Survey of HEW and States' Management of Spend-Down Payments for Medically Needy Persons

Published by the Government Accountability Office on 1977-02-03.

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

                         DOCUMENT RESUBE

00504 - [A0751182]

[Survey of HEW and States' Manageaent of Spend-Down Payments for
Medically needy Persons]. HRD-77-43; B-164031 (3). February 3,
1977. 5 pp.
Report to Secretary, Department of Health, Edication, and
Welfare; by Gregory J. Ahart, Director, Human Resources Div.
Issue Area: Health Programs: Compliance With Financing Laws and
    Regulations (1207); Health Programs: Reimbursement Policies
    and Utilization Controls (1208);Health Programs: Impact of
    National Health Insurance (1209).
Contact: Human Resources Div.
Budget Function: Health: Health Care Services (551).
Organization Concerned: New York, NY; Maryland; California;
    District of Columbia; Illinois.
Congressional Relevance: House Committee on Interstate aud
    Foreign Commerce; Senate Committee on Finance.
Authority: Social Security Act.
         Reviews were coDducted during 1975 and 1976 of systems
for managing spend-down payments for the medically needy in New
York, Maryland, California, the District of Columbia, and as a
followup, in Illineis. Spend-down payments, provided by some
States under Medicaid for those with incomes above a
State-prescribed level but with greater medical expenses, are
not eligible for Federal financial participation.
Findings/Conclu£ions: New York and Illinois have been paying for
and improperly claiming Federal assistance for spend-down
amounts although procedures existed for collecting these amounts
from the medically needy. Improper Federal financial assistance
to New York State for expenses at municipal hospitals was
estimated at S3 million for a 12-sonth period. Illinois
concurred with a 1975 HBE Audit Agency report on its Medicaid
program, but did not neet the report's recommendations and did
not plan corrective action until a new Medicaid management
Information System would be operational. Limited reviews at the
other locations did not disclose billnags for ineligible costs.
Recommendations: The Administrator of the Social and
Rehabilitation Service should: assure that the Federal
Government does not reimburse New York and Illinois for
ineligible amountsr evaluate billing procedures of other States,
and adjust incorrect claims. (HTW)

                                     WASHINGTON, D.C. 2058
                                                               IN IfIdLY
                                                                 -    TO

              B-164031(3)                          FEB 3 877

              The Honorable
              The Secretary of Health,
                Education, and Welfare
              Dear Mr. Secretary:
                   During 1975 and 1976, we reviewed the systems for managing spend-
              down payments for the medically needy in New York, Maryland, California,
              and the District of Columbia. We also followed up on a December 1975
              HEW Audit Agency report on this subject involving Illinois.
                   ~enerally, persons receiving public assistance under title IV,Aid
              to ir ilies with Dependent Children (AFDC), or title XVI, Supplemental
              Security Income (Aged, Blind, alnd Cisabled),of the Social Security Act
              are eligible for assistance under Medicaid. Tnese persons are gener-
              ally referred te is "categorically" needy. Persons whose incomes or
              other financial resources exceed standards, set by the States, to
              qualify for public assistance programs but are not sufficient to meet
              the costs of necessary medical care may also be entitled to Medicaid
              benefits if the State wishes. These people, eligible for Medicaid, but
              not cash assistance, are generally referred to as "medically" needy
                  The medically needy may have all or part of their medical expenses
             paid for under Medicaid. Those medically needy whose income and re-
             sources are above a State prescribed level must first incur a certain
             amount of medical expense--the "spend-down" amount--before they can
             receive assistance under Medicaid. Federal regulations provide that
             the payment of this spend-down amount is a matter between the medically
             needy and the provider of medical assistance. These amounts are not
             eligible for Federal financial participation.
                  New York and Illinois have been paying providers for, and claiming
             Federal financial assistance for, spend-down amounts which are the re-
             sponsibility of medically needy recipients. Procedures existed in both
             States for establishing accounts receivable and attempting to collect
             spend-down amounts from the medically needy; however, the collections--
             which were credited to total Medicaid costs--represented only portions


of the Federal Government's share of amounts improperly claimed. In
addition, both States have made direct refunds for portions cf the
amounts incorrectly claimed; however, New York has made no refund
for periods after September 1972, and Illinois continues to improperly
claim Federal financial assistance for spend-down amounts which are
the responsibility of medically needy recipients.
New York
     On May 24, 1976, we reported to the Acting Regional Commissioner
of the Social and Rehabilitation Service (SRS) regional office in
New York on this subject.
     New York State has been improperly claiming Federa' ,inancial
assistance for spend-down amounts relating to medical expenses incurred
by the medically needy at municipal and voluntary hospitals in New York
City. Such Federal financial assistance amounted to about $1 million
for voluntary hospitals during fiscal year 1975. Based on actual spend-
down amounts billed by municipal hospitals for the 6-month period, Octo-
ber 1975 through March 1976, we estimate that improper Federal financial
assistance to municipal hospitals for a 12-month period was about
$3 million.
     The passing on of costs incurred by these medically needy for Federal
financial participation was previously identified in
     --an August 20, 1969, audit report by the HEW Audit Agency,
     --a November 26, 1973, audit report by the New York State Office
       of the State Comptroller, and
     --a June 4, 1974, joint audit report by the New York State Depart-
       ments of Social Services and Health and HEW's Social and Rehabili-
       tation Service.
     The State Comptroller's report estimated that, since the inception
oa the Medicaid program in 1966 through September 1972, the Federal Govern-
ment had paid about $3.7 million for these ineligible costs. New York
State subsequently adjusted its December 1973 quarterly expenditures
claim by $3,701,500.
     This report also recommended that "* * * future Medicaid claims for
the cost of inpatient hospital care provided to patients with excess in-
come should be submitted only after deducting that portion of the cost
required to be paid by the recipient."


     In its reply to a similar recommendation in the joint audit report,
the city said that its method of billing the State for the cost " *of un-
collected spend-down amounts is appropriate, and that the city    * *
shall continue to treat these cases in this manner until such time as
we are notified, officially, of this major change in State policy."
     On August 5, 1976, New York State responded to SRS Reqion II on
the findings in our May 1976 report. The State noted it believed its
prior billings were appropriate under existing regulations, and did
not agree to any financial adjustments for prior payments of spend-
down amounts. SRS regional office personnel informed us in January
1977 that they were still evaluating the State's response. New York
City, however, effective with admissions beginning July 1, 1976, be-
gan deducting spend-down amounts from hospital billings for medically
needy patients.
     The Suffolk County Health District has also been receiving Federal
financial assistance for spend-down amounts. About $66,000 was involved
in Suffolk in fiscal year 1975 of which the Federal share was $33,000.
Following our audit work, Suffolk's Medical Assistance Administrator
told us on January 7, 1977, that the County had changed this reimburse-
ment practice to pay hospitals net of the spend-down amounts.
     Suffolk County and New York City Departments of Social Services
had collected some spend-down amounts from patients. Suffolk County
collected about $31,000 on fiscal year 1975 accounts. This represented
about 47 percent of the total spend-down liability for that year.
     Collections of these spend-down amounts from medically needy persons
treated by voluntary hospitals during a 1 year period and by municipal
hospitals during approximately a 5-year period amounted to about $514,000
or an overall 5 percent collection rate. Medicaid is credited for the
spend-down amounts collected by both New York City and Suffolk County.
     The HEW Audit Agency issued a report dated December 23, 1975, on
the Illinois Medicaid program. The Audit Agency reported that the ma-
jority of the spend-down amount for medically needy recipients was not
being applied toward their medical costs. Instead, the State wias pay-
ing these costs and claiming them for Federal financial participation
with only a reduction for amounts actually collected from the recipients.
The HEW Audit Agency estimated that Illinois had claimed at least $626,000
in ineligible costs (Fede.al share $313,000) which should have been paid
by i, 'ically needy recipients.

                                 - 3-

     Illinois concurred and adjusted its Quarterly Statement of Expendi-
tures (Form SRS-OA-41) for the quarter ended September 30, 1975, in the
amount of $313,000.
     The HEW Audit Agency recommended that Illinois (1)claim Federal
financial participation fcr only those costs of Medicaid services which
are in excess of the amount required to be paid by the medically needy
recipients, and (2)compute the amount of Federal financial participa-
tion improperly requested and appropriately adjust its claim for Federal
     The State's Apiril 8, 1976, response to the report did not address
these recommendations.
     On May 20, 1976, we discussed :ile HEW Audit Agency report recom-
mendations with Illinois officials. The officials told us that the
State did not plan to take corrective action until its new Medicaid
Management Information system was operational which was not scheduled
until early 1978.
Other locations
     Our limited reviews in Maryland, California, and the District of
Columbia did not disclose any billings for ineligible costs which should
have been paid by medically needy recipients.
     HEW has identified that New York and Illinois are billing the Federal
Government for amounts that should be paid by medically needy recipients.
As of June 1, 1976, 32 States and jurisdictions were providing assistance
to the medically needy and 5 additional States have spend-down programs
solely for the aged, blind, and disabled. Because of the substantial
dollar value of the ineligible claims in New York and Illinois, we believe
HEW should determine whether other States are billing the Federal Govcrn-
ment for amounts that should be paid by medically needy recipients.
     Accordingly, we recommend that you direct the Administrator of the
Social and Rehabilitation Service to (1)assure that the Federal Govern-
ment does not reimburse New York and Illinois for amounts that are not
eligible for Federal financial participation; (2)evaluate the procedures
of the other States and jurisdictions for billing for services proviaed
to the medically needy, and where necessary, take actions to assure that
the Federal Government does not reimburse States for amounts that are not
eligible for Federal financial participation; and (3)cormpute the amount
of Federal financial participation claimed which should have been paid

                                  - 4-

by medically needy recipients in Illinois, New York and other States
and adjust the States' claims for Federal financial participation.
     As you know, section 236 of the Legislative Reorganization Act
of 1970 requires the head of a Federal agency to submit a written state-
ment on actions taken on our recommendations to the House and Senate
Comnittees on Government Operations not later than 60 days after'the
date of the report and to the House and Senate Committees on Appropria-
tions with the agency's first request for appropriations made more than
60 days after the date of the report.
     We are sending copies of tills letter to the appropriate Senate ant
House Committees and Subcomnittees and to the Director, Office of Manage-
ment and Budget.
     We will be pleased to discuss this report with you or your
                                 Sincerely yours,

                                 Gego      J. hart