Opportunities for Program Improvements Related to States' Withdrawals of Federal Medicaid Funds

The Centers for Medicare & Medicaid Services (CMS) has not issued guidance instructing States on the appropriate extent and timing of Medicaid withdrawals. Specifically, CMS has not issued guidance that clarifies the "as needed" language in 42 CFR § 430.30(d)(3) that would educate States on the application of 31 CFR part 205 in Medicaid. Such guidance and education would help prevent States from withdrawing more Medicaid funds than necessary. All three States that we audited withdrew more funds than necessary to meet immediate cash needs. At the time of our reviews, Alabama and Maryland had overdrawn more than $130 million in Medicaid funds that they had not refunded to the Federal Government. Although Illinois refunded overdrawn Medicaid funds, its withdrawals exceeded its expenditures by an average of $60 million a quarter.

Additionally, CMS did not publish formal guidance instructing States on how to handle the funds in annualized Payment Management System (PMS) accounts, and all three States that we audited withdrew funds from inappropriate accounts.

Finally, CMS does not require States to reconcile their total Federal Medicaid funds withdrawn with their Federal share of net expenditures. Also, CMS has not issued any reconciliation guidance, such as requiring States to identify and resolve any differences between the amounts withdrawn and the Federal share of net expenditures. One State that we audited did not perform reconciliations. The other two States performed reconciliations; however, the procedures the two States used were inconsistent with each other.

We recommended that CMS (1) issue guidance that clarifies existing requirements and provides further interpretation of the "as needed" language in 42 CFR § 430.30(d)(3) as it relates to the withdrawal of Medicaid funds; (2) publish regulations that are consistent with the U.S. Department of the Treasury provisions in 31 CFR part 205 and educate States; (3) publish and enforce formal guidance based on CMS's instructional email from November 8, 2011, so that States are aware of the appropriate PMS account from which to withdraw or return funds; and (4) require States to reconcile total Federal Medicaid funds withdrawn with the Federal share of net expenditures and issue appropriate reconciliation guidelines. CMS concurred with our first and third recommendations and stated that it is in the process of drafting guidance; CMS did not indicate concurrence or nonconcurrence with our second and fourth recommendations.