Federal government approved too much funding for billion-dollar Medicaid demonstration projects, GAO finds

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The federal government is allocating too much money for Medicaid demonstration projects to test new models of care delivery, according to the Government Accountability Office.

The demonstration projects are used in some cases to test systems related to long-term care. In Rhode Island, a project aims to identify beneficiaries' health needs and fund care in the most appropriate setting — a “highest need” individual would be covered for nursing home care, while a “preventive” individual would be covered for some home health services.

The Department of Health and Human Services set a $12 billion five-year spending limit on the Rhode Island demonstration. However, using benchmark growth rates and actual costs identified by the GAO, the project should actually have been approved for $11.3 billion dollars — a difference of $772 million.

HHS is not sticking to its own policy that all Medicaid demonstrations must be budget-neutral in terms of funds provided by the federal government. Demonstration project budgeting lacks transparency and proper documentation, and allows states to use inappropriate methods for establishing spending limits, the GAO report states.

The GAO looked at 10 demonstration projects, and found problems with how HHS calculated spending limits for four, including the Rhode Island project. If HHS had adhered to its own policy, spending limits would have been $32 billion lower than they were, according to the report.

HHS should update its budget neutrality policy, the report recommended. HHS disagreed, saying that GAO “relied on a very narrow reading” of the policy, based on outdated guidance.

Click here to access the full GAO report and HHS response.