Review of Alabama State Medicaid Agency Enhanced Payments to Public Hospitals for Fiscal Years 1997 to 2000

EXECUTIVE SUMMARY:

This final report points out that the State of Alabama did not compute its inpatient hospital enhanced payments in accordance with its approved State plan amendment (SPA). In Fiscal Year 1998 the State made two revisions to its funding pool calculations used in determining enhanced payment amounts. First, the State began using Medicare prospective payment system (PPS) principles in computing the Medicare upper payment limit instead of using Medicare cost principles as required by the SPA. Second, the State began including privately-owned facilities in computing the enhanced payments, contrary to the SPA which required that payments be based on public facilities. As a result of these two revisions, the State made excessive enhanced payments over 4 years totaling $240.4 million ($168.3 million Federal share). We recommended that Alabama refund the $168.3 million to the Federal Government. The State did not concur, stating it was justified in using Medicare PPS principles in computing the Medicare upper payment limit because the State no longer required hospitals to file a Medicaid cost report, and that it acted within the scope of the regulations by including payments related to privately-owned facilities.