oversight

Ineffective Controls Over Program Requirements Relating to Medically Needy Persons Covered by Medicaid

Published by the Government Accountability Office on 1971-07-28.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

:ll   REPORT TO THE CONGRESS




      Ineffective Controls Over
      Program Requirements Relating
      To Medically Needy Persons
      Covered By Medicaid .8,,,4,            (3)




      Social and Rehabilitation Service
      Department of Health, Education,
        and Welfare




      BY THE COMPTROLLER GENERAL
      OF THE UNITED STATES

             FILE COPY - COMP GEN
                                          JULY 28 1 9 7 1
          COMPTROLLER GENERAL OF THE UNITED STATES
                     WASHINGTON. D.C. 20548




B- 164031(3)




To the President of the Senate and the
Speaker of the House of Representatives

      This is our report on ineffective controls over program
requirements relating to medically needy persons covered
by Medicaid. Medicaid is a grant-in-aid program adminis-
tered at the Federal level by the Social and Rehabilitation
Service, Department of Health, Education, and Welfare.

      Our review was made pursuant to the Budget and Ac-
counting Act, 1921 (31 U.S.C. 53), and the Accounting and
Auditing Act of 1950 (31 U.S.C. 67).

      Copies of this report are being sent to the Director,
Office of Management and Budget, and to the Secretary of
Health, Education, and Welfare.




                                    Comptroller General
                                    of the United States




               50TH ANNIVERSARY 1921-1971
COMPTROLLER GENERAL'S              INEFFECTIVE CONTROLS OVER PROGRAM
REPORT TO THE CONGRESS             REQUIREMENTS RELATING TO MEDICALLY NEEDY
                                   PERSONS COVERED BY MEDICAID
                                   Social and Rehabilitation Service
                                   Department of Health, Education, and
                                   Welfare   B-164031(3)

DIG.EST

WHY THE REVIEW WAS MADE

      Under Medicaid, the Department of Health, Education, and Welfare (HEW)
      shares with the States the costs of providing medical care to persons
      unable to pay. About $4.8 billion was spent under the program during
      fiscal year 1970; the Federal share was $2.4 billion.
      There are basically two types of persons who qualify under Medicaid.
         --Those receiving public assistance payments under the Social Secu-
           rity Act (called categorically needy persons).
         --Those whose financial resources are not sufficient to meet'the costs
        ' of necessary medical care but who do not qualify for public assis-
           tance (called medically needy persons).
      It is the option of the States whether medically needy persons receive
      benefits under Medicaid. Also, medically needy persons often must pay
      a share of the costs of medical care provided to them. This report is
      concerned only with payments made for the medically needy.
      Of the 52 States and jurisdictions which have Medicaid programs, 27
      have elected to provide coverage to the medically needy as well as to
      persons receiving public assistance.
      The General Accounting Office (GAO) reviewed this aspect of the admin-
      istration of the Medicaid program in California, Illinois, and Massa-
      chusetts. Total program expenditures in these States during fiscal
      year 1970 amounted to $1.4 billion, or about 30 percent of all Medicaid
      expenditures for that year.

FINDINGS AND CONCLUSIONS

      Recipients' share of Cost paid by Medicaid

      California, Illinois, and Massachusetts provide services under the Medi-
      caid program to about 413,000 medically needy persons. Each State has



Tear Sheet                           1                JULY 28, 1 9 7 1
encountered difficulties inadministering this aspect of the program,
and Medicaid has paid for medical services that should have been paid
for by recipients. For example, on the basis of its review of a sample
of Medicaid claims, GAO estimates that:
  --For three county-operated hospitals in Los Angeles, claims paid by
    Medicaid during 1969, which should have been paid by the medically
    needy recipients, may have amounted to $1.6 million. Also, during
    1969, Medicaid payments inthe county on claims for physician ser-
    vices, drugs, and other medical services, which should have been
    paid by the recipients, may have amounted to $900,000. These pay-
    ments occurred because the State had paid claims for services on
    behalf of persons who were not eligible or who had failed to pay
    their required share of the cost. (See pp. 11 to 19.)
  --In the city of Boston claims paid by Medicaid during the 7-month
    period ended October 1969, which should have been paid by the
    medically needy recipients, may have amounted to $61,500. Such
    payments occurred because the State did not have a system, other
    than for nursing-home care, to ensure that the recipients' share
    of the cost was met prior to its paying claims for medical services.
    (See pp. 19 and 20.)
InCook County, Illinois, GAO's review of Medicaid'payments for eight
hospital cases showed that about $17,700 paid by Medicaid should have
been paid by the medically needy recipients. These payments--made
during eligibility periods encompassing up to 18 months--occurred be-
cause the State had an ineffective system for ensuring that hospitals
determined the recipients' share of cost and made deductions from the
claims before submitting them to the State for payment. The great
majority of Cook County's medically needy cases involved nursing-home
care, and the county's procedures for obtaining the share of cost in
these cases were generally effective. (See pp. 21 and 22.)
Limited HEW regional staffing contributed to these problems.   (See
pp. 25 and 26.)
Need to ensure States' compZiance with
limitation on FederaZ share of
Medicaid costs
For States which elect to provide assistance to medically needy persons,
the Social Security Act specifies a limitation on the extent of the Fed-
eral share of the costs. This limitation provides a maximum amount of
annual family income for maintenance needs (food, shelter, clothing) to
be used in computing the family share of cost to.be applied to medical
bills.
States may specify income levels above the Federal maximum, but the Fed-
eral share of medical costs will be limited to the amount which would
have been allowable if the Federal maximum had been used. California's


                               2
      income levels for the medically needy for 2- and 3-member families ex-
      ceeded the Federal maximum. HEW, however, did not limit California's
      claims for Federal funds to amounts based on computations using the Fed-
      eral maximum. Income levels in Illinois and Massachusetts did not ex-
      ceed the Federal maximum.
      HEW paid States' claims for medical costs of persons in seven other States
      which had established income levels that exceeded the Federal limits with-
      out determining whether the States had implemented procedures to limit
      such claims to amounts based on the Federal maximum. (See p. 29.)

      Improvements needed in
      quality control systems

      The quality control system prescribed by HEW provided for a systematic
      and continuous control by State agencies over the correctness of deci-
      sions reached by local welfare agencies, including those pertaining to
      eligibility.
      In California and Massachusetts the quality control systems had been in-
      effective.
         --Quality control data in California had not been tabulated, analyzed,
           or reported to HEW; therefore, causes of significant problems re-
           lating to share-of-cost determinations had not been identified.
           (See pp. 34 and 35.)
         --In Massachusetts, quality control reviews had not been made from
           April 1968 to July 1969'. During this period, HEW and the State had
           no assurance that the eligibility and share-of-cost determinations
           being made by individual caseworkers were correct. (See pp. 35
           and 36.)
      The effectiveness of the quality control system in Illinois was reduced
      because the State had reviewed less than the minimum number of cases
      specified by HEW. (See pp. 36 and 37.)

RECOMENDATIONS OR SUGGESTIONS

      HEW should
         --evaluate the control systems in the 27 States which currently in-
           clude medically needy persons under their Medicaid programs to iden-
           tify those procedures most effective for ensuring that the recipients'
           share of cost is met for both institutional and noninstitutional ser-
           vices (see p. 26),
         --after identifying these procedures, either (1)disseminate the in-
           formation to the States with the recommendation that the procedures
           be followed or (2)develop a model system for use by the States (see
           p. 26),


 Tear Sheet                           3
        --consider the practicability of controlling the administration of the
          recipients' share of cost in cases in which the amount is small or
          the required controls are burdensome (see p. 26),
        --consider alternative approaches to cost sharing if it is determined
          that the administration of the present share-of-cost aspect of the
          program cannot be made practicable (see pp. 26 and 27),
       --seek appropriate adjustments for improper payments charged to Medicaid
         because of failure of those county-operated hospitals in California to
         verify eligibility or to deduct the recipientst share of cost from Medi-
         caid claims (see p. 27),
       --provide for follow-up action to be taken by its regional office of-
         ficials to ensure compliance with the statutory income limitations
         whenever the States' approved income levels are in excess of the
         Federal limitation (see p. 32), and
       --review the action taken by California to improve its quality control
         system and monitor the progress of Massachusetts and Illinois in
         meeting their quality control objectives (see pp. 35 to 37).

AGENCY ACTIONS AND UNRESOLVED ISSUES

     HEW stated that it was in general agreement with the conclusions and re-
     commendations in this report, and it informed GAO of the corrective ac-
     tion it had taken or was taking on each recommendation. HEW stated also
     that it was following up on corrective actions being taken by the States.
     (See pp. 27, 28, 32, 35, 36, and 38.)
     GAO believes that administrative actions taken, or promised, by HEW
     should, if properly implemented, help to improve the effectiveness of
     controls over program requirements relating to medically needy persons
     covered under the Medicaid program.

MATTERS FOR CONSIDERATION BY THE 'CONGRESS

     This report contains no recommendations requiring legislative action by
     the Congress. It does contain information on weaknesses in agency ad-
     ministration, suggestions for correction or improvement, and proposals
     for improvement by the agency. This information should be of assistance
     to committees of the Congress and to individual members of Congress in
     connection with their legislative oversight responsibilities relating to
     the Medicaid program.




                                       4
                         Contents
                                                          Page
DIGEST                                                      1

CHAPTER

   1      INTRODUCTION                                     5
              Description of Medicaid program              5
              Administration of Medicaid program           5
              Medicaid program coverage                    6
              Medicaid program in California, Illinois,
                and Massachusetts                          7
              Computation of recipients' share of cost     9

   2      RECIPIENTS' SHARE OF COST PAID BY MEDICAID      11
              Los Angeles County                          13
              City of Boston                              19
              Cook County                                 21
              HEW assistance to States concerning re-
                cipients' share of cost                   25
              Conclusions                                 26
              Recommendations to the Secretary of
                Health, Education, and Welfare            26
              Agency comments and actions                 27

  3       NEED FOR HEW TO ENSURE STATES' COMPLIANCE
          WITH STATUTORY LIMITATION ON FEDERAL SHARE
          OF MEDICAID COSTS                               29
              Conclusion                                  31
              Recommendation to the Secretary of
                Health, Education, and Welfare            31
              Agency comments and actions                 32

  4       IMPROVEMENTS NEEDED IN QUALITY CONTROL RE-
          VIEWS                                           33
              Need for timely analysis and reporting
                in California                             34
                  Recommendation to the Secretary of
                    Health, Education, and Welfare        35
                  Agency comments and actions             35
              Quality control program delayed in
                Massachusetts                             35
CHAPTER                                                    Page

                    Recommendation to the Secretary of
                      Health, Education, and Welfare       36
                    Agency comments and actions            36
                Minimum sample not reviewed in Illinois    36
                    Recommendation to the Secretary of
                      Health, Education, and Welfare       37
                    Agency comments and actions            38

APPENDIX

      I    Letter dated March 11, 1971, from the Assis-
             tant Secretary, Comptroller, Department of
             Health, Education, and Welfare, to the
             General Accounting Office                     41

  II       Example illustrating computation of recipi-
             ents' share of cost in California, Illi-
             nois, and Massachusetts                       46

 III       States with annual income standards in ex-
             cess of the Federal maximums                  49

  IV       Listing of other GAO reports issued to the
             Congress on the Medicaid program              50

  V        'Principal officials of the Department of
              Health, Education, and Welfare responsible
              for the administration of activities dis-
              cussed in this report                        51

                         ABBREVIATIONS

GAO        General Accounting Office

HEW        Department of Health, Education, and Welfare
COMPTROLLER GENERAL'S             INEFFECTIVE CONTROLS OVER PROGRAM
REPORT TO THE CONGRESS            REQUIREMENTS RELATING TO MEDICALLY NEEDY
                                  PERSONS COVERED BY MEDICAID
                                  Social and Rehabilitation Service
                                  Department of Health, Education, and
                                  Welfare B-164031(3)

DIGEST

WHY THE REVIEW WAS MADE

     Under Medicaid, the Department of Health, Education, and Welfare (HEW)
     shares with the States the costs of providing medical care to persons
     unable to pay. About $4.8 billion was spent under the program during
     fiscal year 1970; the Federal share was $2.4 billion.
     There are basically two types of persons who qualify under Medicaid.
       --Those receiving public assistance payments under the Social Secu-
         rity Act (called categorically needy persons).
       --Those whose financial resources are not sufficient to meet the costs
         of necessary medical care but who do not qualify for public assis-
         tance (called medically needy persons).
     It is the option of the States whether-medically needy persons receive
     benefits under Medicaid. Also, medically needy persons often must pay
     a share of the costs of medical care provided to them. This report is
     concerned only with payments made for the medically needy.
     Of the 52 States and jurisdictions which have Medicaid programs, 27
     have elected to provide coverage to the medically needy as well as to
     persons receiving public assistance.
     The General Accounting Office (GAO) reviewed this aspect of the admin-
     istration of the Medicaid program in California, Illinois, and Massa-
     chusetts. Total program expenditures in these States during fiscal
     year 1970 amounted to $1.4 billion, or about 30 percent of all Medicaid
     expenditures for that year.

FINDINGS AND CONCLUSIONS

     Recipients' share ofpost paid by Medicaid

     California, Illinois, and Massachusetts provide services under the Medi-
     caid program to about 413,000 medically needy persons. Each State has
encountered difficulties in administering this aspect of the program,
and Medicaid has paid for medical services that should have been paid
for by recipients. For example, on the basis of its review of a sample
of Medicaid claims, GAO estimates that:
  --For three county-operated hospitals in Los Angeles, claims paid by
    Medicaid during 1969, which should have been paid by the medically
    needy recipients, may have amounted to $1.6 million. Also, during
    1969, Medicaid payments in the county on claims for physician ser-
    vices, drugs, and other medical services, which should have been
    paid by the recipients, may have amounted to $900,000. These pay-
    ments occurred because the State had paid claims for services on
    behalf of persons who were not eligible or who had failed to pay
    their required share of the cost. (See pp. 11 to 19.)
  --In the city of Boston claims paid by Medicaid during the 7-month
    period ended October 1969, which should have been paid by the
    medically needy recipients, may have amounted to $61,500. Such
    payments occurred because the State did not have a system, other
    than for nursing-home care, to ensure that the recipients' share
    of the cost was met prior to its paying claims for medical services.
    (See pp. 19 and 20.)
In Cook County, Illinois, GAO's review of Medicaid payments for eight
hospital cases showed that about $17,700 paid by Medicaid should have
been paid by the medically needy recipients. These payments--made
during eligibility periods encompassing up to 18 months--occurred be-
cause the State had an ineffective system for ensuring that hospitals
determined the recipients' share of cost and made deductions from the
claims before submitting them to the State for payment. The great
majority of Cook County's medically needy cases involved nursing-home
care, and the county's procedures for obtaining the share of cost in
these cases were generally effective. (See pp. 21 and 22.)
Limited HEW regional staffing contributed to these problems.   (See
pp. 25 and 26.)
Need to ensure States' compliance with
limitation on Federal share of
Medicaid costs

For States which elect to provide assistance to medically needy persons,
the Social Security Act specifies a limitation on the extent of the Fed-
eral share of the costs. This limitation provides a maximum amount of
annual family income for maintenance needs (food, shelter, clothing) to
be used in computing the family share of cost to be applied to medical
bills.
States may specify income levels above the Federal maximum, but the Fed-
eral share of medical costs will be limited to the amount which would
have been allowable ifthe Federal maximum had been used. California's


                               2
     income levels for the medically needy for 2- and 3-member families ex-
     ceeded the Federal maximum. HEW, however, did not limit California's
     claims for Federal funds to amounts based on computations using the Fed-
     eral maximum. Income levels in Illinois and Massachusetts did not ex-
     ceed the Federal maximum.
     HEW paid States' claims for medical costs of persons in seven other States
     which had established income levels that exceeded the Federal limits with-
     out determining whether the States had implemented procedures to limit
     such claims to amounts based on the Federal maximum. (See p. 29.)
    Improvements needed in
    quality control systems

     The quality control system prescribed by HEW provided for a systematic
     and continuous control by State agencies over the correctness of deci-
     sions reached by local welfare agencies, including those pertaining to
     eligibility.
     In California and Massachusetts the quality control systems had been in-
     effective.
       --Quality control data in California had not been tabulated, analyzed,
         or reported to HEW; therefore, causes of significant problems re-
         lating to share-of-cost determinations had not been identified.
         (See pp. 34 and 35.)
       --In Massachusetts, quality control reviews had not been made from
         April 1968 to July 1969. During this period, HEW and the State had
         no assurance that the eligibility and share-of-cost determinations
         being made by individual caseworkers were correct. (See pp. 35
         and 36.)
     The effectiveness of the quality control system in Illinois was reduced
     because the State had reviewed less than the minimum number of cases
     specified by HEW. (See pp. .36 and 37.,)

RECOMMENDATIONS OR SUGGESTIONS

     HEW should
       --evaluate the control systems in the 27 States which currently in-
         clude medically needy persons under their Medicaid programs to iden-
         tify those procedures most effective for ensuring that the recipients'
         share of cost is met for both institutional and noninstitutional ser-
         vices (see p. 26),
       --after identifying these procedures, either (1)disseminate the in-
         formation to the States with the recommendation that the procedures
         be followed or (2)develop a model system for use by the States (see
         p. 26),


                                     3
       --consider the practicability of controlling the administration of the
         recipients' share of cost in cases in which the amount is small or
         the required controls are burdensome (see p. 26),
       --consider alternative approaches to cost sharing if it is determined
         that the administration of the present share-of-cost aspect of the
         program cannot be made practicable (see pp. 26 and 27),
       --seekappropriate adjustments for improper payments charged to Medicaid
         because of failure of those county-operated hospitals in California to
         verify eligibility or to deduct the recipients, share of cost from Medi-
         caid claims (see p. 27),
       --provide for follow-up action to be taken by its regional office of-
         ficials to ensure compliance with the statutory income limitations
         whenever the States' approved income levels are in excess of the
         Federal limitation (see p. 32), and
       --review the action taken by California to improve its quality control
         system and monitor the progress of Massachusetts and Illinois in
         meeting their quality control objectives (see pp. 35 to 37).

AGENCY ACTIONS AND UNRESOLVED ISSUES

     HEW stated that it was in general agreement with the conclusions and re-
     commendations in this report, and it informed GAO of the corrective ac-
     tion it had taken or was taking on each recommendation. HEW stated also
     that it was following up on corrective actions being taken by the States.
     (See pp. 27, 28, 32, 35, 36, and 38.)
     GAO believes that administrative actions taken, or promised, by HEW
     should, if properly implemented, help to improve the effectiveness of
     controls over program requirements relating to medically needy persons
     covered under the Medicaid program.

MATTERS FOR CONSIDERATION BY THE CONGRESS

    This report contains no recommendations requiring legislative action by
    the Congress. It does contain information on weaknesses in agency ad-
    ministration, suggestions for correction or improvement, and proposals
    for improvement by the agency. This information should be of assistance
    to committees of the Congress and to individual members of Congress in
    connection with their legislative oversight responsibilities relating to
    the Medicaid program.




                                       4
                         CHAPTER 1

                       INTRODUCTION

DESCRIPTION OF MEDICAID PROGRAM

     The Medicaid program--authorized by title XIX of the
Social Security Act, as amended (42 U.S.C. 1396)--is a
grant-in-aid program under which the Federal Government
participates in costs incurred by the States in providing
medical assistance to persons who are unable to pay for
such care. Medicaid is administered at the Federal level
by the Social and Rehabilitation Service of the Department
of Health, Education, and Welfare.

     The services provided to Medicaid recipients vary from
State to State; however, as a minimum, all States must pro-
vide inpatient hospital services, outpatient hospital ser-
vices, laboratory and X-ray services, skilled nursing-home
services, and physician services. As of April 1971, 48
States and the District of Columbia, Guam, Puerto Rico, and
the Virgin Islands had adopted Medicaid programs.

     The Federal Government pays from 50 to 83 percent (de-
pending on the per capita income in the States) of the costs
incurred by States in providing medical services under their
Medicaid programs. For fiscal year 1970, the States and
jurisdictions then having Medicaid programs reported expen-
ditures of about $4.8 billion, of which about $2.4 billion
represented the Federal share.

ADMINISTRATION OF MEDICAID PROGRAM

     At the Federal level, the Secretary of Health, Educa-
tion, and Welfare has delegated the responsibility for the
administration of the Medicaid program to the Administrator
of the Social and Rehabilitation Service. Authority to ap-
prove State plans for State Medicaid programs has been fur-
ther delegated to the Regional Commissioners of the Service
who administer the field activities of the program through
HEW's 10 regional offices.

     Under the act the States have the primary responsibil-
ity for initiating and administering their Medicaid programs.

                              5
The nature and scope of a State's Medicaid program are con-
tained in a State plan which, after approval by a Regional
Commissioner of the Service, provides the basis for Federal
grants to the State. Also, the Regional Commissioners are
responsible for determining whether the State programs are
being administered in accordance with the Federal require-
ments and the provisions of the State's approved plan.
HEW's Handbook of Public Assistance Administration provides
the States with Federal policy and instructions on the ad-
ministration of the several public assistance programs.
Supplement D of the handbook and the Service's program reg-
ulations prescribe the policies, requirements, and instruc-
tions relating to the Medicaid program.

     As part of our continuing examination into the manner
in which HEW is discharging its responsibilities relative
to the Medicaid program, we have examined payments made for
Medicaid recipients who have an obligation to pay for part
of their medical care. Our examination was conducted in
California, Illinois, and Massachusetts. Since May 1970 we
have issued eight reports to the Congress on other aspects
of the Medicaid program; these reports are listed in appen-
dix IV.

     The HEW regional offices in San Francisco, Chicago, and
Boston provide general administrative direction for the
Medicaid programs in California, Illinois, and Massachusetts,
respectively.   -


     The HEW Audit Agency is responsible for audits of the
manner in which Federal and State responsibilities for the
Medicaid program are being discharged.

MEDICAID PROGRAM COVERAGE

     Persons receiving public assistance payments under
other titlesl of the Social Security Act are entitled to


1 TitleI, old-age assistance; title IV, aid to families with
 dependent children; title X, aid to the blind; title XIV,
 aid to the permanently and totally disabled; and title XVI,
 optional combined plan for other titles.


                             6
benefits under the Medicaid program. Almost all of the
other persons covered by Medicaid are persons whose income
or other financial resources exceed standards set by the
States to qualify for public assistance programs but whose
resources are not sufficient to meet the costs of necessary
medical care. Coverage of this latter group is at the op-
tion of the States. Those persons receiving public assis-
tance payments generally are referred to as categorically
needy persons, whereas other eligible persons generally are
referred to as medically needy persons.

     As of July 1970, 27 States or jurisdictions had Medi-
caid programs covering both the categorically needy and the
medically needy; 25 States or jurisdictions had programs
covering only the categorically needy. As of July 1970,
about five million medically needy persons were receiving
Medicaid benefits.

     Categorically needy persons are not required to make
any payments from their own funds for medical expenses cov-
ered by State Medicaid programs, whereas medically needy
persons usually are required to pay part of their medical
expenses. The medical expenses which these persons must
pay before Medicaid assistance is provided are referred to
in this report as the recipients' share of cost. Each re-
cipient's share of cost is computed by deducting what the
State has established as necessary for basic living expenses
from a person's income or other resources. The remainder
(recipient's share of cost) is the amount of medical cost
that must be incurred by the recipient before Medicaid will
pay.

MEDICAID PROGRAM IN CALIFORNIA,
ILLINOIS, AND MASSACHUSETTS

     The Medicaid program in California became effective
March 1, 1966, and the State Department of Health Care Ser-
vices is responsible for administering the program. In Il-
linois the Department of Public Aid administers the Medicaid
program which became effective January 1, 1966. In Massa-
chusetts the Department of Public Welfare is the State




                              7
agency responsible for administering Medicaid which became
effective September 1, 1966.1

     The Federal Government pays 50 percent of the medical
services and administrative costs of Medicaid in each of
the three States and 75 percent of costs attributable to
the compensation or training of medical personnel and sup-
porting staff. During fiscal year 1969 California, Illinois,
and Massachusetts reported Medicaid expenditures of about
$1.2 billion, as shown below.

                               Cali-   Illi-    Massa-
                              fornia   nois    chusetts       Total

                                       (000,000 omitted)]

Expenditures on behalf of:
    Categorically needy
      persons                  $495    $ 97      $ 73     $    665
    Medically needy persons     270      69       168          507

        Total                 $765     $166      $241     $1,172

These three States accounted for about 30 percent of all
Medicaid expenditures in fiscal year 1969.

     The following table shows the total number of persons
who were covered under the Medicaid program in these States
at June 30, 1969.


1
From September 1, 1966, through June 30, 1968, administra-
tion was handled by the welfare offices of individual
towns and cities and overall supervision was provided by
the Department of Public Welfare. Effective July l, 1968,
the responsibility for administering the Medicaid program
was transferred to the Department of Public Welfare. Also,
in Massachusetts, the State Commission for the Blind admin-
isters the Medicaid program for the blind. We did not re-
view this aspect of the program because of the relatively
small expenditures ($2 million) made in fiscal year 1969.



                              8
                               Cali-   Illi-    Massa-
                              fornia   nois    chusetts   Total

                                        (000 omitted)

Categorically needy persons    1,555    410       276     2,241
Medically needy persons          200     63       150       413

    Total                      1,755    473       426     2,654

     We examined into the administration of the program for
medically needy persons in Los Angeles County and Cook
County and the city of Boston. Information concerning re-
cipients' share of cost of medically needy persons was not
available at HEW on a nationwide basis, nor was it available
on a statewide basis in California or Massachusetts. On
the basis of our work in Los Angeles County, we estimate
that the recipients' share of cost for a 1-month period in
California was $4 million at the time of our fieldwork
(about $1 million in Los Angeles County). We were unable to
obtain data to make a similar estimate for Massachusetts;
however, we estimated that, in the city of Boston, the re-
cipients' share of cost was about $100,000 a month. In Il-
linois, recipients' share of cost was computed twice a year
on a 6-month basis, and the State advised us that the re-
cipients' share of cost was about $7 million for a 6-month
period (about $3 million in Cook County).

     If the average share of cost for each recipient in the
areas which were included in our review was representative
of the share of cost for all medically needy recipients in
the 27 States or jurisdictions in July 1970, then the re-
cipients' share of cost, on a nationwide basis, would be
about $1.8 billion a year.

COMPUTATION OF RECIPIENTS' SHARE OF COST

     HEW's Social and Rehabilitation Service program regula-
tion 40-7, dated January 28, 1969, provides that (1) in de-
termining eligibility, State plans allow the medically needy
the same exclusions in arriving at net income and resources
as are allowed in the State's public assistance programs
and (2) only such excess income and resources as are actu-
ally available within a period--preferably of not more than

                               9
3 months but not in excess of 6 months ahead--including the
month in which medical services were rendered, be considered
as available to meet medical expenses.

     We found that widely different policies existed in
California, Illinois, and Massachusetts concerning allow-
ances for work-related expenses in computing recipients'
share of cost. An example illustrating how a recipient's
share of cost would have been computed in each of these
States at the time of our fieldwork is presented in appen-
dix II.

     In a letter dated March 11, 1971, commenting on a draft
of this report, HEW informed us that, in view of the widely
differing policies among the States concerning allowances
for work-related expenses, HEW policies were being clarified.




                             10
                         CHAPTER 2

        RECIPIENTS' SHARE OF COST PAID BY MEDICAID

     California, Illinois, and Massachusetts use different
methods to ensure that recipients are eligible for Medicaid;
that, in the case of medically needy persons, their share of
cost has been properly computed; and that recipients have
incurred medical expenses at least equal to their share of
cost before medical expenses are paid under the Medicaid
program. Each of the States needs to improve its method of
ensuring that these conditions have been met before paying
for services under Medicaid. For each location included in
our review, the States had paid for medical services that
should have been paid for by the recipients. On the basis
of our review of a sample of Medicaid claims, we estimated
that:

     -- For three county-operated hospitals in Los Angeles,
       claims paid by Medicaid during 1969 which should have
       been paid by the medically needy recipients may have
       amounted to $1.6 million. Also, during 1969,Medicaid
       payments in the county on claims for physician ser-
       vices, drugs, and other medical services, which should
       have been paid by the recipients, may have amounted
       to $900,000.

     -- In the city of Boston claims paid by Medicaid during
        the 7-month period ended October 1969, which should
        have been paid by the medically needy recipients,
        may have amounted to $61,500.

In Cook County, Illinois, our review of Medicaid payments
for eight hospital cases showed that about $17,700 paid by
Medicaid should have been paid by the medically needy recip-
ients. These payments were made during eligibility periods
encompassing up to 18 months.

     Officials of each State advised us that they were having
difficulty in trying to design and implement an adequate
system to help ensure proper determinations of the recipients'
share of cost and that HEW had not given the States any
guidelines or technical assistance to help them establish
such a system. Details on the practices at each of the loca-
tions visited by us follow.




                             12
LOS ANGELES COUNXY

     Payments to providers for services rendered to Los An-
geles County Medicaid recipients are made by two fiscal
agents. 1 Hospital and nursing-home claims are paid by the
Hospital Service of Southern California,and all other claims
(such as those for physician services and drugs) are paid by
the California Physicians Service. State instructions to
the fiscal agents require that claims submitted for services
provided to a medically needy recipient who is responsible
for paying a part of the cost should not be paid unless (1)
a listing completed by the recipient showing the medical ex-
penses incurred to meet the recipient's share of cost is at-
tached or (2) the provider certifies on the claim submitted
that the recipient has shown him a listing indicating that
the recipient's share of cost has been met.

Claims submitted by countY-operated hospitals

     In November 1967 the State authorized the Hospital Ser-
vice of Southern California to pay claims submitted by
county-operated hospitals in Los Angeles County for services
provided to medically needy persons without verifying their
eligibility for Medicaid. This authorization was based on
the State's understanding that the county had (1) sufficient
confidence in its hospital admission practices, which in-
cluded verification of eligibility with the local welfare
office, that claims for ineligible persons would not be sub-
mitted and (2) accepted liability for any improper claims.
In January 1968 the State offered to hospitals operated by
other counties an opportunity to use this procedure. As of
September 1970, 15 other counties had accepted this offer.

     During 1969 the nine hospitals operated by the county
of Los Angeles submitted to the fiscal agent Medicaid claims
amounting to $25 million for services provided to the medi-
cally needy. Three of these hospitals accounted for about
$20 million, or 80 percent of the amount claimed. At these
three hospitals we sampled 312 of the claims submitted in


1 Fiscal agents are private organizations assigned Medicaid
 functions and responsibilities under contract with the
 States.

                             13
December 1969. As shown in the following table, 128 of the
312 claims were submitted without appropriate deductions
having been made for the recipients' share of cost or were
submitted for persons whose Medicaid eligibility had ex-
pired.

                     Number of claims
                               Recipients'
                              share of cost
                                      Correct
                     Eligi- Correct    deduc-     Total amount
                     bility deduc-      tion               Paid
             Exam-    ex-     tion      not                 in
             ined    pired    made      made     Claimed error

Inpatient    143        6      107       30     $193,870 $12,201
Outpatient   169       41       77      1          9,787   4,573

    Total    312       47      184      A1      $203.657 $16.774

     The three hospitals had procedures for verifying the
eligibility for outpatient services at the time of a per-
son's first visit to the hospital but did not have proce-
dures for rechecking eligibility during subsequent visits.
As a result, persons whose eligibility had expired because
of changed family or financial circumstances continued to
receive Medicaid outpatient services. Of the 169 outpatient
claims which we examined, about 25 percent were for ineli-
gible persons.

     The eligibility of inpatients was determined upon ad-
mission by each of the three hospitals; however, eligibility
was not rechecked during a patient's stay. In cases where a
long stay was involved and eligibility circumstances changed,
incorrect payments resulted. We found six such cases among
the 143 inpatient claims which we examined.

     We found that, at two of the three hospitals, no at-
tempt had been made to ascertain for outpatients the recipi-
ents' share of cost. At the other hospital, information
about outpatients' share of cost had been obtained when ini-
tial medical assistance was provided; however, there was no
provision for updating this information. As a result,


                              14
changes in recipients' share of cost were not recognized
when later services were provided.

     All three hospitals obtained the recipients' share of
cost from the local welfare office when patients were admit-
ted to the hospital; however, as with outpatient services,
this information was not updated.

     Incorrect deductions for the recipients' share of cost
had been made on about 25 percent of the 312 claims which we
reviewed. We asked the local welfare agency to interview 20
of the recipients for whom a share-of-cost deduction had not
been made to determine whether their share of cost may have
been met elsewhere. Of these recipients, 15 advised the lo-
cal welfare agency that the amount of medical expenses in-
curred by them had been less than their share of cost, four
recipients furnished information showing that their share of
cost had been met, and one recipient could not be located.
     Because of the manner in which the Hospital Service of
Southern California maintained and filed its claims data,
it was not practicable for us to obtain and analyze a sample
from all claims paid for the nine county-operated hospitals
during 1969. We selected the month of December 1969 for
examination because all claim transactions were complete and
the related data was reasonably accessible at the hospitals
for oureexamination. The amount of claims processed for
this month--for the three hospitals included in our sample--
was in line with the amount of monthly transactions pro-
cessed during the entire year for these hospitals; compa-
rable data was not available regarding the number of claims
processed.

     Officials at each of the three hospitals stated that
the claims-processing procedures had not changed during the
year. By applying the percentage of error for the 312
claims included in our December 1969 sample to all claims
submitted during 1969 by the three hospitals, we arrived at
an amount of $1.6 million, which we consider to be a reason-
able estimate of the amount of claims which may have been
paid by Medicaid which should have been paid by the recip-
ients.




                             15
     We discussed our findings with officials of the Los An-
geles County Department of Hospitals who agreed that correc-
tive action was needed. They advised us that new procedures
would be adopted to help ensure that future eligibility and
share-of-cost determinations were proper.

     State officials advised us that they had considered
the procedures in operation at each of the hospitals to be
adequate for preventing such payments. (See p. 13.) They
also stated that they had not tested the controls at the
hospitals operated by Los Angeles County or at the hospitals
operated by the other 15 counties given similar approval
but would review the procedures and controls in future
State audits.
     A regional official of the Social and Rehabilitation
Service stated that HEW had been unaware of the agreements
between the State and the counties to permit the fiscal
agent to bypass routine eligibility and share-of-cost con-
trols.

     We believe that the State should make a review to de-
termine the amount of improper payments made on the coun-
ties' past claims. Also, the responsibility for verifying
recipients' eligibility and their share of cost should be
vested with an organization, such as the fiscal agent or
the State, that does not submit the claim. If this is not
considered practicable, the State should (1) assist counties
to develop procedures to ensure proper determination of re-
cipients' eligibility and share of cost and (2) periodically
evaluate the adequacy of the procedures.

     In a letter dated November 13, 1970, commenting on a
draft of this report, the State informed HEW that it was in
the process of gathering information needed to adjust those
Medicaid claims found to have beenimproperly paid. The
State informed HEW also that, effective August 1, 1970,
State Medicaid regulations were revised to provide for di-
rect administrative control by the State over determinations
of recipients' eligibility and share of cost through the
creation of the Medically Needy Operations Bureau, which was
auditing, on a sample basis, the share-of-cost computations
made by the counties.



                             16
Claims submitted for
noninstitutional medical services

      Claims for noninstitutional medical services, such as
physician services and drugs, were usually paid by the Cali-
fornia Physicians Service without assurance that the recipi-
ents had met their share of costs. As a result, amounts
which should have been paid by recipients were paid by Medi-
caid.

     We selected, on a random basis, 137 of about 28,000
claims paid in October 1969 by this fiscal agent on behalf
of medically needy recipients residing in Los Angeles County.
County welfare agency records showed that (1) six claims
were for persons who were not eligible at the time the ser-
vice was provided, (2) 86 claims were for recipients whose
share of cost ranged from $1 to $975 a month, and (3) 45
claims were for recipients whose share of cost was zero.1

     Our review of the 86 claims paid by the fiscal agent on
behalf of recipients who were responsible for paying a part
of the cost showed that (1) 19 claims were supported by Med-
icaid identification cards showing the recipients' share of
cost and by listings showing providers of services and the
incurred costs to be applied toward meeting the recipients'
share of cost, (2) one claim was supported by an identifica-
tion card showing a share of cost which had been deducted
from the claim, and (3) documentation supporting 66 claims
did not show whether the recipients' share of cost had been
met. There was no support for the claims submitted for the
six persons who were ineligible.

     We asked the county welfare agency to interview the 66
recipients to determine whether they had met their share of
cost. Following are the results of these interviews.


1A recipient can have a zero share of cost when (1) he is
 ineligible for public assistance under one of the categor-
 ical programs (see p. 7) but has no excess income or re-
 sources to meet his medical needs or (2) he is eligible
 for a categorical program--and therefore has no excess in-
 come or resources--but, for one reason or another, does
 not desire the public assistance funds.


                            17
                                                 Amount which
                                      Amount      should have
                        Number of    of claims   been paid by
                        recipients     paid        recipient
Share of cost met           19       $1,917           -
Share of cost not met       24        3,491        $1,438
Sufficient data not
  available to make a
  determination or
  recipient had died,
  moved, or could not
  be located                23         2,595          -
    Total                   66       $8 003        $1.438

     Because of the manner in which the California Physicians
Service maintained and filed its claims data, it was not
practicable for us to obtain and analyze a sample from all
claims paid during 1969. We selected the month of October
for examination because, on the basis of monthly claim vol-
ume (number and amount) and discussions with California
Physicians Service officials, this month appeared to be in
line with the monthly transactions during 1969. By apply-
ing the error rate for the 137 claims in our October 1969
sample to all claims paid during 1969 for medically needy
recipients in Los Angeles County, we arrived at an amount
of $900,000, which we consider to be a reasonable estimate
of the amount of claims which may have been paid by Medi-
caid which should have been paid by the recipients.

     In commenting on a draft of this report, the State in-
formed HEW that, in addition to revising its control system,
it recently had established the Medically Needy Operations
Bureau to perform a claims-clearance function that would pre-
vent Medicaid payments to providers for those services re-
ported by recipients as applicable to their share of cost.

     Regional officials of HEW's Social and Rehabilitation
Service advised us that, in their opinion, the establishment
of the special unit to deal with share-of-cost problems and
revisions to the State's present control system should solve
the problems identified during our review.
CITY OF BOSTON

     In Massachusetts, Medicaid payments are made by the
State through 43 finance centers; one such center is in Bos-
ton. The Boston finance center did not determine whether
recipients had met their share of cost before payments to
providers were made, except for Medicaid claims for nursing-
home services. Further, we found that State instructions
to the finance centers and to the local welfare offices did
not provide specific guidance on how the share of cost of
medically needy recipients should be computed and met. On
the basis of our sample of claims, we estimated that the fi-
nance center made payments of about $61,500 during the
7-month period ended October 31, 1969, which should have
been paid by recipients.

     The regional finance center in Boston does not have a
central file of recipients who are responsible for paying
their share of cost. From the center's records, however,
we were able to identify 848 medically needy recipients who
had a share-of-cost requirement for which Medicaid claims
had been paid during the 7-month period ended October 31,
1969. We sampled 109 of these 848 recipients.

     Our review of the records revealed no documentation in-
dicating that the share of cost had been met. The deputy
administrator of the regional finance center advised us that
there were no procedures to ensure that the share of cost
was met. At our request, the finance center mailed letters
of inquiry to the 109 recipients in our sample,requesting
that they advise us of the medical expenses met through
their resources during those months in which Medicaid pay-
ments had been made on their behalf and that copies of the
medical bills be forwarded to us. Replies were received from
91 recipients; the other 18 recipients could not be located
by mail or by the regional finance center representatives.

     Our review of the replies showed that 58 Medicaid re-
cipients had not paid any of their share of cost of $15,617
and that 33 recipients had paid only $961 of their share of
cost of $4,708.




                             19
     Since State instructions did not provide specific guid-
ance on how the recipients' share of cost should be
administered, we requested the Department of Public Welfare
to inquire into the methods used by 24 of its local welfare
offices in administering the recipients' share of cost.
Two offices replied that they did not have any procedures
for administering the recipients' share of cost; the remain-
ing offices described various procedures which were used to
administer the recipients' share of cost.

     State officials advised us that action would be taken
to establish procedures to administer the recipients' share
of cost.




                            20
COOK COUNTY

     In September 1969 there were 18,426 medically needy
cases on State rolls in Cook County. Of this total, 11,582
were shown as having insufficient income and resources and
were not required to share in their medical expenses; the
remaining 6,844 had a share-of-cost obligation.

     Of those having a share of cost, 557 cases involved
noninstitutional care, 133 involved primarily hospital care,
and 6,154 involved nursing-home care. The 6-month share
of cost for noninstitutional care, hospital care, and
nursing-home care was about $144,000, $64,000, and
$2,858,000, respectively. We selected for review 74 of
these cases, of which eight involved hospital care, 36 in-
volved nursing-home care, and 30 involved noninstitutional
services.

Hospital claims

     The Illinois manual of instructions provides that, if
a person is in a hospital at the time the determination of
eligibility is made and is responsible for paying a share
of the cost, he is to pay his share to the institution; the
balance will then be authorized for payment by the State.
The local welfare agency is to notify both the recipient
and the hospital of the share of cost to be paid by the re-
cipient.

     For five of the eight hospital cases reviewed, $17,721
that should have been paid by the recipients was paid by
Medicaid, during eligibility periods encompassing up to 18
months, because, for the most part, the local welfare agency
did not furnish the hospital with correct share-of-cost in-
formation. However, in some cases, the hospitals did not
deduct from the bills submitted to the State the recipients'
share of cost as reported to the hospitals by the local wel-
fare agency.

     We found that the State had relied entirely on the hos-
pitals to ensure that the recipients' share of cost had been
deducted from claims before they were submitted to the State
for payment. The State had not established controls to ver-
ify that proper deductions had been made from the claims

                             21
before they were submitted. We also noted that the form
used by the local welfare agency to notify the hospitals of
the recipients' share of cost did not provide for the hos-
pitals to deduct the share of cost from their billings to
Medicaid unless payments had actually been made by the re-
cipients.

     We recognize that our findings in Cook County are not
necessarily representative of the entire State; however,
we believe that the State should review hospital claims to
determine whether proper share-of-cost deductions have been
made. Also, the form used to notify the hospitals of the
recipients' share of cost should be revised to provide for
deductions of the share of cost from the Medicaid claims
whether or not they have been paid by recipients as is done
for nursing-home claims. (See below.)

     The director of the Illinois Department of Public Aid
advised us that a review would be made of the other hospital
claims for medically needy persons to identify cases where
recipients had not met their share of cost and that, where
appropriate, reimbursements would be sought. Also, State
officials advised us that they would consider revising the
hospital notification form and establishing controls to
verify that the proper deductions for recipients' share of
cost were made from hospital bills prior to payments by the
State.

Nursing-home claims

     Our review showed that, in most cases involving
nursing-home claims, procedures for administering the share
of cost were adequate. As in the case of hospitals, the
Illinois manual of instructions provides that persons re-
ceiving nursing-home care pay their share of cost to the
institutions. The local welfare agency notifies the nursing
homes of the recipients' eligibility and share of cost. Un-
like hospitals, nursing homes are required to deduct the
share of cost from the claims before submitting them to
Medicaid. The 6-month share of cost is prorated on a monthly
basis so that the nursing homes deduct one sixth of the re-
cipients' share from each monthly claim submitted. Before
paying the claims, the State verifies that the recipients'
share of cost has been deducted.

                            22
     We sampled 36 claims involving nursing-home care for
persons whose share of cost for 6 months totaled $40,777.
Since the share of cost was prorated on a monthly basis, we
examined all claims paid for a 6-month share-of-cost period,
or a total of 164 nursing-home claims. We found that the
nursing homes had been correctly notified by the local wel-
fare agency of each recipient's monthly share of cost and
that the nursing homes had made the proper deductions for
143 of the claims examined. The remaining 21 claims in-
volved improper payments totaling about $725. These pay-
ments were made because (1) for 16 claims, the local welfare
agency furnished incorrect share-of-cost information to the
nursing homes and to the State and (2) for five claims, the
nursing homes did not deduct the recipients' share of cost
as shown in the notification from the local welfare agency
and the errors were not detected by the State.

Noninstitutional claims

     State Medicaid instructions state that, if the recip-
ient is primarily in need of noninstitutional services (phy-
sician services, drugs, or other medical care outside a hos-
pital or nursing home) and has a share-of-cost obligation,
he is to pay the share of cost monthly into an account estab-
lished by the collection unit of the local welfare agency.
In turn, the State will pay all of the recipient's medical
bills.
     State records showed that there were 557 noninstitu-
tional cases in Cook County and that the share of cost for
these cases totaled $144,000. Collection accounts had been
established for 47 of these cases; their share of cost to-
taled $6,300. We selected for review 30 cases from the re-
maining 510 for which collection accounts had not been es-
tablished.
     We found that collection accounts should have been estab-
lished for 17 of the 30 cases and that,as a result of their
not having been established, claims of $1,188 had been paid
by Medicaid which should have been paid by the recipients.
The accounts had not been established principally for the
reason that the caseworkers had not advised the collection
unit that the recipient had a share-of-cost obligation. For
the remaining 13 cases, we found that, although State records
indicated that recipients had a share-of-cost obligation, the

                             23
recipients did not have such obligations. The State records
were incorrectbecause the local welfare agency had failed
to advise the State of subsequent changes to the recipients'
share of cost or had incorrectly computed the share of cost
reported to the State.




                            24
HEW'ASSISTANCE TO STATES CONCERNING
RECIPIENTS' SHARE OF COST

     The extent of assistance furnished to the States by-re-
gional officials of the Social and Rehabilitation Service
generally has been limited to that of a liaison between the
State and the Service's headquarters. The regional officials
have been able to provide only limited assistance to the
States in administering these Medicaid programs, and little
of this assistance has involved the share-of-cost aspects
of the program.
     Although Program Review and Evaluation Project reviews
were conducted jointly by HEW headquarters and regional of-
fice staff in California, Illinois, and Massachusetts, these
reviews were of limited scope and duration. The share-of-
cost aspects of the program were not covered in reviews in
Illinois and Massachusetts and were only briefly mentioned
in a review in California. We noted the following comments,
however, in an HEW headquarters staff report on review work
done in seven States, including Illinois and Massachusetts.
     "The application of any excess income of medically
     needy persons is such a complicated and unproduc-
     tive task administratively that the States visited
     have given it low priority. ยท They do attempt to ap-
     ply it for institutional care, but not for ambula-
     tory care ***."

The HEW regional officials, however, had not provided any
assistance to the State to solve the administrative problems
which existed.

     In HEW's Chicago Regional Office (responsible for five
States), the staff assigned to the Medicaid program con-
sisted of only two persons. In both California (responsible
for seven States plus Guam) and Massachusetts (responsible
for six States), there were three persons assigned to Medi-
caid activities. Regional officials advised us that limited
staffing had prevented them from giving greater assistance
to the States and that they had to rely upon the States to
review and evaluate Medicaid activities. We noted that an
HEW Audit Agency report dated August 26, 1969, on audits in
16 States pointed out that regional office staff assigned to
Medicaid usually consisted of two professionals who made

                             25
limited program evaluations and surveillance, if they made
any at all.

CONCLUSIONS

     California, Illinois, and Massachusetts have encoun-
tered difficulties in administering the recipients' share-
of-cost aspect of the Medicaid program. As a result, Medi-
caid has paid for medical services which should have been
paid for by recipients. We believe that strengthening ex-
isting procedures pertaining to identifying and accounting
for recipients' share of cost or instituting such procedures
where none are in force would significantly reduce this prob-
lem.-

     Although officials in each State generally agreed with
our findings, they stated that the complexity of share-of-
cost determinations made the relative value of trying to
monitor the administration of the share of cost questionable
except in cases in which significant amounts were involved
or in which controls could be easily applied (such as when
recipients were in hospitals or nursing homes).

RECOMMENDATIONS TO THE SECRETARY OF
HEALTH, EDUCATION, AND WELFARE

     We recommend that the Secretary of Health, Education,
and Welfare have the Social and Rehabilitation Service eval-
uate the systems of control in existence in the 27 States
which currently include medically needy persons under their
Medicaid programs to identify those procedures which appear
most effective for ensuring that the recipients' share of
cost is met for both institutional and noninstitutional ser-
vices. After identifying these procedures, the Service
should either (1) disseminate the information to the States
with the recommendation that the procedures be followed or
(2) develop a model system for use by the States.

     We recommend also that the Secretary have the Social
and Rehabilitation Service--as part of the above evaluation--
consider the practicability of controlling the administra-
tion of the recipients' share of cost in cases in which the
amount is small or the required controls are burdensome. If
it is determined that the administration of the existing

                             26
share-of-cost aspect of the program cannot be made practi-
cable, the Service should consider alternative approaches to
cost sharing. For example, one approach suggested in the
Senate Committee on Finance staff report on "Medicare and
Medicaid, Problems, Issues, and Alternatives" issued on Feb-
ruary 9, 1970, was to revise title XIX to allow States to
use a method of obtaining a share of cost from a recipient
which would not be entirely dependent on the recipient's in-
come and resources. House bill 1, introduced on January 22,
1971, to amend the Social Security Act contains a stipulation
which would permit States to apply copayment provisions to
claims of medically needy persons, which are not related to
income.

     We recommend further that the Secretary seek appropriate
adjustments for past improper payments charged to Medicaid
because of failure of those county-operated hospitals in
California to verify eligibility or to deduct the recipients'
share of cost from Medicaid claims.
AGENCY COMMENTS AND ACTIONS

     By letter dated March 11, 1971, the Assistant Secretary,
Comptroller, HEW, furnished us with HEW comments on our find-
ings and recommendations. (See app. I.)

     HEW agreed with our recommendation that the Service
evaluate the systems of control in existence in the 27 States
which currently include medically needy persons under their
Medicaid programs to identify those procedures which appear
most effective for ensuring that the recipients' share of
cost is met for both institutional and noninstitutional ser-
vices.

     HEW informed us that it was reviewing the procedures
used in all 27 States that cover the medically needy to en-
sure that (1) recipients' incomes are properly taken into
account in paying medical bills and making claims for the
Federal share of such bills and (2) payments for medical ser-
vices that are not subject to Federal sharing are excluded
from the claims. HEW stated that, when the results of these
efforts were sufficient to make a reasonable evaluation, it
expected to develop a joint plan of action by the several
units in HEW that would need to be involved.


                              27
     HEW informed us also that the plan of action and the
consideration of alternatives would take into account the
effect and impact that any congressional action on proposed
legislative changes would have on program operations. HEW
stated that, in the meantime, it was pursuing the matter of
corrective action when HEW reviews indicated that the pro-
cedures in an individual State were ineffective.

     HEW agreed with our recommendation that it seek appro-
priate adjustments for past improper payments caused by
failure of those county-operated hospital in California to
verify eligibility or to deduct the recipients' share of cost
from Medicaid claims. HEW informed us that the State had
promised to adjust improperly paid Medicaid claims and that
HEW would follow up on the action promised by the State.

     Concerning the discussion on pages 25 and 26 relating
to the limited HEW staff available to assist the States in
administering the Medicaid program, HEW stated that, al-
though some increases had been made, the staff was still
inadequate for in-depth surveillance of State and local
operations, particularly in the fiscal area. HEW stated
that the staffing problems were, in larger part, due to a
scarcity of employees qualified in medical care administra-
tion and expressed the hope that the authority provided by
the enactment on January 5, 1971, of the Intergovernmental
Personnel Act of 1970 would assist in solving problem.



     We believe that the actions taken and promised by HEW
will help to improve the effectiveness of controls over re-
cipients' share of cost.




                             28
                        CHAPTER 3

        NEED FOR HEW TO ENSURE STATES' COMPLIANCE

                WITH STATUTORY LIMITATION

           ON FEDERAL SHARE OF MEDICAID COSTS

     For States which elect to provide assistance to medi-
cally needy persons, title XIX specifies a limitation on the
extent of the Federal share of the costs. This limitation
is in the form of a maximum amount of annual family income
for maintenance needs (food, shelter, clothing) to be used
in computing the family share of cost to be applied to medi-
cal bills. States may specify income levels above the Fed-
eral maximum, but HEW's financial participation in medical
assistance will be limited to the amount which would have
been allowable if the Federal maximum had been used.

     HEW needs to take steps to ensure that State claims for
the Federal share of the costs of medical services provided
to medically needy persons do not include amounts which ex-
ceed maximums specified under section 1903 (f)(l)(B)(i) of
the act. We found that HEW had paid claims submitted by
California for the period July 1 through December 31, 1968,
for persons whose incomes exceeded the limitations set forth
in the act. We noted that, although these limitations were
not exceeded in Illinois and Massachusetts, HEW paid claims
from seven other States where such limitations were exceeded.

     Title XIX limits the annual income that States may per-
mit medically needy families to use for maintenance needs
(in computing their share of cost) to a certain percentage
of the amount paid by the State to families receiving public
assistance under title IV, aid to families with dependent
children. The following percentages were used.

     1. From July 1 to December 31, 1968, 150 percent; dur-
        ing 1969, 140 percent; and thereafter, 133-1/3 per-
        cent for States which had an approved-title-XIX
        program prior to July 26, 1967.

     2. For those States whose title XIX program was approved
        after July 25, 1967, 133-1'/3 percent.

                              29
     To illustrate, for the period July 1 through Decem-
ber 31, 1968, under the aid to families with dependent
children program, California paid a family consisting of
two persons $155 a month for maintenance. Thus, under the
provisions of title XIX, a medically needy family of two
would have been allowed $233 (150 percent of $155) of its
income for maintenance in computing its share of cost. We
found, however, that California had allowed $281 monthly,
or $48 more than allowed by the act. If a State chooses
to use higher income levels than the maximum established
using the Federal formula, HEW requires that the levels be
submitted to HEW for prior approval and that procedures be
established to ensure that claims for financial participa-
tion are limited to the income levels provided by law. In
the illustration given, California would have had to pay
100 percent of the first $48 a month of Medicaid claims for
this family.

     During the period July 1 through December 31, 1968,
the income levels established by California for 2- and 3-
member medically needy families exceeded the Federal limi-
tations. Claims for Federal funds were not limited to
amounts which would have been paid if the Federal maximum
income levels had been used, therefore some part of the
State's claims during these 6 months should not have been
paid by Medicaid. Since about 75,000 Medicaid claims were
for 2- and 3-member families during this 6-month period, we
believe that the amount of payments made by HEW which should
have been made by the State was substantial.

     State officials informed us that, because HEW had been
delinquent in advising them of the manner in which to apply
the Federal limitations, California should not be held fi-
nancially responsible for the questioned payments.

     HEW regional officials did not agree with the State
regarding the inappropriateness of an adjustment. The Act-
ing Regional Commissioner, Social and Rehabilitation Ser-
vice, by letter dated February 20, 1970, informed the Cali-
fornia Department of Health Care Services that an adjustment
should be made for excess funds claimed from July through
December 1968.




                             30
     Other States also may have received incorrect payments
because their established income levels for medically needy
persons exceeded the Federal limitations. During the July
1968 to March 1970 period, seven other States had income
levels that exceeded Federal limitations for various family-
size categories. The Social and Rehabilitation Service paid
claims to these States without determining whether they had
implemented procedures to limit such claims to the Federal
maximum. Service officials advised us that the HEW Audit
Agency had not examined into this aspect of the States' Medi-
caid programs.

     The States with income standards in excess of the Fed-
eral maximums, including the family size and the amounts in-
volved for the applicable periods, are listed in appendix
III.
     In a letter dated March 17, 1970, we requested that the
Administrator of the Social and Rehabilitation Service (1)
examine into the extent to which Federal funds in excess of
authorized amounts may have been paid to the eight States.
and effect adjustments where appropriate and (2) ensure
that procedures are adequate to exclude from future Federal
claims amounts which should be paid by the States.

     The Administrator, in a letter of instruction dated
May 18, 1970, to the Regional Commissioners, directed that
reviews be made of this matter. As indicated on page 28,
HEW informed us that it was in the process of taking actions
aimed at correcting past improper payments.

CONCLUSION

     HEW needs to establish procedures to ensure that States'
claims for the Federal share of the costs of medical ser-
vices provided to medically needy families do not include
amounts which exceed maximums specified under section 1903
(f)(l)(B)(i) of the act.

RECOMMENDATION TO THE SECRETARY OF
HEALTH, EDUCATION, AND WELFARE

     In view of the corrective action now under way, we are
not making any recommendations relating to adjustments re-
quired for past payments.
                             31
     We are recommending, however, that the Secretary of
Health, Education, and Welfare have the Social and Rehabili-
tation Service, whenever it approves State income levels in
excess of the 133-1/3-percent criterion, require that follow-
up action be taken by regional officials to ensure compliance
with the statutory limitation.

AGENCY COMMENTS AND ACTIONS

     In commenting on the above recommendation (see app. I),
HEW stated that it had emphasized to all regions the need
for regional officials to take follow-up action to ensure
compliance with the statutory limitation when State income
levels in excess of the 133-1/3-percentcriterionwere ap-
proved. HEW stated that it planned to determine whether
appropriate action had been taken in such instances.

     HEW stated also that the Social and Rehabilitation
Service was reviewing the control procedures in California
and the other seven States that had income levels for the
medically needy in excess of the statutory limitation.
HEW stated further that it was pursuing the matter of adjust-
ments for those States which had not established procedures
for excluding ineligible costs from their claims for Medi-
caid funds.



     We believe that the actions taken and promised by HEW
will help to obtain compliance with the statutory limitation
on the amount of recipients' incomes to be considered in
determining their share of cost and in claiming Medicaid
funds.




                              32
                         CHAPTER 4

      IMPROVEMENTS NEEDED IN QUALITY CONTROL REVIEWS

      Our review showed that the quality control review sys-
tems--which for title XIX are means of controlling the
level of ineligibility and/or incorrect share-of-cost com-
putations--in California and Massachusetts had been ineffec-
tive.

     The HEW Handbook of Public Assistance Administration
requires that a quality control system be used by the States
in administering the Medicaid program. At the time of our
fieldwork, the system's basic objective was to provide a
systematic and continuous control by the State agency over
the correctness of decisions reached by local welfare agen-
cies, including those pertaining to eligibility. The sys-
tem encompassed (1) reviewing continuously samples of local
agency actions, (2) assembling and analyzing the findings,
(3) planning and carrying out corrective measures to deal
with problem areas as they come to the State agency's atten-
tion, and (4) reporting periodically to HEW on the results
of the reviews.

     Quality control data in California had not been tabu-
lated, analyzed, or reported to HEW, and, as a result, causes
of significant problems relating to share-of-cost determina-
tions had not been identified. In Massachusetts quality
control reviews were not made from April 1968 to July 1969.
During this period HEW and the State had no assurance that
eligibility and share-of-cost determinations being made by
individual caseworkers were correct. In Illinois the ef-
fectiveness of the quality control system was reduced be-
cause the minimum number of cases required by HEW had not
been sampled.

     HEW requires the States to submit annually reports on
the results of their reviews. The first quality control
reports for Medicaid were to have been submitted on June 30,
1969, and were to have covered the 12-month period April 1,
1968, through March 31, 1969. The second report was to
have covered the period July 1, 1969, through June 30, 1970.
HEW suspended quality control requirements for all States
during the period April 1, 1969, through June 30, 1969, be-
cause of its plan to introduce a revised system on July 1,

                            33
1969. HEW later changed its plan, however, and the existing
system was resumed on July 1, 1969. On October 1, 1970,
HEW directed all States to implement a revised quality con-
trol system.

     The revised system provides for a continuous review of
statistically reliable, statewide samples of cases and em-
phasizes the implementation of corrective measures to deal
with problems that have been identified. As of March 11,
1971, California had not fully implemented HEW's quality
control system.

NEED FOR TIMELY ANALYSIS AND
REPORTING IN CALIFORNIA

     As of June 1970, California had not submitted its re-
quired annual report for the period ended March 31, 1969.
State officials informed us that the required number of re-
views had been made but that the data had not been analyzed
because of staffing limitations.

     The HEW Audit Agency in a report dated June 25, 1969,
commented on the State's need to tabulate and analyze the
review results. The HEW Audit Agency's analysis of the data
accumulated by the State showed that errors had been made
by caseworkers in determining the recipients' share of cost
in 17 percent of the cases sampled by the State. These
errors were made because of the local welfare staff's in-
correct computations and incorrect application of the Ser-
vice's regulations. In some cases the errors were caused
by the recipients' misstating their incomes and resources
at the time they applied for Medicaid.

     In commenting on the HEW Audit Agency's findings, the
State, in a letter dated July 25, 1969, to the Regional
Commissioner of the Social and Rehabilitation Service,
stated that it was working on improving its quality control
system so that a higher level of surveillance could be
maintained. In June 1970 State officials advised us, how-
ever, that insufficient staffing continued to limit the ef-
fective implementation of the quality control system.

     The Audit Agency's findings demonstrate the need for the
timely analysis and reporting of the results of quality

                               34
control reviews. Because the State had not analyzed the re-
sults of its reviews at the completion of our fieldwork,
one of the primary purposes of the quality control system--
the planning and implementation of corrective measures to
deal with significant problem areas--had not been achieved.
As of May 1971, California still had not submitted its an-
nual report for the period ended March 31, 1969.

Recommendation to the Secretary of
Health, Education, and Welfare

     We recommend that the Secretary of Health, Education,
and Welfare have the regional office review the action taken
by California to improve its quality control system, includ-
ing the impact of the State's staffing problems on achieving
the desired results of quality control.

Agency comments and actions

     In commenting on the above recommendation (see app. I),
HEW stated that the implementation of the new Federal qual-
ity control system beginning October 1, 1970, included
plans for monitoring and reviewing State quality control op-
erations. HEW stated also that arrangements had been made
to have evaluations of the operations of some States, in-
cluding California, Illinois, and Massachusetts, made under
contract.

QUALITY CONTROL PROGRAM
DELAYED IN MASSACHUSETTS

     Quality control reviews were to be initiated by the
State on April 1, 1968. These reviews, however, were not
initiated by Massachusetts until July 1, 1969. During this
period $286 million was expended by the State for medical
assistance furnished to its medically needy. HEW approved
the State's request dated December 18, 1967, to delay imple-
mentation of a quality control system because of a reorgani-
zation of the State's public welfare system.

     Prior to July 1, 1968, the public assistance programs
were operated by local public welfare offices which were
individually responsible for administration of the programs
in their locales. Effective July 1, 1968, the administrative

                              35
responsibility was placed with a single State organization
comprising the 270 local offices. According to the State,
the use of the quality control staff was essential to accom-
plish the reorganization; thus the quality control staff
would not have been able to carry out its normal duties.

     HEW approved the State's request with the understand-
ing that quality control reviews would be resumed on Sep-
tember 1, 1968, and would include a larger sample of cases
than that normally required. The State, however, was unable
to resume the reviews, contrary to its agreement. After
several months of correspondence between the HEW regional
office and the HEW headquarters regarding the State's delay
in implementing a quality control system, HEW decided in
January 1969 that, in view of the ongoing difficulties in
the welfare reorganization, the State would be exempted from
making quality control reviews until July 1, 1969.

     On July 1, 1969, Massachusetts resumed its quality
control program for fiscal year 1970. At the completion
of our fieldwork in June 1970, however, we noted that the
State had reviewed only 280 (or about 64 percent) of the
439 cases selected for quality control review.

Recommendation to the Secretary of
Health, Education, and Welfare

     We recommend, therefore, that the Secretary of Health,
Education, and Welfare have the regional office closely
monitor the progress of Massachusetts in meeting its quality
control objectives and provide the necessary assistance to
ensure that the State's quality control system is effective.

Agency comments and actions

     In commenting on the above recommendation (see app. I),
HEW stated that, with added staff and the new quality con-
trol system, the objectives should be obtained.

MINIMUM SAMPLE NOT REVIEWED IN ILLINOIS

     Quality control reviews in Illinois were initiated on
April 1, 1968, as required by HEW. The number of cases re-
viewed by the State, however, during the 12-month period

                              36
April 1, 1968, through March 31, 1969, was considerably less
than the minimum number of cases specified for review by
HEW.

     HEW initially specified a minimum annual sample size
for Illinois of 450 cases but subsequently reduced the size
for States, such as Illinois, that were experimenting with
new eligibility determination methods. For Illinois the
minimum annual sample size was reduced to 335 cases.

     For the period April 1, 1968, to September 30, 1968,
Illinois complied with the initial HEW sample size and, be-
ginning October 1, 1968, implemented the revised sample
size for the second 6 months of the annual reporting period.
Consequently, the minimum sample size as prorated for the
12-month reporting period was 392 cases.

     The State's objective was to select 408 cases, slightly
more than the minimum number required by HEW. However, the
number of cases reviewed, 328, was less than the minimum
sample size required by HEW.

     The specified sample size was not achieved because some
of the cases selected involved persons who had subsequently
died or moved or who could not be located. Some of the
cases selected did not represent new eligibility and share-
of-cost determinations, but they were reported as such by
the counties to the State although they involved only changes
of address or some other administrative action.

     State officials informed us that they did not consider
the underrun in the cases sampled to be significant. HEW
officials advised us that the minimum sample size would be
increased substantially beginning October 1970 and that the
problem of inadequate sample size should be corrected.

Recommendation to the Secretary of
Health, Education, and Welfare

     We recommend that, to determine whether an adequate
number of cases are reviewed, the Secretary of Health, Ed-
ucation, and Welfare have the State's progress in attaining
the expanded quality control sample size monitored.



                            37
Agency comments and actions

     In commenting on the above recommendation (see app. I),
HEW stated that the new quality control system provided for
a substantially increased sample size and that HEW's initial
evaluation plans were aimed at evaluating the effectiveness
of the new system in achieving the desired results.



     We believe that the actions taken and promised by HEW
will help to improve quality control reviews.




                              38
APPENDIXES




  39
I
                                                                    APPENDIX I




                          DEPARTMENT OF HEALTH, EDUCATION, AND WELFARE
                                       WASHINGTON, D.C.   20201



OFFICE OF THE SECRETARY                   MAR 11 1971




             Mr. John D, Heller
             Assistant Director, Civil Division
             U. S. General Accounting Office
             Washington, D. C. 20548

             Dear Mr. Heller:

             The Secretary has asked me to respond to the draft report on the
             GAO review of "Ineffective Controls Over Program Requirements
             Relating to Medically Needy Persons Covered by the Medicaid
             Program." Enclosed are the Department's comments on the findings
             and recommendations in your report,
             We appreciate this opportunity to comment prior to the issuance
             of the final report.
                                              Sincerely yours,



                                              James B ardwell
                                              Assistant Secretary, Comptroller

             Enclosure




                                              41
APPENDIX I

                    Comments on GAO Draft Report on
                  "Ineffective Controls Over Program
                   Requirements Relating to Medically
                  Needy Persons Covered by the Medicaid
                               Program"


The Department is in general agreement with the conclusions and
recommendations in this report. The GAO recommendations and the
Department's response to each are summarized below.

Copies of the comments on the draft report received from each of the
California agencies (Medicaid and Social Welfare) are attached. The
Massachusetts agency initiated corrective action as soon as the prob-
lems were revealed during the course of the review; they had no further
comments on the draft report. The comments received from Illinois to
date did not pertain to the substantive matters discussed in this
report.

In addition we have noted two points in the findings which also merit
comments.

1. We noted (page 7 of the draft report) the widely differing policies
among the States as to allowances for work related expenses. We have
reviewed the policies in other States and clarification of income dis-
regard policies as applicable to Title XIX is in process.

2. We noted the findings (pp. 23-24 of the draft report) as to
limited staff in SRS available to assist the States in administering
the Medicaid programs. While some staff has been added, we concur
that the staff is still inadequate for in-depth surveillance of State
and local operations, particularly in the fiscal area. Both the
Federal and State problems are in a large part due to the scarcity of
personnel qualified in these aspects of medical care administration.
We hope that the authority provided by the enactment of Public Law
91-648 on January 5, 1971, the "Intergovernmental Personnel Act of
1970," will assist in resolving this problem.

Recommendations under "Controls Over Recipients' Share of Cost"
(page 25 of draft report)

1. "We recommend that the Social and Rehabilitation Service evaluate
the systems of control in existence in the 28 States which currently
have medically needy programs to identify those procedures which
appear most effective in ensuring that the share of cost is met by
the recipient for both institutional services and non-institutional
services."

Response

Pursuant to an earlier   inquiry      by the GAO, the Social and
Rehabilitation Service requested the regions on May 18, 1970, to
review and report on the procedures used in all 28 States that

                                  42
                                                        APPENDIX I



cover the medically needy to assure that the recipient's income is
properly taken into account in paying medical bills and claiming
Federal financial participation. We also asked the regions to
review the controls used to assure that other medical payments
properly made under the State plan, but not subject to Federal
financial participation, are excluded from the Federal claim.

Because priority in these reviews was to be given to reviews in
the States that had income levels in excess of the limitation
in the Federal law, because of inadequate regional staffing, and
because of regional reorganization, reports on less than half of
the 28 States have been completed.

When sufficient input has been received to make a reasonable
evaluation, we expect to develop a Joint plan of action with
participation by the several units in SRS and the Department
that will need to be involved.
At that time consideration will be given to the further recommenda-
tions in the draft report as follows:
         a. "After identification of the State procedures
         which appear most effective, SRS should either
         (1) disseminate the information to the States with
         the recommendation that they be put into practice or
         (2) develop a model system for use by the States."

         b. "In view of the concern expressed relating to the
         relative value of controlling the share of cast where
         the amount is small or where the required controls are
         burdensome--give consideration to the practicality of
         controlling the share of cost under such circumstances.
         If it is determined that the administration of the
         present share of cost aspect of the program cannot be
         made practicable, consideration should be given to
         alternative approaches to cost sharing by the medically
         needy." (such as changes in the law).

The plan of action and the consideration of alternatives will, of
course, have to take into account the effect and impact on Federal
and State operations of presently proposed changes in the law now
being considered by the Congress.

In the meantime however the Department is pursuing the matter of
corrective action in individual State situations where these
reviews indicate that procedures are ineffective.




                                  43
APPENDIX I


2. "We recommend further that HEW seek appropriate adjustments for
past overclaims caused by those county-operated hospitals in California
which failed to verify eligibility or to deduct the share of cost from
Medicaid claims."

Response

The comments on the draft report dated 11/13/70 submitted by the
California Department of Health Care Services states "The Department
is currently in the process of gathering information needed to adjust
those county Medicaid claims that are found to have been incorrectly
paid."

If this adjustment does not appear in the California agency's next
expenditure statement, the Department will follow-up.

Recommendations under "Need for HEW to Assure Compliance with Statutory
Limitation in Claiming Federal Funds) (page 30 of draft report)

3. "HEW needs to establish procedures to assure that States' claims
for Federal sharing of costs do not include amounts paid for services
to medically needy families which exceed maximums specified under
Section 1903(f)(1)(B)(i) of the act. ... So long as limitations on
income levels exist in determining the Federal share of Medicaid
expenses, we recommend that whenever the SRS approves States' income
levels in excess of the present 133 1/3% criteria, follow-up action
be taken by the regional office officials to assure compliance with
the statutory limitation."

Response

As indicated in the report, the SRS is reviewing the control procedures
in the seven other states that have or have had income levels for the
medically needy in excess of the statutory limitation, and we are pursuing
the matter of adjustments by States which failed to establish procedures
for excluding non-matchable payments from the Federal claim.

In regard to future instances when State income levels in excess of
the 133 1/3% criteria are approved, our request to all regions to
review and report on the State procedures in this entire subject
area has effectively emphasized the need for regional officials to
take follow-up action. When the central office is informed that a
State has changed its AFDC payment level, we plan to check whether
appropriate action has been taken in regard to the income levels
for medically needy eligibility.

Recommendations under "Improvements Needed in Qual.ty Control Reviews".

4.a. "We recommend that the HEW Regional Office review the action
taken by the State (California) to improve its quality control system


                                  44
                                                         APPENDIX I



including the impact of the State's staffing problems in achieving
the desired results of quality control." (p. 33)

b. "We recommend that the HEW Regional Office closely monitor the
progress of Massachusetts in meeting its quality control objectives
and provide necessary assistance to ensure that an effective system
is being carried out." (p. 34)

c. "We believe that HEW should evaluate future State sample size
selection plans to determine whether an adequate number of cases
are reviewed. We recommend therefore, that HEW monitor the State's
(Illinois) progress in attaining the expanded quality control goals."
(p. 36)
Response
4.a. The comments by the California Department of Social Welfare
on the draft report (letter dated October 30, 1970) reports the
progress made by the State despite insufficient staff.

The implementation of the new Federal quality control system beginning
October 1, 1970, includes plans for monitoring and review of State
quality control operations. Pending the availability of sufficient
Federal staff for this purpose, arrangements have been made to have
some of this evaluation done by contract. (California, Illinois,
and Massachusetts are included in these contracts).

b. The response of the regional office to this reconmendation
indicates that with added staff and the new quality control system
the objectives should be obtained.

c. As indicated in the report, the new quality control system
beginning October 1970 calls for a substantially increased sample
size. The initial evaluation plans are directed more to evaluating
the effectiveness of the system itself in achieving the desired
results rather than how well the State is implementing it. The
adequacy of the sampling plan, will of course be an essential
aspect of this evaluation.




                                 45
APPENDIX II


                      EXAMPLE ILLUSTRATING COMPUTATION OF
                RECIPIENTS' SHARE OF COST IN CALIFORNIA,
                                 ILLINOIS, AND MASSACHUSETTS

     The following example is used to illustrate how a recip-
ient's share of cost would have been computed in California,
Illinois, or Massachusetts at the time of our fieldwork.

        A medically needy family consisting of a working mother
        with two children who earns $550 monthly after taxes.
        Payments are $50 a month on a car which the mother
        drives 30 miles a day (round trip) to work. Day care
        for the children costs $200 a month. She owns a home
        valued at $18,000 and other personal property valued
        at $700. One child required hospitalization and medi-
        cal treatment for 2 weeks which resulted in medical ex-
        penses of $800.

     In computing the amount of excess resources, this fam-
ily would have been allowed to exclude property valued up
to $3,000 in California, $700 in Illinois, and $3,100 in
Massachusetts. In each of the three States, the home, car,
and household furnishings would have been excluded. The
table below shows the adjustments to income which would
have been allowed and the recipient's share of cost which
would have been computed in each of the three States.

                                                         Cali-                                Massa-
                                                        fornia            Illinois           chusetts
                                                                 Assumption A Assumption B

Monthly earnings after taxes                              $550         $550      $   550       $550

Less work-related adjustments and allowances:
    Work-related expenses including transpor-
      tation and child care                               299            -                      11
    Gross earnings exclusion (note a)                     203           203          -          -
    Basic maintenance allowance                           233           250          250       292

        Total adjustments and allowances                  735           453          250       303

        Total monthly excess                              $ -          $ 97      $   300      $247

Recipients' share of cost (note b)                        $ -          $582      $1,800       $247

aTo simplify the computation, we have used monthly earnings after taxes rather than gross earn-
 ings as our computation base. Therefore, differences in State income taxes are not considered
 in our computation which is presented for illustrative purposes.

bRecipients'   share of   cost   for Illinois is on a 6-month basis.




Explanations of the computations follow.

                                                     46
                                                APPENDIX II


     Work-related expenses--A flat deduction of $11 was al-
lowed for all work-related expenses in Massachusetts; no
other deductions from earned income after taxes were pro-
vided. California allowed (l) 4 cents a mile for transpor-
tation and up to $75 a month for car payments, (2) child-
care payments up to a maximum of $25 a week for each child,
and (3) a standard $25-a-month deduction for the additional
costs of food, clothing, and other personal incidentals re-
lated to employment.  Illinois does not allow any deduction
for work-related expenses.

     Gross earnings exclusion--California allowed a deduc-
tion of the first $30 plus one third of the remainder of the
monthly earnings for families with dependent children.   In
Illinois, if the mother had received assistance during one of
the 4-preceding months, the family would have been eligible
for the gross earnings exclusion (assumption A). However,
if the mother had not received assistance during one of the
4 preceding months, the family would not have been eligible
for the gross earnings exclusion (assumption B).  In Massa-
chusetts no exclusion was allowed.

     Basic maintenance allowance--The amounts deducted were
specified in the respective State plans. The amounts repre-
sent the income protected for daily living expenses other
than medical care.

     Recipient's share of cost--In California a medically
needy person with monthly excess income was expected to de-
vote only 1 month's excess income to his medical expenses in
any given month. In Illinois, however, the excess income
for the month in which medical expenses were incurred plus
the following 5 months was considered as available to meet
current medical expenses. In Massachusetts only 1 month's
excess income was considered available, until recently.
Massachusetts changed its State plan to require that the re-
cipients' excess income for 6 months be considered, as is
done in Illinois. Since the change had not been implemented
at the completion of our fieldwork, our computation for
Massachusetts was based on the 1-month criterion; had the
6-month period been considered, the recipient's share of
cost would have been $1,482 in this example.




                             47
APPENDIX II


     Subsequent to the completion of our fieldwork, we were
advised of changes in the California regulations, effective
August 1, 1970. These changes include:

     1. The establishment of property limits which, if ex-
        ceeded, would result in exclusion of the recipient.
        from the program. The personal property limits
        established will range from $1,200 for one person to
        $2,000 for a family of nine or more. The real prop-
        erty limit has been set at $5,000 in assessed valua-
        tions (exclusive of the home in which the recipient
        lives).

    2. The consideration of resources available to a re-
       cipient over 3 calendar months in establishing the
       share of cost for other than long-term-care pa-
       tients. Long-term-care patients' share of cost
       will continue to be computed on a monthly basis.




                            48
                                                                  APPENDIX III


                           *STATES WITH ANNUAL INCOME STANDARDS

                            IN-EXCESS OF THE FEDERAL MAXIMU1.S

                       July 1, 1968, through
                            June 30, 1969                 After June 30, 1969
                               Federal    State                  Federal    State
    State       Family size    maximum standard     Family size maximum standard

California             2      $2,700    $3,372                    $   -   $
                       3       3,100     3,636

Connecticut                                              2        3,000    3,200

Delaware               1       1,400        1,500         1       1,300    1;500
                       5       3,600        3,800    -    4       3,200    3,300
                                                          5       3,400    3,800
                       6       3,800        4,300         6       3,600    4,300
                       7       4,000        4,800         7       3,800    4,800
                       8       4,200        5,200         8       3,900    5,200
                       9       4,400        5,600         9       4,100    5,600
                      10       4,500        6,000        10       4,200    6,000

Kentucky                                                  1       1,200    1,620
                                                          2       1,900    2,200
                                                          3       2,600    2,820
                                                          4       3,200    3,420
                                                          5       3,700    4,020
                                                          6       4,000    4,500
                                                          7       4,500    4,980
                                                          8       4,600    5,340
                                                          9       5,100    5,700
                                                         10       5,500    6,060

New Hampshire                                            1        2,000    2,088

Oklahoma              1        1,600        1,728        1        1,400    1,728

Pennsylvania          1        1,900        2,000

Maryland:
    Plan A            1        1,600        1,800        1        1,600    1,800
                                                         2        2,200    2,280

   Plan B             1        1,600        1,800        1        1,600    1,800
                      2        2,200        2,280        2        2,100    2,280
                                                         6        3,900    3,960
                                                         7        4,300    4,380
                                                         9        5,200    5,220




                                       49
 APPENDIX IV


               LISTING OF OTHER GAO REPORTS

      ISSUED TO THE CONGRESS ON THE MEDICAID PROGRAM

                                               Date issued

Questionable claims under the Medicaid pro-
  gram for the care of persons in State in-
  stitutions for the mentally retarded in
  California                                  May    11, 1970
Problems in approving and paying for
  nursing-home care under the Medicaid pro-
  gram in California                          July 23, 1970
Continuing problems in providing nursing-
  home care and prescribed drugs under the
  Medicaid program in California              Aug. 26, 1970
Improvement needed in.the administration
  of the Iowa and Kansas Medicaid programs
  by the fiscal agents                        Oct. 20, 1970
Controls over Medicaid drug program in Ohio
  need improvement                            Nov. 23, 1970
Ways to reduce payments for physician and
  X-ray services to nursing-home patients
  under Medicare and Medicaid                 Feb.    2, 1971
Control needed over excessive use of physi-
  cian services provided under the Medicaid
  program in Kentucky                         Feb.    3, 1971
Problems in providing proper care to Medi-
  caid and Medicare patients in skilled
  nursing homes                               May    28, 1971




                            50
                                                          APPENDIX V


                        PRINCIPAL OFFICIALS OF

         THE DEPARTMENT OF HEALTH, EDUCATION, AND WELFARE

         RESPONSIBLE FOR THE ADMINISTRATION OF ACTIVITIES

                        DISCUSSED IN THIS REPORT


                                             Tenure of office
                                             From          To

SECRETARY OF HEALTH, EDUCATION,
  AND WELFARE:
    Elliot L. Richardson                  June     1970   Present
    Robert H. Finch                       Jan.     1969   June 1970
    Wilbur J. Cohen                       Mar.     1968   Jan. 1969
    John W. Gardner                       Aug.     1965   Mar. 1968

ADMINISTRATOR, SOCIAL AND REHABIL-
    ITATION SERVICE:
       John D. Twiname                    Mar.     1970   Present
       Mary E. Switzer                    Aug.     1967   Mar. 1970




U.S. GAO, Wash., D.C.

                                   51