GAO: States Spending More on Medicaid Supplemental Payments

Payments increased from 2006 to 2010, but the exact number remains unknown.
by | August 21, 2012

States reported a combined $32 billion in supplemental payments to Medicaid providers in 2010, a substantial increase from 2006, according to a report released Monday by the Government Accountabilty Office (GAO), but incomplete reporting by states means the exact amount isn't known.

Medicaid supplemental payments (which are distinct from typical fee-for-service or managed-care costs) are divided into two categories. Disproportionate share hospital (DSH) payments are intended to offset uncompensated care costs for hospitals that serve more low-income and Medicaid patients, and non-DSH payments go to other health-care providers based on criteria set by state officials, but aren't required by federal law.

The payments are funded jointly by the states and the federal government. To put the figures in context, overall Medicaid spending was $401.4 billion in 2010.

Non-DSH payments increased by $8 billion from 2006 to 2010, GAO found, to a total of $14.4 billion. Most of those payments went to inpatient hospital services. The office noted that non-DSH payments as a share of a state's Medicaid spending varied significantly, from less than 1 percent to 17 percent.

The authors attributed the increase to several factors. First, there is a general trend of new non-DSH payments approved by states. Colorado, for example, established non-DSH payments for a variety of previously uncovered hosiptals, such as rural hospitals, those with intensive care units for newborns and state teaching hospitals. As a result, the state's non-DSH payments increased $411 million. South Carolina reinstated non-DSH payments for nursing homes and saw its payments go up by $39 million.

A change in the reporting structure for the payments, which required states to separate non-DSH payments from DSH payments for the first time, led to more complete reporting, another explanation for the overall increase, GAO concluded.

However, GAO also determined that reporting on non-DSH payments remains incomplete and therefore the full quantity of non-DSH payments is unknown. For example, Georgia reported no non-DSH payments for 2010, but, according to the Centers for Medicare and Medicaid Services (CMS), the state did make more than $120 million in non-DSH payments to nursing homes.

CMS officials told GAO that they were aware of issues in state reporting and planned to continue working with state officials to rectify problems in the system. They noted that the reporting structure has changed in the last four years and said they are undertaking training efforts with state officials to improve reporting.

DSH payments, which are capped by federal law, were $17.6 billion in 2010, GAO found. Again, substantial disparity exists across states: South Dakota reported $650,000, while New York reported more than $3 billion. More than 80 percent of the payments went to traditional inpatient and outpatient services, the office said, while the remainder paid for mental health services.

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