Medicaid Demonstrations: Approvals of Major Changes Need Increased Transparency

Section 1115 demonstrations are a significant component of Medicaid spending and affect the care of millions of beneficiaries. The Patient Protection and Affordable Care Act required the Department of Health and Human Services (HHS) to establish procedures to ensure transparency in approvals of new demonstrations and extensions to existing demonstrations. The act did not address amendments, which are subject to long-standing guidance on public input.

GAO was asked to examine the transparency of demonstration approvals. Among other things, this report examines CMS's transparency policies and procedures for new demonstrations and extensions, and amendments to existing demonstrations. To review a variety of approval types across a large number of states, GAO examined all approvals of new demonstrations and extensions of and amendments to existing demonstrations granted from January 2017 through May 2018. GAO also conducted in-depth reviews of one approval in each of seven states, selected to include at least two approvals of each type. GAO reviewed demonstration documentation for these states, and interviewed state and federal Medicaid officials. GAO also assessed CMS's procedures against federal internal control standards.

Medicaid demonstrations allow states flexibility to test new approaches for providing coverage and delivering Medicaid services. Since 2012, the Centers for Medicare & Medicaid Services (CMS), which oversees demonstrations, has developed procedures to improve the transparency of the approval process. For example, CMS reviews demonstration applications (including for new demonstrations, extensions, and amendments to existing demonstrations) for their compliance with applicable transparency requirements, including that states seek public input on their applications.

However, GAO found weaknesses in CMS's policies for ensuring transparency.

Changes to pending applications for new demonstrations or extensions. CMS lacks policies for ensuring transparency when states submit major changes to pending applications. For two of the four approvals of new demonstrations or extensions GAO reviewed in-depth, states submitted changes to their applications that could have significant effects on beneficiaries (such as disenrollment or other penalties) without first obtaining public comment on these changes at the state level.

Amendments to existing demonstrations. CMS's transparency requirements for amendments are limited. For example, CMS does not require amendment applications to include how the changes may affect beneficiary enrollment or report on concerns raised in state public comments. However, states have proposed major changes—such as work and community engagement requirements—through amendments, raising concerns that major changes to states' demonstrations are being approved without a complete understanding of their impact.

CMS should develop policies for ensuring transparency when states (1) submit major changes to pending demonstration applications and (2) propose amendments to existing demonstrations. HHS concurred with these recommendations.

Medicaid section 1115 demonstrations—which allow states to test and  evaluate new approaches for delivering services under the federal-state  Medicaid program—have become a significant feature of the program.  Under section 1115 of the Social Security Act, the Secretary of Health  and Human Services may waive certain federal Medicaid requirements  and approve new types of expenditures that would not otherwise be  eligible for federal Medicaid matching funds for experimental, pilot, or  demonstration projects that in the Secretary’s judgment are likely to  promote Medicaid objectives. As of November 2018, over three-quarters  of states operated at least part of their Medicaid program under a section  1115 demonstration; and in fiscal year 2016, federal spending for  demonstrations amounted to $108 billion, or almost one-third of Medicaid  program expenditures.

The Centers for Medicare & Medicaid Services (CMS), within the  Department of Health and Human Services (HHS), oversees Medicaid  section 1115 demonstrations (referred to hereafter as demonstrations)  and has approved states’ use of demonstrations for a variety of purposes.  For example, under demonstrations, states have extended coverage to  populations or offered services not otherwise eligible for Medicaid and  implemented policies aimed at improving delivery systems. Recently,  CMS has issued guidance to states indicating its intent to bring additional  flexibilities to Medicaid, including allowing states to provide beneficiaries  with incentives to work, such as by requiring beneficiary participation in  work or community engagement activities to maintain their Medicaid  eligibility.

To provide transparency, HHS has long had policies to seek public input  at the state and federal levels on what states are proposing through  demonstrations. The Patient Protection and Affordable Care Act  (PPACA) required HHS to implement a broader set of transparency  procedures. Specifically, HHS was directed to issue regulations  establishing review and approval processes for demonstrations that  would ensure a meaningful level of public input and transparency around  demonstration goals and outcomes. In 2012, CMS issued the  regulations, which include transparency requirements for states seeking  approval for new demonstrations (typically approved for a 5-year period)  and for extensions of existing demonstrations. The regulations also  detailed the steps CMS will take to ensure transparency, including  seeking and considering public input at the federal level on demonstration  applications, and posting information on approvals and outcomes, such  as monitoring and evaluation reports. States may also seek CMS  approval to make changes to ongoing demonstrations—referred to as  amendments—and states frequently do so. The statute and regulations  do not establish transparency requirements for amendments, which are  instead subject to long-standing HHS guidance on public input.

Given the significant amount of federal spending under demonstrations  and the potential for demonstrations to affect beneficiaries and inform  policy decisions at the state and federal levels, you asked us to examine  the public transparency of CMS’s demonstration approvals. This report  examines CMS’s  1.  policies and procedures for ensuring public transparency of approvals  of new demonstrations and extensions of demonstrations;  2.  policies and procedures for ensuring public transparency of approvals  of amendments to existing demonstrations; and  3.  use of the public input it receives to make demonstration approval  decisions and for ongoing monitoring and evaluation.

To examine CMS’s policies and procedures for ensuring public  transparency of approvals of new demonstrations and extensions, we  reviewed documentation of those policies and procedures and of CMS’s  assessment of state compliance with transparency requirements for  approvals from January 1, 2017, to May 31, 2018. We selected this time  period to include a variety of demonstration approvals across a large  number of states. We limited our review to comprehensive  demonstrations and excluded approvals of temporary extensions. In  total, we reviewed the 11 approvals of new demonstrations and  extensions made during this time, comprised of approvals for new  demonstrations in two states and extensions in nine states. Our review  included determining whether CMS’s assessment was complete and  whether the agency was applying the requirements consistently. We also  conducted a more in-depth review of 4 of the 11 approvals. These  included the two new demonstrations—approved for Kentucky and  Washington—and two of the nine extension approvals—approved for  Florida and Indiana. We selected the extension approvals because they  included significant changes to the demonstration. For these four in- depth reviews, we examined all of the application documentation  submitted by the states, including any major changes states made to the  application during the course of CMS’s review; documentation of CMS’s  review; and approval documentation to determine whether CMS was  consistent in its application of the transparency requirements and to  identify any gaps in transparency. We also interviewed Medicaid officials  in the four states to obtain their perspectives on the transparency  process. We also interviewed CMS officials about any recent or planned  changes to the policies and procedures and assessed them against the  federal internal control standards related to risk assessment.

To examine CMS’s policies and procedures for ensuring public  transparency of approvals of amendments to existing demonstrations, we  reviewed documentation of transparency requirements for amendments  and procedures for assessing state compliance with those requirements.  We also reviewed documentation of CMS’s assessment of compliance for  the 21 amendments approved in 17 states during the same January 1,  2017, to May 31, 2018, period. We also conducted the in-depth review  described above for 3 of the 21 amendment approvals—approvals for  Arkansas, California, and Massachusetts. We selected these approvals to  include states approved to make major changes to their existing  demonstrations. We also interviewed CMS officials about any recent or  planned changes to the agency’s policies and procedures, and assessed  them against federal standards for internal control related to risk  assessment.

To examine CMS’s use of the public input it receives to make  demonstration approval decisions and for ongoing monitoring and  evaluation, we reviewed documentation for the seven approvals we  selected for in-depth reviews—approvals of new demonstrations in  Kentucky and Washington; extensions in Florida and Indiana; and  amendments in Arkansas, California, and Massachusetts. (See app. I for  information on the demonstrations operated in these states.) Specifically,  we reviewed state summaries of issues raised through public input at the  state level and the states’ responses, submitted as part of the application.  We also reviewed public comments submitted during the federal public  input period for these applications and summaries of these comments  prepared by CMS or its contractors. For each of the approvals, we  reviewed CMS’s approval letters and the special terms and conditions for  evidence of CMS’s consideration and use of the public comments,  including in how CMS set monitoring and evaluation requirements.  Finally, we interviewed CMS officials about their procedures for  considering public comments in their approval decisions and in post- approval monitoring and evaluation efforts.

We conducted this performance audit from March 2018 to April 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.

A total of 43 states operated at least part of their Medicaid programs  under demonstrations, as of November 2018. State demonstrations can  vary in size and scope, and many are comprehensive in nature, affecting  multiple aspects of a state’s Medicaid program. Nationally, federal  spending under demonstrations represented over 30 percent of all federal  Medicaid spending in fiscal year 2016. (See app. II.)

Demonstrations are typically approved by CMS for an initial 5-year period,  but some states have operated portions of their Medicaid programs under  a demonstration for decades. This can be achieved by a state requesting  approval by CMS for one or more 3- to 5-year extensions of an existing  demonstration (referred to as an extension). States often make changes  to their demonstrations, either through the extension process or by  requesting to amend a demonstration during the approval period (referred  to as an amendment). From January 2017 through May 2018, CMS  approved applications for a new demonstration, extension, amendment,  or a combination of these in 23 states. (See fig. 1.)

Each demonstration is governed by special terms and conditions (STCs),  which reflect the agreement reached between CMS and the state, and  describe the parameters of the authority granted to the state. For  example, the STCs may define for what populations and services funds  can be spent under the demonstration, as well as specify various state  reporting requirements. The STCs also include a spending limit for the  demonstration that is meant to ensure the demonstration is budget  neutral to the federal government; that is, the federal government should  spend no more under a state’s demonstration than it would have spent  without the demonstration.

Transparency Requirements for Demonstration Applications

Requirements for new demonstrations and extensions. As required  under PPACA, HHS issued regulations in 2012 to address transparency  in the approval of applications for new demonstrations and extensions.  The regulations include requirements for states to seek public input on  their proposals prior to submitting an application to CMS, requirements for  information states must include in their public notices and applications,  and procedures that CMS would follow upon receiving the application.  CMS reviews the submitted application to check for compliance with  these regulations, before seeking additional public input through a 30-day  comment period at the federal level. (See fig. 2.) The regulations also  provide CMS discretion to engage in additional transparency activities on  a case-by-case basis.

Requirements for amendments. The 2012 regulations do not apply to  states seeking to amend existing demonstrations. Instead, the  transparency requirements for amendments are set by guidance HHS  issued in 1994 and in the individual STCs that govern each  demonstration. The requirements from the guidance and STCs include,  for example, that the state seek public input prior to submitting its  application and provide in its application an explanation of its process for  notifying the public and a detailed description of what is being amended,  including the impact on beneficiaries.

Transparency Requirements Post- Approval

CMS’s regulations also include monitoring and evaluation requirements to  ensure that the outcomes of demonstrations are transparent.

Monitoring. States must perform periodic reviews of the  implementation of their demonstrations, and the STCs typically  require states to report those outcomes to CMS periodically. The  regulations also require states to conduct a public forum within 6  months after the implementation date of the demonstration, and  annually thereafter, to solicit public comments on the progress of the  demonstration project and summarize issues raised in monitoring  reports submitted to CMS. The regulations require that states submit  the annual monitoring reports to CMS.

Evaluation. States are required to conduct evaluations to assess  whether their demonstrations are achieving the state’s goals and  objectives. After a demonstration is approved, states are required to  submit an evaluation design to CMS for review and approval. The  evaluation design must discuss the hypotheses that will be tested, the  data that will be used, and other items outlined in the STCs. In the  event that a state wishes to extend its demonstration, the state’s  extension application must include, among other things, a report  presenting the evaluation’s findings to date, referred to as an interim  evaluation report. States are also required to submit final evaluation  reports at the demonstration’s end. All evaluation designs and reports  are to be made public.

CMS Has Developed Procedures for New Demonstrations and Extensions to Improve Transparency of Approvals, but Weaknesses Remain

CMS Has Developed Procedures to Improve the Transparency of Demonstration Approvals

Transparency Requirements for New  Demonstrations and Extensions   The transparency requirements for new  Medicaid section 1115 demonstrations and  extensions of existing demonstrations are  established in federal regulations at 42 C.F.R.  part 431, subpart G.

We found that CMS has developed procedures for assessing states’  applications for new demonstrations and extensions against the  transparency requirements established in 2012 (see sidebar).  Specifically, CMS’s procedures involve reviewing incoming applications  for new demonstrations or extensions against detailed checklists the  agency designed to align with transparency requirements in the  regulations. (CMS refers to these as completeness checks.) For example,  the checklist for new demonstrations includes checks for whether the  application included a description of the demonstration; any proposed  changes to the benefits, delivery system, or eligibility requirements;  information on the public hearing(s) and public comment process the  state conducted; and a summary of the issues raised in the state public  comment process. (See fig. 3.) We found that CMS completed checklist  reviews for each of the 11 applications for new demonstrations or  extensions that CMS approved from January 2017 through May 2018.

CMS has also developed and implemented procedures for seeking public  input at the federal level and making that input publicly available. This  includes CMS sending email notifications to individuals who have  registered on the agency’s website when demonstration applications are  open for public comment; posting the application on the website where  the public can post comments during the 30-day comment period; and  maintaining the public comments on the website, which are maintained  indefinitely, according to CMS officials. We found that CMS conducted a  federal comment period for all 11 of the new and extension applications in  our review period.

In addition to storing the federal public comments, CMS’s website  contains a record of key decisions and documents for each demonstration  (referred to as the administrative record). The administrative record  includes states’ applications, as well as CMS’s approvals, denials, and  decisions about the completeness of applications—a requirement under  the 2012 regulations. CMS officials told us that they include additional  documents as standard practice, though they are not required to be  posted, such as a fact sheet on the demonstration and other official  communication between the agency and the state, to support  transparency. CMS first launched this section of its website in December  2011 with an aim to improve access to Medicaid program information,  including information on demonstrations, and redesigned the website in  2013 to improve functionality. The administrative record provides a  history, dating as far back as 2011, of what a state has tested, how the  approach has evolved over time, and what has been learned from the  approach.

CMS’s Policies and Procedures for Ensuring Transparency of Demonstration Approvals Have Weaknesses

We identified several areas of weakness in CMS’s policies or procedures  for ensuring transparency in approvals of new demonstrations and  extensions of existing demonstrations. These weaknesses related to the  transparency of major changes made to pending applications, the  transparency of changes to approved spending limits, and inconsistency  in CMS’s review of applications for compliance with transparency  requirements for new demonstrations and extensions.

Transparency of Major Changes to Pending Applications

CMS did not apply a consistent approach to ensuring transparency in two  states that made major changes to their demonstration applications mid- review. Indiana and Kentucky submitted changes to pending applications,  the first for an extension and the latter for a new demonstration that had  substantial potential effects for some beneficiaries. Indiana’s changes  included adding new eligibility requirements for some beneficiaries, and  Kentucky’s changes included accelerating the effective dates of new  requirements to maintain eligibility (see sidebar).

CMS did not require either state to solicit public input, though both states  opted to hold a public comment period on the proposed changes  concurrent with CMS’s review. Further, CMS reviewed Indiana’s  proposed changes against limited transparency requirements but did not  do so for Kentucky. Indiana submitted a final version of its application  summarizing public input and the state’s response, while Kentucky did  not. Thus, the extent to which these comments were considered at the  state and federal levels was not transparent to the public. Figure 4  shows a timeline of the events surrounding Indiana’s and Kentucky’s  requests to make changes to their pending demonstration applications.

Kentucky: In July 2017, Kentucky submitted  changes to its pending application for a new  demonstration, including: replacing a provision for a year-long  phase-in of a proposed 20-hour per week  work and community engagement  requirement for beneficiaries with a 3- month phase-in of the requirement; and   disenrolled for 6 months for failing to  timely report changes in income or other  circumstances affecting eligibility.

CMS approved a significant increase in the spending limit for a portion of  Florida’s demonstration—which appeared to reflect a change in the  agency’s position on the allowable use of the funds—without making  transparent the basis for this decision. Specifically, CMS increased the  spending limit for a pool of funds for payments to offset providers’  uncompensated care costs by close to $1 billion in 2017 after having  reduced the limit 2 years earlier. In its approval letter, CMS provided  limited information on the basis for this change. CMS stated that the limit  was based on the state’s most recent data on uncompensated care costs,  but did not disclose a significant change in its methodology for setting  these limits. In unpublished correspondence to Congress, CMS indicated  that the calculation of the spending limit was broadly consistent with  previous policy with one significant change. Specifically, the letter  indicated that whether the state had opted to expand Medicaid coverage  to low-income, childless adults as provided for under PPACA would no  longer factor into the limit, thus allowing CMS to include uncompensated  care costs for this population in setting the limit. This change led to  increasing the state’s spending limit to $1.5 billion annually. (See text  box.) Moreover, CMS noted plans to apply this change across all states  going forward. CMS officials, however, did not indicate that they had  publicly communicated this policy change to all states. In past reports, we  have recommended that HHS make public the basis for demonstration  approvals including the basis for elements used to set spending limits,  and in 2008, we raised the issue as a matter for Congress to consider.  CMS has taken a number of steps in the last several years to update and  make public its policies for setting spending limits, but has not yet taken  action to make public the basis of spending limits.

CMS Decision to Increase Spending Limit for a Funding Pool in Florida’s Medicaid Section 1115 Demonstration In letters to Florida, CMS wrote:

April 14, 2015: “…over time, CMS has had a number of concerns about the LIP ,  including its lack of transparency, encouragement toward overreliance on supplemental payments,  and distribution of funds based on providers’ access to local revenue instead of service to Medicaid  patients. Last year, CMS made clear that LIP would not continue in its current form….We will  approach review of a LIP proposal from Florida based on several key principles. First, coverage  rather than uncompensated care pools is the best way to secure affordable access to health care for  low-income individuals, and uncompensated care pool funding should not pay for costs that would be  covered in a Medicaid expansion.…”

October 15, 2015: “…Pursuant to our June 23, 2015 agreement in principle, establishing the size,  duration, and distribution methodology for the Low Income Pool (LIP)…The total computable dollar  limit in demonstration year 10 (2015-2016) will be $1 billion. In demonstration year 11 (2016-2017)  the total computable dollar limit will be $607,825,452…”

August 3, 2017: “For the extension, CMS has established an amount for the low-income pool’s (LIP)  uncompensated care pool to be approximately $1.5 billion annually, based on the most recent  available data on hospitals’ charity care costs.”

Inconsistency in CMS’s Review of Applications for Compliance with Transparency Requirements

Finally, we observed some inconsistencies in CMS’s reviews of states’  applications for their compliance with the transparency requirements for  new demonstrations and extensions.

Expected changes in enrollment were not always included in  state public notices. In two of the four applications for new  demonstrations and extensions for which we conducted in-depth  reviews (Florida’s extension and Washington’s new demonstration),  estimates for the expected increase or decrease in enrollment were  not included in the state’s public notice documents as required. CMS  officials told us that they are revising procedures to resolve such  inconsistencies, including making additions to written standard  operating procedures.

Evaluation information was not always included in state  applications. Although states seeking extensions are required to  submit an interim evaluation report, Florida only included a statement  in its application that it had recently executed an evaluation contract  and had no findings to report. According to CMS, Florida’s evaluation  design was not approved until weeks before the extension application  was due. Despite not having information on whether Florida’s  demonstration was meeting its goals, CMS officials considered the  state’s application complete, stating that Florida had met the intent of  the regulation by providing its findings to date. In 2018, we reported  that there were limitations in state evaluations of demonstrations, in  part, due to how CMS sets requirements for evaluations, and we  made a recommendation to improve CMS’s procedures. In line with  our recommendation, CMS has since developed an enhanced set of  STCs that specify when evaluation reports are due, and reported in  November 2018 that it is in the process of developing protocols to  ensure that these requirements are consistently included in the STCs.

CMS Applies Limited Transparency Requirements in Approving States’ Amendments to Existing Demonstrations

Transparency Requirements for  Amendments   Applications for amendments to Medicaid  section 1115 demonstrations are subject to  requirements for seeking public input outlined  in guidance the Department of Health and  Human Services (HHS) issued in 1994 and  those included in the special terms and  conditions governing each demonstration.

CMS applies limited transparency requirements to states’ applications to  amend existing demonstrations, despite the fact that states may propose  significant changes to demonstrations through amendments (see  sidebar). CMS does not place limits on what changes can be made  through amendments. From January 2017 through May 2018, CMS  approved 21 amendments in 17 states, and we found that at least 17  amendment applications were pending CMS approval as of January  2019. These 17 states made a wide range of changes to their  demonstrations through amendments. For example, one state amended  its demonstration to cover dental services for adults with disabilities, while  other amendments included such changes as requiring beneficiaries to  work or participate in community engagement activities as a condition of  maintaining Medicaid eligibility, as was done through amendments in  Arkansas and New Hampshire during the period we reviewed. As it does  with applications for new demonstrations and extensions, CMS reviews  amendment applications by using a checklist, conducting a federal public  comment period, and posting state demonstration documentation on the  CMS website. However, the transparency requirements for amendments  applied during the checklist review are more limited than the requirements  for new demonstrations and extensions. (See fig. 5.)

The transparency requirements for amendment applications are more  limited than those for new demonstrations and extensions in the following  key areas, potentially limiting CMS’s ability to ensure public transparency  for the approvals of amendments.

No requirement to hold a state public comment process or  provide CMS a summary of public input received. For  amendments, states have a range of options for seeking public input  and, unlike for new and extension applications, states are not required  to submit a summary of the public input received on their applications  and how they responded. Instead, in amendment applications, states  are only required to describe the process the state used to solicit  public input. Among the three amendment approvals for which we  conducted an in-depth review, California did not hold a formal public  comment period and did not provide CMS information on any public  input it received, neither of which is required under the transparency  requirements for amendments.

No requirement to include expected changes in enrollment and  costs. In contrast with requirements for new demonstrations and  extensions, CMS does not require states to include in amendment  applications the expected increase or decrease in enrollment, and the  amendment applications we reviewed included limited or no  information on changes to enrollment. (See text box.) CMS also does  not require information on expected changes in costs for all  amendments, and we found variation in the information included in  amendment applications, including limited or no information on  costs.

No minimum requirements for information to be included in the  public notice. Unlike the transparency requirements for new  demonstrations and extensions, there are no requirements specifying  what information states must include in their public notices for  amendments. For example, Arkansas did not include in its public  notice information on the changes to enrollment estimated from any of  the amendment provisions.

In addition to the differences in the transparency requirements for  amendment applications, we identified inconsistencies in how CMS  applied the transparency requirements for amendment applications  across states, particularly the requirements related to describing changes  to the demonstration evaluations. For amendments, as is similar to  extensions, states are required to describe how the demonstration’s  evaluation will be revised to incorporate amendment provisions. The  following are examples of the inconsistencies:

CMS determined that Massachusetts’s amendment application, which  proposed to waive non-emergency medical transport, eliminate  provisional eligibility for most populations, and cover former foster  care youth, was determined to be incomplete (that is, not in  compliance with the transparency requirements), partially due to the  state not submitting a revised evaluation design plan.

In contrast, CMS determined that Arkansas’s application, which did  not include a revised evaluation design plan, was complete. Arkansas  noted in its application that the state planned to revise its evaluation to  test two additional hypotheses. However, the added hypotheses did  not address, for example, the waiver for retroactive eligibility proposed  in the application.

Among the 18 other demonstration amendment applications CMS  approved during our review period, there was variation in the information  the states included about the changes to the demonstration’s evaluation  hypotheses or design. For example:  Iowa submitted an amendment application, which CMS determined to  be in compliance with transparency requirements, to waive retroactive  eligibility for all beneficiaries, and said that it was not changing the  evaluation design based on the amendment provisions.

In at least two other states’ amendments—Florida and Utah—the  applications, which CMS determined to be in compliance with  transparency requirements, did not include any information on the  changes to the evaluation due to the amendment or indicated that the  state would be making changes at a later date.

The potential effects of policy changes states make through amendments  can be comparable to effects of new demonstrations and extensions.  CMS has considered taking further steps to ensure transparency for  amendments, but has not done so. Specifically, in both its response to  comments in the 2012 final rule and a subsequent letter to state Medicaid  directors in 2012, CMS indicated that the agency intended to evaluate the  types of amendments submitted by states and issue further guidance on  how the notice and comment provisions would be applied to amendments  that have a significant impact. However, CMS did not issue such  guidance and officials told us that they had no plans to do so.

CMS officials told us that including standard requirements in  demonstration STCs for submitting amendment applications helps  improve the transparency of amendments. However, the standard  requirements that CMS has included do not ensure that states provide  information to the public or CMS on the effect of an amendment on  enrollment and costs, key pieces of information for amendments that  have and may continue to have a significant impact. According to federal  standards for internal controls related to risk assessment, federal  agencies should identify and manage risks related to achieving agency  objectives. Without a policy with robust transparency requirements for  amendment applications with significant impacts, there is the potential  that states and CMS will fail to receive meaningful public input on the  amendment and thereby lack complete understanding of the impact. As a  result, CMS may not be positioned to mitigate any potential risks in the  demonstrations being amended or when other states request to test  similar policies in the future.

CMS Has Used Public Input in Making Demonstration Approval Decisions, but the Extent to Which Input Influenced Monitoring and Evaluations Was Not Always Clear

CMS Reviewed Comments Received through the State and Federal Public Input Process for its Approval Decisions, and in Some Cases Approved Changes Consistent with the Comments

CMS reviewed state descriptions of issues raised during the state public  input process and the state’s response as part of its application review.  Applications for six of the seven approvals for which we conducted in- depth reviews summarized themes from the comments that were  received and included the states’ responses to these comments. State  responses included laying out changes the state made to the proposal in  response to the comments, clarifying certain aspects of the proposed  demonstration, or providing justification for not making a change.  However, the level of detail in state summaries of their responses to  these comments varied considerably. For example:

Washington application for new demonstration. Washington  provided an extensive summary of the comments received,  categorized by themes, along with the state’s responses to each of  them. One commenter suggested a 1-year implementation period to  ensure that sufficient planning and preparations were undertaken  before the new demonstration officially went into effect. The state  agreed that this was “essential to assure operational readiness and  critical success of this demonstration,” and revised its proposal to  include a 9-month implementation period.

Florida application to extend demonstration. In contrast to  Washington, Florida’s application to extend its managed care program  provided a long list of state comments and nearly all were addressed  with a standard response from the state that the comments were  taken into consideration, but no changes to the existing STCs were  being requested. These included concerns about access and choice  under current pharmacy networks, and other access issues such as  difficulties in obtaining referrals to specialists. Florida officials told us  that they addressed stakeholder concerns through the state public  comment process, which includes public forums, and that they are not  necessarily required to provide any additional explanation in the  state’s application to CMS. Florida officials also stated that some  demonstration elements stem from state legislation, which limits their  ability to make changes in response to comments.

According to CMS officials, historically, the agency has not requested the  full set of comments that are submitted to the states. None of the states  that we reviewed attached the actual comments that were received to the  application—only summaries—though some posted them on their website  or had them available upon request, according to state officials. CMS  officials told us the agency has not consistently requested that states  provide the actual comments received; however, in the last year and a  half the agency has been making more of an effort to request the full set  of comments instead of solely relying on the summaries provided in the  applications. Officials said they anticipate that this will be the agency’s  standard practice going forward.

In making demonstration decisions, CMS reviews and summarizes all  input received during the federal comment period. CMS created a  summary of comments received for all seven of the demonstrations we  reviewed. Officials said that these summaries are used to brief CMS  leadership as part of the decision-making process. We found that the  level of detail in the summaries we reviewed varied, ranging from bulleted  lists identifying and detailing common themes in support, opposition, or  both, to a few brief sentences covering all comments. This variation often  reflected the differences in the number of comments received and the  significance of the concerns raised. For example:

CMS received about 100 comments on Washington’s application  during the federal comment period that were predominantly supportive  of the new demonstration, and CMS’s summary was a brief overview.

In contrast, CMS received thousands of comments on Kentucky’s  application for each of the three federal comment periods held for that  new demonstration, with many opposed to or concerned with certain  aspects of the application. CMS’s summaries of comments received  on the Kentucky application provided an overview of the issues  raised, along with counts of how many fell within different themes and  how many were in support, opposition, or unrelated to what was being  proposed.

CMS officials explained that there are unique circumstances surrounding  each demonstration—a comment period with many concerns raised or  conflicting viewpoints will necessitate a longer and more detailed  summary than one that has broad support and few, if any, areas of  disagreement.

We found instances where CMS approved changes to certain aspects of  the demonstrations that were in line with concerns raised by the  comments. Among the seven demonstrations we reviewed in-depth, CMS  received comments for four demonstrations that included concerns about  the state’s proposal: Arkansas, Indiana, Kentucky, and Massachusetts.  For Arkansas and Kentucky, CMS either approved more limited changes  than what the state initially proposed or required that certain beneficiary  protections be in place.

Arkansas: In its amendment application, Arkansas requested a  waiver of the requirement to provide retroactive eligibility, among  other things. Commenters were concerned that the state’s proposal to  eliminate retroactive eligibility would result in gaps in coverage,  adverse health outcomes, and medical debt for members. In CMS’s  approval, the agency acknowledged these concerns and allowed the  state to reduce the period for retroactive eligibility from 90 days to 30  days but not eliminate it completely. (See fig. 6.)

Kentucky: In Kentucky, some commenters were concerned about the  state’s proposal to implement a work and community engagement  requirement as a condition of Medicaid eligibility, noting that  individuals need to be healthy to work or look for a job. CMS said in its  January 2018 approval that Kentucky was exempting medically frail  individuals from this requirement, but CMS would also be requiring  that the state add certain protections for vulnerable individuals,  including maintaining a system that identifies, validates, and provides  reasonable accommodations.

We also found there were instances where CMS approved certain  aspects of the demonstrations despite concerns raised by the comments.  CMS’s rationale for those decisions varied across demonstrations. For  example, CMS noted in one instance that sufficient controls were planned  to address the concerns raised, and in another instance noted that the  potential benefits of the demonstrations outweighed the risks. The  following are examples of when CMS approved aspects of states’  demonstrations without changes.

Arkansas: In Arkansas, some commenters were opposed to the  enforcement mechanism for the state’s proposal to institute a work  and community engagement requirement as a condition of  maintaining eligibility. The state proposed to disenroll beneficiaries  who fail to fulfill these requirements for any 3 months during a  calendar year and lock them out from coverage until the start of the  next calendar year. CMS approved this proposal and provided an  explanation of the circumstances under which it would happen,  underscoring that individuals have three opportunities (each of the  months they fail to fulfill the requirements) to rectify the situation or  seek an exemption before they would ultimately lose coverage. CMS  indicated in the approval letter to Arkansas that it believed the health  benefits of community engagement outweigh the health risks with  respect to those who fail to respond.

Indiana: In Indiana, some commenters were opposed to the state’s  proposal to institute a work and community engagement requirement  as a condition of maintaining eligibility. They argued, in part, that  beneficiaries who are able to work are already doing so and the  requirement is unnecessarily burdensome. CMS responded that  employment is positively correlated with health outcomes and  imposing these requirements serves the purposes of the Medicaid  statute. (See fig. 7.)

In an effort to improve transparency around its approvals, CMS began  providing a high-level summary and response to public comments in the  demonstration approval letters beginning in January 2018. Agency  officials said this will be their standard practice going forward. Our review  of the approval letters sent between January 1, 2018, and July 31, 2018,  confirmed that CMS included a discussion of some of the issues that  were raised in 10 of 11 letters. For example, the approval letters  explained the decision to reduce the period of retroactive eligibility in  Arkansas instead of eliminating it completely, as well as the decision to  approve Indiana’s proposal to implement work and community  engagement requirements. However, the approval letters do not respond  to every concern raised. For example, a number of commenters were  concerned with a request in Arkansas’s amendment application to no  longer offer presumptive eligibility, but CMS did not respond to these  concerns in the approval letter. CMS officials told us that the agency is  striking a balance between transparency and processing applications in a  timely manner.

The Extent to Which CMS Used Public Comments to Inform Monitoring and Evaluation Decisions Was Not Always Clear

Among the four demonstration approvals for which we conducted in-depth  reviews and where public comments raised concerns—approvals for  Arkansas, Indiana, Kentucky, and Massachusetts—we observed  instances where CMS added specific monitoring requirements to the  STCs that aligned with these concerns and other cases where the agency  did not. For example:

The STCs required Arkansas to submit a monitoring plan for its work  and community engagement requirement in order to monitor eligibility  operations and the impact on beneficiaries reapplying for coverage  after being disenrolled for noncompliance.

In contrast, CMS did not require a monitoring plan for the Indiana and  Kentucky demonstrations, which also included work and community  engagement requirements where the public raised concerns about the  effects on beneficiaries. This remains the case for Indiana; however,  CMS’s new approval of Kentucky’s demonstration in November 2018  included additional monitoring requirements. Specifically, the  November 2018 STCs required Kentucky to submit a monitoring  protocol that includes measures for monitoring enrollment,  disenrollment, and eligibility suspension, among other things.

In other cases where public comments raised concerns about the impact  of demonstrations on beneficiaries, including changes in eligibility  requirements (e.g., retroactive eligibility), we did not observe specific  monitoring requirements included in the STCs. Though CMS did not  provide any specific examples, officials told us that they consider public  input when making decisions about monitoring requirements. Officials  also said they were developing monitoring metrics and tools that they  plan to use consistently going forward for states implementing work and  community engagement requirements. As of January 2019, officials said  these materials were in draft form and under review.

Regarding evaluations, the extent to which CMS considered concerns  raised through public comments for the four demonstration approvals was  also not always clear, including how input informed the evaluation  requirements in the STCs. For example, commenters on the applications  submitted by Indiana and Kentucky raised concerns about aspects of the  work and community engagement requirements proposed by each state,  such as the requirements for reporting work or other activities and the  circumstances under which beneficiaries would lose coverage.

In the STCs for Indiana, CMS did not include specific hypotheses that  the state would be required to test related to its work and community  engagement policies. Instead, CMS noted that the state’s goals  should inform the evaluation, subject to CMS approval. For example,  Indiana’s goals included determining whether implementing work and  community engagement requirements will lead to sustainable  employment and improved health outcomes among beneficiaries.

In the STCs for Kentucky’s initial approval in January 2018, CMS  included the same language as in Indiana—that the goals should  inform the state’s evaluation. However, in the STCs approved for  Kentucky in November 2018, CMS added some broad guidance for  Kentucky’s draft evaluation design. Specifically, CMS included a  variety of hypotheses that the state must evaluate, such as the effect  of work requirements on enrollment and the impact of the  demonstration on uncompensated care costs.

When approving evaluation designs, the extent to which CMS considers  areas of risk identified through public input is also unclear at this time. As  of January 2019, evaluation designs for the Arkansas and Indiana  demonstrations were under review at CMS and Kentucky had not yet  submitted one.

Regarding Arkansas’s evaluation design, CMS sent a letter to the  state providing comments and feedback that seem to align with some  of the concerns raised about the demonstration through public input.  Specifically, the November 2018 letter from CMS raised concerns with  the state’s “broadly defined” expected outcomes of the demonstration,  which included culture of work and personal life stability. CMS  recommended that the state revise the design to include a list of  quantifiable outcomes and measures that capture the important  features, such as increased employment (e.g., hours worked, wages)  and improved health (e.g., health care utilization).

For Massachusetts, the one demonstration with an approved  evaluation design, the extent to which CMS considered public input  during approval was unclear. For example, with regard to  Massachusetts’s proposal to discontinue provisional eligibility for most  adults, commenters raised concerns about the potential effects on  beneficiaries’ timely access to coverage and care; however, the  evaluation design did not include plans to examine the effects of the  policy on beneficiaries.

Though CMS did not provide specific examples of how public input had  informed evaluation designs, CMS officials said requirements for  evaluations have been evolving as they have gained experience in  understanding the public’s concerns. Officials also said they were  developing robust evaluation guidance that they plan to use consistently  going forward for states implementing work and community engagement  requirements. As of January 2019, officials said this guidance was in draft  form and under review.

While CMS has long recognized the importance of public input in the  demonstration approval process, the agency has developed more robust  procedures for ensuring transparency since the beginning of 2012.  Despite this progress, CMS’s approach to ensuring transparency when  states propose major changes to their demonstrations has significant  gaps. The lack of policies for ensuring transparency when states make  major changes to pending applications and limited transparency  requirements applied for amendments—which are being used by some  states to make major changes to their demonstrations—puts CMS’s goal  of transparency at risk. These gaps may leave the agency and the public  without key information to fully understand the potential impact of the  changes being proposed, including on beneficiaries and costs. These  risks take on increased importance given that CMS is encouraging states  to use the flexibility provided under demonstrations to test changes to  their Medicaid programs that could have significant effects for  beneficiaries and other stakeholders.

We are making the following two recommendations to CMS:  The Administrator of CMS should develop and communicate a policy that  defines when changes to a pending section 1115 demonstration  application are considered major and should prompt a new review of the  application against the transparency requirements applicable to the  pending application. (Recommendation 1)

The Administrator of CMS should develop and communicate a policy  whereby applications for section 1115 demonstration amendments that  may have significant impact are subject to transparency requirements  comparable to those for new demonstrations and extensions.  (Recommendation 2)

We provided a draft of this report to HHS for review and comment. HHS  concurred with both recommendations. HHS’s comments are reproduced  in appendix III.

Regarding our first recommendation concerning when states submit  major changes to pending demonstration applications, HHS stated that it  will develop (1) standards for determining when such changes are so  substantial that it would be appropriate for HHS to solicit additional public  input, and (2) a process for informing states and the public about the  additional comment period. These steps appear to formalize the approach  CMS has already been taking as demonstrated by the agency’s response  to the changes submitted by Indiana and Kentucky to their applications.  Our recommendation, however, requires additional actions. In particular,  we recommended that CMS develop and communicate a policy that  includes standards for when changes are substantial enough to warrant a  new review of the application against the transparency requirements. The  transparency requirements, among other things, call for states to provide  for public notice and input at the state level before they submit their  applications. As such, holding an additional federal comment period  would not be sufficient to meet our concerns.

Regarding our second recommendation—concerning transparency  requirements for amendment applications that may have significant  impacts—HHS said that it has implemented enhanced processes to  improve transparency and will review its current processes and develop  additional policies and processes, as needed, to enhance the  transparency of such applications. However, the enhanced processes  HHS referred to do not apply to amendments. Thus, HHS’s planned  review of its policies alone would not be sufficient to meet our concerns.  HHS’s efforts should also result in actions to develop and communicate a  policy that ensures amendments with significant impacts meet  transparency requirements comparable to those for other applications,  namely new demonstrations and extensions.

As agreed with your offices, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 30 days from the  report date. At that time, we will send copies of this report to the  Secretary of Health and Human Services, the appropriate congressional  committees, and other interested parties. In addition, this report is  available at no charge on the GAO website at http://www.gao.gov.

If you or your staff members have any questions about this report, please  contact me at (202) 512-7144 or yocomc@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on  the last page of this report. Major contributors to this report are listed in  appendix IV.

Appendix I: Information about Selected Medicaid Section 1115 Demonstration Approvals, January 2017–May 2018

Appendix II: Federal Spending for Medicaid Section 1115 Demonstrations, by State, Federal Fiscal Year 2016

Total Medicaid expenditures  (dollars in millions)

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

Appendix IV: GAO Contact and Staff Acknowledgements

In addition to the contact named above, Susan Barnidge (Assistant  Director), Linda McIver (Analyst-in-Charge), Michael Moran, and Jessica  L. Preston made key contributions to this report. Also contributing were  Drew Long, Vikki Porter, and Emily Wilson.

About a third of Medicaid spending is for demonstrations, which allow states to test new approaches to delivering services. States and the federal government are supposed to be transparent about the demonstrations that are proposed and give the public a chance to weigh in. Is that happening?

The short answer is sometimes. Transparency has improved, but there are still significant gaps. For example, the federal government doesn't always require states to share the projected effects of proposals, even when they could significantly affect beneficiary eligibility.

We recommended ways for Medicaid to address these issues.