July 30,2004

Grassley on New Medicaid Waivers Report the Government Accountability Office


To: Reporters and Editors
Re: New report on Medicaid waivers
Da: Friday, July 30, 2004

Sen. Chuck Grassley, chairman of the Committee on Finance, and Sen. Max Baucus, ranking member, continue to monitor the Department of Health and Human Service’s use of the waiver authority under Section 1115 of the Social Security Act. They asked the Government Accountability Office to provide information on a new Medicaid Section 1115 demonstration initiative called Pharmacy Plus. Under Section 1115 waivers, the Department of Health and Human Services allows states to offer prescription drug coverage to seniors not otherwise eligible for Medicaid.

The GAO report released today, “HHS Approvals of Pharmacy Plus DemonstrationsContinue to Raise Cost and Oversight Concerns,” found that HHS has not put in place adequatesafeguards to ensure that the four waivers approved for the Pharmacy Plus demonstrations will notsubstantially increase federal Medicaid spending. HHS used unrealistic savings assumptions whenit approved the four 1115 waivers in four states. The conditions of waiver approval do not assure thatthe federal government will spend less or even the same amount with the demonstrations thanwithout them. In the report, the GAO recommends that HHS strengthen the process for approvingand overseeing the Pharmacy Plus and other Medicaid Section 1115 demonstrations. The GAO alsocalls on HHS to ensure that states comply with evaluation and financial reporting requirements.

Of the seven recommendations made by the GAO, HHS concurs with five of the sevenrecommendations, but, notably, disagrees with the recommendation that the secretary clarify criteriafor reviewing and approving states’ proposed demonstration spending limits.According to the report, the factors that HHS considered when it approved the four PharmacyPlus waiver demonstrations in four states are inadequate in ensuring that the four approved 1115waivers will be budget neutral. HHS disputes this assertion, noting that it has denied two PharmacyPlus demonstrations and reviewed but not approved nine other proposals whose budget estimateswere not well-supported.

Senator Grassley made the following comment on the report.

“I appreciate that states have worked to identify creative and innovative solutions to expandaccess to medically necessary drugs to low-income seniors and that HHS is working with the statesto accomplish this important objective. Budget neutrality is a key feature of 1115 waivers, however,and I believe that CMS needs to improve and clarify the criteria used to determine budget neutrality.While the Pharmacy Plus waiver program will undergo significant changes as a result of the newMedicare drug benefit, the issues raised in the report reflect ongoing concerns over the fiscalintegrity of 1115 waiver implementation oversight.”