Federal agencies are signaling closer oversight of Medicaid managed care organizations (“MCOs”). On August 21, 2018, the U.S. Comptroller General Gene Dodaro and Centers for Medicare and Medicaid Services (“CMS”) Administrator Seema Verma testified to the Senate Homeland Security and Governmental Affairs Committee about combating Medicaid fraud and urged additional oversight of Medicaid MCOs and a larger restructuring of the Medicaid program. This testimony follows other steps taken by the Governmental Accountability Office (“GAO”) and CMS earlier this year to encourage increased scrutiny of Medicaid managed care programs.

GAO Reports Recommend Improved Oversight

           Over the past few months, GAO has released several reports focused on program integrity issues in Medicaid and urging increased oversight, including in the managed care context.

           In May, the GAO released the results of a study it conducted to determine whether the methodology used by CMS to calculate program integrity risks adequately measured the risks in the Medicaid managed care context. Using the Payment Error Rate Measurement (“PERM”) methodology, CMS had estimated that $37 billion in improper Medicaid payments were made in fiscal year 2017, equaling about 10.1 percent of the $364 billion in federal spending on Medicaid. For Medicaid managed care, which constitutes about half of total federal Medicaid expenditures, the improper payment rate determined under the PERM methodology was only 0.3 percent ($500 million in improper payments out of $171 billion in expenditures). In its study, the GAO found that the PERM methodology may not account for key program integrity risks such as unidentified overpayments and unallowable costs. GAO recommended that CMS take steps to mitigate program risks not measured in the PERM, consider revising the PERM methodology, or focus additional audit resources on managed care.

           In July, GAO released another report analyzing payment risks in Medicaid managed care, based on interviews with state program integrity stakeholders in ten states. The study identified six payment risks, four of which relate to the payments made by Medicaid agencies to MCOs and two of which relate to payments by MCOs to providers. The report identified two of the payment risks as being the most significant: (1) incorrect fee-for-service payments from managed care organizations to providers, and (2) inaccurate state payments to managed care organizations due to payments being determined on incorrect data. GAO recommended that CMS expedite planned guidance on Medicaid managed care program integrity, address impediments to managed care audits, and ensure that states account for overpayments when setting future capitation rates.

           The GAO has also released several other reports on Medicaid program integrity not specific to managed care. For instance, in June, GAO released a report highlighting the major program integrity risks for the Medicaid program generally. In August, GAO released reports assessing CMS’s oversight of state-reported Medicaid expenditures and recommending additional actions CMS could take to improve oversight of Medicaid.

CMS Increases Oversight

           CMS has taken steps to increase overall Medicaid program integrity oversight. On June 26, 2018, CMS announced several new initiatives and increased emphasis on existing initiatives intended to improve Medicaid program integrity and maintain sustainability of the program. In its press release on the initiatives, CMS noted that Medicaid spending has rapidly increased over recent years due to several factors, with specific mention of the Medicaid expansion. Three of the main initiatives aim to

  1. Emphasize program integrity in audits of state claims for federal match funds and medical loss ratios (MLRs).
  2. Conduct new audits of state beneficiary eligibility determinations.
  3. Optimize state-provided claims and provider data.

The initiatives enhance audit functions, oversight of state contracts with private payers, beneficiary eligibility oversight, and enforcement of state compliance.

Senate Testimony

           On August 21, 2018, Comptroller General Dodaro and Administrator Verma testified before the Senate Homeland Security and Governmental Affairs Committee on the topic of combatting Medicaid fraud. As committee members questioned Dodaro and Verma about oversight of Medicaid managed care programs, all parties appeared to support greater scrutiny.

           Notably, both Dodaro and Verma urged the senators to increase auditors’ review of managed care organizations. Administrator Verma specifically discussed a recent action by CMS to recoup an anticipated $9.5 billion in improper payments made by the State of California to managed care organization. Her written testimony echoed “concerns that managed care rates resulted in significant profits for insurance companies . . . .”

           Comptroller General Dodaro recommended that CMS utilize state auditors to reduce improper Medicaid payments and hold Medicaid programs accountable. He suggested that it would be a “game changer” to involve state auditors in a “substantive, ongoing way.” He noted that Medicaid is projected to cost the federal government and states nearly $1 trillion annually by 2025 and that the program accounts for one-third of many state budgets.

           Verma and Dodaro also directed particular criticism at the use of federal Medicaid funds on the Medicaid expansion population, as provided for under the Patient Protection and Affordable Care Act (the “ACA”). Dodaro criticized the Obama administration for not increasing oversight of Medicaid managed care plans upon the increased Medicaid enrollment caused by the expansion.

           In her testimony, Verma emphasized her support for structural changes to the Medicaid program, which she described as an “open-ended entitlement.” Administrator Verma attributed some of the government’s overspending to the high match rates that states receive for the Medicaid expansion population and urged for a new system that would make states accountable for outcomes. For example, she noted that the high match rate may have incentivized states to improperly keep pregnant women enrolled in the expansion population rather than appropriately transition them to traditional Medicaid when they become pregnant, as traditional Medicaid has a lower match rate.

           Overall, the committee members, Comptroller General Dodaro, and Administrator Verma all agreed that increased oversight is necessary under Medicaid managed care programs.


           Taken together, the reports, announcements, and testimony discussed here provide a clear signal from the Administration that Medicaid managed care is likely to become subject to increasing scrutiny. CMS and federal and state auditors have not yet taken significant concrete action, but MCOs may be well served to proactively evaluate and address program integrity risks related to their payments to providers and their premium rate payments from states.