The GAO noted that those requirements specify that rates must be developed in accordance with actuarial principles, appropriate for the population and services, and certified by actuaries. The report also noted that variation in CMS regional office practices contributed to this inconsistency in oversight.


The Children’s Health Insurance Program Reauthorization Act of 2009 required GAO to examine the extent to which states’ rates are actuarially sound.  To do so, the GAO assessed CMS oversight of states’ compliance with the actuarial soundness requirements and efforts to ensure the quality of data used to set rates.


GAO reviewed documents, including rate-setting review files, from 6 of CMS’s 10 regional offices. The selected offices oversaw 26 of the 34 states with comprehensive managed care programs; the states’ programs varied in size and accounted for over 85 percent of managed care enrollment. GAO interviewed CMS officials and Medicaid officials from 11 states that were chosen based in part on variation in program size and geography.


Significant Gaps


According to the report, the GAO found “significant gaps” in CMS’s oversight of two states and cited the following examples:


1. The agency had not reviewed Tennessee’s rate setting for multiple years and only determined that the state was not in compliance with the requirements through the course of GAO’s work. According to CMS officials, Tennessee received approximately $5 billion a year in federal funds for rates that GAO determined had not been certified by an actuary, which is a regulatory requirement.


2. CMS had not completed a full review of Nebraska’s rate setting since the actuarial soundness requirements became effective, and therefore may have provided federal funds for rates that were not in compliance with all of the requirements.


As a result of the review, the GAO reported that CMS took a number of steps that would address some of the variation that contributed to inconsistent oversight, such as requiring regional office officials to use a detailed checklist when reviewing states’ rate setting. However, noted the GAO, additional steps would be necessary to prevent further gaps in oversight and additional federal funds from being paid for rates that are not in compliance with the actuarial soundness requirements.


CMS’s efforts to ensure the quality of the data used to set rates were generally limited to requiring assurances from states and health plans–efforts that did not provide the agency with enough information to ensure the quality of the data used.


MIC Implications


“The results of this report are not surprising, given the scope of the Medicaid program across the country and the fact that many aspects of the Medicaid programs across the 50 states are not standardized and equally administered by CMS from the federal perspective,” said Carla Engle, product manager for MediRegs.  “This is a challenge not only for CMS, but now for the Medicaid Integrity Contractors (MICs) that are trying to apply some standardization between programs that have very different state laws and regulations that administer the programs.”


Looking to the Future


With the passage of the Patient Protection and Affordable Care Act (PPACA) in March 2010, states will expand coverage under the Medicaid program to an estimated 18 million additional people. Expansions of Medicaid are likely to increase the number of people enrolled in and amount of spending for managed care, making effective federal oversight of this large and complex component of the Medicaid program particularly critical, reported the GAO.


The GAO concluded by stating that as a result of the weaknesses in CMS’s oversight, billions of dollars in federal funds were paid to one state for rates that were not certified by an actuary, and billions more may be at risk of being paid to other states for rates that are not in compliance with the actuarial soundness requirements or are based on inappropriate and unreliable data.


“Since MICs have multiple task orders, it has to be a huge challenge just laying hands on the appropriate regulatory guidance for many states in different timeframes,” said Engle.

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