Disaster Contracting: FEMA Continues to Face Challenges with Its Use of Contracts to Support Response and Recovery

According to FEMA—a component within DHS—the 2017 disasters affected 47 million people, or about 15 percent of the nation's population. Federal contracts have played a key role in responding to these disasters and in long-term community recovery. So far, FEMA has obligated billions of dollars on these contracts.

This testimony is based primarily on GAO's recent reports on disaster contracting—specifically advance contracting and post-disaster contracts related to the 2017 disasters—which detail much of FEMA's disaster contracting activities. It addresses key challenges FEMA faced contracting for goods and services in response to these disasters.

To conduct this work, GAO analyzed data from the Federal Procurement Data System-Next Generation through June 30, 2018, the latest and most complete data available for the 2017 disasters. GAO also analyzed FEMA guidance and documentation and interviewed FEMA officials to discuss the use of contracts to respond to the 2017 disasters.

Following Hurricanes Harvey, Irma, and Maria, and the 2017 California wildfires, federal agencies entered into disaster-related contracts worth about $9.5 billion, according to data as of June 30, 2018—the latest and most complete data at the time of GAO's review (see figure). The Federal Emergency Management Agency (FEMA) obligated about $2.9 billion of this total through advance contracts, which it establishes prior to a disaster to rapidly mobilize resources. FEMA obligated an additional $1.6 billion through post-disaster contracts, which are established after disasters hit.

In its December 2018 and April 2019 reports, GAO made 10 recommendations to strengthen FEMA's ability to address challenges GAO identified in how FEMA plans, coordinates, and tracks its contracts:

Planning: FEMA has an outdated strategy and unclear guidance on how contracting officers should use advance contracts and has not fully assessed its contracting workforce needs. Effectively planning its contract use is critical to FEMA quickly providing critical goods and services.

Coordination: FEMA did not fully coordinate with states and localities on certain contracts and encountered communication and coordination challenges with other federal agencies. Effective coordination helps FEMA ensure stakeholders have the tools needed to facilitate their disaster response efforts.

Tracking: The full extent of 2017 disaster contracting activities, for FEMA and other agencies, is unknown. GAO found that codes used to track obligations for these disasters in a federal procurement data system were closed without full consideration of user needs or due to inconsistent implementation of criteria established by the Department of Homeland Security (DHS) and other agencies, limiting visibility over federal disaster contracts.

GAO has made a total of 19 recommendations—most of which were to FEMA—related to contracting activities in response to the 2017 disasters. Ten of these are described in this statement. DHS concurred with most of these recommendations, and has some actions underway, but it has not fully implemented them. Attention to these recommendations can assist FEMA as it uses contracts to respond to future disasters.

I am pleased to be here today to discuss the Federal Emergency  Management Agency’s (FEMA) contracting practices in response to the  catastrophic 2017 disasters—Hurricanes Harvey, Irma, and Maria, and  the California wildfires. According to FEMA—a component within the  Department of Homeland Security (DHS)—these disasters affected 47  million people, or about 15 percent of the nation’s population. Once a  major disaster has been declared by the President, federal contracts play  a key role in its immediate aftermath and in long-term community  recovery by providing life-sustaining goods and services to survivors.  FEMA has obligated billions of dollars on contracts in response to the  2017 disasters.

The Post-Katrina Emergency Management Reform Act (PKEMRA) of  2006 required FEMA, among other things, to establish advance contracts.  Advance contracts are established prior to disasters to quickly provide  life-sustaining goods and services in the immediate aftermath of a  disaster. FEMA may also award new contracts to support disaster  response efforts following a disaster declaration. According to FEMA  officials, these post-disaster contract awards may be required, for  example, if advance contracts reach their capacity, or if goods and  services that are not suitable for advance contracts are needed.  According to our analysis of Federal Procurement Data System-Next  Generation (FPDS-NG) data, federal agencies had obligated about $9.5  billion in response to the three 2017 hurricanes and the California  wildfires as of June 30, 2018—the most recent and complete data  available. FEMA obligated about $2.9 billion of this total through advance  contracts, and roughly an additional $1.6 billion through post-disaster  contracts.

My statement today addresses key challenges FEMA faced contracting  for goods and services in response to these disasters. This statement is  primarily based on reports we issued in December 2018 and April 2019  on FEMA’s disaster contracting activities in response to the 2017  hurricanes and California wildfires. For the reports cited, among other  methodologies, we reviewed FPDS-NG data through June 30, 2018—the  most recent and complete data available—to identify FEMA contract  obligations for the 2017 disasters. We also analyzed FEMA guidance and  documentation and interviewed FEMA officials to discuss the use of  contracts to respond to the 2017 disasters. Each of the reports cited in  this statement provide further detailed information on our scope and  methodology.

We conducted the work on which this statement is based in accordance  with generally accepted government auditing standards. Those standards  require that we plan and perform the audit to obtain sufficient,  appropriate, evidence to provide a reasonable basis for our findings and  conclusions based on our audit objectives. We believe the evidence  obtained provides a reasonable basis for our findings and conclusions  based on our audit objectives.

FEMA Experienced Challenges in Planning, Coordinating with Stakeholders, and Tracking the Use of Contracts

Challenges in Acquisition and Workforce Planning

Ensuring that there is adequate time to complete acquisition planning  activities and identifying the contracting workforce required to execute  mission needs can help agencies establish a strong foundation for  successful acquisition outcomes. However, our prior work identified  challenges FEMA faced in its acquisition and workforce planning efforts  for disaster contracting. The Federal Acquisition Regulation (FAR)  requires agencies to perform acquisition planning activities for all  acquisitions to ensure that the government meets its needs in the most  effective, economical, and timely manner possible. In our December  2018 report, we found that FEMA had guidance in place establishing  timeframes for certain FEMA acquisitions following the completion of the  acquisition package. Further, FEMA implemented an acquisition tracking  tool in 2016—the 5-Year Master Acquisition Planning Schedule (MAPS)— which monitors the status of and provides acquisition planning timeframes  for certain high value and mission-critical acquisitions, including advance  contracts, regardless of dollar value.

However, we found that FEMA had not established timeframes or  released guidance for the pre-solicitation phase of the acquisition  planning process, when program officials identify a need and develop key  acquisition package documents (see figure 1).

Not adhering to suggested timeframes can place a burden on contracting  officers and increase the likelihood of not awarding a contract on  schedule. This, in turn, may create a need for FEMA to non-competitively  extend the existing contract—this extension may be considered a bridge  contract. Given the lack of a government-wide definition, we defined  bridge contracts in our prior work as: extensions to an existing contract  beyond its period of performance (including base and options) and new,  short-term contracts awarded on a sole-source basis to an incumbent  contractor to avoid a lapse in service caused by a delay in awarding a  follow-on contract. FEMA officials acknowledged that the use of non- competitive bridge contracts is not an ideal practice as they cannot  ensure the government is paying what it should for goods and services.  However, in December 2018, we found that FEMA used bridge contracts  for at least 10 of its advance contracts used in response to the 2017  disasters—with some of these contracts lasting for several years.

To decrease dependence on bridge contracts, FEMA established MAPS  to help track and monitor the status of acquisition planning timeframes for  certain acquisitions. However, most of the program office and contracting  officials we spoke with during our December 2018 review had limited  familiarity with the tool. In our December 2018 report, we recommended  that FEMA update and implement existing guidance to identify acquisition  planning timeframes and considerations across the entire acquisition  planning process and clearly communicate the purpose and use of its  acquisition planning tool to relevant personnel. DHS concurred, but in its  response to our report stated it believed existing outreach and training on  MAPS had resolved these challenges. We acknowledged FEMA’s training  in our report, but noted that not all relevant staff we spoke with were  familiar with MAPS, and that there was no formal guidance on the  timeframes for the entirety of the acquisition planning process. Given  these issues, we continue to believe FEMA needs to take additional steps  to implement our recommendation.

Without planning and guidance on its use of advance contracts, FEMA  lacks reasonable assurance that it is maximizing their use to the extent  practicable and cost-effective to quickly provide goods and services  following a disaster. PKEMRA requires the FEMA Administrator to  develop a contracting strategy that maximizes the use of advance  contracts to the extent practical and cost effective, and FEMA contracting  officials told us that advance contracts should be used before awarding  new contracts. However, in December 2018, we found that FEMA’s  advance contract strategy and guidance did not clearly identify the  objectives of advance contracts or whether and how they should be  prioritized for use in relation to new post-disaster contracts.

For example, we reported that FEMA’s lack of an updated strategy and  guidance contributed to confusion and challenges with the use of  advance contracts for tarps, used to cover small areas of roof damage.  Although FEMA had awarded advance contracts to provide tarps, a  subsequent modification to these contracts limited the ability to use them  for immediate disaster response needs—one of FEMA’s stated purposes.  Furthermore, we found that FEMA awarded vendors new post-disaster  contracts for tarps before using its existing advance contracts. According  to FEMA officials at that time, neither of the post-disaster contract  vendors was able to provide the required tarps when needed. We  concluded that the timing and use of the existing tarp advance contracts  raised questions about the ability of contracting officers to use these  contracts to provide tarps immediately following disasters. Additionally,  we concluded that an updated advance contracting strategy could have  enabled FEMA to more quickly provide the needed tarps to survivors,  considering the additional time and staff resources needed to award new  post-disaster contracts.

In our December 2018 report, we recommended that FEMA update its  strategy to clearly define the objectives of advance contracts, how they  contribute to FEMA’s disaster response operations, and whether and how  they should be prioritized in relation to making new, post-disaster contract  awards. We also recommended FEMA update its guidance accordingly.  DHS concurred with these two recommendations and identified actions it  plans to take to address them.

Our prior work also showed that FEMA’s ability to adequately plan for and  manage its disaster contracts is further complicated by persistent  acquisition workforce challenges, including attrition and staffing  shortages. In April 2019, we found that FEMA had identified workforce  shortages as a continuing challenge for disaster response and recovery.  But FEMA had not assessed its contracting workforce—including regional  contracting workforce needs—since at least 2014. We recommended  FEMA assess its workforce needs to address these shortcomings and  develop a plan, including timelines. DHS agreed, identified steps FEMA  has taken and plans to take to address the recommendation, and  estimated addressing the recommendation by September 2019.

Continued Challenges Coordinating with Federal, State, and Local Partners on Contracting Issues

Our prior reports found that FEMA experienced challenges coordinating  with state, local, and federal partners over disaster preparation and  response efforts. Coordination is critical to ensuring that states and  localities have their own tools in place to facilitate disaster response, and  that contracting needs are clearly communicated and considered among  federal agencies. Yet FEMA faced continued challenges and  inconsistencies in its coordination with states and localities over the use  of advance contracts.

In January 2017, FEMA updated guidance to include requirements for  coordination with state and local governments on the use of federal  advance contracts. This update was in response to our September 2015  finding that there were inconsistencies in whether and how staff in  FEMA’s regional offices performed state and local outreach on advance  contracting efforts. However, in December 2018, we reported on similar  inconsistencies in state and local outreach. We found that FEMA’s  guidance did not specify how often or what types of advance contract  information should be shared with states and localities, or instruct FEMA  contracting officers to encourage states and localities to establish their  own advance contracts for the types of goods and services needed during  a disaster. As a result, we found that while some FEMA regional officials  regularly performed outreach with states and localities to assist them with  establishing advance contracts for goods and services commonly needed  during a disaster—like security, transportation, and office supplies—other  FEMA regional officials did so less frequently. According to regional  officials, coordinating more frequently with states and localities allows  them to avoid overlap between state and federal contracting efforts, and  helps FEMA officials know what resources the states have in place before  a disaster occurs and how long states are capable of providing those  resources following a disaster. We recommended in our December 2018  report that FEMA update its guidance to provide specific direction for  contracting officers to perform outreach to states and localities on the use  and establishment of advance contracts. DHS concurred and stated it  would update guidance and continue efforts to establish resources for  state and local governments on advance contracts.

Information on FEMA’s advance contracts can be used to facilitate state  and local coordination over the use and establishment of advance  contracts. However, our work showed that this information was  inconsistent and could further hinder FEMA’s information sharing and  coordination efforts. In December 2018, we reviewed FEMA’s advance  contract list and other resources FEMA contracting officials said they  used to identify advance contracts—like biannual training  documentation—and found differences in the advance contracts  identified. For example, we reported that FEMA officials told us that the  advance contract list available to contracting officers is updated on a  monthly basis. However, our analysis found that 58 advance contracts  identified on the June 2018 advance contract list had not been included in  contracting officers’ May 2018 training documentation. The missing  contracts included those for telecommunications services, generators,  and manufactured housing units.

Recognizing some of the shortcomings in communicating with state and  local governments following the 2017 disasters, FEMA stated it would  develop a toolkit to provide states and localities with recommendations for  advance contracts, emergency acquisition guidance, and solicitation  templates. However, at the time of our December 2018 review, FEMA  officials were uncertain what information they would share with states and  localities on advance contracts, and said they did not plan to provide the  complete list of the advance contracts FEMA has in place to avoid being  overly prescriptive. Yet without a centralized and up-to-date resource on  advance contracts, FEMA contracting officers and their state and local  counterparts may not be able to effectively communicate about advance  contracts and use them to respond to future disasters. Given FEMA’s  recent emphasis on the importance of states and localities having the  capability to provide their own life-saving goods and services in the  immediate aftermath of a disaster, we concluded that clearly  communicating consistent and up-to-date information on the availability  and limitations of federal advance contracts is imperative to informing  state and local disaster response efforts.

In our December 2018 report, we recommended that FEMA identify a  single centralized resource listing its advance contracts and ensure that  resource is updated regularly. Further, we recommended that FEMA  should communicate information on advance contracts using that  resource to states and localities to inform their advance contracting  efforts. DHS concurred with these two recommendations and identified  some steps it planned to take, but also stated it believes the existing  advance contract list satisfies our recommendation for a single  centralized resource. However, as our report noted, we found  inconsistencies in this list that FEMA needs to address for advance  contract information to be complete and up-to-date for the contracting  officers who rely on it.

In addition to challenges coordinating with state and local governments,  we identified coordination and planning concerns between FEMA and  other federal agencies. As the federal disaster coordinator, FEMA obtains  requirements from states and localities. It then tasks the appropriate  federal agencies with specific missions, based on their emergency  support functions. Agencies assigned to specific missions are then  responsible for fulfilling requirements, and may use contracts to do so.  However, we reported in April 2019 that some federal agencies  experienced challenges coordinating with FEMA and state and local  partners. For example, USACE officials reported that, during their debris  removal mission following the California wildfires, local officials believed  that the soil removed would be replaced. However, this was not part of  the mission assignment from USACE to FEMA. In these instances,  agency officials told us they relied on FEMA to communicate information  on their mission assignments to be able to administer contracts.

According to a FEMA official during our April 2019 review, coordination  and planning concerns related to mission assignments—like contracting  considerations—should be worked out in advance between FEMA and  agencies such as USACE. However, we found that FEMA policy and  guidance lack details on how that coordination should take place. Further,  a FEMA official told us that contracting considerations are not necessarily  built into mission assignments. We recommended in April 2019 that  FEMA revise its mission assignment policy and guidance to better  incorporate consideration of contracting needs and ensure clear  communication of coordination responsibilities related to contracting. DHS  concurred and plans to develop tools and training within the next year to  provide the necessary guidance.

Challenges with Tracking of Contract Use

Limited transparency into disaster contracting obligations further  complicates the challenges noted above. We found in April 2019 that the  full extent of disaster contracting—for both advance and post-disaster  contracts—related to the 2017 disasters was and continues to be  unknown. This was due to changes in the criteria for establishing and  closing a national interest action (NIA) code—a mechanism for  government-wide tracking of emergency or contingency-related  contracting—in FPDS-NG, and DHS’s inconsistent implementation of the  updated criteria for closing codes. Specifically, the codes for Harvey and  Irma closed on June 30, 2018, less than a full year after the hurricanes  hit. The code for Maria is valid through June 15, 2019, about 21 months  after that hurricane made landfall. This is in contrast to prior hurricanes,  for which codes sometimes remained open more than 5 years after the  disaster, with the code for Hurricane Katrina being open for 13 years after  the disaster. The ability to identify disaster contracting for the 2018  hurricanes was similarly limited as the NIA codes for Hurricanes Florence  and Michael expired on March 15, 2019 and April 12, 2019, respectively,  about 6 months after those storms made landfall.

Based on a memorandum of agreement, the General Services  Administration (GSA), DHS, and the Department of Defense (DOD) are  jointly responsible for determining when a NIA code should be  established and closed. DHS delegated its role, on behalf of civilian  agencies for disaster or emergency events, to its Office of the Chief  Procurement Officer. The agreement outlines criteria DHS should  consider in making determinations to establish and close a NIA code. For  our April 2019 review, we identified changes in these criteria between  June 2012 and June 2018. For example, the updated agreement does not  include the national interest and visibility of an event as criteria for  extending a NIA code, allowing a NIA code to expire regardless of the  high visibility of the event and information needs of key users. DHS  officials reported several rationales to support their decision to close the  NIA codes for the 2017 hurricanes, but these were inconsistent with the  criteria in the agreement and did not consider key user needs or fully  explain the decisions to close the codes.

Once a NIA code in FPDS-NG is closed, there is no other publicly  available, government-wide system available to comprehensively track  contract obligations for specific events. Our April 2019 report  demonstrated the magnitude of contract dollars that are no longer easily  trackable once a NIA code is closed. For example, using the description  field in FPDS-NG, we found that between July 1 and September 30,  2018—after the NIA codes were closed—agencies obligated at least  $259 million on contracts for Hurricanes Harvey and Irma. However, not  all agencies put event-specific information in the description field, and we  found for the 2017 hurricanes only 35 percent of contract obligations  linked to a NIA code included this information. Moreover, as we have  previously reported, and illustrate in figure 2, it can take years to fully  account for federal contract obligations related to response and recovery  after a hurricane.

In our April 2019 report, we made two recommendations, including that

GSA, in coordination with DOD and DHS, assess whether the criteria  in the current NIA code agreement meets the long-term needs for high  visibility events and account for the needs of users, such as FEMA,  other agencies, and Congress; and  in the interim, DHS, in coordination with DOD and GSA, should keep  the existing NIA codes for disasters open, reopen the NIA codes for  Hurricanes Harvey, Irma, Florence, and Michael, and request that  agencies retroactively update applicable contract actions to reflect  these codes, to the extent practicable.

GSA and DOD indicated they would work jointly with DHS to assess the  criteria in the agreement within the year. DHS did not comment on that  recommendation. Given the high visibility and national interest in these  events, assessing the criteria, keeping NIA codes open, and reopening  closed codes for the recent disasters to the extent practicable would help  ensure visibility over federal disaster contracts.

In conclusion, given the circumstances surrounding the 2017 disasters,  and the importance of preparedness for future disasters, it is critical to  ensure that FEMA is well-positioned to respond through its use of  contracts. Our work has shown that without effective planning on the use  of contracts, FEMA may face challenges in quickly providing critical  goods and services to survivors following a disaster. Further, without  effective coordination, FEMA cannot ensure that local, state, and federal  partners have the tools they need to assist in disaster response.  Moreover, not tracking certain information on a government-wide basis in  FPDS-NG may result in key users lacking the information necessary to  provide oversight of FEMA’s and other agencies’ disaster contract  actions. Implementing our recommendations to update its planning  guidance and advance contract strategy; assess acquisition workforce  needs; improve coordination with state, local, and federal partners; and  improve tracking of disaster contracting actions will help FEMA overcome  key challenges it faces in contracting during a disaster, and improve  future response efforts.

Chairman Payne, Chairwoman Torres Small, Ranking Members King and  Crenshaw, and members of the subcommittees, this concludes my  statement. I would be pleased to respond to any questions.

If you or your staff have any questions about this statement, please  contact me at (202) 512-4841 or makm@gao.gov. Contacts for our Office  of Congressional Relations and Public Affairs may be found on the last  page of this statement. Individuals who made key contributions to this  statement include Janet McKelvey (Assistant Director); Caryn Kuebler  and Meghan Perez (Analysts in Charge); Emily Bond; Erin Butkowski;  Suellen Foth; Julia Kennon; Sylvia Schatz; Lindsay Taylor; and Robin  Wilson. Key contributors for the previous work on which this statement is  based are listed in the products cited.

This is a work of the U.S. government and is not subject to copyright protection in the  United States. The published product may be reproduced and distributed in its entirety  without further permission from GAO. However, because this work may contain  copyrighted images or other material, permission from the copyright holder may be  necessary if you wish to reproduce this material separately.

In 2017, a series of high profile and destructive disasters—Hurricanes Harvey, Irma, and Maria, and wildfires in California—affected nearly 47 million people (about 15% of the U.S. population). As of June 30, 2018, the Federal Emergency Management Agency had entered into contracts worth almost $4.5 billion in response to these disasters.

We testified about key challenges FEMA faced in contracting for goods and services for these disasters. For example, it needed to provide better guidance on how to use advance contracts—which are established prior to disasters to quickly provide life-sustaining goods and services in their immediate aftermath.


Medicaid Payment: CMS Has Not Overseen States' Implementation of Changes to Third-Party Liability

The Medicaid program is typically the payer of last resort. The Bipartisan Budget Act of 2018 changed the Medicaid third-party liability payment requirements for prenatal care services, pediatric preventive services, and services provided to CSE beneficiaries. Before the act, in the case of these three services, states were generally required to pay providers for services delivered to Medicaid beneficiaries and then obtain any payments from liable third parties.

The Bipartisan Budget Act of 2018 also included a provision for GAO to study the potential effects of these changes. In this report, GAO (1) describes the status of selected states' implementation of Medicaid third-party liability changes; (2) evaluates CMS's implementation and oversight of the Medicaid third-party liability changes; and (3) describes stakeholders' views of the possible effects of these changes on providers and beneficiaries. GAO conducted interviews with state Medicaid agencies and provider associations in nine selected states, which were selected by taking into consideration Medicaid spending and stakeholder recommendations, among other factors. GAO also conducted interviews with national experts in Medicaid, national organizations representing beneficiaries and providers, and officials from CMS.

Medicaid officials in the nine selected states GAO reviewed described being in various stages of implementing third-party liability changes as required by law. These changes affect whether health care providers must seek payment from a liable third party, such as private insurance, before the state Medicaid agency pays for services. The changes apply to prenatal care services, pediatric preventive services, and services for children subject to child support enforcement (CSE beneficiaries). At the time of GAO's review,

Officials from four of the nine selected states reported having fully implemented the changes for prenatal care services, which were required to be implemented starting in February 2018. Officials from the remaining five states were discussing the changes internally, researching how to implement the changes in their Medicaid payment systems, or waiting for additional guidance from the Centers for Medicare & Medicaid Services (CMS), the federal agency responsible for overseeing states' Medicaid programs.

None of the nine states had implemented the changes to pediatric preventive services and services for CSE beneficiaries, which must be implemented starting in October 2019. Officials from six states told GAO that they were in the early stages of exploring how they would make the changes, while the remaining three states had not developed such plans.

GAO found that guidance issued by CMS in June 2018 to assist states in implementing the third-party liability changes contains information inconsistent with the law. For example, CMS's guidance incorrectly informs states that providers do not need to seek third-party payments before the state pays for some prenatal services. In addition, CMS has not determined the extent to which states are meeting third-party liability requirements. CMS officials stated that they expect states to comply with current law for Medicaid third-party liability and that they do not verify whether states have implemented the required third-party liability changes unless the agency is made aware of non-compliance. However, this approach is inconsistent with CMS's Medicaid oversight responsibilities, including its responsibility to ensure federal funds are appropriately spent.

Medicaid experts and other stakeholders told GAO that the third-party liability changes could affect some health care providers in ways that could result in decreased beneficiary access to care, because some providers might be less willing to see Medicaid patients. According to stakeholders, this could occur for two primary reasons.

1. The changes may increase administrative requirements for providers by requiring them to identify sources of coverage, obtain insurance information, and submit claims to third-party insurers before submitting them to Medicaid.

2. The changes may result in providers waiting longer to receive Medicaid payment for certain services to the extent that states require providers to seek third-party payments before paying the providers' claims.

GAO is recommending that CMS (1) ensure that its guidance to states on third-party liability requirements reflects current law, and (2) determine the extent to which state Medicaid programs are meeting federal third-party liability requirements. The Department of Health and Human Services concurred with these recommendations.

With few exceptions, Medicaid is considered the payer of last resort,  meaning that when beneficiaries have another source of health care  coverage—such as private health insurance provided through an  employer—that source, to the extent of its liability, should generally pay  for services before Medicaid does. This concept is referred to as “third- party liability.” When a third party pays for its share of an individual’s  Medicaid costs, savings can accrue to the federal government and the  states.

The Bipartisan Budget Act of 2018 made changes to the procedures state  Medicaid agencies must follow when they receive certain claims for which  a third party might be liable, among other things. Specifically, the act  changed states’ responsibilities for processing claims for three types of  services: prenatal care services, pediatric preventive services, and  services for children for whom child support enforcement (CSE) is being  carried out by the state (also known as CSE beneficiaries). The changes  pertaining to prenatal care services went into effect in February 2018; the  changes related to pediatric services and services for CSE beneficiaries  go into effect in October 2019. Before the act, in the case of these three  services, states were generally required to pay providers for services  delivered to Medicaid beneficiaries and then obtain any payments from  liable third parties—a process known as “pay and chase.” The  Congressional Budget Office estimated that the Bipartisan Budget Act of  2018 third-party liability changes would result in approximately $4 billion  in federal savings from 2018 through 2027.

The Bipartisan Budget Act of 2018 includes a provision for GAO to study  the impact or potential future impact of these third-party liability changes  on both Medicaid beneficiaries and providers. In this report we  1.  describe the status of selected states’ implementation of third-party  liability changes for state Medicaid programs;  2.  evaluate CMS’s implementation and oversight of third-party liability  changes for state Medicaid programs; and  3.  describe stakeholders’ views on the possible effects of third-party  liability changes and the methods state Medicaid program officials  could use to monitor these changes.

To describe the status of states’ implementation of third-party liability  changes, we judgmentally selected nine states: Connecticut, Florida,  Illinois, Kentucky, Nevada, New Jersey, Tennessee, Texas, and Utah. We  selected these states to include a range of characteristics such as the  delivery systems of their Medicaid programs (e.g., fee-for-service verses  managed care), Medicaid spending, percentage of births financed by  Medicaid, and third-party liability collections, and while also taking into  consideration recommendations from background experts and national  provider associations. We conducted semi-structured interviews with  relevant officials from each state’s Medicaid agency between November  2018 and March 2019. We also conducted interviews with stakeholders  from state chapters of the American Academy of Pediatrics and the  American College of Obstetricians and Gynecologists, with two providers,  with Medicaid managed care organizations (MCO) in three of our selected  states, and with three groups advocating for the needs of Medicaid  beneficiaries. Throughout this report, we use the term “stakeholders” to  refer collectively to officials from state Medicaid agencies and Medicaid  MCOs, background experts, beneficiary advocates, provider associations,  and providers.

To evaluate CMS’s implementation and oversight of third-party liability  changes for state Medicaid programs, we reviewed relevant laws and  available guidance, including relevant regulations, CMS’s Coordination of  Benefits and Third-Party Liability (COB/TPL) in Medicaid handbook, and  an informational bulletin released on June 1, 2018, concerning CMS’s  implementation of federal third-party liability requirements and agency  oversight responsibilities regarding Medicaid state plans and state plan  amendments. We also conducted interviews with officials from CMS and  obtained written responses from CMS officials.

To describe stakeholders’ views on the possible effects of the third-party  liability changes and the methods state Medicaid officials could use to  monitor the potential effects on providers and beneficiaries, we conducted  interviews with state Medicaid agency officials in the nine selected states.  During these interviews, we asked officials about what potential effects  they anticipated these changes having on beneficiaries and providers and  how states could monitor the effects of the third-party liability changes.  We also conducted interviews with other relevant stakeholders—including  individuals and organizations with expertise in Medicaid (identified  through interviews), national provider associations (e.g., the American  Academy of Pediatrics and the American College of Obstetricians and  Gynecologists), state chapters for provider associations, and  organizations representing beneficiaries—during which we asked about  the potential effects the third-party liability changes would have on  affected beneficiaries and providers.

We conducted this performance audit from April 2018 to August 2019 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.

Overview of Medicaid Expenditures and Oversight

Medicaid expenditures are financed jointly by the federal government and  the states. In order to receive federal matching funds for Medicaid  expenditures, states must adhere to a broad set of federal requirements  and administer their programs consistent with individual state plans  approved by CMS. These plans are agreements between a state and the  federal government that describe how states will administer their  Medicaid programs, including how the state will administer Medicaid third- party liability procedures. When states make changes to their Medicaid  programs or policies, including when necessary to comply with a change  in federal law, they must submit a state plan amendment to CMS. CMS  reviews and approves state Medicaid plans and state plan amendments.

The federal government matches each state’s Medicaid expenditures for  services according to a statutory formula called the Federal Medical  Assistance Percentage. This formula provides for a match that is no lower  than 50 percent of a state’s Medicaid expenditures and no higher than 83  percent. States can receive a 90 percent federal match for the costs  associated with the development of each state’s Medicaid Management  Information System (MMIS), a claims processing and retrieval system  supporting the administration of the state’s Medicaid program. States  also receive a 75 percent match for the costs associated with ongoing  MMIS maintenance and operations. States use their MMIS systems to  process provider claims, including claims for prenatal care services,  pediatric preventive services, and services provided to CSE beneficiaries.

The Medicaid program is administered at the state level and overseen at  the federal level by CMS, which, among other things, ensures that funds  are used appropriately and beneficiaries have access to covered  services. Medicaid allows significant flexibility for states to design and  implement their programs. Within broad federal parameters, states have  discretion in, among other things, setting Medicaid eligibility standards  and provider payment rates; determining the amount, scope, and duration  of covered benefits; and developing their own administrative structures.

States may also decide how Medicaid-covered services provided to  beneficiaries will be delivered. For example, states may pay health care  providers for each service they provide—fee-for-service—or contract with  MCOs to provide a specific set of Medicaid-covered services to  beneficiaries and pay them a set amount per beneficiary, typically per  month. While most states use both delivery systems, the percentage of  beneficiaries served through MCOs has grown in recent years, and  represented nearly 70 percent of all Medicaid beneficiaries in 2016.

Federal Third-Party Liability Requirements

Medicaid beneficiaries across various eligibility categories may have  access to private health insurance or other sources of third-party  coverage. For example, some adult beneficiaries may be covered by  employer-sponsored private health insurance even though they also  qualify for Medicaid. Children, similarly, may be eligible for Medicaid,  while also being covered as a dependent on a parent’s private health  plan. As such, federal law requires states to perform various activities to  ensure that Medicaid is the payer of last resort, including taking all  reasonable measures to identify Medicaid beneficiaries’ other potential  sources of health coverage and their legal liability. Specifically, states  must ensure that the following steps, among others, are taken.  1.  Coverage identification. To identify beneficiaries with third-party  health coverage, states are required to request coverage information  from potential Medicaid beneficiaries at the time the agency makes  any determination or redetermination of eligibility. States are also  required to obtain and use information pertaining to third-party liability,  for example, by conducting data matches with state wage information  agencies, Social Security Administration wage and earning files, state  motor vehicle accident report files, or state workers’ compensation  files.  2.  Coverage verification. When other health coverage is identified,  states often verify the information, including the services covered  through the other insurance and the dates of eligibility.  3.  Cost avoidance payment procedures. As a general rule, federal law  requires states to apply cost avoidance payment procedures to claims  for most Medicaid items and services. Under cost avoidance  procedures, the state must reject claims for which a third party is or is  probably liable, and the agency instructs the provider to collect from  the third party. Once the provider determines the amount of the third  party’s liability, the provider submits a claim to the state Medicaid  agency for any remaining balance, up to the maximum amount  allowed under the state’s payment schedule. States are then  required to make timely payment to the provider, generally within 30  days from the date the claim for the balance is filed.  4.  Pay-and-chase payment procedures. The Consolidated Omnibus  Budget Reconciliation Act of 1985 made an exception to cost  avoidance procedures for three types of services: prenatal care  services, pediatric preventive services, and services provided to CSE  beneficiaries. It required states to pay such claims without regard to  the liability of the third party, a procedure CMS calls “pay and chase.”  Under the pay-and-chase payment procedure, the state Medicaid  agency is generally required to make a timely payment to the provider  within 30 days, and then the state, instead of the provider, will seek to  recover payment from any potentially liable third parties within 60  days. According to CMS, cost avoidance does not apply to these  claims because there is a risk some providers might not participate in  Medicaid to avoid dealing with the administrative burden of cost  avoidance. (See fig. 1.)

The Bipartisan Budget Act of 2018 amended various sections of the  Medicaid third-party liability statute, including the required processes  states must follow when paying claims with probable third-party liability for  the following three types of services:

Prenatal care services. The Bipartisan Budget Act of 2018  eliminated, effective February 2018, the statutory exception for  prenatal care services that had required states to apply pay-and- chase procedures to such claims. Thus, under the amended statute,  states must apply cost avoidance procedures to claims for prenatal  care services when it is apparent that a third party is or may be liable  at the time the claim is filed. Additionally, to the extent states had  opted under CMS regulations to apply pay-and-chase procedures to  claims for labor, delivery, or postpartum care services—which CMS  calls “pregnancy-related services”—states must now apply cost  avoidance procedures to those as well.

Pediatric preventive services. Beginning in October 2019, under  federal law as amended by the Bipartisan Budget Act of 2018, states  are no longer required to pay claims for pediatric preventive services  immediately. While states will still have the option to apply pay-and- chase procedures to these claims, a state may instead choose—if it  determines doing so is cost-effective and will not adversely affect  access to care—to require the provider to first submit the claim to the  third party and wait 90 days for payment by the third party before  seeking Medicaid payment. For purposes of this report, we refer to  such a 90-day period as a “wait-and-see period.”

Services provided to CSE beneficiaries. Beginning in October  2019, states must make payment for a CSE beneficiary’s claim if the  third party has not paid the provider’s claim within a 100-day wait-and- see period. However, the state may instead choose—if the state  determines doing so is cost-effective and necessary to ensure access  to care—to make payment within 30 days. (See table 1.)

Once the third-party liability changes in the Bipartisan Budget Act of 2018  are fully implemented, states will have authority to require providers to  wait longer to receive Medicaid payments in certain circumstances. For  example,

Prenatal care services claims, which were previously paid within 30  days under pay-and-chase procedures, are now subject to cost  avoidance. This could potentially result in providers waiting indefinitely  to receive payment, depending on whether the provider is able to  resolve the third-party liability (i.e., submit a claim for payment to the  third party and determine the amount of the third-party liability), which  must occur before the state may make payment under cost  avoidance.

Pediatric preventive services claims, which are generally paid  within 30 days under pay-and-chase procedures, could be subject to a  90-day wait-and-see period beginning in October 2019 if a state  decides to implement one. This could result in providers waiting 120  days to receive payment (90 days to wait and see if the liable third  party pays, and then another 30 days for the state to make timely  payment on any remaining balance).

Claims for services for CSE beneficiaries, which are currently  subject to pay-and-chase procedures or a 30-day wait-and-see period  at state option, may be subject to either a 30-day or 100-day wait-and- see period beginning in October 2019, depending on which option the  state chooses. This could result in providers waiting 130 days to  receive payment (up to 100 days to wait and see if the liable third  party pays, and then another 30 days for the state to make timely  payment on any remaining balance).

Some Selected States Have Implemented Third- Party Liability Changes for Prenatal Care Services; Most of the States Were in the Early Stages of Planning for Other Changes

Officials from four of the nine selected states we reviewed reported  having implemented the required third-party liability changes for prenatal  care services. The changes were required to be implemented in February  2018. For the third-party liability changes affecting pediatric preventive  services and services provided to CSE beneficiaries, which are due to  take effect October 2019, Medicaid officials from six of the nine selected  states noted that they were in the very early stages of planning how they  might implement the changes.

Four of Nine Selected States Have Implemented Required Third-Party Liability Changes for Prenatal Care Services

Officials from four of the nine selected states we reviewed stated that  their state Medicaid agency had implemented the mandated third-party  liability changes for prenatal care services, which required states to  implement cost avoidance payment procedures for claims for these  services beginning in February 2018. Officials from three of the four  states that have implemented the third-party liability changes for prenatal  care services told us that changing from pay-and-chase to cost avoidance  procedures involved identifying all the applicable service codes for  prenatal care and making the necessary changes in their systems to  ensure that any new claims were subject to cost avoidance procedures.  They said it also involved communicating the need for such changes to  the MCOs in their state.

State Medicaid officials from the remaining five states generally noted that  they were discussing the changes internally, researching how to  implement the changes in their MMIS, assessing the likely impact of  these changes on MMIS, or waiting for additional guidance from CMS.  For example:

Officials from several states noted that they were undertaking  activities, such as identifying the prenatal care codes in their data  systems that would need to be switched to cost avoidance payment  procedures, or researching the best way to implement these changes.

Officials from one state said they were in the process of assessing  what the likely impact of these changes on beneficiaries and providers  would be, and would only subject claims for prenatal care services to  cost avoidance if they determined that doing so was the best course  of action.

Officials from one state indicated that they were waiting to determine  whether it was more cost effective to implement these changes in  their legacy MMIS, or wait and implement the changes in the new  MMIS they are planning to roll out in the future.

State Medicaid officials also described other efforts that they would need  to undertake as they implemented these changes to third-party liability.  These included staff retraining and communicating the changes to  providers in their states.

Beyond state Medicaid programs, officials from the five Medicaid MCOs  we interviewed all stated that their organizations had not yet implemented  the prenatal care third-party liability changes. The MCO officials stated  that they were waiting for additional instructions on how to implement the  third-party liability changes or for revised contract language from their  state Medicaid agencies. Officials from one of the MCOs noted they were  not aware of the third-party liability changes until we reached out to them  for an interview. Officials from two MCOs we interviewed generally  agreed that the third-party liability changes for prenatal care services  would require changes to claims processing systems and internal  processes, but would not be significant. Several MCO officials noted that  these changes would likely result in some cost-savings to MCOs in the  future.

Most Selected States Were in Early Stages of Planning Implementation of Third-Party Liability Payment Changes for Pediatric Preventive Services and Services to CSE Beneficiaries

Medicaid officials from six of the nine selected states noted that they were  in the very early stages of planning whether—or how—they would  implement the wait-and-see periods for pediatric preventive services and  services to CSE beneficiaries. For example, some Medicaid officials  from these six states described how they were assessing what changes  would need to be made to their MMIS, deciding whether to implement the  wait-and-see periods, or exploring how to assess the potential impact of  these changes. Some Medicaid officials also expressed uncertainty  regarding how such changes would affect Medicaid beneficiaries or the  amount of effort required by their agency to implement the third-party  liability changes. Officials from one state noted that they had begun  discussions about implementing the third-party liability changes for both  pediatric preventive services and services for CSE beneficiaries in June  2018, and were in the process of identifying the necessary system  changes needed to implement third-party liability changes by the October  2019 effective date. Officials from two of these states stated that they do  not believe their state will implement the wait-and-see periods for  pediatric preventive services or CSE beneficiaries when the changes go  into effect. Officials from the remaining three states noted at the time of  our interviews they had not yet developed plans for assessing  implementation of these changes. Table 2 summarizes the status of  selected states’ implementation of the third-party liability changes.

For pediatric preventive services, state Medicaid officials generally noted  that the third-party liability changes would involve identifying the relevant  codes and making changes to their MMIS to ensure those claims were  subject to a wait-and-see period, if implemented. Several state Medicaid  officials characterized this effort as “significant” or “difficult.” For services  delivered to CSE beneficiaries, officials from several state Medicaid  agencies speculated that making the third-party liability changes to their  MMIS would necessitate having some sort of indicator in their system to  identify which claims were for the CSE beneficiaries and, therefore,  should be subject to a wait-and-see period, if implemented. Some state  Medicaid agency officials said that this would require obtaining the  information from another state agency responsible for administering CSE  agreements.

Several of the state Medicaid officials we interviewed expressed concerns  regarding how to implement the wait-and-see periods for pediatric  preventive services and services for CSE beneficiaries. Specifically, these  officials noted that—within their MMIS—it is not possible to capture on a  Medicaid claim when a provider has billed a third party, waited a specified  amount of time, and not received payment. As a result, officials from one  state noted that additional guidance from CMS on how to implement and  track provider billing of third parties—including wait-and-see periods and  providers’ collection of payment—would be necessary before moving  forward with implementing the third-party liability changes. Officials from  two states said that the administrative burden associated with these  changes would possibly make them not cost-effective to implement.  However, MCO officials we interviewed generally acknowledged that  while these changes would require changes to their claims processing  systems and internal processes, they were not significant and could  potentially result in some cost-savings to their MCO in the future.

The third-party liability change affecting all Medicaid services provided to  CSE beneficiaries was a particular concern for officials from three state  Medicaid agencies and three MCOs. Specifically, these officials said  there is currently no way to identify CSE beneficiaries in their MMIS or  claims processing systems, which could potentially make this change  difficult, if not impossible, to implement. Officials from one state described  how setting up a system to receive this information would involve a  significant effort, potentially necessitating new hardware and system  modifications, as well as a data sharing agreement with the state entity  maintaining the CSE information. Officials from one MCO noted that the  third-party liability changes affecting CSE beneficiaries was a particular  concern, because those changes would potentially require additional  administrative work and changes to their processes in order for providers  in their network to track down insurance information from a non-custodial  parent.

CMS Has Issued Implementing Guidance with Information Inconsistent with Federal Law and Has Not Overseen States’ Implementation of Third-Party Liability Changes

CMS’s Implementing Guidance Contains Information Inconsistent with Provisions of Federal Law Related to Medicaid Third-Party Liability

After enactment of the Bipartisan Budget Act of 2018 in February 2018,  CMS issued guidance in the form of an informational bulletin to states on  June 1, 2018, to facilitate states’ implementation of the key provisions of  the Bipartisan Budget Act of 2018 related to third-party liability in  Medicaid. However, CMS’s June informational bulletin is missing some  key information and contains information that is inconsistent with the  federal law. This is inconsistent with CMS’s responsibility for ensuring  states’ compliance with federal requirements. In particular,

Pregnancy-related claims. Under federal law, states must apply  standard cost avoidance procedures to all non-pediatric claims,  including claims for prenatal services beginning in February 2018.  However, CMS guidance indicates that a state need not apply cost  avoidance procedures to claims for labor and delivery services if  those claims can be differentiated from prenatal services. The  guidance also provides that, effective October 1, 2019, states will  have 90 days to pay claims related to labor, delivery, and postpartum  care claims. As a result, CMS’s guidance is inconsistent with federal  law, which requires states to reject any such claim under cost  avoidance procedures until the third-party liability is resolved,  regardless of how many days that might take.

Pediatric preventive claims. Under federal law, states must  generally apply pay-and-chase procedures to pediatric preventive  services. However, beginning in October 2019, states are permitted to  implement a 90-day wait-and-see period before making payment for  these services if the state determines that it would be cost-effective  and would not adversely affect access to care to do so. However,  CMS guidance simply provides that states will have 90 days to pay  such claims, suggesting that states need not make the cost- effectiveness or access determinations required by statute.

CSE beneficiary claims. Under federal law, beginning in October  2019, for claims for services to CSE beneficiaries, states may choose  to make payment within 30 days (as opposed to implementing a 100- day wait-and-see period), if the state determines doing so is cost- effective and necessary to ensure access to care. If the state does  not make such a determination, the statute would require the state to  avoid making payment for such services for up to 100 days to allow  third parties to make payment first. However, CMS guidance does not  identify this as an option for states. Instead, CMS guidance simply  provides states with the option of implementing the wait-and-see  period, omitting the option for states to make payment within 30 days.

CMS officials told us that the Bipartisan Budget Act of 2018 did not  change state responsibilities related to cost-effectiveness and access to  care, and CMS does not intend to issue additional guidance on this issue.  However, prior to enactment of the Bipartisan Budget Act of 2018 in  February 2018, federal third-party liability law did not authorize states to  apply cost avoidance procedures to preventive pediatric claims or  pediatric services provided to CSE beneficiaries.

Furthermore, other CMS guidance documents, such as the third-party  liability handbook and CMS regulations on third-party liability, are out of  date and not a reliable source of information for states to use in  implementing the new federal third-party liability requirements. In  particular, the third-party liability handbook was last revised in 2016 and  does not reflect the Bipartisan Budget Act of 2018 changes. Additionally,  CMS regulations implementing federal requirements for state payment of  claims for prenatal care, labor and delivery services, postpartum care,  preventive pediatric services, and services to CSE beneficiaries were last  amended in 1997 and, accordingly, do not reflect current statutory  requirements, including the Bipartisan Budget Act of 2018 requirement to  cost avoid prenatal and other non-pediatric claims beginning February  2018.

CMS officials told us the agency is in the process of updating its third- party liability handbook and anticipates issuing the updated document in  September 2019. Agency officials also told us they plan to revise the  agency’s regulations regarding pay-and-chase and release the revised  regulations in early 2020. However, federal law requires state Medicaid  plans to provide for proper third-party liability procedures, which states  often carry out through references to federal regulation, according to CMS  officials. Without updated third-party liability guidance that is timely,  complete, and consistent with federal law, states may lack the necessary  information to update their state Medicaid plans so that they comply with  these requirements.

CMS Has Not Overseen States’ Implementation of Third-Party Liability Changes

CMS has not taken steps to determine the extent to which state Medicaid  agencies are meeting the third-party liability requirements, and therefore  CMS officials were unaware of whether states were meeting the new  requirements. In particular, CMS officials did not know the extent to which  the selected states in our review had implemented the required third-party  liability changes. In our interviews with nine selected state Medicaid  agencies conducted between November 2018 and March 2019, we  learned that five states continued to apply pay-and-chase procedures to  prenatal care claims, despite the federal requirement to implement cost  avoidance since February 2018.

During our interviews, we also learned that CMS had not monitored state  Medicaid agencies’ third-party liability approaches prior to the Bipartisan  Budget Act of 2018. For example, officials from one of the selected states  told us that they had been using cost avoidance for most claims for  pediatric preventive care, rather than applying pay-and-chase  procedures, as required by law. We also learned from an official from  another selected state that the state had been applying cost avoidance  procedures to claims for prenatal care services well in advance of the  enactment of the Bipartisan Budget Act of 2018, despite the federal  requirement to apply pay-and-chase procedures to such claims from 1986  to 2018.

CMS’s failure to monitor the implementation of the third-party liability  changes in the Bipartisan Budget Act of 2018 is inconsistent with the  agency’s responsibilities for oversight of the Medicaid program, including  ensuring that federal funds are appropriately spent. We have previously  recommended that, given the significant federal Medicaid outlays, the  federal government has a vested financial interest in further increasing  states’ third-party liability cost savings, and that CMS should play a more  active leadership role in monitoring, understanding, supporting, and  promoting state third-party liability efforts.

However, CMS officials stated that they expect states to comply with  current law for Medicaid third-party liability, and that they do not verify  whether states have implemented the required third-party liability changes  unless the agency is made aware of non-compliance. When asked how  CMS ensures that states apply pay-and-chase procedures required under  federal law, such as for pediatric preventive claims, CMS officials stated  that it is the agency’s expectation that states comply with current law.  According to agency officials, if a state has difficulty complying and  reaches out to CMS for technical assistance, the agency will work with  that state to come into compliance. CMS officials told us that CMS plans  to review all state Medicaid plans and provide technical assistance for  any necessary action only after the agency has updated its regulations  related to third-party liability. As of May 2019, CMS anticipated that it  would release updated regulations in early 2020.

Because CMS has not monitored states’ compliance with federal third- party liability requirements, the agency does not know whether states  have applied the federally required third-party liability procedures to  certain Medicaid claims as required by federal law. In the case of prenatal  care services claims, the failure to implement cost avoidance payment  procedures could result in unnecessary Medicaid expenditures, to the  extent that Medicaid pays providers for services for which a third party is  liable. To the extent that states are not properly applying pay-and-chase  procedures to pediatric preventive service claims, children’s access to  such services could be impacted.

Stakeholders Anticipate Third-Party Liability Changes Could Affect Beneficiary Access to Care; Selected States Discussed Using Existing Methods to Assess Effects of Changes

Most Stakeholders Anticipate Increased Administrative Requirements for Providers and a Possible Decrease in Beneficiary Access to Care

According to most of the stakeholders we interviewed, Medicaid  providers—especially prenatal care and rural providers—could face  increased administrative requirements or delays in payments for services  as a result of the third-party liability payment changes to the three service  categories in the Bipartisan Budget Act of 2018. Several stakeholders  agreed that the tasks associated with identifying sources of third-party  liability and attempting to collect from third parties would shift from state  Medicaid agencies to providers as a result of the payment changes,  although opinions differed on the extent to which this shift would affect  providers.

Several stakeholders said that the third-party liability changes could  increase administrative requirements for providers, because obtaining  accurate information on third-party liability sources for Medicaid  beneficiaries and resubmitting claims that result from incorrect or  outdated third-party liability information can be resource intensive and  time consuming. One provider and officials from one state Medicaid  agency noted that providers may lack the administrative resources or  claims-processing expertise to deal with these changes. Officials from  one state Medicaid agency, two state provider associations, and an  organization advocating for Medicaid beneficiaries also noted that  providers may encounter Medicaid beneficiaries who may be unaware  or may not disclose that they have other insurance policies; for  example, children who are covered under multiple insurance policies  by custodial and non-custodial parents or experience insurance  transitions following birth. These issues may increase the amount of  time and resources providers spend on processing and resubmitting  claims.

Other stakeholders were less certain that the added requirements  would cause difficulties for providers. Officials from one state  Medicaid agency and one MCO said that the payment changes would  not be difficult to implement, because providers were familiar with  billing third parties for medical services for other beneficiaries.  Officials from four state Medicaid agencies and two MCOs noted that  providers may prefer to submit claims to commercial insurers,  because these insurers pay at a higher rate compared with state  Medicaid programs.

Several stakeholders we interviewed agreed that providers could wait  longer periods of time for payment as they track down third-party insurers  or wait up to 100 days for potential payment from these insurers before  seeking payment from the state Medicaid agency. According to one  provider and officials from two provider associations and one MCO, these  delays could put providers at risk of not receiving payments for services  or not having enough cash on hand to sustain operations. Additionally,  officials from three provider associations noted that payment delays  would affect pediatric providers in particular, because the majority of the  services that pediatricians provide are preventive care—which would be  affected by the third-party liability changes.

According to several stakeholders we interviewed, smaller or independent  providers and those located in rural areas could be more affected by the  third-party liability changes compared with providers affiliated with  managed care systems or those located in urban areas. Officials from  one state Medicaid agency, two provider associations, and one MCO  noted that smaller or rural-based providers generally have fewer staff and  resources to deal with the larger volume of administrative paperwork and  delays in payment for services that could result from the payment  changes.

Most of the stakeholders we interviewed said that providers might be less  willing to serve Medicaid beneficiaries due to the administrative and  payment issues, potentially reducing access to care or delaying services  for children and pregnant women. However, some other stakeholders  said that the third-party liability changes would have little to no effect on  Medicaid beneficiaries. Officials from one state Medicaid agency and one  MCO noted that third-party liability payment practices for other Medicaid  populations and services have been in place for many years, and  providers would already be familiar with processing claims with third-party  liability.

Several stakeholders said that providers may opt to reduce or eliminate  the number of Medicaid beneficiaries they serve, because of actual or  perceived increase in administrative requirements or payment delays.  Officials from three state provider associations speculated that the  potential for additional delays in payment for services could be the “final  straw” in providers’ decision to stop serving Medicaid beneficiaries. Other  stakeholders, including a Medicaid expert, one provider, and officials from  one state provider association noted that providers may decide to see  fewer Medicaid beneficiaries, but are unlikely to stop seeing them entirely,  because some providers are reluctant to deny care to these beneficiaries.

Payment delays could also lead to delays in beneficiaries receiving time- sensitive services, such as immunizations, as well as reduced access to  specialists, such as midwives or mental health professionals, according to  several stakeholders. Officials from one national provider association and  an organization advocating for Medicaid beneficiaries noted that providers  may seek to identify sources of third-party liability before providing  services to beneficiaries. In addition, officials from one state Medicaid  agency, a state provider association, and an organization advocating for  Medicaid beneficiaries expressed concern that the third-party liability  changes had the potential to reduce access to care for populations, such  as children and pregnant women, that already faced challenges in  accessing adequate, timely, or quality health care.

Selected States Discussed Using Existing Methods for Assessing Provider Availability and Beneficiary Access to Care Once Payment Changes Are Implemented

Medicaid officials we interviewed from seven of the nine selected states  said that their agencies will—or could—use existing methods to assess  the effects of the third-party liability changes on provider availability and  beneficiary access to prenatal care services, pediatric preventive  services, and services for CSE beneficiaries. Officials from the remaining  two states did not discuss or provide information on how they could  assess the effects of the changes.

Medicaid officials provided examples of existing methods that could be  used to assess the effects of payment changes:

Tracking beneficiary access by comparing a set of access-to-care  measures for a state’s Medicaid population with its non-Medicaid,  commercially insured population, as well as carrying out customer  satisfaction surveys with Medicaid beneficiaries,

Using a third-party liability hotline to track patient issues and  conducting secret shopper calls to monitor if providers are accepting  new patients,

Contracting with a state university to evaluate Medicaid beneficiary  access for prenatal and pediatric services.

In addition, one state has an independent health advocacy agency that  monitors and seeks to resolve provider availability and beneficiary access  issues on behalf of the state’s Medicaid population.

However, one state Medicaid official and a Medicaid expert agreed that  measuring any possible effects of the third-party liability changes—such  as a decline in provider availability or beneficiary access—would be  difficult without baseline data. According to officials from two state  Medicaid agencies and a Medicaid expert, many other factors could  potentially affect provider availability and beneficiary access, making it  difficult or impossible to pinpoint if a decline in provider availability or  beneficiary utilization of services was the result of the third-party liability  changes or something else—such as changes in the managed care  market or levels of private coverage among beneficiaries.

We found other evidence suggesting that it might be challenging for some  states to assess the effects of the third-party liability changes.  Specifically, Medicaid officials from eight of the nine selected states did  not readily identify the number of beneficiaries in their state that had third- party liability and would be affected by the changes. Moreover, officials  from two states noted that obtaining this data would require a “significant”  effort.

Officials from five states shared information on the number of children,  pregnant women, or births covered by Medicaid in their state, but did  not specify how many of these beneficiaries had other insurance  coverage.

Seven of the nine selected states had no data readily available on  CSE beneficiaries who were also covered by Medicaid. In several  cases, officials noted that their MMIS or other data systems had no  way to track whether a child was a CSE beneficiary.

Omissions and inaccuracies in CMS’s guidance to states on third-party  liability changes from the Bipartisan Budget Act of 2018 have the potential  to adversely affect the extent to which Medicaid expenditures are being  used to pay for services for which a third party is liable, as well as states’  compliance with federal requirements. Furthermore, CMS has not  assessed whether state Medicaid agencies are complying with federal  third-party liability requirements, under which states must change how  they pay claims for certain services as a result of the Bipartisan Budget  Act of 2018 and subsequently enacted legislation. In the absence of CMS  overseeing states’ compliance, the agency cannot ensure that federal  funds are being spent properly and that states are complying with current  federal statute.

We are making the following two recommendations to CMS:

The Administrator of CMS should ensure the agency’s Medicaid third- party liability guidance is consistent with federal law related to  the requirement for states to apply cost avoidance procedures to  claims for labor, delivery, and postpartum care services,  the requirement for states to make payments without regard to  potential third-party liability for pediatric preventive services unless  the state has made a determination related to cost-effectiveness  and access to care that warrants cost avoidance for 90 days, and  state flexibility to make payments without regard to potential third- party liability for pediatric services provided to child support  enforcement beneficiaries. (Recommendation 1)

The Administrator of CMS should determine the extent to which state  Medicaid programs are meeting federal third-party liability  requirements and take actions to ensure compliance as appropriate.  Such actions can include ensuring that state plans reflect the law.  (Recommendation 2)

We provided a draft of this report to the Department of Health and Human  Services for comment. In its written comments, which are reprinted in  appendix I, HHS concurred with our recommendations and indicated a  commitment to providing states with accurate guidance on the third-party  liability changes in the Bipartisan Budget Act of 2018. The agency noted  that it is in the process of updating its guidance and third-party liability  handbook to reflect the changes and ensure that such guidance is  consistent with federal law. The agency also noted that it will determine  the extent to which state Medicaid programs are meeting federal third- party liability requirements and will take actions to ensure compliance.

We are sending copies of this report to the appropriate congressional  committees, the Secretary of Health and Human Services, and other  interested parties. In addition, the report is available at no charge on the  GAO website at http://www.gao.gov.

If you or your staff have any questions about this report, please contact  me at (202) 512-7114 or yocomc@gao.gov. Contact points for our Offices  of Congressional Relations and Public Affairs can be found on the last  page of this report. Major contributors to this report are listed in appendix  II.

Appendix I: Comments from the Department of Health and Human Services

Appendix II: GAO Contacts and Staff Acknowledgments

In addition to the contact named above, Tom Conahan (Assistant  Director), Andrea E. Richardson (Analyst-in-Charge), Marybeth Acac,  Drew Long, Corinne Quinones, Jennifer Rudisill, and Ethiene Salgado- Rodriguez made key contributions to this report.

Some people who get Medicaid benefits may also have coverage from a third party, like insurance from an employer. Generally, the third party should pay its part for services before Medicaid pays.

For some claims where a third party might pay—including prenatal care and preventive care for children—state Medicaid agencies are now required to use new payment procedures, which could help ensure Medicaid doesn’t pay more than it should.

The Centers for Medicare & Medicaid Services (CMS), which oversees states’ Medicaid plans, doesn’t know if states are using the new procedures. We recommended CMS determine states’ compliance.