GAO calls out HHS’ poor oversight of administrative costs of Medicaid work requirements


The Centers for Medicare & Medicaid Services needs to be doing a better job overseeing the administrative costs associated with the implementation of work requirements in Medicaid, the Government Accountability Office said in a new report.


The government watchdog found two key weaknesses in CMS’s oversight of the administrative costs of the Medicaid demonstration projects related to work requirements for Medicaid.

First, the GAO report notes that no consideration of the administrative costs of the work requirements is given during the administration of the approval process.

The GAO reports that, of five states’ approvals, the estimated administrative costs range from the low end of $6.1 million for New Hampshire (with 50,000 beneficiaries subject to the work requirement) to $271.6 million for Kentucky (with 620,000 beneficiaries subject to the work requirement). Indiana, with 420,000 beneficiaries subject to work requirements, has an estimated cost of $35.1 million.

A significant portion of Kentucky’s funding was for a the development of a new information technology system to help track work requirements.

“GAO found that CMS does not require states to provide projections of administrative costs when requesting demonstration approvals,” the report states. “Thus, the cost of administering demonstrations, including those with work requirements, is not transparent to the public or included in CMS’s assessment of whether a demonstration is budget neutral – that is, that federal spending will be no higher under the demonstration than it would have been without it.”

The GAO also reported that, by not requiring cost estimates, it also fails to meet the demonstration objective of transparency, something that goes hand in hand with budget neutrality.

The second weakness identified by GAO is that current procedures “may be insufficient to ensure that costs are allowable and matched at the correct rate.” Three of the five states examined in the report had received CMS approval for federal funds for administrative costs that were either not allowable for matching or were matched at higher rates than appropriate, based on CMS guidance.

The government watchdog noted that CMS did implement “procedures that may provide additional information on demonstrations’ administrative costs. ... However, it is unclear whether these efforts will result in data that improves CMS’s oversight.”

The GAO made three recommendations in the report. First, the CMS should require states to submit public projections of administrative costs when seeking approval for demonstration projects. Second, the administrative costs should be a part of the calculation for assessing the budget neutrality of demonstration project applications. Finally, CMS should do a better job assessing the risk that federal funds are being used to cover administrative costs that are not allowable and should improve oversight procedures as needed.

The GAO report included the Department of Health & Human Services’s response to the recommendations. To the first, the agency said that “its experience suggests that demonstration administrative costs will be a relatively small portion of total costs and therefore HHS believes making information about these costs available would provide stakeholders little to no value.”

Similarly, to the second recommendation, HHS countered that the information would provide little to no value given that administrative costs represent a relatively small portion of the total demonstration costs.

To the final recommendation on the need for better risk assessment, HHS said its existing approach “is appropriate for the low level of risk that administrative expenditures represent. ... CMS officials told us that they had not assessed wither current procedures sufficiently address risks posed by administrative costs for work requirements and had no plans to do so.”

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