June 18,2014

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Aaron Fobes, Julia Lawless (202) 224-4515

GAO Report: Insufficient Oversight of $65 Billion Medicaid Program

WASHINGTON – U.S. Senator Orrin Hatch (R-Utah), Ranking Member of the Senate Finance Committee, today highlighted a new Government Accountability Office (GAO) report entitled, Medicaid Program Integrity: Increased Oversight Needed to Ensure Integrity of Growing Managed Care Expenditures, which found the Centers for Medicare & Medicaid Services (CMS) has failed to ensure proper oversight of Medicaid managed care organizations (MCOs). CMS estimates that the entire Medicaid program loses $14 billion annually to improper payments.  The report, which was requested by Senator Hatch, found that dysfunctional CMS regulations  result in a lack of oversight of Medicaid managed care

“Today’s report is particularly troubling given Obamacare expands this broken program without substantial reforms to protect patients and taxpayers,” Sen. Hatch said.  “CMS is responsible for safeguarding the billions of dollars it receives from hard-working American taxpayers, and I strongly urge Administrator Tavenner to implement the changes recommended by GAO to improve CMS oversight of MCO payments.  This report underscores the need for Medicaid reform in order to ensure that scarce tax dollars are used properly.” 


CMS provides Medicaid health care services through fee-for-service (FFS) payments or capitated payments to MCOs.  Over half of Medicaid beneficiaries receive benefits through MCO’s but only 27% of federal Medicaid expenditures go to MCO’s (approximately $67 billion).  MCO payments are projected to increase at a faster rate than FFS payments.

CMS does not require states to audit managed care payments, even though CMS has delegated primary responsibility for MCO oversight efforts to the states.  State officials told GAO that they require additional guidance and audit support from CMS to properly oversee Medicaid payments to MCOs.  CMS has not updated its MCO oversight guidelines since 2000. 

State Medicaid program integrity officials told GAO officials that they seldom examine the appropriateness of managed care payments, even though CMS has delegated primary responsibility for MCO program integrity to the states.  Instead, states primarily focus their efforts on combating FFS waste and abuse. GAO also found that CMS and other federal entities rarely conduct oversight of MCOs.  

Key findings from the GAO report are below: 

  • Lack of Oversight of MCO Payments: “CMS does not require states to audit the appropriateness of payments to MCOs to ensure payments have not been improperly inflated, nor does CMS require states to include review of payments to MCO providers as part of their Medicaid RAC programs.  However, CMS has largely delegated managed care program integrity activities to the states.”
  • Lack of CMS Support and Guidance for State Program Integrity Efforts: “Unless CMS takes a larger role in holding states accountable, and provides guidance and support to states to ensure adequate program integrity efforts in Medicaid managed care, the gap between state and federal efforts to monitor managed care program integrity will leave a growing portion of federal Medicaid dollars vulnerable to improper payments.”