Legislation & Regulation

GAO Audit of CMS Bodes Well for Plans

Federal auditors tell CMS it has been deficient in monitoring whether states are treating plans fairly

John Carroll

Eight years ago the Centers for Medicare & Medicaid Services was charged with making sure that the capitation rates that states set for Medicaid plans could pass a rigorous green-visor exam. CMS worried that if states paid the plans too little, they would cut back on the services available to members. The plan was to make sure the rates were actuarially sound, with enough cash on hand to cover the population and services that would be needed.

But that mandate appears not to have been adopted with any fervor at the agency’s regional offices, which were supposed to be handed a checklist of things to do by CMS’s central office to complete the numbers review. When the General Accounting Office completed its own green-visor exam of CMS’s review performance in August, it found that the agency fell far short of the standard mapped out in the 2002 regulation. Some states had not undergone a rate review in years, and files in many cases were incomplete, leaving GAO auditors scratching their heads over what exactly had been accomplished. And they weren’t the only puzzled players: Regulators in some regional CMS offices often had only a hazy notion of what they were responsible for.

The Department of Health & Human Services wasted no time after receiving the GAO report before committing itself to getting the job done. And the trade association that represents the industry — along with some knowledgeable consultants — says that the health plans may come out well ahead once the state’s numbers are put under closer scrutiny.

“For a good part of the past decade, this has been a major topic of discussion,” says Thomas Johnson, CEO of Medicaid Health Plans of America. “The oversight from CMS has just not been there.” And for states, lack of oversight during a time when an economic downturn has thrown a monkey wrench into many of their budgets, may have allowed some to ratchet rates below where they should be.

“This should be good” for plans, agrees Jeff Smith, the Lewin Group’s vice president and practice director for states and payers. “The data will support a somewhat higher rate base.” Smith, who has 20 years of first-hand experience managing rate reviews for Medicaid plans, adds that this would be an opportune time for plans to review their data-gathering process, with an eye to sharpening their skills at gathering every scrap of relevant data possible. With the Medicaid system undergoing a major restructuring designed to add millions of new members to the plans that manage members, the organizations that stand to benefit the most will be those that have the best command of the data.

The states, meanwhile, will probably face a much more thorough review from CMS of their own practices in years to come.

“That’s a problem”

“CMS … has been inconsistent in ensuring that states are complying with the actuarial soundness requirements and does not have sufficient efforts in place to ensure that states are using reliable data to set rates,” the GAO chided in its report.

Journeying out to review six of CMS’s 10 regional offices, the GAO investigators found that Tennessee, which started to shift all of its Medicaid members into health plans back in 2007, had never had its actuarial report on Medicaid rates put through the needed federal review. And the state, which gets $5 billion a year in federal funds for Medicaid, had never had its numbers certified by an actuary, as required by law. No one at CMS could remember when the last review for Nebraska was done, but the best guess was in 2002. And in eight of the 28 files the GAO looked over, there was no sign that regional officials ever followed the actual checklist spelled out in the regulations and made sure that states had dotted every ‘i’ and crossed every ‘t.’ The report handed CMS a failing grade from its auditors — and a quick trip to the woodshed from a pair of powerful senators.

“To protect Medicaid, we need to ensure states are paying an appropriate price for the benefits private plans deliver. This report makes clear that we don’t have enough information to guarantee that prices are accurate and that Medicaid is protected,” said Finance Committee Chairman Max Baucus.

Said Sen. Chuck Grassley, “In a program that spends hundreds of billions of dollars, that’s a problem.”

It’s also a problem that’s been a long-running sore point for plans, particularly in recent years.

“I’ve heard from enough of our members to say that there’s a lack of clarity and some states may have taken advantage of that,” says Johnson. “It’s a big deal. It determines how we’re going to be able to perform services under our contract, and how much that is going to cost.

“There are several things where it could make a difference,” adds Johnson. “If the process were more consistent or transparent, you’d find there would be more stability in the marketplace. You won’t see plans exit the market, limiting their new enrollees, not being able to meet the performance on quality goals. All of those things are expected when there’s no predictability in the rate-setting process.”

More art than science

One big problem for plans has been that state regulators have long tended to discount the data needed to check how the rates stack up against the actual costs projected for Medicaid, says the Lewin Group’s Smith.

“Rate setting is still more an art than a science,” he adds. That won’t change just because CMS plans to become more vigilant. “States will have plenty of ammunition to squeeze those rates where they need to.”

The quality of the health care data that’s fed into the rate-review process actually varies a lot from state to state and plan to plan, says Smith, and there’s a key variable built in that tends to play against the plans. Regulators look at a plan’s encounter data to see what providers have been doing for their Medicaid patients. But because Medicaid pays a capitated rate for services, many doctors aren’t submitting a complete report every time they see one of their Medicaid patients. As a result, the data doesn’t always accurately reflect what services are used.

Plans, though, could get some help on that score from the feds.

The GAO reports that CMS is putting its rate review checklist under the spotlight, with some changes already up for adoption. “One of the planned changes,” the GAO report notes, “was to emphasize the need for more complete encounter data because CMS officials indicated that the agency has determined that encounter data that do not include pricing information are not sufficient for setting rates.”

“But that’s just one variable that states consider when they are negotiating rates, adds Smith. They’ll also inspect a plan’s financial statements, examining line items like the money being held in reserves or any payments to a parent company. And they’ll look at utilization and costs to see how the plan’s money is spent and whether they’re keeping too much of what they bring in. Will ER visits rise, or drop, or stay level? How is the flu season likely to change utilization? All that and more is used to project ahead, setting rates for a group of prospective patients and medical needs which haven’t occurred yet.

For small plans, and even some big ones, getting the complete set of utilization data and analyzing it can be time consuming and expensive, says Smith. Limited resources could cause them to cut corners. But plans that do a better job with data management are in a better negotiating position. And that’s about to become even more important.

The Patient Protection and Affordable Care Act is shoving billions to the states to extend Medicaid coverage to about 15 million uninsured Americans.

“I’ve heard from enough of our members that there’s a lack of clarity and some states may have taken advantage of that,” says Thomas Johnson, CEO of Medicaid Health Plans of America.

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