Kusserow on Compliance: GAO calls for strengthening oversight of Managed Care organizations

Medicaid is a major commitment of federal and state budgets, with total estimated expenditures of $596 billion in fiscal year 2017—expenditures that rival the budget of the Department of Defense. States are permitted wide latitude in the design and implementation of their program. The resulting diversity of the program and its size make the program particularly challenging to oversee at the federal level. The Government Accountability Office (GAO), in testimony before Congress, reported last year that they estimated about $37 billion in improper payments that accounted for about 26 percent of government-wide improper payments. The GAO testimony called for increased oversight of Medicaid providers and managed-care plans, and was critical of the Obama administration’s lax auditing of Medicaid insurers as millions joined the rolls through expansion. During the same hearing, the CMS Administrator responded by reporting the structure of expansion with the 90 percent match and an open-ended entitlement is an incentive for the states to spend more and more.


Highlights of GAO recommendations to CMS

  1. Add to clearly establish approval criteria and review processes to ensure supplemental payments of around $50 billion a year are identified and accounted for by states when setting future payment rates.
  2. Ensure demonstrations do not increase federal costs and properly conduct evaluations to increase significant savings and better informed policy decisions.
  3. Improve the Transformed Medicaid Statistical Information System to improve program oversight and collect complete and comparable data from all states.
  4. Conduct a fraud risk assessment and implement a risk-based antifraud strategy for Medicaid.
  5. Increased collaboration with the states is needed to help reduce improper payments.


Richard P. Kusserow served as DHHS Inspector General for 11 years. He currently is CEO of Strategic Management Services, LLC (SM), a firm that has assisted more than 3,000 organizations and entities with compliance related matters. The SM sister company, CRC, provides a wide range of compliance tools including sanction-screening.

Connect with Richard Kusserow on Google+ or LinkedIn.

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Copyright © 2018 Strategic Management Services, LLC. Published with permission.

Kusserow on Compliance: GAO calls for CMS to mitigate program risks in managed care

·       Medicaid enrollment in managed care rose in three years from 35 to 55 million beneficiaries

·       $170 billion Medicaid managed care is half of total federal Medicaid expenditures

·       CMS is not doing enough to ensure accuracy in payments


Congress called for the Government Accountability Office (GAO) to conduct a study of the Payment Error Rate Measurement (PERM), which  measures the accuracy of capitated payments for managed care, including CMS’s and states’ oversight. Driving this inquiry was the rapid growth of Medicaid managed care enrollment, which increased by 56 percent in three years, jumping from covering 35 million beneficiaries to 54.6 million beneficiaries. Federal Medicaid managed care expenditures last year were $171 billion, almost half of the total for Medicaid. The GAO focused on weaknesses in oversight, given the recent rapid growth. The GAO reviewed program integrity risks reported in 27 federal and state audits and investigations over a five year period; federal regulations and guidance on the PERM; and the CMS’s Focused Program Integrity Reviews. The GAO also contacted program integrity officials in the 16 states with a majority of 2016 Medicaid spending for managed care. The GAO found:

  1. Ten of 27 federal and state audits and investigations identified about $68 million in overpayments and unallowable MCO costs, not accounted for by PERM estimates.
  2. Another investigation resulted in a $137.5 million settlement.
  3. CMS does not have a process to track managed care overpayments and cannot determine whether states considered those overpayments when they set capitation rates.
  4. CMS is not doing enough to ensure that states are adequately paying managed Medicaid companies and that the plans are making correct payments to providers.
  5. The managed care component of the PERM neither includes a medical review of services delivered to enrollees, nor reviews of MCO records or data.
  6. CMS and states have updated regulations, focused reviews, and used federal program integrity contractors’ audits of managed care services, however, some of this is only recent, and it may not fully address risks across all states.
  7. CMS does not ensure identification and reporting of overpayments to providers and unallowable costs by MCOs.

The GAO called for CMS to consider and take steps to mitigate the program risks that are not measured in the PERM, such as overpayments and unallowable costs. Such an effort could include actions such as revising the PERM methodology or focusing additional audit resources on managed care. The GAO also recommended CMS expedite the release of planned guidance and requirements for states to report to the CMS overpayments made between managed-care providers and plans.





Richard P. Kusserow served as DHHS Inspector General for 11 years. He currently is CEO of Strategic Management Services, LLC (SM), a firm that has assisted more than 3,000 organizations and entities with compliance related matters. The SM sister company, CRC, provides a wide range of compliance tools including sanction-screening.

Connect with Richard Kusserow on Google+ or LinkedIn.

Subscribe to the Kusserow on Compliance Newsletter

Copyright © 2017 Strategic Management Services, LLC. Published with permission.

MACPAC suggests Congress authorize states to mandate managed care

Congress should amend Section 1932(a)(2) of the Social Security Act (SSA) to allow states to require all beneficiaries to enroll in Medicaid managed care programs under state plan authority, without a waiver, according to the Medicaid and CHIP Payment and Access Commission (MACPAC).

Other recommendations

During its January session, MACPAC approved the managed care recommendation, which will be added to the commission’s draft March 2018 report to Congress alongside two December 2017 recommendations that Congress (1) extend Section 1915(b) waiver approvals from two to five years; and (2) revise Section 1915(c) waivers to waive freedom of choice and allow selective contracting.


Other concerns raised by MACPAC in December 2017 included: (1) whether the managed care recommendation should include long-term services and supports; (2) the adequacy of protections for vulnerable beneficiaries under state plan authority; and (3) that the recommendation to allow mandatory managed care enrollment requires oversight of states and plans to ensure beneficiary needs are met.

States try to manage expectations for Medicaid managed care

When CMS updated regulations regarding Medicaid managed care in May 2016, it was the first significant update to these regulations since 2002. Over the past year, as speakers at the American Health Lawyers’ Association Institute on Medicare and Medicaid Payment on March 29, 2017, noted, states have started the multi-year process of complying with the new rules, while dealing with resources issues at the state level and political change in Washington, D.C.

About 80 percent of the 73 million Medicaid enrollees are in some kind of managed care program, according to Lindsey Browning with the National Association of Medicaid Directors. Thirty-nine states and the District of Columbia have contracted with managed care entities to deliver care to all or some of their Medicaid beneficiaries.

Four options

Prior to the issuance of the revised regulations (81 FR 27498, May 6, 2016) states had basically one option for putting a managed care plan in place—requesting a Medicaid state plan amendment from HHS. Under the revised regulations states now have four options to implement managed care waivers under various provisions of the Social Security Act: (1) a Sec. 1932 state plan waiver; (2) a Sec. 1915(a) waiver (waiving competitive procurement process); (3) a Sec. 1915(b) waiver, requiring all enrollees, including dual eligibles and children with special health care needs to enroll in managed care; and (4) a Sec. 1115 waiver (which may permit coverage of services not otherwise covered in Medicaid) (see CMS modernizes Medicaid managed care, Health Law Daily, May 6, 2016).

James Golden, director, Division of Managed Care Plans at CMS, noted that full implementation of the revised regulations will take three to five years, and that the key to success is how well states work with affected stakeholders—both managed care entities and beneficiaries. “CMS expects the states to take the lead in setting standards,” Golden said.

State challenges

Browning highlighted two key challenges that states face – setting up adequate networks of providers so managed care beneficiaries can actually access health care; and limited staff capacity to drive expansion of Medicaid managed care alongside a number of other Medicaid related regulations.

Impact of new administration

A further complication, Browning noted, is the new Trump Administration and new leadership for HHS and CMS. She noted that the new CMS Administrator, Seema Verma, indicated an interest in re-examining all recent rules related to Medicare and Medicaid during her confirmation hearing. Browning also pointed to the Executive Order issued by President Trump which requires all agencies to create a Task Force to review existing regulations with the goal of repealing many of them. Browning noted that both Verma and HHS Secretary Tom Price are interested in increased state flexibility around health programs.

In addition, Browning said that any changes to the Affordable Care Act (ACA) (P.L. 111-148) may impact the new Medicaid managed care regulations, for example, she noted that a key goal of the managed care rule was alignment with qualified health plan requirements under the ACA. Would this change if the ACA’s health insurance Exchanges are eliminated? Finally, she said that any structural changes to Medicaid would likely require revised managed care rules.