States Inappropriately Retained Federal Funds for Medicaid Collections for the First Recovery Act Quarter

The American Recovery and Reinvestment Act of 2009 (the Recovery Act) temporarily increased the percentage of State Medicaid expenditures paid by the Federal Government (Federal medical assistance percentage (FMAP)). The Recovery Act was effective to the quarter ended December 31, 2008 (first Recovery Act quarter). CMS retroactively provided additional Federal funds for the first Recovery Act quarter by applying the increased percentage to expenditures each State had already submitted; however, CMS did not include collections, which reduce a State's expenditures, in that calculation. We decided to review the Federal percentages each State applied to its collections and the States' methodologies for calculating the Federal portion of those collections.

Of the $1.37 billion in total collections reported for the quarter ended December 31, 2008, the Federal shares of $1 billion in collections either were recalculated using the Recovery Act FMAP or did not need to be recalculated because they were related to expenditures reimbursed at FMAPs for previous quarters. Thirty-five States did not appropriately recalculate the Federal share for the remaining $292.7 million in collections using the Recovery Act FMAP. As a result, they retained $25 million in increased Recovery Act funding. When CMS calculated the additional Federal funding for the first Recovery Act quarter, it did not include collections in that calculation. A CMS official stated that recalculating the Federal share of collections using the Recovery Act FMAP was the States' responsibility.

We recommended that CMS (1) recoup the $25 million (Federal share) from the 35 States; (2) review States' Federal share calculations for collections reported in subsequent Recovery Act quarters and recoup any overpayments related to the Recovery Act FMAPs; and (3) emphasize that States should calculate the Federal share of collections for which they originally received amounts calculated at higher, fixed-reimbursement percentages using those same percentages. CMS concurred with our recommendations.