Medicaid Rates for New York State-Operated Developmental Centers May Be Excessive

Based on our assessment of New York State's (the State) rate-setting methodology, we determined that the payment rate for State-operated developmental centers might not have met the Federal requirement that payment for services be consistent with efficiency and economy. If the State had used actual costs in calculating the Medicaid daily rate, its reimbursement would have totaled $858 million ($429 million Federal share) in State fiscal year (SFY) 2009, a difference of $1.41 billion ($701 million Federal share). If the State had used prior year actual costs as the starting point for its rate-setting methodology, its SFY 2009 Medicaid daily rate would have been $1,500, or 63 percent less than the calculated reimbursement rate ($4,000).

State-operated developmental center payment rates are set using a complex methodology detailed in the State's Medicaid State plan. The rate is currently calculated by using a starting point that the State describes as "total reimbursable operating costs," which includes the prior year's total reimbursable operating costs, a volume variance adjustment, and a trend factor increase. Total reimbursable operating costs do not reflect the State's actual costs.

We recommended that CMS work with the State to ensure that the State's Medicaid daily rate for State-operated developmental centers meets the Federal requirement that payment for services be consistent with efficiency and economy. Use of such a rate might have saved the Federal Medicaid program approximately $701 million in SFY 2009. In written comments on our draft report, the State agreed to work with CMS to ensure that the State's Medicaid daily rate for State-operated developmental centers meets the Federal requirement that payment for services be consistent with efficiency and economy. In separate comments, CMS concurred with our recommendation and stated that it was working with State officials to develop a revised payment methodology.