Review of Medicaid Enhanced Payments to Public Providers and the Use of Intergovernmental Transfers by the Alabama State Medicaid Agency

EXECUTIVE SUMMARY:

This final report points out a method used by Alabama to obtain additional Federal Medicaid funds by circumventing the Medicaid requirement that expenditures be a shared Federal/State responsibility. For fiscal years 1999 and 2000 Alabama made enhanced payments to nursing facilities totaling about $83.5 million. The nursing facilities retained about $3 million and $80.5 million was returned to the State. The transaction generated about $58.5 million in Federal Financial Participation. In effect, the State has developed a mechanism to obtain additional Federal Medicaid funds without committing its share of required matching funds. As a result, we estimate the Federal share of nursing home expenditures in Alabama increased from the approved Federal matching rate of about 70 percent to about 78 percent, thus effectively reducing the State share by 8 percent. Among other things, we recommended that the Health Care Financing Administration (HCFA) take action to place a control on the overall financing mechanisms being used by the State to circumvent the Medicaid program requirement that expenditures be a shared Federal/State responsibility. The HCFA concurred and to address the problem has issued revised regulations. We estimate the Federal Government will save about $44.2 million in Alabama through October 1, 2005 due to the revised regulations.