been Limited: 

CMS oversight of states' Medicaid payment systems for FQHCs and RHCs 
has been limited since the approval of the SPAs. CMS officials 
explained that they have relied upon states' assurances that they are 
in compliance with BIPA and have not asked states to provide supporting 
documentation to verify their compliance with the new payment 
requirements. For example, CMS has not required states using an 
alternative payment methodology to provide evidence that payment was at 
least equal to what would have been paid under the BIPA PPS. 
Additionally, CMS officials stated that they would only initiate 
reviews of FQHC and RHC payment issues in response to a complaint or if 
an issue was identified during a CMS review conducted for other 
purposes. Regional office officials reported rarely receiving 
complaints about Medicaid payments to FQHCs and RHCs. Furthermore, only 
one regional office official told us that a CMS review identified 
issues related to Medicaid payments for FQHCs and RHCs.[Footnote 64] 
CMS regional office officials reported surveying state Medicaid offices 
during the summer of 2003 to determine the status of states' 
implementation of the new Medicaid payment system. However, it is 
unclear how this information was used since CMS regional office 
officials involved with the survey were, on several occasions, unable 
to accurately identify the type of payment system--a basic element 
required for oversight--used by states within their jurisdiction. 

As a result of this limited oversight, CMS was unaware of several 
compliance issues we identified regarding payment to FQHCs and RHCs. 
Specifically, CMS did not know that more than one-third of the 39 
states using the BIPA PPS may have incorrectly determined the base PPS 
rates by inappropriately excluding certain Medicaid-covered services. 
While this detail was not included in all SPAs, CMS approved at least 
two SPAs that listed such exclusions. Additionally, a CMS official with 
responsibility for overseeing Medicaid payments to FQHCs and RHCs 
acknowledged to us that one state had not included the costs of all 
appropriate Medicaid services in the calculation of the base rates, but 
was unaware of the other states we identified that had similarly 
excluded certain services from their base rate calculation. CMS was 
also unaware that 6 of the 25 states with alternative methodologies 
were not routinely ensuring that they were paying at least as much as 
what would have been paid under the BIPA PPS. Furthermore, CMS did not 
know if states using an alternative payment methodology were updating 
their BIPA PPS rates for a change in scope of services, as required by 
law, before performing this comparison, but believed that most were 
not. 

Conclusions: 

BIPA changed the way that states pay FQHCs and RHCs for services 
provided to Medicaid beneficiaries by establishing a PPS to pay these 
providers. The BIPA PPS encouraged FQHCs and RHCs to operate more 
efficiently than did the prior cost-based reimbursement system. 
Additionally, BIPA provided states with the flexibility to implement an 
alternative payment methodology, which many states opted to use, but it 
also established a minimum level of payment for FQHCs and RHCs. 

Although BIPA required states to use the MEI to annually adjust BIPA 
PPS rates for inflation, the MEI may not be an appropriate index 
because it was designed to estimate the increase in the total costs for 
the average physician to operate a medical practice, not the increase 
in costs associated with providing FQHC and RHC services. PPSs for 
other providers often incorporate an inflation index specifically 
designed to reflect changes in the cost of services delivered by those 
providers, but no such inflation index has been developed to reflect 
the services typically provided by FQHCs and RHCs. 

CMS is responsible for overseeing states' Medicaid programs, including 
states' implementation of the BIPA payment requirements, but its 
guidance and oversight have not consistently ensured that states 
properly implemented the new requirements. Specifically, CMS approved 
SPAs that did not contain sufficient detail to convey basic 
information, such as whether the state intended to implement the BIPA 
PPS or an alternative methodology, which hindered CMS's ability to 
properly oversee states' payment systems. In addition, CMS guidance did 
not address certain BIPA requirements such as how rates were to be 
adjusted for a change in scope of services. As a result, some states 
included factors in their definitions of change in scope of services 
that are not directly related to the provision of services, and other 
states did not specify what would constitute such a change or did not 
define procedures for making the adjustment. Furthermore, CMS's 
oversight has not ensured that states' BIPA PPSs have included all 
Medicaid-covered services as required or ensured that states' 
alternative payment methodologies met the legal requirement that 
payments be at least as much as they would have been under the BIPA 
PPS. Limited CMS oversight may be warranted given the relatively low 
share of total Medicaid spending represented by FQHCs and RHCs and the 
agency's many other competing priorities. However, CMS oversight must 
be sufficient to ensure compliance with the law. Without such 
oversight, CMS is unable to assure Congress that all FQHCs and RHCs are 
receiving the level of payment to which they are entitled, which is 
especially important in the absence of available evidence to determine 
whether there is a need to rebase or refine the BIPA PPS for these 
providers. 

Matter for Congressional Consideration: 

In our draft report, we recommended that the Administrator of CMS 
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. CMS responded that there is currently no evidence or data 
to reflect that the need for a revised inflation factor is warranted at 
this time. Because we continue to believe that CMS should explore 
developing an index that more appropriately reflects the services 
provided by FQHCs and RHCs, we maintained this recommendation to CMS 
and elevated the issue to a matter for congressional consideration. 

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 MEI as an inflation 
index for adjusting PPS rates for FQHCs and RHCs. 

Recommendations for Executive Action: 

To provide for a more appropriate basis for adjusting BIPA PPS payment 
rates for FQHCs and RHCs, we recommend that the Administrator of CMS 
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. 

In addition, to better ensure consistent state compliance with the BIPA-
mandated Medicaid payment requirements for FQHCs and RHCs, we recommend 
that the Administrator of CMS take the following four actions: 

* 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. 

* 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. 

* Ensure that states' FQHC and RHC BIPA PPS payment rates do not 
inappropriately exclude the costs of Medicaid-covered services. 

* 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 and State Comments and Our Evaluation: 

We provided a draft of this report for comment to the Secretary of 
Health and Human Services and Medicaid directors in Iowa, Missouri, 
Nebraska, New Hampshire, North Carolina, Vermont, Virginia, and 
Wisconsin. We received written comments from CMS that represented the 
views of both CMS and HRSA. We also received technical comments from 
CMS and the states, which we incorporated as appropriate. CMS comments 
are included in appendix IV. 

CMS commented that it disagreed with the characterizations made in our 
report regarding the implementation of the BIPA legislation. CMS 
commented that it had little time to address implementation issues 
between the enactment of the BIPA legislation in December 2000 and the 
January 1, 2001, effective date of BIPA's new Medicaid payment 
provisions. Our draft report acknowledged these dates, and we agree 
that there was limited time between the law's enactment and its 
effective date. However, our report addresses a broad range of BIPA 
implementation activities, including CMS oversight since BIPA was 
enacted in 2000. CMS noted, and the draft report acknowledged, that it 
issued guidance to the states in both January 2001 and September 2001. 
While CMS commented and our draft report noted that all SPAs have been 
approved, we disagree with the CMS assertion that all SPAs are BIPA- 
compliant. As we noted in the draft report, at least two states' 
approved SPAs documented that certain Medicaid-covered services would 
be excluded from the BIPA PPS rate, a practice that is not compliant 
with the law and related CMS guidance. Furthermore, although other 
states' SPAs may be BIPA-compliant, we found several compliance issues 
with states' payment methodologies for FQHCs and RHCs. For example, as 
noted in the draft report and acknowledged by CMS in its comments, some 
states did not include all Medicaid-covered services in their BIPA PPS 
rate. With regard to the requirement that alternative payment 
methodologies pay at least as much as the BIPA PPS, CMS commented that 
it had not received complaints from FQHCs and RHCs about the amount of 
payment received under an alternative methodology. We do not believe 
that the number of complaints should be the criteria to evaluate 
compliance with the statute. Regardless of whether providers in these 
states complained, CMS is responsible for ensuring that states are 
complying with BIPA requirements. 

On the basis of our recommendations that CMS better ensure consistent 
state compliance with the BIPA-mandated Medicaid payment requirements 
for FQHCs and RHCs, CMS said that it would take the following actions: 

* request that SPAs clearly identify whether states intended to 
implement a BIPA PPS or an alternative methodology,

* contact states to ascertain which Medicaid services they are 
excluding from the BIPA PPS rate determination and assist each state in 
complying with BIPA requirements for determining the BIPA PPS rate or 
in establishing alternative payment methodologies, and: 

* remind states that BIPA requires that alternative payment 
methodologies pay at least as much as the BIPA PPS rate. 

Although these steps are important, they do not adequately ensure that 
states are complying with BIPA requirements. For example, while it is 
important to remind states that alternative payment methodologies must 
pay at least as much as the BIPA PPS, CMS needs to ensure that states' 
alternative methodologies actually pay as much as the BIPA PPS. 

In response to our recommendation that CMS 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, CMS said that the MEI 
was selected because it is used by Medicare for these providers and 
that no evidence currently exists to reflect the need for a revised 
inflation factor. As we noted in the draft report, the MEI was designed 
to measure the changing costs for the average physician, which may not 
be comparable to cost changes experienced by FQHCs and RHCs. For 
example, FQHCs often provide additional services, such as translation. 
Because we continue to believe that CMS should explore developing an 
index that better captures the inflationary changes experienced by 
FQHCs and RHCs, we are also elevating this issue to a matter for 
congressional consideration. 

CMS also did not concur with our recommendation that it develop 
guidance for states describing what constitutes a change in scope of 
services provided by FQHCs and RHCs. In our draft report we 
acknowledged that, in its guidance, CMS defined a change in scope of 
services as "a change in type, intensity, duration and/or amount of 
services." The guidance also stated that "a change in the cost of a 
service is not considered in and of itself a change in the scope of 
services." However, as noted in our draft report, many states have yet 
to define procedures for changes in scope of services and those with 
defined procedures sometimes included factors, such as remodeling or 
relocation, that were not directly related to the provision of 
services. Therefore, we continue to believe that additional guidance, 
including the definition of the specific elements that affect a change 
in scope of services, is necessary. 

We are sending copies of this report to the Secretary of Health and 
Human Services, the Administrator of CMS, the Administrator of HRSA, 
and other interested parties. We will also make copies available to 
others on request. This report also will be available at no charge on 
GAO's Web site at http://www.gao.gov. 

Please call me on (202) 512-7118 or Debra Draper on (202) 512-5152 if 
you have questions about this report. Major contributors to this report 
are listed in appendix V. 

Signed by: 

Kathryn G. Allen: 
Director, Health Care: 

[End of section]

Appendix I: Methodology for Review of Selected States Using Cost-Based 
Reimbursement: 

To determine the need for rebasing or refining costs for making 
payments under the Medicaid prospective payment system (PPS) for 
Federally Qualified Health Centers (FQHC) and Rural Health Clinics 
(RHC), we obtained detailed information from 5 of the 11 states that 
used cost-based reimbursement as their alternative payment methodology 
for both FQHCs and RHCs. We followed this approach since the Medicare, 
Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 
(BIPA) required states using an alternative payment methodology to 
ensure that their methodology resulted in payment no lower than payment 
under the BIPA PPS. We therefore assumed that these states would have 
data available on their cost-based payment rates as well as comparative 
BIPA PPS rates. Having both rates for each FQHC and RHC in the selected 
states would enable us to assess the extent to which FQHCs' and RHCs' 
reasonable costs were covered under the PPS.[Footnote 65]

We selected states for the targeted review if, according to their 
responses to our survey, they met the following four criteria for both 
FQHCs and RHCs: 

* implemented cost-based reimbursement as their alternative payment 
methodology,

* required FQHCs and RHCs to submit cost reports and the state audited 
them,

* had at least 1 year of audited cost reports following the 
implementation of their alternative payment methodologies, and: 

* determined what the FQHCs' and RHCs' payments would have been if the 
state had implemented the BIPA PPS. 

According to their survey responses, five states met all of these 
criteria--Iowa, Missouri, Vermont, Virginia, and Wisconsin. 

We requested that the five states provide us the 2001, 2002, and 2003 
cost-based and BIPA PPS payment rates for each of their FQHCs and 
RHCs.[Footnote 66] On the basis of their responses we excluded Missouri 
from further analysis. Missouri had determined the 2001 BIPA PPS rates 
for only a portion of FQHCs and RHCs in the state and had not 
determined the 2002 or 2003 BIPA PPS rates for any FQHCs or RHCs. 
Additionally, Missouri was unable to provide us with 2002 and 2003 per 
visit cost-based rates. While we found that Vermont had not determined 
the 2002 and 2003 BIPA PPS rates for its FQHCs and RHCs, we were able 
to estimate those rates by inflating the 2001 BIPA PPS rates for each 
FQHC and RHC by the Medicare Economic Index (MEI), the annual inflation 
adjustment required by BIPA. 

For our analysis, we included FQHCs and RHCs in the four states for 
which 3 full years of data were available--2001, 2002, and 2003. While 
we generally relied on and did not independently verify the data 
provided to us by the states, we did review the data for reasonableness 
and to identify unusual patterns, including outliers. We identified 
some data that required follow-up with state Medicaid officials to 
obtain a better understanding of the reason for these patterns. As a 
result of these additional inquiries, one RHC was excluded from the 
analysis. 

We analyzed the data by state and type of provider (FQHC or RHC). We 
assessed (1) the percentage and dollar difference between the cost- 
based and BIPA PPS rates and (2) the number of providers whose cost- 
based rates exceeded their BIPA PPS rates. This analysis allowed us to 
compare reasonable costs with BIPA PPS rates in the selected states. 
The results of this analysis for the four states reviewed cannot be 
generalized to other states. 

[End of section]

Appendix II: Overview of Prospective Payment Systems: 

Under prospective payment, a health care provider's payment is based on 
predetermined rates and is unaffected by the provider's actual costs or 
the amount of money charged for products or services. An important 
objective of a PPS is to create incentives for providers to operate 
more efficiently. This is done by making providers responsible for the 
difference between what they are paid and their actual costs. 
Therefore, providers whose costs exceed the predetermined payment rate 
will experience a loss and those whose costs are less than the payment 
rate will profit. 

PPS Structure: 

In a PPS, the payment rate for a product or service may be determined 
by the following general formula: 

Payment rate = Initial base payment amount x update factor x input- 
price adjustment factor x relative value of the product or service x 
other rate adjustment factors: 

* The initial base payment amount is usually a dollar amount for a 
specific year that reflects policymakers' decisions on the unit of 
payment for the unit of service (e.g., visit, episode of care, day) and 
the appropriate initial level of payment for the average unit. 

* The update factor adjusts the initial base amount for inflation and 
other factors to set the base level of payment for the rate year. 

* The input-price adjustment factor raises or lowers the base amount to 
reflect geographic price differences, such as differences in wages. 

* The relative value adjusts the base amount to reflect the expected 
relative costliness of the particular product or service compared with 
that of the average unit of that product or service. 

* One or more additional rate adjustment factors designed to reflect 
certain characteristics of the provider, the service, or the specific 
patient may be applied to the payment rate. For example, the payment 
rate may be adjusted on the basis of patients' severity of illness or 
condition treated by a provider, referred to as case-mix. Additionally, 
some systems include an adjustment to mitigate the financial risk of 
providers who incur unusually large costs. This adjustment may be in 
the form of an outlier payment in which additional payments are made to 
the provider for cases that exceed a specified threshold. 

BIPA PPS: 

BIPA established a new PPS to reimburse FQHCs and RHCs for services 
provided to Medicaid beneficiaries on or after January 1, 
2001.[Footnote 67] Under the new PPS, the base payment amount--the 
payment for 2001--was set at each FQHC's or RHC's average cost per 
visit for fiscal years 1999 and 2000. Future years' payment rates were 
to be adjusted annually for inflation by the MEI and, when necessary, 
to reflect a change in scope of services. Therefore: 

Payment rate = Initial base payment amount x update factor x other rate 
adjustment factor: 

Comparison of BIPA PPS with Selected Other PPSs: 

While it contains some of the features common in other PPSs, the BIPA 
PPS differs in other respects. For example, the initial base payment 
rate under the BIPA PPS is determined for each provider individually, 
and not for a group of providers as is the case for most other PPSs we 
reviewed. The BIPA PPS base rate is the average of each individual 
FQHC's or RHC's reasonable cost per visit in 1999 and 2000.[Footnote 
68] Additionally, the BIPA PPS does not include an input-price 
adjustment factor or a calculation of the relative value of the 
product. Table 13 compares the key features of the BIPA PPS to selected 
other PPSs, specifically those used by states to make Medicaid payments 
to nursing homes and those used in Medicare to pay for home health, 
hospital outpatient, and skilled nursing home services.[Footnote 69]

Table 13: Comparison of Key Features of BIPA PPS to Selected Other 
PPSs: 

PPS: Medicaid FQHC and RHC (BIPA PPS); 
Initial base payment amount: Provider group: No; 
Initial base payment amount: Individual provider: Yes; 
Update factor: Yes[C]; 
Input-price adjustment factor (geographic adjustment): No; 
Relative value: No; 
Other rate adjustment factors: Case-mix: No; 
Other rate adjustment factors: Change in scope of services: Yes; 
Other rate adjustment factors: Outlier payment[A]: No; 
Other rate adjustment factors: Other[B]: No. 

PPS: Medicaid nursing home[D]; 
Initial base payment amount: Provider group: No; 
Initial base payment amount: Individual provider: Yes; 
Update factor: Yes[E]; 
Input-price adjustment factor (geographic adjustment): Yes; 
Relative value: No; 
Other rate adjustment factors: Case-mix: Yes; 
Other rate adjustment factors: Change in scope of services: No; 
Other rate adjustment factors: Outlier payment[A]: No; 
Other rate adjustment factors: Other[B]: Yes. 

PPS: Medicare home health; 
Initial base payment amount: Provider group: Yes; 
Initial base payment amount: Individual provider: No; 
Update factor: Yes[F]; 
Input-price adjustment factor (geographic adjustment): Yes; 
Relative value: Yes; 
Other rate adjustment factors: Case-mix: Yes; 
Other rate adjustment factors: Change in scope of services: No; 
Other rate adjustment factors: Outlier payment[A]: Yes; 
Other rate adjustment factors: Other[B]: Yes. 

PPS: Medicare outpatient hospital; 
Initial base payment amount: Provider group: Yes; 
Initial base payment amount: Individual provider: No; 
Update factor: Yes[G]; 
Input-price adjustment factor (geographic adjustment): Yes; 
Relative value: Yes; 
Other rate adjustment factors: Case-mix: No; 
Other rate adjustment factors: Change in scope of services: No; 
Other rate adjustment factors: Outlier payment[A]: Yes; 
Other rate adjustment factors: Other[B]: Yes. 

PPS: Medicare skilled nursing facility; 
Initial base payment amount: Provider group: Yes; 
Initial base payment amount: Individual provider: No; 
Update factor: Yes[H]; 
Input-price adjustment factor (geographic adjustment): Yes; 
Relative value: Yes; 
Other rate adjustment factors: Case-mix: Yes; 
Other rate adjustment factors: Change in scope of services: No; 
Other rate adjustment factors: Outlier payment[A]: No; 
Other rate adjustment factors: Other[B]: No. 

Source: GAO summary of information from BIPA, previous GAO work, CMS, 
and the Medicare Payment Advisory Commission. 

[A] An outlier payment is an adjustment that mitigates the financial 
risk to providers by allowing additional payments for high-cost 
services or beneficiaries. 

[B] Examples of other rate adjustment factors include adjustments for 
the costs of new technology and for beneficiaries who experience a 
significant change in their condition. 

[C] Under the BIPA PPS, states are to update payment rates annually 
using the MEI, which measures the change in cost of providing physician 
services. 

[D] The features noted reflect those commonly found in states' Medicaid 
nursing home payment methodologies based on our analysis of 19 states, 
although the specific features varied by state. See GAO, Medicaid 
Nursing Home Payments: States' Payment Rates Largely Unaffected by 
Recent Fiscal Pressure, GAO-04-143 (Washington, D.C.: Oct. 17, 2003). 

[E] While the specific update factor used varied among the 19 states 
analyzed in GAO-04-143, the two most commonly used factors were the 
Consumer Price Index and the skilled nursing facility market basket 
index developed by CMS. 

[F] Under the Medicare home health PPS, CMS updates the payment rate 
annually by the projected change in the home health market basket, 
which measures changes in the prices of goods and services bought by 
home health agencies. 

[G] Under the Medicare outpatient hospital PPS, CMS updates the payment 
rate annually by the hospital market basket index, unless Congress 
stipulates otherwise. 

[H] Under the Medicare skilled nursing facility PPS, CMS updates the 
payment rate annually using a skilled nursing facility market basket 
index, which measures the national average price level for the goods 
and services purchased by these providers. 

[End of table]

[End of section]

Appendix III: Medicaid Payment Methodologies for FQHCs and RHCs, by 
State, as of June 1, 2004: 

[See PDF for image]

[A] At the time of our survey, the state had not completed 
implementation of its BIPA PPS or alternative methodology. As such, at 
least some FQHCs or RHCs were being paid an interim payment rate. 

[B] State does not have any RHCs. 

[C] Kentucky has the authority to use a payment methodology other than 
the BIPA PPS for paying FQHCs and RHCs in the counties operating under 
the state's 1115 waiver managed care program. 

[D] Under Utah's 1115 waiver, the state has the authority to use a 
payment methodology other than the BIPA PPS for paying FQHCs for 
beneficiaries enrolled in the state's Primary Care Network program. 
According to state officials, FQHCs are reimbursed on a fee-for-service 
basis for any services provided to beneficiaries in this 1115 waiver 
program. 

[End of figure]

[End of section]

Appendix IV: Comments from the Centers for Medicare & Medicaid 
Services: 

DEPARTMENT OF HEALTH & HUMAN SERVICES: 
Centers for Medicare & Medicaid Services:

Administrator: 
Washington, DC 20201:

To: Kathryn G. Allen:
Director, Health Care--Medicaid And Private Health Insurance Issues:

From: Mark B. McClellan, M.D., Ph.D.
Administrator: 
Centers for Medicare & Medicaid Services:

Subject: Government Accountability Office's (GAO) Draft Report: HEALTH 
CENTERS AND RURAL CLINICS: State and Federal Implementation Issues for 
Medicaid's New Payment System (GAO-05-452):

The GAO conducted this study in response to section 702 of the Benefits 
Improvement and Protection Act (BIPA) of 2000 (Pub.L. 106-554) 
requiring GAO to study the Medicaid payment provisions for services 
provided by Federally Qualified Health Centers (FQHCs) and Rural Health 
Clinics (RHCs). The Centers for Medicare & Medicaid Services (CMS) 
appreciates the efforts that went into this report and the opportunity 
to review and comment on the issues it raises and on the implementation 
of the BIPA legislation.

CMS disagrees with the characterizations made in this report regarding 
the implementation of the BIPA legislation. The BIPA legislation 
enacted and signed in December 2000 revised the payment methodology to 
FQHCs and RHCs. The enactment of the legislation in December 2000 did 
not allow the Center for Medicare & Medicaid Services (CMS), states, 
FQHCs, RHCs or other interested parties adequate time to address 
implementation concerns prior to the effective date of January 1, 2001, 
for services provided on or after that date. Nevertheless, CMS worked 
diligently and successfully with all of the affected parties to 
implement the legislation.

State agencies were notified in January 2001 that their state plans 
would need to be revised and submitted to CMS by March 31, 2001 to 
reflect these BIPA priorities. All states complied with the guidance 
issued. In some states, legislative action was required to implement 
reimbursement revisions. In addition, many states' payment systems 
required extensive changes to comply with the prospective payment 
system (PPS) requirements. These were only two of the problems 
encountered in the first months after the passage of the BIPA 
legislation. The final approval of state plans was delayed in order for 
the states to resolve the implementation concerns. However, all plan 
amendments stated that the new payment methodology would be effective 
for services provided on or after January 1, 2001: thus states were and 
are making retroactive payments to FQHCs and RHCs. With the extensive 
technical assistance provided by CMS, all state plans have been 
approved and all plans are in compliance with the BIPA legislation. 
Some states provided more detailed description in their plans while 
others provided the basic required language of adherence to the BIPA 
requirements.

The CMS issued formal guidance in the form of Questions and Answers (Qs 
& As) in September 2001. Previous technical assistance was based on 
draft Qs & As. The September 200141 Qs & As were developed based on 
input from the states, the Health Resources and Services Administration 
(HRSA), National Association of Community Health Centers (NACHC), 
National Association of Rural Health Clinics (NARHC) and primary care 
associations (PCAs). This guidance provides broad parameters to the 
states in developing their own state specific procedures to comply with 
BIPA. The most difficult concept was the `change in scope of services'. 
Our guidance provided a broad definition of a change in scope of 
services that has allowed states the flexibility in developing more 
precise procedures for this provision. CMS continues to provide 
technical assistance to the states in all areas of the BIPA legislation.

The guidance CMS issued in regards to the calculation of the PPS base 
rate made clear that all Medicaid services as provided for under the 
statute were to be included in the calculation. Some states 
misunderstood the requirements and did not include those services that 
the Medicare program excludes from their per visit encounter such as 
laboratory and radiological services. Through our regional offices, CMS 
will actively assist those states in re-calculating their PPS base 
rates to assure compliance with the BIPA requirements.

The BIPA legislation also permitted states to calculate a payment rate 
based on an alternative payment methodology. The two statutory 
requirements that the states must comply with if using an alternative 
methodology are: 1) each facility (center/clinic) must agree to the 
methodology, and 2) the rate must be at least equal to the PPS rate. 
The states that elected to implement an alternate payment methodology 
had to assure CMS in their state plans that this requirement was met 
for each FQHC and RHC. In no case has a center/clinic that agreed to an 
alternative payment methodology complained about the amount of its 
reimbursement. We are in contact with the states and will be following 
up on this BIPA implementation requirement.

The input CMS received from HRSA, NACHC, NARHC and the PCAs has been 
invaluable. The exchange of information on community health centers and 
rural health clinics is vital to providing health care to vulnerable 
populations. CMS and HRSA will work together to address issues related 
to payment and ensure that any systemic complaints are identified and 
addressed.

Thank you again for the opportunity to respond to the findings and 
recommendations in this report. We believe our efforts have been highly 
successful, given the short timeframe, in implementing the BIPA 
provisions. Attached are our comments on the recommendations, as well 
as our technical comments.

Centers for Medicare & Medicaid Services' Comments to the GAO Draft 
Report: HEALTH CENTERS AND RURAL CLINICS: State and Federal 
Implementation Issues for Medicaid's New Payment System (GAO-05-452):

GAO Recommendation:

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.

CMS Response:

The Medicare Economic Index was selected as the inflation factor for 
the BIPA PPS because it is also the inflation factor used for FQHCs and 
RHCs in the Medicare program. There is currently no evidence or data to 
reflect that a need for a revised inflation factor is warranted at this 
time.

GAO Recommendation:

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.

CMS Response:

CMS will request that the six states in question (New Hampshire, 
Vermont, Rhode Island, Massachusetts, Connecticut, and Maine) clearly 
identify whether the plans are BIPA, PPS or an alternate methodology. 
The plans of the other states are sufficiently detailed in their 
payment methodology.

GAO Recommendation:

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.

CMS Response:

The CMS defined a change in scope of services in the guidance issued in 
September 2001 as "a change in type, intensity, duration and/or amount 
of services. A change in the cost of a service is not considered in and 
of itself a change in the scope of services." We believe that this 
provides sufficient guidance to allow the states to develop change in 
scope of service procedures/guidelines appropriate to their states' 
needs. CMS continues to assist states in developing their state 
specific procedures/guidelines for changes in scope of services.

GAO Recommendation:

Ensure that states 'FQHCs 'and RHCs 'BIPA PPS payment rates do not 
inappropriately exclude the costs of Medicaid-covered services.

CMS Response:

The CMS will contact the states identified by GAO to ascertain what 
Medicaid services they are excluding from the PPS rate calculation. We 
believe that states may be following Medicare policy which requires 
some services, i.e., laboratory and radiological services, to be 
reimbursed outside the Medicare all-inclusive per visit rate. We will 
assist each state in complying with the BIPA requirements in 
calculating the PPS rate or in establishing alternative payment 
methodologies consistent with BIPA requirements.

GAO Recommendation:

Ensure that the 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.

CMS Response:

The CMS will remind the states that the BIPA 2000 legislation requires 
the alternative payment methodologies rate must be at least equal to 
the BIPA PPS rate for FQHCs/RHCs. 

[End of section]

Appendix V: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Debra Draper (202) 512-5152: 

Acknowledgments: 

Major contributors included Michelle Rosenberg, Patricia Roy, Janice 
Raynor, Elizabeth T. Morrison, and Daniel Ries. 

FOOTNOTES

[1] The Rural Health Clinic Services Act of 1977, Pub. L. No. 95-210, § 
2, 91 Stat. 1485, 1488, authorized Medicaid payment for RHCs for 
covered services; the Omnibus Budget Reconciliation Act of 1989, Pub. 
L. No. 101-239, § 6404, 103 Stat. 2106, 2264, established FQHCs as a 
new provider type and authorized Medicaid payment for covered services. 

[2] The number of RHCs is as of August 2004. 

[3] FQHC revenue data, which are as of 2003, are from the Uniform Data 
System (UDS), a database of self-reported FQHC data maintained by the 
Health Resources and Services Administration (HRSA). RHC data are from 
a 2000 National Rural Health Clinic Survey conducted by the Maine Rural 
Health Research Center that was sent to a random sample of 
approximately one-half of the nation's RHCs. 

[4] Pub. L. No. 106-554, app. F, § 702, 114 Stat. 2763A-463, 2763A-572. 
BIPA amended Medicaid requirements to require states to reimburse FQHCs 
and RHCs under the new PPS or an alternative methodology. (These 
requirements were originally designated in BIPA as subsection (aa) of 
section 1902 of the Social Security Act, but technical amendments to 
BIPA redesignated them subsection (bb). Native American Breast and 
Cervical Cancer Treatment Technical Amendment Act of 2001, Pub. L. No. 
107-121, § 2(b)(1), 115 Stat. 2384.) Throughout this report we refer to 
the PPS specifically set out in section 702 of BIPA as the BIPA PPS. 

[5] BIPA § 702(d), 103 Stat. 2763A-574. 

[6] Throughout this report, the term state refers to the 50 states and 
the District of Columbia. 

[7] 42 U.S.C. § 254b (2000). All section 330 health center grantees are 
designated as FQHCs, making them certified Medicaid providers and 
therefore eligible for Medicaid reimbursement. 

[8] The data only include the federally funded FQHCs that report to the 
UDS database. 

[9] FQHC look-alikes are facilities that HRSA deems have met all of the 
requirements to be a grant recipient under section 330 of the Public 
Health Service Act but do not receive the federal grant. 

[10] RHCs must be located in an area designated by HRSA as either a 
Health Professional Shortage Area (an area that has a critical shortage 
of physicians available to serve the people living there), a HRSA- 
designated Medically Underserved Area (an area or population with a 
shortage of health care services), or an area designated by the 
governor of the state as a shortage area. 

[11] Nonphysician practitioner refers to a nurse practitioner, 
physician assistant, or certified nurse midwife. 

[12] Connecticut, Delaware, the District of Columbia, Maryland, 
Massachusetts, New Jersey, and Rhode Island reported that they have no 
RHCs. We could not identify current or reliable data on the number of 
people served by RHCs. 

[13] State, local, and private grants accounted for approximately 13 
percent of FQHCs' total revenues in 2003. Other revenue sources 
included commercial insurance (6 percent), payments directly from 
patients (6 percent), Medicare (5 percent), and other public insurance 
(3 percent). The remaining 10 percent of revenue came from 
miscellaneous funding sources, including other federal grants, revenue 
from indigent care programs, and other revenue. These 2003 data are 
from the UDS database. 

[14] RHCs received approximately 30 percent of their revenue from 
Medicare, 30 percent from commercial insurance, 15 percent directly 
from patients, and the remaining from other miscellaneous sources. 
These data, the most recent available, are from a 2000 National Rural 
Health Clinic Survey. The survey, conducted by the Maine Rural Health 
Research Center, was sent to a random sample of approximately one-half 
of the nation's RHCs. 

[15] Under a capitated managed care model, states contract with managed 
care organizations and prospectively pay them a fixed monthly fee per 
patient to provide or arrange for most health services. The managed 
care organizations, in turn, pay providers either retrospectively for 
each service delivered on a fee-for-service basis or through 
prospective capitation payment arrangements. BIPA required states to 
compare the aggregate managed care plans' payments to the amount that 
an FQHC or RHC would have received under the BIPA PPS methodology. If 
the total managed care payments were less, states were required to pay 
FQHCs and RHCs the difference. 

[16] States also may seek a waiver of the BIPA payment requirements. 
Under section 1115 of the Social Security Act, the Secretary of Health 
and Human Services has broad authority to approve demonstration 
projects that the Secretary determines are likely to promote Medicaid 
objectives. 42 U.S.C. § 1315 (2000). The Secretary may waive certain 
provisions of the statute if the Secretary finds it necessary for the 
performance of the experimental, pilot, or demonstration projects. For 
this report, we refer to demonstration projects approved under section 
1115 as 1115 waiver programs. 

[17] See GAO, Health Centers and Rural Clinics: Payments Likely to Be 
Constrained Under Medicaid's New System, GAO-01-577 (Washington, D.C.: 
June 19, 2001). 

[18] SPAs may take effect no earlier than the first day of the quarter 
in which an approvable plan is submitted to CMS. Thus, in order for a 
SPA to be effective on January 1, 2001, it had to be submitted to the 
CMS regional office by the end of the first quarter of 2001, which was 
March 31, 2001. 

[19] At the time the standard language was provided to states, the 
agency was known as the Health Care Financing Administration. On June 
14, 2001, the Secretary of Health and Human Services announced that the 
agency's name would change to the Centers for Medicare & Medicaid 
Services. Throughout this report, we refer to the agency as CMS. 

[20] The standard language said that the state would comply with the 
BIPA payment requirements by implementing the BIPA PPS, an alternative 
methodology, or both. 

[21] 42 C.F.R. § 430.16 (2004). 

[22] If the state does not respond to CMS's request for information 
within 90 days, CMS disapproves the SPA. 

[23] Since Minnesota intended for all FQHCs to be paid under the BIPA 
PPS, we have included it in the 27 states that paid FQHCs only under 
the BIPA PPS. The state, however, had not completed implementation of 
its BIPA PPS as of June 1, 2004. As such, many FQHCs in Minnesota were 
being paid under an interim payment method. 

[24] According to a state official, as of September 2004, Minnesota's 
implementation of the BIPA PPS was delayed because the state had not 
finished its review of FQHCs' 1999 and 2000 cost reports. Until the 
cost reports were reviewed, the state was paying FQHCs interim rates, 
which were based on FQHCs' preliminary 1999 and 2000 cost reports and 
inflated annually by the MEI. Once the cost reports were reviewed and 
finalized, the state planned to determine final BIPA PPS rates and 
settle the differences between the final and interim rates. 

[25] Although BIPA did not specify when states had to implement their 
methodology, it required the methodology to be effective for services 
provided on or after January 1, 2001. BIPA § 702, 114 Stat. 2763A-573. 

[26] In Kentucky, the change to BIPA PPS rates was effective as of July 
1, 2001, in Washington the change was effective as of January 1, 2002, 
and in Indiana the change was effective as of July 1, 2002. All three 
states reported that between January 1, 2001 (the effective date of the 
BIPA PPS legislation), and the effective date of their BIPA PPS rates, 
they had reimbursed or planned to reimburse the FQHCs the higher of 
their reasonable costs or their BIPA PPS rate. 

[27] Four states--Idaho, Indiana, Kentucky, and Minnesota--reported 
inflating FQHCs' 1999 and 2000 costs prior to averaging them to 
determine the base rates. According to CMS, inflating 1999 and 2000 
costs prior to averaging them was an acceptable approach to calculating 
the base rate under the BIPA PPS. 

[28] The 10 states were Connecticut, Hawaii, Idaho, Illinois, Maryland, 
Minnesota, Ohio, Pennsylvania, Tennessee, and Washington. 

[29] The nine PPS rates in Ohio corresponded to the following services: 
medical, dental, mental health, podiatry, vision, speech, 
transportation, physical therapy, and chiropractic services. 

[30] Since Arkansas and Minnesota intended to pay all RHCs under the 
BIPA PPS, they are included in the 25 states that pay RHCs only under 
the BIPA PPS. Since these states had yet to complete implementation of 
their BIPA PPS, as of June 1, 2004, they paid many RHCs under an 
interim payment method. Kansas also had not completed implementation of 
its BIPA PPS, but most of its RHCs opted to be paid under an 
alternative methodology. Thus, only some RHCs in Kansas were to be paid 
under the BIPA PPS. 

[31] In 2001, Washington paid RHCs under an alternative payment 
methodology--cost-based reimbursement--in which RHCs were paid 100 
percent of their reasonable costs. According to the state, this 
alternative methodology paid at a rate greater than what the RHCs would 
have received under the BIPA PPS and thus complied with BIPA 
requirements. In 2002, the state switched to paying all RHCs under the 
BIPA PPS methodology. Similarly, prior to the effective date of its 
BIPA PPS, Kentucky paid RHCs the higher of their reasonable costs or 
their BIPA PPS rate. 

[32] Five states--Arkansas, Idaho, Indiana, Kentucky, and Minnesota-- 
reported using an inflation index when calculating the base payment 
rate under BIPA. These states inflated RHCs' 1999 and 2000 costs prior 
to averaging them, which CMS has said is an acceptable approach to 
calculating the base rate under the BIPA PPS. 

[33] The four states were Illinois, Maine, Minnesota, and Tennessee. 

[34] BIPA authorized states to use an alternative methodology, but for 
those FQHCs and RHCs being paid under the BIPA PPS, the state must use 
the BIPA PPS methodology to pay for all Medicaid-covered services, 
except for prescription drugs. Because of a special discount pricing 
program for which many FQHCs are eligible, a CMS official said that 
states could pay for prescription drugs under another method. The 
discount pricing program, known as the 340B drug pricing program after 
the section of the Public Health Service Act in which it is found, 
provides federal purchasers and certain grantees of federal agencies 
access to prescription drugs at reduced prices. 42 U.S.C. § 256b 
(2000). 

[35] California and Wisconsin each used two alternative methodologies. 
California paid a portion of FQHCs with cost-based reimbursement (Los 
Angeles County only) and another portion under an alternative PPS. 
Wisconsin paid a portion of FQHCs using cost-based reimbursement and 
another portion with a flat rate set at the Medicare per visit limit. 

[36] Four states--Arkansas, California, Nebraska, and New Hampshire-- 
reported relying on Medicare principles to determine allowable costs. 

[37] Four states--Arkansas, California, Nebraska, and Utah--did not 
report the use of any specific limits in determining reasonable costs. 

[38] In 2004, the Medicare upper payment limit was $106.58 per visit 
for urban FQHCs and $91.64 per visit for rural FQHCs. 

[39] For example, Medicare guidelines specify that a full-time- 
equivalent physician employed by the FQHC should provide at least 4,200 
visits per year. 

[40] Massachusetts's FQHCs agreed to a class rate payment system 
whereby most FQHCs received the same payment rates. The payment rates, 
which vary by service, were based on an analysis of the 1998 cost 
reports submitted by 25 FQHCs, which represented approximately 75 
percent of the FQHCs in the state. After applying reasonableness tests, 
such as a limit on administrative costs and productivity standards, the 
state determined a unit cost for each of the 25 FQHCs sampled, which 
was inflated by a state-specific inflation factor. The final payment 
rate was the average of the rates for these 25 FQHCs. In July 2004, the 
payment rate was increased 13.7 percent to reflect a cumulative 
adjustment for inflation. The remaining 3 FQHCs, all of which were 
hospital-affiliated, were paid using an outpatient hospital payment 
methodology. 

[41] New York's alternative methodology consists of 71 preset rates 
that correspond to outpatient diagnostic categories. Five FQHCs in the 
state selected this payment option. 

[42] In Medicare, RHCs based in hospitals with fewer than 50 beds are 
eligible to receive an exception to the Medicare per visit payment 
limit. State Medicaid programs often incorporate this exception into 
their payment methodologies. 

[43] Between the time that the BIPA requirements were to be effective 
and the time that Texas implemented its PPS, the state paid RHCs using 
an interim payment methodology. When its alternative PPS was 
implemented, the state conducted a reconciliation process to account 
for differences in the reimbursement under the interim system and what 
RHCs would have received under the BIPA PPS. While RHCs under the BIPA 
PPS had to reimburse the state if the settlement process found that the 
interim payments exceeded what would have been paid under the BIPA PPS, 
RHCs selecting the alternative PPS did not have to return any 
overpayments to the state, if they had occurred. 

[44] The Medicare upper payment limit does not apply to RHCs based in 
hospitals with fewer than 50 beds. 

[45] The remaining 19 states reported they had determined that their 
alternative methodologies resulted in payment rates at least equal to 
what FQHCs and RHCs would have received under the BIPA PPS. 

[46] Missouri made the determination for fewer than half of its FQHCs 
and one-third of its RHCs, which represented those providers for which 
the state had audited cost reports from fiscal year 1999 through 2001. 

[47] The state contends that, in the aggregate, FQHCs and RHCs are 
better off under the alternative methodology compared with the BIPA 
PPS. BIPA, however, requires that each FQHC and each RHC receive 
payment at least equal to that under the BIPA PPS. 

[48] According to a state official, Vermont provided each FQHC and RHC 
with its 2001 BIPA PPS rate. The state did not determine future years' 
BIPA PPS rates but left this responsibility to the individual 
providers. 

[49] We estimated the 2002 and 2003 BIPA PPS rates for Vermont's FQHCs 
and RHCs by inflating the 2001 BIPA PPS rates for each FQHC and RHC by 
the MEI, the annual inflation adjustment required by BIPA. On the basis 
of our analysis of 2001, 2002, and 2003 cost-based and BIPA PPS rates, 
we determined that some RHCs would have, on average, received about $3 
more per visit in certain years had they been paid under the BIPA PPS. 

[50] According to a state official, Nebraska will compare the payment 
rates under the alternative methodology to BIPA PPS rates. The official 
did not indicate when such a comparison would be made. 

[51] According to a state official, North Carolina intends to compare 
the payment rates under the alternative methodology to final BIPA PPS 
rates once they are determined. If the state finds that the BIPA PPS 
would have paid a higher rate, it plans to pay the FQHCs and RHCs the 
difference in the rates. 

[52] The MEI is calculated annually by CMS and is also used to annually 
increase the Medicare upper payment limit for FQHCs and RHCs. 

[53] Our prior report contained an analysis of the indexes used by four 
states that previously set prospective rates for FQHCs using a prior 
year's costs updated for inflation. The indexes used by each of these 
four states grew faster than the MEI. See GAO-01-577. 

[54] BIPA also required that payments to FQHCs and RHCs be adjusted in 
the event of a change in scope of services; however, these adjustments 
are not automatic. 

[55] 2002 and 2003 UDS data. 

[56] Although it is used to reflect inflationary changes in medical 
care, the CPI for Urban Consumers also includes many services unrelated 
to medical care, such as food and housing. 

[57] Medicare requires FQHCs and RHCs to submit annual cost reports, 
but Medicare does not cover the same set of services as Medicaid. 
Furthermore, while some states obtain copies of the Medicare cost 
reports, others do not. 

[58] We were unable to compare the rates in states that paid FQHCs and 
RHCs only under the BIPA PPS because many of these states no longer 
required cost reports and the states were no longer required to 
determine cost-based rates. 

[59] Over the same time period, the average difference between cost- 
based and BIPA PPS rates for FQHCs in Wisconsin was about $20 per 
visit. Cost-based rates per visit ranged from about $140 less than BIPA 
PPS rates to about $166 greater than BIPA PPS rates. 

[60] Over the same time period, cost-based rates for RHCs in Iowa were, 
on average, $4 per visit more than BIPA PPS rates. Cost-based rates per 
visit ranged from about $48 less than BIPA PPS rates to about $57 
greater than BIPA PPS rates. 

[61] Cost-based payment methods have been criticized because increases 
in costs result in increased payments, thus weakening providers' 
incentives for efficiency. Under a PPS, cost increases would not 
necessarily result in an increase in payment because payment is not 
contingent on an individual provider's actual cost of delivering care. 
See, for example, Medicare Payment Advisory Commission, Report to the 
Congress: Medicare Payment Policy (Washington, D.C.: March 1999). 

[62] As of March 2005, CMS had not issued regulations regarding states' 
implementation of BIPA's new payment requirements for FQHCs and RHCs. 

[63] The guidance also included recommendations that each SPA contain 
language stating that the plan conforms to the provisions of BIPA, 
specify when the MEI would be applied to update the PPS rates, describe 
the methodology used to reimburse FQHCs and RHCs participating in 
Medicaid managed care, and define the state's use of the term fiscal 
year. 

[64] As part of a review of Washington's Medicaid managed care program, 
Region 10 officials reviewed the state's methodology for making 
supplemental payments to FQHCs and RHCs. According to a CMS regional 
office official, the review found that the state may have inadequate 
documentation to support the value of supplemental payments made to 
FQHCs and RHCs and thus may be overpaying some facilities. As of 
February 2005, CMS had not finalized its report on this review. 

[65] Providers paid under a cost-based reimbursement methodology may 
not have the same financial incentives to operate as efficiently as 
those providers paid under a PPS. As a result, our analysis may 
overestimate what the difference in providers' reasonable costs and 
BIPA PPS rates would be if the providers had been paid under the BIPA 
PPS. However, because many states that pay providers under the BIPA PPS 
no longer required cost reports and because states' definition of 
reasonable costs varied, we were unable to compare the BIPA PPS rates 
to the reasonable costs of FQHCs and RHCs in these states. 

[66] Wisconsin also provided the payment rates for RHCs paid under 
another alternative payment methodology; however, our analysis only 
included the RHCs paid under cost-based reimbursement. 

[67] Prior to the passage of BIPA, federal law required state Medicaid 
programs to pay FQHCs and RHCs on a cost-related basis. Such cost-based 
payment methods can be resource-intensive because they require the 
submission of cost reports and annual reconciliation, can result in 
unpredictable payments and spending for providers and payers, and can 
weaken providers' incentives for efficiency. 

[68] Each state defines which of its FQHCs' and RHCs' reported costs 
are reasonable. 

[69] Medicare is the federal program that helps pay for health care 
services for approximately 40 million elderly and disabled individuals. 

GAO's Mission: 

The Government Accountability Office, the investigative arm of 
Congress, exists to support Congress in meeting its constitutional 
responsibilities and to help improve the performance and accountability 
of the federal government for the American people. GAO examines the use 
of public funds; evaluates federal programs and policies; and provides 
analyses, recommendations, and other assistance to help Congress make 
informed oversight, policy, and funding decisions. GAO's commitment to 
good government is reflected in its core values of accountability, 
integrity, and reliability. 

Obtaining Copies of GAO Reports and Testimony: 

The fastest and easiest way to obtain copies of GAO documents at no 
cost is through the Internet. GAO's Web site ( www.gao.gov ) contains 
abstracts and full-text files of current reports and testimony and an 
expanding archive of older products. The Web site features a search 
engine to help you locate documents using key words and phrases. You 
can print these documents in their entirety, including charts and other 
graphics. 

Each day, GAO issues a list of newly released reports, testimony, and 
correspondence. GAO posts this list, known as "Today's Reports," on its 
Web site daily. The list contains links to the full-text document 
files. To have GAO e-mail this list to you every afternoon, go to 
www.gao.gov and select "Subscribe to e-mail alerts" under the "Order 
GAO Products" heading. 

Order by Mail or Phone: 

The first copy of each printed report is free. Additional copies are $2 
each. A check or money order should be made out to the Superintendent 
of Documents. GAO also accepts VISA and Mastercard. Orders for 100 or 
more copies mailed to a single address are discounted 25 percent. 
Orders should be sent to: 

U.S. Government Accountability Office

441 G Street NW, Room LM

Washington, D.C. 20548: 

To order by Phone: 

Voice: (202) 512-6000: 

TDD: (202) 512-2537: 

Fax: (202) 512-6061: 

To Report Fraud, Waste, and Abuse in Federal Programs: 

Contact: 

Web site: www.gao.gov/fraudnet/fraudnet.htm

E-mail: fraudnet@gao.gov

Automated answering system: (800) 424-5454 or (202) 512-7470: 

Public Affairs: 

Jeff Nelligan, managing director,

NelliganJ@gao.gov

(202) 512-4800

U.S. Government Accountability Office,

441 G Street NW, Room 7149

Washington, D.C. 20548: